As discussed in the March edition of IUMI Eye, increased protectionism poses a potential threat to growth in global trade – and in turn to the international marine insurance markets. Notably, signals coming from the US Administration questioning free-trade agreements and the withdrawal from the Trans-Pacific Partnership (TTP) indicate an alarming isolationist trend. This is further reflected in Britain’s decision to leave the European Union and in the massive protests against the Transatlantic Trade and Investment Partnership (TTIP) that have taken place in several European countries.
Worldwide trade, which – with the exception of a slump triggered by the 2008 global financial and economic crisis – has seen dynamic and sustained growth since the 1990s, has slowed in recent years.
Against this backdrop, China’s colossal trade project now officially titled the “Belt and Road Initiative” takes on even greater significance. The plan, formerly termed “One Belt and One Road” and also known as the “New Silk Road Initiative”, is aimed at building closer economic ties between Asia, Europe and Oceania, as well as strengthening trade links with Africa. The total investment in infrastructure projects, such as railway lines, pipelines and port installations is estimated at US$ 900–1,100bn.
These investments will provide a stimulus for economic growth and international trade.
Focus on infrastructure
According to China’s trade ministry, goods and services traded with countries along the Belt and Road route in 2015 came to US$ 995bn, approximately one quarter of China’s trading volume. The plan aims to increase trade in both directions to more than US$ 2.5trn within a decade.
The more than 60 countries that are to be connected by land and sea are, for the most part, developing nations with great economic potential. Most of these countries, with a total of 4.4 billion inhabitants, have an insurance penetration of less than 1%, offering considerable catch-up potential for the insurance industry.
The massive infrastructure projects and construction works, along with the boost they can be expected to give to trade volumes, would of course put fresh wind in the sails of the marine insurance industry in particular. There will be a strong demand for marine insurance solutions to cover construction and trade related exposures.
Regardless of its long-term outcome, the Belt and Road Initiative sends very strong signals to a global economy threatened by isolationism and protectionism: international business based on openness and cooperation can benefit all stakeholders.
The world economy needs bold visions and major investments to open hidden potential. Let’s hope these signals – and the ambitious plan – resonate positively.
Dieter Berg, IUMI President