“‘Win-win’ is the way to avoid political pitfalls”

“‘Win-win’ is the way to avoid political pitfalls”

28/11/18

Gregory Hodkinson, Chairman, Arup Group

Asia House’s publication, Asia House Insights: Asia Trade in the New Global Order, brings together the thoughts of leading figures in global trade. Here, Gregory Hodkinson, Chairman of Arup Group, writes on how successful infrastructure relies on understanding the political dimensions at play and working in partnership to mitigate risks.

The recent China-Africa Cooperation Summit (FOCAC) held in Beijing touched on many issues, but arguably one of the most important was President Xi Jinping’s position on the what China would not do. In his speech, the President spelled out the ‘five-no’ approach for China’s relations with African countries – “No interference in African countries’ pursuit of development paths that fit their national conditions; no interference in African countries’ internal affairs; no imposition of our will on African countries; no attachment of political strings to assistance to Africa; and no seeking of selfish political gains in investment and financing cooperation with Africa.”

The words underscored a truism that anyone who deals with major infrastructure projects will instantly recognise. Ultimately, infrastructure is – always and everywhere – political. And just as President Xi called for China-Africa relations to be handled with the appropriate degree of empathy and careful consideration, so does any sensible approach to major infrastructure projects around the globe.

Even where there is little question that the end result will deliver clear and positive benefits to the majority, it is important to engage with all those who will ultimately be impacted by the project. And whether discussing energy projects in East Africa, airports in South Asia, or high-speed rail in the north of England, it is important to recognise the inherent risks of a failure to meaningfully engage – public unhappiness and protests that can lead to civil unrest, major delays, subsequent cancellations or poor project outcomes where potential difficulties have not been fully explored.

The importance of engagement is even more critical when trying to attract private sector investment into a major infrastructure programme. Investors routinely consider a number of critical risk categories:

• Political
• Regulatory
• Financial
• Delivery
• Commercial

In many cases, ‘political’ risks are both the hardest to define and the most challenging to mitigate. This means that perceptions about political context can often make or break a project. Not only that, but the larger the project, the longer it will take and the more likely it is to span changes in administrative control. This makes political risk even more critical to securing the finances and getting the contractors to work.

Engagement

This is why stakeholder engagement is important. It can be time-consuming of course, it can be complex and it can be apparently expensive. But if done well, it can also deliver a whole host of benefits that will help get projects to financial completion, reinforce a country’s reputation for good governance, and produce superior operational outcomes.

There are a whole host of approaches to good stakeholder engagement, but key elements of any approach will include:

• Identifying an appropriately broad range of stakeholders and specific sub-groups
• Finding the appropriate channels to engage effectively with each of the groups identified at an early stage in the project development process
• Tailoring effective messages that explain the objectives and benefits sought for the project
• Providing effective response channels so that stakeholders genuinely feel that a range of voices has been heard
• Following up with timely information on queries and challenges
• Proactively responding with effective mitigation strategies, e.g. re-routing, additional environmental or social impact mitigation, compensation programmes, etc.

The probability that everyone will support a particular project is slim. However, a robust engagement programme can go a long way towards helping people understand the ambitions of the scheme and dramatically reduce the political risks along the way.

Even in countries where there is no great tradition of community outreach, stakeholder engagement can alert project developers to issues they may have overlooked or underestimated. This may allow time to develop effective mitigation strategies.

In Arup’s case, we are aligning our work with the UN’s Sustainable Development Goals (SDGs) to try and ensure that the work of the firm matches its mission to shape a better world. Many of the approaches set out in the SDGs underpin the benefits of positive engagement. Good infrastructure is fundamental to improving people’s lives – creating jobs, supporting trade, providing affordable energy and clean water, as well as reducing poverty. So we must drive home the crucial point that investing in infrastructure can and should be win-win, not a zero-sum game.

By getting the basics rights – including effective stakeholder engagement and good governance to reduce political risk – the sector can reinforce the critical truth that trade, growth, job creation and poverty reduction all rely on a virtuous circle that relies on efficient, resilient networks that link people, goods and services between and within countries, regions and cities.

Building the right Belt and Road

To achieve that, project sponsors must ensure they are building the right infrastructure for the right reasons. They must ensure that they do not focus on capex at the expense of lifetime costs. And they must ensure that major projects are sustainable – socially, environmentally as well as economically – to avoid creating significant political or reputational risks for the future. The good news is that there is no shortage of skills and expertise available to ensure that the Belt and Road Initiative is planned and built to the planning, design, resilience and economic sustainability criteria that will get the job done in the right way.

President Xi Jinping has said that China wants a sustainable Belt and Road and we agree that it is critical that we follow this ambition. Truly resilient projects that deliver for the economy, for the environment, and for the people are the key to making the Belt and Road Initiative a success.

This article is from Asia House Insights, a collection of commentaries by leading figures in global trade. Download now