Through the Belt and Road Initiative (BRI), China has sought to play a leading role in assisting developing countries to achieve their development goals by helping them bridge their infrastructure gaps, which is estimated at $1.5 trillion. However, to date, the BRI has seen mixed results. On the one hand, it has stimulated economic growth; on the other, it has fallen short on environmental, social, and governance (ESG) measures. The high level of optimism that engulfed the project earlier has been accompanied by growing pessimism.
Developing countries that have joined the BRI have much to gain. However, capturing the full benefits from the BRI is not only dependent on Beijing providing the necessary capital needed to close the infrastructure gap. If things were that simple, Pakistan and Sri Lanka, two of the premier destinations of BRI financing, would have seen their dismal socioeconomic fortunes reversed.
For example, the $62-billion China-Pakistan Economic Corridor (CPEC), widely known as the BRI’s flagship project, was designed to turn Pakistan into a regional economic hub and spur economic development. However, it has been noted that “CPEC is unlikely to ever fulfil the grand vision laid out in 2015.” Instead, what has been observed is growing economic, social and political crises despite the implementation of extensive BRI projects.
This has similarly been the case in Sri Lanka, where Beijing’s deep pockets, willingness to fund infrastructure development, and commitment to turn Sri Lanka into “the hub of the Indian Ocean” have not mitigated the country’s socioeconomic issues.
Much emphasis has been placed on fixing the internal mechanisms of the BRI to enhance its effectiveness in promoting socioeconomic development and circumventing the associated risks related to the project, such as debt distress and harming local biodiversity. At the Third Belt and Road Forum in October, Chinese President Xi Jinping noted the BRI’s philosophy of “open, green and cleancooperation,” increasing emphasis on “small yet smart” projects and embracing recipient agency through the principle of “planning together, building together, and benefiting together.” While necessary, this is not enough to achieve the publicly stated goals of the BRI.
Emphasis must be placed on recipient countries getting their houses in order by improving their institutional quality and capacity to ensure the BRI achieves its intended goals. In other words, the recipient countries are ultimately the determining side in dictating the success and failure of BRI projects in promoting not just economic growth but inclusive and sustainable socioeconomic development. As a World Bank report on the BRI argued, despite the importance of infrastructure development, to extract maximum benefits from the initiative, recipient countries require complementary policies and institutions that will integrate BRI projects into the country’s wider development strategy.
In line with Daron Acemoglu and James A. Robinson’s argument on the importance of institutions in driving socioeconomic development, a strong argument can be levied that the success of the BRI in promoting socioeconomic development is contingent on the promotion of “inclusive institutions” in recipient countries. Such institutions ensure broad public participation in decision-making, promote transparency and accountability, avoid policy capture, and align projects with the needs of society. Hence, there is a need for developing countries to adopt a “whole-of-society” (bottom-up) approach to the BRI. This approach embraces extensive collaboration across the public and private sectors to ensure BRI projects are localized, i.e., they suit the local conditions, needs, and priorities.
Instead, what has been observed is that BRI deals are conducted within “extractive institutions,” resulting in deals shrouded in confidentiality and lacking transparency and accountability. These projects are subject to “elite capture,” which ensures projects are quickly approved through backdoor channels that evade checks and balances. According to Harry Broadman, this creates a disjuncture between the incentives of the governing elite and those of society, which exacerbates “deep pre-existing domestic social and political stratification.” While Xi’s calls for more agency in recipient countries are welcomed in principle, the reality is that in societies dominated by extractive institutions, the agency being practiced serves to forge and strengthen patronage relationships rather than advance public interests.
In these situations, which have been seen in Pakistan, Sri Lanka, and Nigeria, the lack of inclusive institutions has resulted in suboptimal outcomes. In the case of Pakistan, there has been an uptick in civil and armed resistance against BRI projects, particularly in Balochistan. Such resistance emanates from the environmental, social and governance consequences of BRI projects, which are said to negatively impact the livelihood of local communities. This has created a situation where “the economic activity generated in Gwadar had continued to benefit Chinese firms and workers, leading to a deep sense of hostility amongst the locals towards Beijing.”
In the case of Sri Lanka, BRI investments have been viewed as vanity projects with doubtful economic feasibility. The most infamous example is the Hambantota port, which is regarded as a failure with weak economic rationale as political ambitions override market demands. This is similar to the Mattala Rajapaksa International Airport, dubbed the world’s emptiest airport, where its operational expenditure was 21 times higher than its income. This leads to the conclusion that the airport is not driven by local economic needs but by “remote stratagems.”
Meanwhile, in Nigeria, news of a “railway to nowhere” that links Abuja and its airport has emerged. The state of the railway was summarized as a “line [that] basically avoided where people are, where people live, where people go.” Similarly, a report highlighted that the Lagos-Ibadan railway line has failed to produce positive economic spillovers because it is poorly connected to the existing inland industrial bases, which shows the lack of complementary development policies.
These three cases have a common feature: the lack of inclusive institutions. Large portions of their respective societies are excluded from the decision-making and implementation. Here, BRI projects depend heavily on a top-down elitist approach. There is little public involvement and consultation, which results in infrastructure projects that are not well-informed, inclusive, sustainable, or aligned with society’s actual needs and aspirations. Such projects fail to take a bigger picture view by accounting for how they will fit into a larger development strategy. As CPEC’s Long Term Plan (2017-2030) showed, there is little input from local leaders, businesses or civil society, which results in suboptimal social and economic outcomes.
Furthermore, local capacity-building needs to be enhanced by ensuring that BRI projects strengthen forward and backward linkages in the domestic economy. Through inclusive institutions, all economic actors, particularly the private sector, have an equal opportunity to actively participate in BRI projects through an active and open bidding process. Yet, it is widely known that most contracts are secretly negotiated bilaterally without any competitive bidding process. In Nigeria, critics allege that “all the contracts with the Chinese don’t go through public procurement law.” This was also seen in Pakistan, where the World Bank noted that “procurement was restricted to a limited number of Chinese contractors. We know that nominated contractors influenced the bidding process.”
In such cases, Chinese companies, materials, and technology dominate, thus reducing the spillover benefits the recipient country can experience. This was the case in Nigeria, where there was a lack of local content requirements, which has left indigenous construction companies and suppliers out of BRI projects to the detriment of strengthening local capacity. Meanwhile, in CPEC projects, local economic actors have voiced their frustrations as they are left out of playing an active part in infrastructure projects.
China has also felt the consequences of extractive institutions in regard to the reputational damages that arise from failed BRI projects. One can look at the widely referenced “debt trap” narrative, which, while disproved, has been the main narrative against the BRI. This has seen China’s global image take a hit. As an Economist article posited, “The BRI was meant in part to demonstrate China’s essential benevolence. In that respect, it has not worked.”
Strengthening the connection between BRI projects and beneficial socioeconomic development will require China to not only fix the internal workings of the BRI but also advocate for strong institutional frameworks and complementary development policies. However, this goes against its philosophy of non-interference and “no strings attached” funding, which in practice sustain extractive institutions in recipient countries. Until China changes its approach, the BRI is set to become more politicized by local elites to elevate their political legitimacy rather than promoting inclusive socioeconomic development.