University of Johannesburg: The G7’s partnership for global infrastructure investment

The Group of 7 (G7) countries comprising the United States, United Kingdom, Germany, Japan, France, Canada and Italy took place in Schloss Elmau, Germany, from June 26 to June 28.

It was the 48th G7 Summit where the seven countries and some invitees met to deliberate and take collective positions on economic, security and political issues affecting the world. The G7 is an informal but formidable bloc whose aggregate Gross Domestic Product (GDP) makes up 45 percent of the global GDP.

Although this is a significant decline from the 70 percent share of the world economy the group enjoyed at its inception in 1975, it remains enough of a war chest to throw its weight around in global affairs. This was the group’s first meeting since the beginning of the Russia-Ukraine war on February 24 and it wasn’t a surprise that considerable attention was devoted to the issue.

The member countries lamented Russia’s invasion of Ukraine and its negative impact on the global economy as well as the humanitarian crisis it had precipitated in Ukraine. A collective resolve was taken to impose more sanctions on Russia and mobilise the world to stop Moscow’s invasion of Ukraine. Also discussed were the Covid-19 pandemic, environment and climate change, trade and supply chains, political instability, gender equality and the digital economy.

However, the most talked-about outcome of the meeting has been the G7’s position on global infrastructure. The group proposed a values-based Partnership for Global Infrastructure and Investment (PGII) which appears to be a renaming of the rather clumsily named Build Back Better World (B3W) infrastructure programme it had adopted at the 2021 Summit.

The programme is meant to narrow the global infrastructure funding needs that will surpass US$40 trillion by 2035 in the developing regions. The lack of adequate infrastructure in the world’s poor countries will suppress global economic growth and reverse the progress made towards the attainment of the United Nations’ Sustainable Development Goals by 2030. Hence, under the PGII the G7 promises to disburse up to US$600 billion through 2027 to fund green, sustainable, and resilient infrastructure projects in developing countries in sectors like energy, transport, communication, agriculture and manufacturing.

Some of the initiatives already in progress within the ambit of the PGII include the just energy transition partnerships (JETPs) in countries such as South Africa, India, Senegal and Indonesia. The funding for the PGII will be sourced from an array of actors including private investors, multilateral development banks (MDBs), development finance institutions (DFIs) and national governments. According to the G7, the PGII will focus on quality infrastructure underpinned by values of transparency, good governance, and financial, environmental and debt sustainability.

Many have read the G7’s new offing, the PGII, as a plan to challenge China’s own global infrastructure programme, the Belt and Road Initiative (BRI) which was launched in 2013. Endorsed by 146 countries including 48 in Africa and 32 international organisations including the African Union (AU), the BRI is the largest global infrastructure initiative in history. Since its inception in 2013, the BRI has funded infrastructure projects worth US$850 billion in transport, energy, logistics, metals and real estate among other sectors. Through the BRI, Chinese entities have funded and built ports, airports, bridges, roads, power plants, dams, pipelines, railways, highways, and communication networks all over the global south.

China has insisted that the BRI is intended to intensify global integration and trade, while growing the global economy and eradicating poverty. However, the West did not take kindly to the BRI, seeing it as a ruse by China to entrench its global influence and challenge the western hegemony.

The BRI has been criticised for propping up so-called rogue states, flouting environmental regulations, leaving poor countries with unsustainable debt and disregarding human rights in the implementation of its projects. Moreover, China has been accused of exporting its authoritarian political and economic systems through the BRI, thus further eroding the dominance of western values in the developing world. The US-led North Atlantic Treaty Organisation (NATO), the largest military alliance in the world, recently labelled China a systemic challenge threatening the West’s values, interests, and security. Hence, the PGII is probably meant to be an alternative to the BRI that developing countries can turn to for their infrastructure needs. It is the West’s attempt to push back on China’s rising global influence and footprint.

However, while the BRI has been far from perfect, to reduce it to an imaginary grand project by Beijing to take over the world is dishonest. The initiative has produced real benefits for some of the receiving countries. For example, the BRI-funded Mombasa-Nairobi railway in Kenya increased passenger volumes by 150 percent and cargo capacity by over 400 percent and reduced travel time between the two cities to four hours. This is a major boost to Kenya’s economy.

China’s investments in mobile networks in Africa have increased cellphone and internet penetration with significant positive economic spillovers for the continent. The BRI came through at a time when the West had retreated from infrastructure investment in development citing environmental risks.

Moreover, viewing China’s BRI through the zero-sum Cold War lens is counter-productive. The geo-politicisation of the global infrastructure crisis will hurt everyone, especially the most vulnerable. Developing countries, especially in Africa, do not need ideologies but the working infrastructure to grow their economies. Both China and the West will benefit from improved infrastructure in the developing regions.

Therefore, instead of competing with Beijing, the West, and the rest of the world, is better off cooperating with China. Africa and other developing regions should be careful not to be roped into geopolitics’ race to the bottom.

Further, it remains to be seen how the G7 will implement the PGII. Not much in terms of a concrete plan was offered by the group at the end of its meeting. If the fate of earlier infrastructure investment initiatives such as the Infrastructure Transaction and Assistance Network (ITAN), the Blue Dot Initiative (BDN), and the Asia-Africa Growth Corridor (AAGC) sponsored by G7 members and their partners is anything to go by, not much should be expected from the PGII.

Unlike the BRI, which is mostly coordinated and funded by the Chinese government, the PGII depends on many actors such as the private sector, MDBs, and DFIs, whose interests may not align with the political rationale behind the PGII. Securing funding from these actors is far from guaranteed given the risk-aversion of the private sector and the bureaucratic paralysis of the MDBs. Public funding also faces significant limitations.

For example, the PGII’s major sponsor, the US International Development Finance Corporation (DFC), the equivalent of the China Development Bank (CDB) in terms of funding US infrastructure projects abroad, has a funding cap of US$60 billion. This money is meant to fund feasibility studies and provide guarantees, and loans In comparison, by 2019 the CDB had provided over US$190 billion in project financing under the BRI. Moreover, the PGII will be coordinated by seven countries with varying strategic interests making the choice of priorities and the implementation of the initiative challenges.