Pandemic viewed as catalyst to renewed emphasis on Health Silk Road
Social infrastructure, logistics1, as well as smart city projects are the top three most cited sectors where businesses in the Middle East and North Africa have plans to invest in Belt and Road Initiative (BRI)-related opportunities.
According to a survey commissioned by international law firm CMS, almost equal proportions of MENA respondents (44% and 41%) plan to target BRI opportunities in social infrastructure (hospitals and healthcare) and the logistics sectors, while slightly more than a third (37%) intend to invest in smart city projects. The fourth most cited sector was transportation (road) infrastructure with 35%.
There is also a rising interest in ‘greener’, more sustainable and eco-friendly sectors such as renewables and hydro. Only 11% of MENA respondents had previously been involved in clean energy projects with one-fifth (20%) in conventional power developments. These priorities have now been reversed with 24% of MENA respondents planning to target renewables projects and 17% looking at conventional power developments. Almost three-quarters (72%) of MENA respondents say it is important that BRI projects are sustainable and eco-friendly while 63% of Chinese respondents share the same view.
Smart cities – the star that continues to shine
MENA continues to be one of the leading regions in its enthusiasm for smart cities, with 37% of MENA respondents planning to invest in the sector and a little over half (55%) listing it as one of the five sectors presenting the most BRI opportunities. This proportion was significantly higher than the findings of similar BRI surveys conducted by CMS in other regions where the average was 40%.
Karim Fawaz, CMS Corporate and Technology partner, comments: “Such enthusiasm may, in part, reflect the projects already underway in the region such as The Line which is part of Neom in Saudi Arabia and Kuwait’s Silk City which are being built from the ground up. However, we also found increasing interest in the development of existing urban areas aimed at having smart and AI-connected areas as opposed to individual endeavours. These projects focus on improving the quality of life and the collection of data to enhance security, health, entertainment and other areas. While Chinese financiers and contractors are already involved in building smart cities such as Morocco’s Mohammed VI Tangier Tech City, Chinese companies are going a step further and taking space in these smart cities to set up operations – a sign of their optimism in potential opportunities and openness to private-public-partnerships.”
Digital and Health Silk Roads
As the pandemic continues to cause disruption and a global shift towards a more virtual world, the potential benefits of improved digital infrastructure for any country are clear. However, less than a tenth (7%) of MENA respondents are considering Digital Silk Road (DSR) projects (a decrease from the 12% that had considered them in the past), and a large majority (81%) have never considered them. In contrast, over one-third (35%) of Chinese respondents are considering DSR projects.
David Moore, CMS Infrastructure and Projects partner and UAE Managing Partner, says: “Some BRI participants are keen to be involved in DSR projects but are wary of potential problems such as rapidly evolving technical standards, cybersecurity and geopolitical tensions. These issues may limit the scope of DSR in some markets. However, with so many BRI countries, including many in MENA, still in need of new tech and comms infrastructure, there will clearly still be significant opportunities for BRI participants along the DSR.”
“We expect the DSR initiative to be further bolstered by China’s new Five-Year Plan2 which is likely to have implications for the future of BRI such as more emphasis on creating markets for technology originating in China and incorporating Chinese standards. This should lead to even more of a focus on ‘smart’ infrastructure. Some foreign businesses may find access to China easier while China will seek to strengthen its supply chains, an imperative likely to be reflected in some strategic BRI infrastructure projects,” adds David Moore.
In 2020, the pandemic highlighted deficiencies in the health infrastructure in many BRI countries. CMS’s survey revealed a strong consensus that the pandemic will lead to an increased emphasis on the Health Silk Road (HSR) – an overwhelming majority (94%) of MENA respondents expect this to happen. This is in line with, as noted above, the 44% of MENA respondents planning to target BRI projects involving social infrastructure such as hospitals and healthcare – a rise from 33% who have previously done so.
Mark Rocca, CMS Life Sciences and Healthcare partner in Dubai, comments: “The effectiveness of the HSR in enabling speedy transfer of medical supplies and equipment was clear to see during the pandemic. Across MENA, there is considerable scope for investment in ‘next generation’ medical infrastructure, particularly in relation to telemedicine and other digital applications. These offer potential synergies with the DSR.”
Obstacles and risks
Two-thirds (65%) of MENA respondents described national governments and political issues as one of the greatest obstacles to their BRI activity, making this the most commonly cited obstacle, closely followed by legal frameworks (61%) and operational difficulties (53%). No other problem came close to this level of concern; the next most commonly cited obstacle, language barriers and cultural issues, was mentioned by only half as many respondents (25%).
Political risk was also cited by 56% of respondents as one of the most serious risks relating to involvement in BRI projects, marginally behind legal and regulatory risk (59%).
Despite the inherent obstacles and risks, and different levels of satisfaction reported by MENA and Chinese respondents in regard to BRI project outcomes, BRI opportunities in the MENA region continue to attract interest. Nearly a third (31%) of MENA respondents and more than double that proportion (68%) of Chinese respondents expect to increase their involvement in BRI projects. Almost half (47%) of Chinese respondents also indicated that they are looking to North Africa for BRI opportunities, while 29% are looking to the Middle East.
David Moore, CMS Infrastructure and Projects partner and UAE Managing Partner, comments: “There remains ample scope for infrastructure development in MENA. According to figures from the World Bank, the region will need to spend 8.2% of GDP to meet its infrastructure goals by 2030, compared with the 3% spent annually over the previous decade. We believe that BRI projects have the potential to close some of that investment gap.”
“With a GDP growth of 2.3% in 2020, China’s economy seems to be weathering the pandemic storm better than many others. This augurs well for the future of BRI and Chinese investment in BRI nations. But, as our report shows, a greater impact may come from China’s pivot towards greener and more sustainable principles for BRI, and an increasing emphasis on the Digital and Health Silk Roads,” adds David Moore.
Amir Kordvani, CMS Dubai partner and Head of the Middle East Projects practice, says: “Chinese investment is growing rapidly in the renewable energy sector in the Middle East. Chinese firms have been able to leverage their expertise as well as state-backed financing (particularly through state-owned enterprises) to materialise targeted and strategic investment in renewable energy programmes in the region and notably in the UAE, Saudi Arabia, Oman, Egypt, and Jordan.”
About the survey and CMS Belt & Road Initiative reports
In the first half of 2020, CMS and global research firm Acuris surveyed 500 senior executives to gauge their views on various aspects of the Belt and Road Initiative. Of the 500 respondents, 75 were either based in Middle East and North Africa or predominantly working on BRI projects in the region and another 100 respondents were from Chinese entities. All respondents were either currently active or planning to participate in BRI projects. Their views were sought on a range of issues around BRI, including likely future involvement and obstacles they have encountered to date.
The survey results are being published in a series of six regionally-focused CMS Belt & Road Initiative reports. Reports on China, Asia Pacific and CEE were published in 2020, followed by the MENA report launched today. Reports on Africa and Latin America will follow in the coming months.
The reports can be found at cms.law/bri.
1 Logistics includes logistics, industrial parks and free-trade zones.
2 China’s 14th Five Year Plan (2021-2025) (14th FYP).