Monday, 7 May 2018

The infrastructure megaproject

The top priority of China’s Belt and Road Initiative is infrastructure development, which will benefit infrastructure development specialists in Australia and around the world.

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Improving efficiency and productivity, particularly in trade flows, is essential for sustaining the growth many Asian economies have experienced in the past decade. Investing in infrastructure – ports, roads, railways, airports, power plants and telecommunications – throughout the region is the best way to make that happen.

China has already made significant investments through its Belt and Road Initiative (BRI) to build new or upgrade existing infrastructure to meet international standards.1 The initiative will connect more than 65 countries across Europe, Asia and Africa covering 63 per cent of the world’s population and 29 per cent of global GDP. By the end of August 2016, Chinese companies had signed nearly 4,000 engineering contracts along key trade routes with a combined value of nearly USD70 billion.2 As of September 2016, some 170 projects worth USD206billion across 14 sites in the Asia Pacific were either in planning or in progress.

Opportunities for Australian companies

About USD1.7 trillion is needed annually for the BRI, which will require outside investment. This is why China is embracing public-private partnerships (PPPs), which will allow non-Chinese enterprises to work on the BRI. Australian economist Craig Sugden, writing for the Lowy Institute, an independent, non-partisan think tank based in Sydney3, says Australia is a leader in delivering infrastructure and other public services through PPPs, with an enabling environment4 that defines good practice benchmarks.

“Australia has many skilled, experienced service providers, financiers and advisers that can generate value for money through innovation,” he says. “Project-level activity can be backed up by knowledge sharing with advocacy on how to do PPPs well. For example, Australia can play a part in encouraging transparency in BRI projects, including open competitive bidding.”

Downstream opportunities are appearing in a wide variety of industries. At the outset, those most likely to profit will be infrastructure providers that can play a role in building railways, highways, ports and airports as well as oil pipelines, electricity grids and telecommunications networks. In the longer-term, this will extend beyond engineering, architectural and construction firms to include real estate, logistics, financial services, advisory and more.

Mr Sugden adds that Australia can contribute to the BRI by helping ensure that PPPs live up to their potential to deliver higher-quality and lower-cost services faster. He says that by promoting good PPP practices, Australia can help avoid a free-for-all of unconstrained strategic or commercial interests.

“Specialised investment funds have been set up by China, such as the Silk Road Fund, with billions of dollars in resources,” he says. “The World Bank and the Asian Infrastructure Investment Bank are engaged in [the] BRI, along with many other international organisations. So, the potential partners for Australian organisations are in place. Conditions are ready for Australia to take on a thought-leader role.”5

Andrew Robb, an advisory board member of the Australia-China Belt and Road Initiative, an Australian Government-supported policy institute6, says: “What we see from the BRI is almost a next stage where companies from Australia feel comfortable approaching Chinese companies to jointly develop roads, bridges, schools and hospitals in the region around us. We can help further develop those countries and China and Australia will both benefit.”

The Belt and Road and beyond

According to Anderson Chow, Head of Industrials and Infrastructure, Asia-Pacific at HSBC, the rate of new investment in China’s domestic roads and high-speed railways has started to slow, so the country’s major construction companies and train manufacturers are looking overseas for new demand – including along the Belt and Road. 

As pollution has become a political factor, China has become a leader in carbon reduction technology, which it will share along the Belt and Road routes.7 Sustainability will also be a factor as, for example, more efficient railway infrastructure will move materials, goods and people from road to rail – potentially cutting vehicle emissions.

The BRI and the new railways will have an impact on economies thousands of kilometres from the trade routes. For instance, Australian sheep farmers will be able to use the new infrastructure to get their meat to Europe faster. Shipping to European markets can take up to 70 days, which means lamb has only a few weeks of shelf life once it arrives. By shipping meat to China by sea then to Europe by rail, the product can get to its destination up to two weeks faster, potentially helping farmers get a better price from retailers.

Australia is well-positioned

Mr Robb says Australian companies are well positioned to benefit from the BRI, and the potential for collaboration will be extensive. “It provides a platform for both countries to reinforce existing economic strengths,” he says. “However, importantly it paves the way for even greater diversification. For Australia, this means expanding outbound and inbound trade and investment opportunities to a number of existing and importantly, emerging sectors.

“It is also relevant to Australia’s infrastructure development. Investment in this area is recognised as an economic priority for Australia, included in such plans as developing Northern Australia.”

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