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Why international cooperation is key to the success of OBOR
What is not as often explicitly addressed in the One Belt One Road (OBOR) initiative are the links between infrastructure and sustainable creation of jobs, and between jobs and stability.
Donald Kanak 17 Jan 2017
 The Belt & Road Initiative (also known as One Belt One Road, OBOR, or BRO), announced by President Xi Jinping in 2013, is a drive to build infrastructure connecting China and the other 64 Silk Road countries of ASEAN, South and Central Asia, and the Middle East. The initiative is well recognized as a welcome stimulus to global growth, and as helping countries face the challenges of poor physical and social infrastructure. What is less discussed but equally important is Belt & Road's potential to address the massive and urgent need to create hundreds of millions of jobs across the region, to absorb a dramatic surge in working population. Unaddressed, a growing jobs gap could lead to political fragility, the rise of new fanatical movements, and new economic and conflict-driven refugee crises.

The low level of physical and social infrastructure in emerging economies is well-documented. Most of the United Nations’ 17 Sustainable Development Goals are related to, if not dependent on, improving infrastructure, ranging from clean energy, water and sanitation, to health, education, and sustainable cities.

What is not as often explicitly addressed are the links between infrastructure and the sustainable creation of jobs, and between jobs and stability. Concerns about job loss, or the lack of economic security, are a source of political stress that is creating an unpredictable new ‘normal’ in politics today, especially in Europe and America. In poor, emerging countries, joblessness, particularly among rapidly growing young working populations, can contribute to instability. In 2010, just before the Arab Spring, surveys found that of 11 issues, including political and religious controversy, "employment" ranked first in importance in all six Arab countries with annual PPP per capita incomes under US$15,000.

Nowhere will the job creation challenge be more acute than in the 39 Silk Road countries whose workforces are expanding. Those 39 countries face perhaps the greatest short term job creation challenge in world history. Whereas China and many European countries face aging demographics, between 2015 and 2030, the working population of the 39 Silk Road countries will increase by 382 million. To employ 382 million new workers requires creating more new jobs than the total working population of the European Union (or twice the current working population in the US) in 15 years.

Countries
2015 working population in millions
Increase in millions
(2015-2030)
 
China
929
- 49
European Silk Road
209
-30
India
737
175
Growing South Asia, excluding India (5 countries)
211
68
Growing ASEAN (9 countries)
328
61
Growing Central Asia and Middle East, excluding India (24 countries)
283
78
Growing 39 Silk Road countries
1,559
382
 
The job creation potential in infrastructure has been well established. Studies in the US suggest that every US$1 billion investment in infrastructure will result in the creation of between 13,000 and 22,000 jobs. The job creation potential will be even greater in developing countries, and many jobs can be created while simultaneously greening the economy. The renewable energy sector in China employs one million people, while India expects to generate 900,000 jobs by 2025 in biomass gasification. In Brazil, biofuels have produced about 1.3 million jobs in rural areas, while recycling and waste management employ an estimated 500,000 people. Research has also shown that investment in social infrastructure (e.g. education and health) yields substantially more employment than one limited to physical infrastructure, and can contribute to productivity change, income growth, and specialization of the economy.

To accelerate job creation via infrastructure requires urgent and effective leadership on two fronts. First, a surge in developing country institution building is required. Better institutions are needed not only to provide a stable foundation for society, but are especially critical for financing and operating infrastructure projects, which have long time horizons.

The other urgent requirement is a massive mobilization of investment funds. McKinsey estimates that US$49 trillion will be needed to finance global infrastructure from 2015 to 2030, over six trillion of that in emerging Asia, excluding China. That gap cannot be closed without finding ways to “crowd in” private finance, including the large pools of pension and insurance funds in developed countries. Global assets under management, which represent a part of insurance and pension funds, total approximately US$71 trillion today. That capital, however, cannot flow without better mechanisms to reduce risk. Long-term fiduciary investors, like pension funds and insurance companies, are subject to macroprudential regulation and increasingly stringent solvency requirements.

Belt & Road institutions, such as the AIIB and the Silk Road Fund, have the potential to bring both additional capacity and new approaches to public-private investment partnerships. The AIIB, from which the US and Japan remain as holdouts, now has over 45 countries as shareholders, with more countries applying to join. With that broad base and as a new institution, the AIIB has the opportunity to innovate and to adopt the "crowding in" of private capital as a key strategy to leverage additional funding and direct it to the right projects. Public-private partnerships in turn bring expertise and attract more responsible long-term business sector investment, and create jobs.

Global businesses are seeing the need and potential for sales, profits, and job creation via Belt & Road infrastructure. General Electric expects to receive over US$2 billion of orders from Chinese engineering, procurement and construction companies this year, “as a direct result of the Belt and Road Initiative”. GE’s Vice Chairman John Rice called Belt & Road “a multi-win strategy”. Honeywell has 23 branches and over 32,000 local staff along the Silk Road countries, and China CEO Stephen Shang says Honeywell is fully prepared to contribute further to the initiative. Philips Lighting’s CEO Eric Rondolat sees many opportunities to ship products to countries along the Belt & Road Initiative over the next decade, with much of the demand coming from infrastructure, public services, and manufacturing projects, as well as for domestic use. Maersk Line has recently become a co-investor with their Chinese partners on projects along the Belt and Road Initiative.

 
Donald Kanak is chairman of Eastspring Investments and chairman, EU-ASEAN Business Council.

 

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