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G7 relaunches infrastructure plan for developing countries

By Mwangi Maina - Jul 21st 2022
Some of the world leaders pose for a group photo at the G7 summit, in Carbis Bay, Britain, on June 11, 2021. [Reuters]

US President Joe Biden along with other G7 leaders has unveiled an ambitious plan aimed at delivering high-quality infrastructure in low- and middle-income countries.

Although the plan is seen as a move to rival China's Belt and Road Initiative, dubbed “the Partnership for Global Infrastructure and Investment (PGII)” plans to mobilize $600 billion funding to deliver transparent” and “game-changing” infrastructure projects in developing countries by 2027.

It also aims to tackle climate change, improve global health, achieve gender equity and build digital infrastructure/critical infrastructure in the said countries.  

While launching the plan, Biden clarified that the PGII is purely an investment initiative for infrastructure development in developing countries and not a scheme of aid or charity.

He said the Special Presidential Coordinator for the Partnership for Global Infrastructure and Investment shall be responsible for overseeing the whole-of-government execution of these efforts and serving as the central node for United States coordination among the G7, as well as with other like-minded partners, the private sector, and other external actors.

The initiative aims to bring symmetric benefits to all the participants and enhance partnership among the democratic countries. It is being considered as a sequel to Build Back Better World, commonly known as B3W, which was unveiled at the G7 conference in July 2021.

A fact sheet seen by the Standard indicates the US will mobilize $200 billion for PGII over the next 5 years through grants, federal financing, and leveraging private sector investments and deliver quality sustainable infrastructure that makes a difference in people’s lives around the world.

It would also strengthen and diversify the supply chains and create new opportunities for American workers and businesses.

The PGII would be accommodated with € 300 billion ($317 billion) from the EU.

The purpose of the new initiative under the G-7 is not just to mitigate the funding gaps in developing economies for infrastructure development, but also to provide a more reliable, resilient and transparent global partnership for futuristic development.

One of the underlying goals of PGII is to provide the developing countries a better source of infrastructure funding than China’s BRI, which is of late facing lots of criticism for poor corporate ethics and inherent debt trap.

Biden said Internationally, infrastructure has long been underfunded, with over $40 trillion in estimated need in the developing world, a need that will only increase with the climate crisis and population growth.

“Many low- and middle-income countries lack adequate access to high-quality financing that meets their long-term infrastructure investment needs,” said Biden in an MoU signed June 26,2022.

He said too often, these financing options lack transparency, fuel corruption and poor governance, and create unsustainable debt burdens, often leading to projects that exploit, rather than empower workers.

“These projects exacerbate challenges faced by vulnerable populations, such as forced displacement, degrade natural resources and the environment, threaten economic stability, undermine gender equality and human rights, and put insufficient focus on cybersecurity best practices — a failure that can contribute to vulnerable information and communications technology networks,” Biden said.

It has been internationally acclaimed that developing world are in a dire need of development fund where infrastructure has long been under-funded.

Various agencies such as IMF and World Bank have estimated funding gap of over $40 trillion for the developing world to meet their long-term infrastructure investment needs.

The BRI provides financing for emerging countries to build infrastructure like ports, roads and bridges. The multi-trillion dollar BRI has often been criticized for hitting many developing nations with too much debt.

While it has developed trade links, it has also been criticized as a means of providing "predatory loans", forcing debt-saddled countries like Sri Lanka to cede key assets if they fail to meet their debt repayments.

While G7 leaders insisted on ‘transparency’ as a cornerstone of PGII projects, the BRI has faced criticism for signing secret tenders for large-scale lending, leaving countries indebted to China.

For instance, after the BRI’s flagship $62 billion China-Pakistan Economic Corridor, Pakistan owes Beijing a substantial part of its foreign debt.

The alternative plan will also provide a structure for the G7 nations to combine their resources in offering emerging economies cash to turn off their coal plants.

The first of these so-called Just Energy Transition Partnerships is being rolled out in South Africa and others are under discussion in India, Indonesia, Vietnam and Senegal.

A vaccine manufacturing facility in Senegal, and a 1,609 km submarine telecommunications cable connecting Singapore to France via Egypt and the Horn of Africa is also proposed.

As compared to the BRI the G7 has specifically outlined the PGII as a value-based scheme to help low- and middle-income countries meet their infrastructure needs.

The PGII has focused on climate action and clean energy, while China has built solar, hydro and wind power projects as well as large coal-fired plants under the BRI.

Since, the public sector alone will not be able to close the huge gap in financing needs of developing countries; harnessing private investment to supplement public funding for needed projects is essential to counter China's growing influence in Africa, Asia and Latin America.

The PGII would combine government funding with private capital from pension funds, private equity funds and insurance funds, among others.

Additional capital would be mobilised from other like-minded partners, multilateral development banks, development finance institutions, sovereign wealth funds etc.

This effort will pave the way for fewer strings attached than Chinese-funded infrastructure loans.

The PGII is being described as an adequate response in both size and scope.

However, any global scheme with such ambitious goals would have its own challenges right from identification of the projects to mobilization of resource and implementation.

Given that this initiative would be a cooperation mission between the US, the EU and all democratic advanced countries, it is expected that it would accomplish its goals.

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