UNESCAP asks cost-benefit analysis of China’s belt and road initiative

A new UN report has suggested a “thorough cost-benefit analyses” of the infrastructure projects under the China’s flagship belt and road initiative.

The UNESCAP’s Asia-pacific countries with Special Needs Development Report 2017 says despite multiple benefits, the initiative may bring about some potential risks to the countries with special needs.

To promote a vision of expanding links between Asia, Africa and Europe underpinned by billions of dollars in infrastructure investment, Chinese President Xi Jinping proposed the initiative in 2013.

Bangladesh joined it last year during Xi’s visit to Dhaka when he promised a massive funding for infrastructure development.

Beijing is going to host a mega forum of this initiative drawing global leaders fromSunday. Bangladesh’s Minister for Industries Amir Hossain Amu will represent the country.

India, however, has reservations because of “sovereignty issues”. New Delhi opposed the China-Pakistan Economic Corridor, part of the belt and road initiative, as it is proposed to pass through the Pakistan-occupied Kashmir region that India claims its own.

China proposed this Initiative to establish a network of regional infrastructure to promote trade, investment, and economic integration.

This initiative will not only promote international trade and investment in the region but also facilitate the exchange of ideas and culture, accelerate regional economic integration, and eventually promote regional economic development and improve the people’s lives.

The UNESCAP report released last week, however, said it might increase pollution as infrastructure development proceeds.

Infrastructure development associated with the initiative may also increase foreign debt as Countries with Special Needs, CNS will need to borrow from financial institutions.

The group of 36 LDCs, landlocked developing countries (LLDCs) and small island developing States (SIDS) in the region are collectively known CSN.

Borrowing from the financial institutions is a concern for the countries that already have high levels of debt, the report says.

For instance, in 2015, the foreign debt-GDP ratio was 86 percent in the Lao People’s Democratic Republic, 84 percent in Kazakhstan, 95 percent in Azerbaijan, and 153 percent in Mongolia.

“Moreover, large-scale infrastructure projects may contribute to de-industrialisation in CSN, as greater connectivity to China may induce large inflows of Chinese exports, such that developing countries along the BRI corridors may experience a decline in industrial production”.

“While international trade and investment may increase the income of some groups of people, it may also cause unemployment and a decline in income among others, thereby contributing to greater levels of income inequality,” the report said.

“It is important to conduct thorough cost-benefit analyses for infrastructure projects.”

For business firms involved, explicit and implicit benefits and costs must be considered, spanning both in the short term and the long term. For governments, private and social returns and costs must be considered.

Since externalities will inevitably emerge together with infrastructure development, governments involved in the belt and road initiative must be prepared to provide fiscal subsidies. “International coordination is also crucial.”

Many of the infrastructure projects involve countries with different languages, cultures, and economic and legal systems. “Communication is important and the parties involved should share information”.

“Moreover, it is important to devise appropriate operational plans for projects by ensuring that they are well-designed, well-constructed and meet environmental requirements”.

Chinese Ambassador Ma Mingqiang, last week at a seminar in Dhaka, said the belt and road initiative is “an answer” to the current global crisis ranging from infrastructure bottleneck to lack of fund and protectionism and unilateralism.

“How to address those issues and ensure peace and sustainable development, belt and road initiative in my eye is one of the solutions proposed by China.”

It has five components: policy coordination, investment and trade facilitation, financial integrity, infrastructure connectivity and people to people contact.

“It is inclusive rather than exclusive. It’s based on equality, and mutual respect, rather than discriminatory. It is a win-win situation,” he had said.