The Partnership for Global Infrastructure and Investment is a new G7 initiative. Following the lead of China’s Belt and Road Initiative, the program has the potential to benefit developing and developed countries alike.
Recently, the US and its Western allies launched the Partnership for Global Infrastructure and Investment (PGII). G7 members pledged to invest US $600 billion in infrastructure for developing countries. However, given that it is estimated that developing countries need a total of $40 trillion for their future infrastructure investments, this infrastructure investment package is still far from sufficient.
The PGII was clearly introduced by G7 members as an alternative to China’s Belt and Road Initiative (BRI). The US and its Western allies have a lot of catching up to do on this front. Despite criticisms of BRI projects, China has successfully expanded its influence with numerous investment projects in Europe, Asia, and Africa. For about ten years, China has made investments worth trillions of US dollars in BRI countries all over the world. In the years to come, China, the world’s leading creditor nation, will continue to expand its BRI projects, as developing countries are hungry for infrastructure investments and their demand for infrastructure investments far exceeds the current advocated investment package of the US and its Western allies.
While the PGII is currently smaller in scope than China’s BRI infrastructure investments, it offers a very important alternative to its Chinese counterpart. First, the arrival of the PGII certainly forces China to become more strategic and efficient with its BRI investments. China’s BRI is criticised for its high-risk projects in many countries. Sri Lanka’s recent default, for example, was the result not only of the country’s unsound economic policies, but also of its reliance on foreign official investments of which China is the principal official creditor.
Second, the PGII, a rescaled version of the Build Back Better World initiative, is clearly more politically defensible and financially manageable. This is particularly important during a period where developed economies need stimulus to accelerate the recovery of their economies devastated by the COVID-19 pandemic and the recent surge in petrol prices following the Russia-Ukraine conflict. Hence the G7 member’s launch of an ambitious plan of large-scale infrastructure investments in developing economies at this time is politically risky. This is also why US President Joe Biden found it necessary to immediately emphasise the benefits of the PGII, not only for developing countries but also for the US economy and Americans:
“I want to be clear – the G7’s announcement of a new global infrastructure partnership isn’t aid or charity. It’s an investment that will deliver returns for everyone – including the American people – and boost all of our economies.”
Third, in contrast with the BRI, the PGII wants to be more inclusive. It is designed to facilitate not just “hard” infrastructure projects but also investment in four core areas: energy security, health security, digital connectivity, and gender equality and equity. These are the important topics on the policy agendas of all developing economies. Investments in these areas will not only have long-lasting effects but also potentially generate the greatest benefits for people in developing economies — this will demonstrate that the US and its Western allies want to help these developing countries in high-tech sectors of sustainable growth. The COVID-19 pandemic, for example, has been causing havoc all over the world. But it is in developing economies that the adverse effects of the global health crisis will be most felt and will be likely to be long-lasting. The US and other G7 countries clearly have the technological capabilities and financial resources to help developing countries get an upper hand on the pandemic. Unless the COVID-19 pandemic is brought under control in developing economies, it will be very difficult to accelerate the global economic recovery. So, regarding health security-related investments, the US and its allies clearly share the same interests as countries with developing economies, and will work to provide timely investment in health security.
Similarly, energy security will be a crucial factor for the economic development of economies in the South. Due to their lack of technological and financial resources, many developing economies must choose economic growth strategies that are less energy efficient and less sustainable. Digital connectivity will facilitate access to modern technologies, especially in many developing countries which are still home to mostly small-sized, medium-sized and family businesses, and where 90 percent of the four billion citizens of the Global South live without internet access. Regarding gender equality and equity, favouritism towards males, which is well-documented in developing economies, discourages sustainable growth to the extent that it adversely impacts female human capital formation. In sum, all the four areas of priority of the GPII’s investments are chosen because of their inclusiveness, and potential to generate transformative and sustainable growth.
Fourth, in contrast with China’s BRI investment projects, which are dominantly sovereign or state-related, the US and its allies emphasise the combination of both sovereign and private investments. For example, in the GPII’s approach, state investments may be used in early stages to create good investment environments that can attract private investments in later stages of the PGII. The involvement of private investments is believed to partially address the issue of efficiency and mitigate risks in large-scale infrastructure investment projects.
The PGII is not, however, immune to potential challenges. First, the success of the PGII depends on the coordination of G7 members and their long-term commitment. It is very difficult to maximise the beneficial effects of the PGII if G7 members act on their own, as the group’s advocated total infrastructure investment package is very modest in relation to the needs of the developing economies. Second, the PGII was introduced after a period during which the US and its Western allies were not enthusiastic about large-scale infrastructure investment projects in developing countries. Third, the long-term nature of infrastructure investments is not facilitated by the current economic situations of some of the G7 members. Finally, like the BRI, the PGII certainly has geostrategic considerations. It is very tempting for G7 members to focus on these and overlook the requirements for the efficient realisation of their investment projects.
Considering all these factors, the PGII is clearly a pragmatic initiative. While less ambitious than the Chinese counterpart, the PGII can build on its efficiency to expand gradually. Big things usually start in a small and efficient manner.
Dr. Cong S. Pham is a Senior Lecturer in Economics at Deakin University.
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