The 21st century maritime Silk Road

28 January 2019
China and its corporates have been snapping up opportunities in the Middle East over the past decade and it is now time for regional businesses to follow suit and pick up pace

Bilateral trade growth between China and the Middle East reportedly hit $85bn in 2018 – having doubled over the past decade – and significant further growth is expected. China’s Belt and Road Initiative (BRI) is a stand-out example of how that growth can take shape.

Introduced by President Xi Jinping in 2013, it consists of the Silk Road Economic ‘Belt’ and the 21st Century Maritime Silk ‘Road’. The ‘Belt’ runs from China through Central Asia to Europe, while the ‘Road’ is sea-based, running through Southeast Asia, Africa and the Middle East to Europe.

The maritime component echoes the route through various oceans made famous by Marco Polo’s journals on travel and trade between the West and China in the 13th century. That fame now has a modern-day equivalent.

By 2030, more than half of all BRI-related projects are anticipated to be funded by private capital, multilateral banks and foreign governments.

Through its own fast-paced development and increasingly open international business environment, the Middle East has been playing its part.

Well on its way to fulfilling ambitious economic transformation agendas, government-led programmes such as Turkey’s Vision 2023, the UAE’s Vision 2021 and Kuwait’s Vision 2035 will all diversify the region’s economies away from dependence on crude oil.

Development drivers

Infrastructure, logistics and transport are the bedrock of this transformation. With more than $2tn-worth of infrastructure-related projects in the pipeline across the GCC and a number of proactive policy developments to facilitate greater trade and foreign investment, China and its corporates have been quick to pay attention.

More than $65bn of these projects are on the radar of Chinese companies. The UAE’s Khalifa Port already expects to double the number of containers it handles this year with the help of China’s Cosco Shipping Ports. China is the largest investor in Egypt’s New Suez Canal Zone – with an industrial zone covering 481 square kilometres and six ports – and its state grid is now expanding the country’s electric transmission network.

Oman hosts various Chinese investments, one of the largest being the $10bn China-Oman Industrial City located in the Special Economic Zone in Duqm. Meanwhile, Turkey, a founding member of the Silk Road Fund and the Asian Infrastructure Investment Bank, is a significant partner for China and the BRI, given that it bridges Europe and Asia. This region sits at the heart of connectivity that the BRI needs to succeed.

China’s vision

While China’s businesses have been on the front foot, opportunities in China and along the BRI are equally plentiful for Middle East businesses.

The BRI’s vision focuses on improving the physical infrastructure, financial (such as lending or capital-raising) and policy conditions. Investing in people through cooperation in science, education, culture and health is also a key goal. Connecting more than 65 countries, the BRI will create trade routes and infrastructure that will make it quicker and easier for businesses to trade globally – 13 of which are in the Middle East.

China has pledged $20bn in loans and $106m in financial aid to Middle East states over the next few years. In 2018 alone, China’s government has signed BRI cooperation memorandums of understanding with the UAE, Oman, Kuwait and Bahrain.

Building large-scale infrastructure projects does not simply generate opportunity directly through construction. It creates an entire ecosystem ranging from multinationals to local small and medium-sized enterprises that will support and benefit from the new developments. The Middle East governments have put the groundwork in place. It is now time for businesses to follow suit and start positioning their supply chains along the BRI roadmap to take advantage of these growth opportunities.

Some of the largest infrastructure spends in history have their centre in the Middle East – how these can be harnessed from a strategic perspective will help to define the long-term economic diversification of the region.

Click here to download the infographic as a PDF

About the author

Daniel Howlett is regional head of commercial banking at HSBC Middle East, North Africa and TurkeyDaniel Howlett is regional head of commercial banking at HSBC Middle East, North Africa and Turkey

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