Healthcare and sustainable projects in Middle East and North Africa (MENA) region will be boosted under China’s Belt and Road Initiative 2.0 (BRI 2.0) in the years to come, thanks to the coronavirus and the greening of the BRI policy. 

Some 94 percent of executives in the Middle East and North Africa region, all with direct experience of BRI projects, believe China will invest heavily in the health sector. They were responding to a survey by international legal firm CMS. 

The survey targeted sentiment, opportunity, risks, Covid-19, and the greening of the BRI. China’s pivot towards more sustainable development, the “greening” of the BRI, has been called BRI 2.0. 

MENA countries have been keen to participate in the BRI as railways, ports, roads, power projects and even smart cities have all seen significant Chinese investment. The region forms an important part of China’s trade route jigsaw, with the Gulf in particular a strategic crossroads, while its oil and LNG remain crucial to fulfilling China’s energy requirements. 

But the survey of 500 executives involved in BRI projects, 75 of whom are based in MENA, also found that 63 percent of MENA participants reported negative sentiments towards the BRI compared to 24 percent a year earlier. Some 65 percent said governments and political issues were one of the biggest obstacles to their BRI activity. 

Attractive opportunities 

Karim Fawaz, CMS Corporate and Technology partner at CMS, said: “Many of the businesses we talked to were clearly inclined to be cautious, especially as the pandemic and political turmoil increased uncertainty. But BRI 2.0 is going to create a lot of attractive opportunities in digital, tech, renewables, health and smart cities with transport infrastructure also likely to be well-represented. China is also keen to open out the financing of BRI projects and bring in more non-Chinese money, which will certainly include some from MENA sources. As with all financing sources, the need for thorough due diligence and risk mitigation remains.” 

He noted that as economies seek to reboot after the hit of the pandemic, BRI projects will “undoubtedly” be significant for many nations in MENA and elsewhere. 

“We can sense there is positive competition between economies with great potential. The UAE continues to develop the infrastructure that incentivises cultural events and builds an environment that is attractive for global communities. At the same time, Saudi Arabia just announced the requirement of having regional offices of multinationals wishing to enter into contracts with the Saudi government to be based in the Kingdom by 1 January 2024.  

“These are all positive factors that should relieve businesses not only to stay in MENA but to invest further in growth as governments open such opportunities with which BRI 2.0 aligns. 

Source of energy 

On the other hand, the Middle East region will continue to remain a major supplier of crude oil to China, which is the world’s biggest importer of crude oil. 

Fawaz said: “MENA nations, for which hydrocarbons are a big part of GDP, are seeking to diversify/develop new industries and sectors. But it doesn’t illustrate an immediate abandonment of oil. China is buying a lot of it from MENA and will carry on doing so for some time yet. Diversification is simply long-term prudence, as is the development of other (renewable) energy sources – particularly as these have become so much cheaper and reliable in recent years.” 

In 2019, China imported 44 percent of its crude oil from the Gulf, with Saudi Arabia alone supplying 16.8 percent of China’s total imported crude.  

The CMS spokesperson also underlined BRI 2.0’s emphasis on renewable energy.  

“Many nations now look to Chinese businesses as partners in renewables, not least as China now has considerable know-how in the area and a formidable manufacturing base (8 of the world’s 10 largest solar panel manufacturers are Chinese and China has over 70 percent of the market – 2019 data). Any MENA nation wishing to pursue sustainable development – whether in energy or other sectors – is going to be in line to benefit from BRI 2.0.” 

One sector that most respondents agreed will improve under BRI 2.0 is healthcare project investment, with some 94 percent of MENA respondents stating they expect more investment in this sector. However, only 42 percent of MENA participants aimed to maintain or increase their BRI involvement, compared with 90 percent of those based in China. About one-third of MENA participants (31 percent) said they will be increasing their involvement in BRI-related projects, with more than half (58 percent) planning to scale back participation, according to the report. 

Shift to MENA 

Talking about the prospects for BRI in MENA, as well as the growth of megacities, Mohammed Atif, Regional Manager, Middle East & Africa at DNV GL, said” “Things are very dynamic now, with local and global shifts. There is also a lot of political decision-making behind BRI projects. We see shifts, and these shifts result in different country focuses. 

“For example, in the last few years, Sub-Saharan Africa was very popular, but now we’re seeing a shift to MENA. GCC countries are attracting attention, particularly through joint ventures and partnership-type approaches. North Africa – in particular, Egypt – is also attracting quite some attention. It’s emerging into a very big market.” 

“In some regions such as the Middle East, there will be more demand for cleaner, more sophisticated public transport such as high-speed magnetic trains. I am bullish on public transport, which is part of de-carbonisation and a more sustainable future. Mobility will continue to attract investment. 

“There will also be massive growth in renewables,” he said. 

Stimulus benefits 

New BRI projects are clearly still happening, but there have been project delays and cancellations – particularly in the earlier stages of the pandemic – with supply chains and travel disrupted and, in some cases, workers unable to continue on site.  

In June 2020, the Chinese Ministry of Foreign Affairs said that about 20 percent of BRI projects had been seriously affected by the coronavirus pandemic, with another 30–40 percent somewhat affected. 

However, while it has impeded BRI, the pandemic also has the potential to reinvigorate it. Globally, governments have arranged massive stimulus packages to support their economies. 

Chinese respondents believe some of this funding will reach BRI projects. More than two-thirds (69 percent) expect a greater availability of ‘cheap money’ for such investments. But this view is shared by only 30 percent of MENA respondents. Most MENA respondents (69 percent) also think there will be less funding available for BRI projects as banks and investors seek to protect and rebuild their balance sheets – a view held by only 26 percent of Chinese respondents. 

“China will work with all parties to deepen the synergy between the BRI and the development strategies of other countries, keeping in mind their needs for Covid-19 response and economic recovery. We believe that by bolstering connectivity and economic reopening and by tapping into the potential of new growth drivers such as health care, digital economy and green development, we will be able to achieve higher- quality Belt and Road cooperation,” said Foreign Minister Wang Yi, quoted by Xinhua News Agency, on January 2, 2021. 

Gulf insights 

Graham Griffiths, Control Risks, said: “Roughly two-thirds of Chinese investment or work related to BRI in MENA has gone to the GCC countries, which is no surprise since they’re the most stable and most developed. There are also countries which have signed comprehensive strategic partnerships with China, which indicates China is a priority for them. Five countries in MENA have done so: UAE, Saudi Arabia, Iran, Egypt and Algeria. 

“In terms of BRI overall, China has run into issues where their companies either haven’t paid attention to local political dynamics or where there has been a domestic backlash against debt repayment terms. But you haven’t really seen the same concerns so far in MENA. This is partly because most BRI-related activity has gone to the Gulf, which is generally more developed and fiscally stable than countries in the developing world. You also have a more stable domestic political environment. 

“The other kind of significant risk has been related to payment delays because there’s been wildly varying oil prices and governments are trying to manage their budgets.” 

On average, MENA-based respondents are more likely than their Chinese counterparts to have been involved in BRI projects that generated legal disputes. Only 21 percent of Chinese respondents say legal disputes have arisen in their projects, whereas 45 percent of MENA respondents said the same. 

(Reporting by Charles Lavery; Editing by Anoop Menon) 

(anoop.menon@refinitiv.com

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