The Belt and Road Initiative, announced by Chinese President Xi Jinping in 2013, involves building infrastructure along the historic Silk Road routes connecting China to 64 other countries in Southeast, South and Central Asia and the Middle East. The initiative has been welcomed as a stimulus to global growth, while helping countries to overcome poor physical and social infrastructure.
Less discussed -- but equally important -- is its potential to address the urgent need to create hundreds of millions of jobs across the region to absorb a dramatic surge in the working population, especially among young adults. Otherwise, a growing jobs gap could lead to political fragility, the rise of more extremist movements and refugee crises driven by economic insecurity and conflicts that would dwarf what the world, especially Europe, has faced recently.
The poor level of physical and social infrastructure in emerging economies is well-documented. Most of the United Nations' 17 sustainable development goals are related to -- if not dependent on -- improving infrastructure, ranging from clean energy, water and sanitation to health, education and sustainable cities. Accelerating infrastructure investment to close the gaps in these areas is a priority of numerous global public organizations.
What is not often as explicitly addressed, however, are the links between infrastructure and the sustainable creation of jobs, and between jobs and stability. Concerns about employment stability or a lack of economic security are a source of the political stress that is creating an unpredictable "new normal" in politics, especially in Europe and the U.S.
Joblessness, particularly among the rapidly growing youth population, can also contribute to instability in poor emerging economies. In 2010, just before the political upheaval known as Arab Spring, surveys found that employment ranked first of 11 issues, including politics and religion, in all six Arab countries with annual per capita incomes under $15,000, measured at purchasing power parity.
Nowhere will the job creation challenge be more acute than in the 39 Silk Road countries whose work forces are expanding. These countries, in Southeast Asia, South Asia and the Middle East, face perhaps the greatest short-term job creation challenge in world history. While China and many European countries face aging demographics, the working-age population of these countries over the next 15 years will increase by a startling 382 million people. To employ them requires creating more new jobs than the total working population of the European Union, or twice the working population of the U.S., by 2030.
Better infrastructure in these countries is critical for creating employment, not only in construction but also to support more efficient trade and higher productivity. Without more jobs, the potential for an anti-globalization backlash or instability and increased pressure for massive migration will become very real.
The job creation potential in infrastructure has been well established. Studies in the U.S. suggest that every $1 billion invested in infrastructure will result in 13,000 to 22,000 new jobs.
The job creation potential will be even greater in developing countries, and many jobs can be created while simultaneously greening the economy. The renewable energy sector in China employs 1 million people, while India expects to generate 900,000 jobs by 2025 in biomass gasification. In Brazil, biofuels have produced about 1.3 million jobs in rural areas, while recycling and waste management employs an estimated 500,000 people.
Research has also shown that investment in social infrastructure such as education and health yields substantially more employment than investment limited to physical infrastructure, and can provide vital contributions to raising productivity and income growth and increasing economic specialization.
To accelerate job creation via infrastructure expansion requires urgent and effective leadership on two fronts. First, a surge in institution-building among developing countries is required. Better institutions are needed not only to provide stable foundations for society, but for financing and operating infrastructure projects, which have long time horizons. Financial institutions, competent governance, consistent policy and enforceable contracts are essential to expand the pipeline of investible projects and inspire confidence in the reliability of long-term investments.
The other urgent requirement is a massive mobilization of investment funds. McKinsey estimates that $49 trillion will be needed by 2030 to finance global infrastructure, including more than $6 trillion in emerging Asia, excluding China. That gap cannot be closed without finding ways to "crowd in" private finance, including the large pools of pension and insurance funds held in developed countries.
Global assets under management, which represent a part of insurance and pension funds, total $71 trillion. However, that capital cannot flow without better mechanisms to reduce risk. Long-term fiduciary investors like pension funds and insurance companies are subject to macroprudential regulation and increasingly stringent solvency requirements.
Matching those requirements to infrastructure investments in emerging markets is difficult, but recent efforts by the International Finance Corp., the Asian Development Bank, the European Investment Bank and others to create public-private mechanisms that share and reduce risks show promise.
Belt and Road institutions such as the Asian Infrastructure Investment Bank and the Silk Road Fund have the potential to bring additional capacity and new approaches to public-private investment partnerships. The AIIB now has more than 45 countries as shareholders, even though the U.S. and Japan have not joined.
With that broad base, and as a new institution, the AIIB has the opportunity to innovate and to adopt the "crowding in" of private capital as a key strategy to leverage additional funding and direct it to the right projects. Public-private partnerships in turn bring expertise and attract more responsible long-term business sector investment and create jobs.
Global businesses are already seeing the potential for Belt and Road infrastructure initiatives, which will generate sales, profits and jobs. General Electric, the U.S. conglomerate, expects to receive more than $2 billion in orders from Chinese engineering, procurement and construction companies in 2016. John Rice, GE's vice chairman, has called the Belt and Road Initiative "a multi-win strategy."
Honeywell, another U.S. conglomerate, has 23 branches and more than 32,000 local staff in Silk Road countries. Stephen Shang, chief executive for China, has said the group is fully prepared to contribute to the initiative. Eric Rondolat, chief executive of Philips Lighting, a unit of the Dutch group Philips, sees many opportunities to ship products to countries along Belt and Road routes over the next decade, with demand coming from infrastructure, public services and manufacturing projects as well as from domestic buyers. Denmark's Maersk Line, the world's biggest container shipping operator, has recently become a co-investor with Chinese partners in projects along the routes.
The Belt and Road Initiative deserves more appreciation and support on the global stage. Public-private partnerships clustered around infrastructure have the potential to increase global growth and create millions of jobs in the most demographically challenged countries. Applying a more urgent attitude toward infrastructure and job creation in emerging markets may be the best way to preserve the global trading system, promote stability and avoid a tsunami of economic emigration far greater than Europe is facing today.
Don Kanak is chairman of Eastspring Investments, the Asian asset management business of U.K. insurer Prudential.