After observing China’s infrastructure diplomacy under the Belt and Road Initiative (BRI) from the sidelines for many years, the US and its main democratic allies have lately been getting ideas of their own to pursue infrastructure development in low/middle-income countries with strategic importance. Since the Biden administration came to power 18 months ago, the US and its G7 partners (Canada, Germany, France, Italy, Japan and UK) have been making plans to wrest back the soft diplomacy.
In that context, last summer at the G7 Summit, the Build Back Better World (B3W) Partnership was launched by US and its allies to help low and middle-income countries in several continents, in areas like climate change, health security, technology, and gender divide. The plan is to use a mix of federal grants, bilateral loans and multilateral financing to help developing countries build the infrastructure they need, while focusing on good governance, transparency, and democratic values in process.
Late last year, the EU put out a platform of its own – ‘Global Gateway Strategy’ – which promised “smart investments’ of up to €300 billion between years 2021 and 2027 in sustainable and high-quality” infrastructure. The EU strategy was similar to the US – it was to deploy EU budget, European Investment Bank, European Bank for Reconstruction and Development, as well as private sector, to finance investment in areas like energy sustainability, health, education, digital, and transportation.
Now there is a bit of revision following latest G7 Summit. The ‘Partnership for Global Infrastructure and Investment’ (PGII) – a $600 billion US-backed and G7-supported initiative announced last Sunday – has now been launched, to harness G7 financial muscle to build ‘quality, sustainable infrastructure’ across the world over next five years. The US has announced that by 2027 it will mobilize $200 billion in funds via government grants, federal loans and private sector investments.
The US has identified four priority pillars for PGII. First is climate, where investment focus is on “climate resilient infrastructure, transformational energy technologies, and clean energy supply chains”. Second is a technology network, to help countries with “5G and 6G digital connectivity” and “open, interoperable, secure, and reliable” networks. Third area is gender equality, to raise women’s economic participation, reduce gender pay gap, etc. And fourth is public health, with objectives of scaling healthcare, vaccine production, early-warning capabilities, and countering future pandemics.
How realistic are such plans, considering that the financial conditions are expected to become even tighter across the globe, the geopolitical environment is only getting more volatile and neutral nations are increasingly feeling that they are being asked to choose between the democratic West (US, EU, and allies) and authoritarian East (China and Russia)? There are several challenges facing the G7 in mobilizing such huge amounts of public-private investments across the world over next five years.
First, considering the rise of populism in the democratic West, how will fresh spending of billions of dollars in overseas aid sit with disenchanted segments of the population in investor countries, especially the US, UK, France and Germany? The Biden administration is preempting such criticism by framing such overseas investments as critical to advance US interests, in the form of hiring more American workers, using US products, diversifying supply chains, and bolstering national security.
Second, how can the West ensure that development projects taking place through different countries, dozens of financial institutions, scores of development bodies and hundreds of private sector players stay committed in the long-term, remain coherent and are ‘values-driven’? In order to avoid situation where countries start competing against each other, individual G7 countries may be assigned regions based on their prior development experience (for instance, France has longstanding development footprint in Sub-Saharan Africa, just as the UK does in South Asia and the US in the Middle East).
Third, can the US and its allies really match up to China’s already-entrenched infrastructure presence in Africa, Southeast Asia, South Asia and Central Asia (and increasingly in Eastern Europe and South America)? It won’t necessarily be the case that PGII becomes a direct competitor to China’s Belt and Road Initiative (BRI). In some countries, they may even complement each other. But the West would try to demonstrate that its investment practices under PGII are in sharp contrast with those of BRI.
And finally, do the US and its allies have the staffing capacity in place that directly addresses infrastructure-related requirements of recipient countries and resolves civil society concerns on transparency in projects? It has to be a win-win, instead of soft-diplomacy victories for the West and ballooning loan payments for already-debt-saddled countries. In short, PGII (or its next variant) is at best a ‘work in progress’. Let’s see how committed the G7 is to pursue this grand investment bargain.