One glance at a map of China’s Belt and Road Initiative shows how the Middle East & North Africa and Turkey are well placed to take advantage of this US$900 billion1 infrastructure development plan stretching from Asia to Europe that aims to connect China more closely with the rest of the world.
Leveraging the Middle East’s pivotal geographical position are the region’s diversification programmes, which aim to lessen dependence on revenues from hydrocarbons exports by developing non-oil sectors that can contribute to economic growth. These plans have the potential to both facilitate trade and investment flows and create new economic activity, and China, which overtook the UAE2 to become the largest foreign investor in the Middle East last year, is becoming a key partner.
“Belt and Road, the most far-reaching and significant initiative China has ever put forward, has huge implications for the Middle East, which in parallel is implementing economic transformation plans,” says Matthew Wallace, Head of Global Banking for the Middle East, North Africa, Turkey and Sub-Saharan Africa at HSBC. “Against the backdrop of these programmes in the Middle East, and China’s championing of expanded economic integration, opportunities abound.”
As the Middle East adjusts to a lower oil price environment, plans such as Vision 2030 in Saudi Arabia, Expo2020 in Dubai, Turkey’s Strategic Vision 2023, and an economic overhaul in Egypt are spearheading social and fiscal reforms and opening up domestic markets to attract foreign investment across infrastructure, trade, investment, services and supply-chain. Saudi Arabia’s NEOM city would benefit from Chinese investment in ports, retail and construction, while Turkey’s mega projects range from a nuclear power plant involving China’s State Nuclear Power Technology Corp to a third airport. Meanwhile Smart Dubai 2021, which aims to transform the city through technology and innovation, lends itself to Chinese partnership in the high-tech space, while Egypt’s privatisations have resulted in the most populous Arab nation becoming a top-five destination for Chinese M&A activity.
World Bank data show that trade between China and the Middle East and Turkey has surged, reaching US$230 billion in 2016 from $89 billion a decade ago, and relations between the two regions are strengthening as governments work to create a robust financing ecosystem so businesses can take advantage of these ambitious policy visions. In December 2015 Abu Dhabi Crown Prince Sheikh Mohammed bin Zayed visited China, agreeing on a US$10 billion joint strategic investment fund that Chinese President Xi Jinping said would support BRI activities3. In January 2016 President Xi visited Egypt, signing 21 investment and aid deals worth US$15 billion4, while in August that year China’s vice foreign minister visited Turkey to foster stronger relations in this key intersection between Asia and Europe. And in 2017 Saudi Arabia’s King Salman undertook a month-long tour of Asia to solidify ties, overseeing the signing of some US$65 billion in economic and trade deals with China in fields including energy and renewables5.
“As one might expect, the scale of financing all of this will be immense,” says Wallace. “And while there is considerable state-backed funding, the vast majority of the required capital will be raised and invested by the private sector.”
While Chinese state-owned and commercial banks as well as multilateral banks will support BRI funding, the private sector will also play a significant role. This includes arranging bridge financing; facilitating equity capital from governments, funds and public and private equity markets; and longer-term bond issuance, including green bond issuance for renewable energy and sustainability.
“Banks best positioned to support the BRI need to have strong footprints in Belt and Road markets, and also a universal banking model to offer products across the value chain, from the biggest conglomerates to retail investors,” says Wallace. “They need to be able to support not only principle investors and primary contractors coming into those projects, but also the ecosystem surrounding those projects, from subcontractors to professional services firms.”
1 China Development Bank has announced projects worth $900 billion are underway or planned
2 The Arab Investment & Export Credit Guarantee Corporation,