Nurul: A strategy as major as the Obor initiative will inevitably need careful navigation of various roadblocks.
KUALA LUMPUR: Given the complexity of projects under China’s One Belt, One Road (Obor) initiative, PricewaterhouseCoopers (PwC) Malaysia said local companies involved will need to be “diligent” in assessing project risk and feasibility, as these projects can cost billions of dollars, with potential impact on local communities.
In an interview with The Edge Financial Daily recently, PwC Malaysia markets leader and partner Nurul A’in Abdul Latif said there had been cases where countries pulled out of Obor projects due to high opportunity costs.
“A strategy as major as the Obor initiative will inevitably need careful navigation of various roadblocks. Companies will need to be well prepared for any eventualities that may crop up in this uncertain economic climate,” she said.
“It is important to have a transparent and open assessment of project objectives and risks among the stakeholders involved to ensure project sustainability in the long run,” she added.
Risks aside, if these Obor projects are successful, Nurul said they could be a key opportunity for Malaysia as China’s economy is shifting from export-driven to consumption-driven.
“This will lead to increased demand for lifestyle products and will diversify Malaysia’s exports to China away from oil and gas, and palm oil,” she explained.
“China’s Obor infrastructure projects are an important investment stimulus, which can be a catalyst for the region’s economic integration. Agreements between China and countries participating in the Obor initiative have been signed, leading to an estimated US$900 billion (RM3.5 trillion) worth of projects being planned, with some already completed,” she said.
However, Nurul said cross-border trade and investments do not solely depend on trade deals alone. They are also affected by factors like availability of efficient and reliable transport infrastructure, transport services, and information and communications technology networks.
“By reducing the time and cost in moving goods in line with Obor growth ambitions, this oils the wheels of economic growth, building trust in the economy. Even without new trade agreements, cross-border transactions will still grow due to the low cost of moving goods across borders,” she explained.
Although Malaysia was one of the first countries to respond to China’s Obor initiative, Nurul said the country’s ability to attract and retain foreign investors still hinges on whether the nation is conducive enough for innovation and socio-economic growth.
“Obor’s key investment focus includes transportation and infrastructure development, which will facilitate export growth, a core economic factor towards realising TN50 (Transformasi Nasional 2050). The easier it is for companies in Malaysia to access the global supply chain through the Obor initiative, the higher our competitive advantage will be in marketing our local products globally,” she said.
“Large-scale Chinese infrastructure projects in the country will have a more immediate impact on Malaysia as the gateway and regional centre hub for Chinese firms to access the Southeast Asian market. The region as a whole is the third largest emerging market after China and India,” she added.
TN50 is an initiative to plan for the future of Malaysia in the period 2020 to 2050, which is Malaysia’s next long-term development programme following its Vision 2020 aspiration. The TN50 policy document is set to be published in early 2020.
Meanwhile, Nurul pointed out that companies such as Huawei, China Construction Bank Corp, Alibaba, and China Communications Construction Company Ltd have plans to set up their regional hubs in Malaysia.
In addition, she also highlighted that China’s biggest social network and gaming firm Tencent Holdings Ltd is planning to make Malaysia the first foreign country for the rolling out of its WeChat ecosystem.
“These are testaments to Malaysia’s ‘brand’ being the entry point for China’s firms into the region,” she said.
In the face of declining trust, transparency is a must
However, in an environment of declining trust, Nurul said companies need to be transparent with their stakeholders, including both the government and local partners.
Nurul was referring to the trust index under the 2017 Edelman Trust Barometer, which showed a decline in Malaysian average trust in the government, media, businesses and non-governmental organisations to 48 points from 51 points.
“[Hence,] setting clear project definitions and expectations upfront for things like the project scope, cost, roles, responsibilities, quality and timelines are key. At every stage of the project cycle, companies will need to have a clear line of sight of project performance, especially in terms of the cost, schedule and quality,” she explained.
“Clear accountability is critical to achieving project goals, while maintaining a strict focus on commercial viability and returns. These are the essentials of good governance,” she said.