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SPECIAL REPORT

Bana Akkad Azhari

One Belt, One Road – a path to new prospects for Mideast

LONDON, April 30, 2019

By Bana Akkad Azhari

The “One Belt, One Road” (OBOR) initiative – increasingly known as the Belt and Road Initiative (BRI) – is an integral component of China’s vision for restructuring the global economy. As the world’s largest planned economic corridor, BRI encompasses over 70 countries and links China to the Middle East, Europe and Africa through ports, highways, bridges, tunnels and rail links along two pathways that cross several regions .

The purpose of the initiative is to improve connectivity, trade routes, trade deals and cooperation across Eurasia and Africa. The Middle East is viewed as a key partner in enabling the global initiative to reach its potential, and the possible payoffs for the region if BRI succeeds could be substantial – fuelling bilateral trade, new trade corridors, improved infrastructure and new opportunities for investment.

To ensure businesses in the region can capture the new trade opportunities, local banks must have the right tools to support the transactions effectively and efficiently. Here partnerships with correspondent banks can be ideal; fusing global reach and expertise with specialist local knowledge and insights.

The strengthening Middle East-China trade relationship

The relationship between the Middle East and China has already strengthened significantly since the turn of the century. For example, bilateral trade between the GCC states and China rose from $10 billion in 2000 to nearly $115 billion in 2016. Over the coming years, there are designs to increase this figure to $600 billion.

Saudi Arabia, Oman, Kuwait and the UAE already account for at least30 per cent of China’s imported oil, and with estimates that China’s oil import dependency could reach 80 per cent by 2040, there is undoubtedly significant potential for increased trade with China . And the potential for increased exports doesn’t stop there. BRI could also help to open up greater access to South Asia and East Asia and the Pacific – the fastest growing regions in the world.

These trade opportunities are to be facilitated through routes via both land and sea. There are plans to establish a maritime corridor connecting oil and gas fields in the GCC states to China and East and South East Asia. Meanwhile, the China-Pakistan Economic Corridor (CPEC) project, involving the building of railways, roads and pipelines across Pakistan, could considerably cut the distance that oil currently travels from the Middle East to China: from 16,000km to just 2,500km . This will not only speed up the delivery of oil – and other Middle East exports – to Asia, but the reduction in shipping time could also improve costs. In turn, imports to the Middle East from across Asia will become more efficient and cost effective.

As well as direct trade opportunities, the Middle East’s strategic position between Africa and Europe makes it ideally placed to act as a gateway for trade elsewhere – helping China access other markets. With approximately 60 per cent of China-UAE trade currently re-exported to Africa or Europe, the UAE, for instance, has the potential to become BRI’s hub in the Middle East. With Africa’s largely untapped potential a key market for China, this not only supports a key purpose of BRI, but also simultaneously makes the UAE a vital component of China’s trade strategy in the Middle East –and beyond.

Harnessing opportunities

In recognition of the trade possibilities that BRI could bring, the region is increasingly exploring ways to invest in the initiative and further harness the Middle East-China partnership. Abu Dhabi Ports, for example, has signed a partnership with Cosco, China’s largest shipping company, to build new terminals to support the increased trade flows that are predicted to be generated by BRI.

Elsewhere, Saudi Arabia is keen to partner with China on the construction of the BRI project – in particular, by developing infrastructure for ports and energy grids. Saudi Arabia’s King Salman also recently led a trade mission to China that resulted in more than $65 billion worth of economic and trade deals being signed.

China is also a very important market for Lebanon. China is already its largest trade partner, and if Lebanon succeeds in increasing its exports to China, it could have significant benefits for its economy. Lebanon has the potential to act as a logistics, commercial and business hub for China in the Middle East as part of BRI. As such, Lebanon is actively involved in the initiative: the Union of Lebanon's Tripoli Municipalities is a member of China's Silk Road Chamber of International Commerce (SRCIC).

Meanwhile, CPEC specifically is presenting investment opportunities for the Middle East. The UAE aims to build an oil refinery near the Pakistani seaport of Gwadar – the gateway to the CPEC route for Middle East exports – to capitalise on the strategic power of this new trade hub. Furthermore, with all GCC states existing sources of FDI for Pakistan, CPEC could provide further investment opportunities in sectors such as infrastructure construction, mining and IT.

There are opportunities for local businesses to tap in to infrastructure investment plans along the BRI route. While these are largely Chinese-led projects, there can be competitive advantages for Middle East companies. And as BRI progresses, more opportunities for trade are likely to open up.

Banks supporting opportunities for growth

While BRI has a long way to go before it reaches fruition, the benefits of a stronger Middle East-China partnership are evident. With China helping to support a range of infrastructure developments across the region – which in turn are helping to act as a catalyst for economic growth across a range of sectors – and with Asia tipped to remain the world’s fastest growing region for the foreseeable future, the Middle East is well positioned – both physically and strategically – to capture new trade opportunities.

As businesses across the region look to harness the ever-strengthening relationship with China, local banks will need to be able to support the new activity effectively and efficiently. A key strategy banks in the region can adopt is to establish non-compete partnerships with specialist global trade services providers, which combine international reach and advanced technological capabilities (to help ensure the finance supply chain can rival the increasing efficiency of the physical supply chain) with region-specific knowledge and in-depth understanding of local client needs.

Through such collaborations, Middle Eastern banks can offer clients the support they need to help them grasp new trading opportunities with China and, moreover, Asia – allowing them to prosper in the dynamic world of trade.

An important element for clients undertaking trade in new territories – including emerging markets in Asia – is local market expertise; the understanding of country-specific rules and regulatory requirements, and an insight into local behaviour. It is through global correspondent banking networks that effective cross-border trade is possible, and Middle Eastern banks can tap into the reach and knowledge of global banks to ensure they can capture trade opportunities in new and established corridors. Rich correspondent relationships could also, for example, be harnessed to help aid the import of flows from Asia into African countries, with Middle East banks as intermediaries.

The strengthening relationship with China and the potential of BRI are sowing the seeds for trade opportunities across the Middle East. Through the mixture of technology and local knowledge, and the incorporation of old and new processing requirements that cater to client needs, banks can position local businesses with the tools they need to capture these growing opportunities, successfully steer their way through emerging trade corridors – and truly harness the evolving trade landscape.

About the author

Bana Akkad Azhari is head of Relationship Management MEA & CIS, Treasury Services, BNY Mellon, a global banking and financial services holding company headquartered in New York City, USA


The views expressed herein are those of the author only and may not reflect the views of BNY Mellon. This does not constitute treasury services advice, or any other business or legal advice, and it should not be relied upon as such.




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