Shaky start: But now Russian president Vladimir Putin is more involved with Chinese president Xi Jinping’s BRI plans
Russia is lower in the rankings than
other oil producers Bahrain, Malaysia, Saudi Arabia, Qatar and Kuwait, but its improvement
is significant as it seeks a greater role in the China-led project after initially
showing reticence to tag along.
In February, Russia confirmed its role
building a section of the Meridian Highway, a toll road stretching through
Russia from the Sagarchin crossing point with Kazakhstan to Belarus.
Now the question is how far Russian
authorities are prepared to engage, and on what terms – although the potential
is clear.
Responding to an improving index
score, Russia is the only one of 69 countries moving up a category in the
Euromoney Belt and Road Index (EBRI) this quarter, from tier five to tier four,
narrowing the gap to Ukraine one place higher.
Investor climates are graded in the EBRI rankings across five
categories.
Tier-one countries – Bangladesh,
Ethiopia and Laos – have all shown the largest improvement in their growth
rates and/or politico-economic and structural risk situation since China’s Belt
and Road Initiative (BRI) – or One Belt, One Road – was inaugurated in 2013.
Russia’s
rise through the rankings highlights more improvement than Azerbaijan,
Kazakhstan or Turkey, all remaining in tier five.
This is down to two factors:
One is the better-than-expected
recovery from the oil crisis. GDP increased on a real-terms basis by 2.3% in
2018, in contrast with a 2.5% contraction in 2015 when the rouble plunged.
The economy is expected to continue
growing during the next few years, supported by commodities production, albeit
at a reduced pace given the prevailing global economic climate, buoyed by oil
prices above $60/barrel.
The stronger political and economic
climate is another reason.
There have been small, but perceptible,
improvements to factors such as government finances, and the regulatory and
policymaking environment, among other investor risk indicators, including fiscal transparency guided by the
IMF.
Growing partnership
The BRI
offers Russia a foothold in central Asia, and for three main reasons – economic,
social and geopolitical – argues Constantin Gurdgiev, a professor at the
Middlebury Institute of International Studies.
Preserving
and expanding Russian access to key markets for its energy, food and industrial
exports is a primary motivation. The region is also an important source of
migrant labour, and negatively a conduit for terrorism and illicit drugs trade.
Central Asia
and the ‘far north’ are identified as longer-term development priorities,
notably the Russian far east and south-eastern Siberia for food security,
requiring substantial investment of private capital and modernization of
agricultural production.
As with many
other participating countries, the BRI can help to fulfil these requirements,
which would otherwise be stymied by the lack of financing.
“China is a
natural partner in this process due to both the availability of capital and its
strategic interest in developing access to the Russian agri-food sector and its
production base,” says Gurdgiev.
However, growing
this partnership is not without its drawbacks.
Although
China has shown it is amenable to addressing concerns about high costs, by renegotiating
contracts with Myanmar and Malaysia, Russia and other countries will be
concerned they may be saddled with debts.
Russia’s
involvement is nevertheless synonymous with pivoting towards China as a bulwark
against western sanctions, and given limited progress on energy trade.
President
Vladimir Putin is seeking a larger role to spur the Russian-led Eurasian
Economic Union, as Moscow contests for regional dominance across its
traditional neighbourhood.
“Russian
participation in China’s Belt and Road Initiative offers a better alignment to
Russia’s longer-term economic and geopolitical objectives than others involving
Sino-Russian cooperation,” argues Gurdgiev.
He says it
gives Russia access to China’s capital markets, and a partnership for
developing new capital markets and trade platforms to side-step western
sanctions.
“An example
of this is the joint work between China and Russia on developing a functional
alternative to the Swift data management system for payments providers.
“Another is
the growing trade settlement between China and Russia in renminbi, rouble and
euro, rather than US dollars.”
Other notable changes
Other
countries showing rapid improvement are the Philippines, Vietnam, Hungary and
Bangladesh.
Last quarter,
Euromoney remarked on the rise of Bangladesh, reaching tier-one status thanks
to appreciating risk metrics and stunning economic growth averaging more than
7% per annum in real terms since 2013.
Government
estimates indicate growth accelerated to 8.13% in fiscal year 2018/19 (to end-June)
from 7.86% in 2017/18.
Other
forecasters are more conservative, but Bangladesh is still among the five
fastest-growing economies worldwide.
By contrast,
Bhutan has seen its GDP growth slow sharply from just over 8% in 2016/17 to
4.6% in 2017/18. Consequently, its EBRI score has fallen the most, pushing the
country lower into tier four.
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