Orient - The Official Magazine of the British Chamber of Commerce Singapore - Issue 66 May 2018 - Page 34
(contd.) SPECIAL FEATURE: REPAVING THE ANCIENT SILK ROUTES By David Wijeratne, Partner and Growth Markets Centre, PwC
1. Investors to bankable infrastructure projects, either by co-investing with Chinese players, or by co-investing with existing Chinese financing instruments such as the Silk Road fund.
2. Pure suppliers may supply advanced construction equipment, machinery and cutting-edge solutions for infrastructure projects.
3. Engineering, Procurement and Construction (EPC) firms to partner with Chinese EPC firms. Foreign companies with recognized international experience in large-scale infrastructure projects or in dealing with local EPC firms of the respective Belt & Road countries could partner with Chinese firms to share their experience.
4. International project managers to provide international project management expertise, especially for complex, large-scale Belt & Road projects in remote locations, which require managing multiple stakeholders.
5. Global Operators to manage and operate new facilities and bringing operational expertise in managing the newly constructed infrastructure effectively, profitably and sustainably.
6. Foreign companies may divest assets to the Chinese companies or companies along the Belt & Road who are keen to acquire assets to enhance existing capabilities.
Unique Belt & Road considerations Despite these opportunities, BRI projects bring with them a unique set of challenges. Geopolitical and regulatory risks – Changes in political regimes or bilateral relations between countries involved in the BRI could occur during a project’s lengthy lifespan, while inconsistencies in regulatory regimes also affect projects that are involved in monopolistic sectors or operate assets in the national security interests. Funding and operational risks – Many Belt & Road markets have less developed risk allocation, regulatory frameworks and contracts, thereby increasing the risk associated with the ability of host governments or infrastructure users to repay loans. Foreign companies also ought to remain vigilant in operational planning, as operational risks can result from gaps in experience in managing different complex and new stakeholders compounded by more complex Belt & Road projects, which can result in delays or cost overruns. Positioning for success Once the project or investment is identified, it becomes very important for investors in Belt & Road projects to then position themselves for success. One key aspect of a successful BRI strategy is the design of contingency plans to address challenges in emerging Belt & Road countries, such as the lack of robust transport networks, time consuming bureaucratic processes and so forth. PwC’s advice to companies moving into new markets or frontiers is to always find trusted local partners who can support with their understanding of local issues, government bureaucracy and local project management risks. Risk allocation is another important consideration in Belt & Road projects where there are typically more stakeholders who exercise a large influence on the occurrence of the risk. Companies can consider ways to share risks with local players involved in Belt & Road projects, such as waiving the need for a performance bond, carrying the cost of some equipment onto the local partner’s books, or developing a revenue-sharing mechanism. The BRI is a vast and ambitious programme. Its multi-dimensional construct makes it incredibly complex, but by carefully evaluating and planning for specific Belt & Road risks, companies can participate in undoubtedly the largest trans-continental infrastructure programme the world has ever known. And it is only just beginning!
David Wijeratne is a partner with PwC Singapore. He leads PwC’s Growth Markets Centre, a global team which supports companies enter and expand to and from emerging markets. He and his team are the primary authors of PwC’s Belt & Road report, Repaving The Ancient Silk Routes.
PwC’s Growth Markets Centre (GMC) is focused on supporting companies successfully enter and expand profitably in emerging economies. The GMC comprises experts from across PwC’s network, dedicated to ensuring that companies receive the full benefit of PwC’s global expertise (including Strategy, Operations, Deals, Talent and Tax) to assist them in growing profitably in developing economies –ranging from frontier markets such as Myanmar, to more established ones such as China, India and Brazil. We help companies address the key issues they face in developing the appropriate strategies and business models to achieve profitable growth in these complex markets.