While fighting an active pandemic within their borders, big powers are also focused on how to catch up with China’s Belt and Road Initiative (BRI) abroad. The BRI has helped cement China’s soft power and big-ticket financing capabilities in many regions of the world. The West seems to have woken up to the alarm, but it is unclear whether, and how quickly, their pronouncements can lead to action.
Earlier in the summer, the US-led G7 came up with Build Back Better World (B3W) Partnership, under which poor and middle-income countries are to be helped with infrastructure development, mainly in areas of climate change, health security, digital technology, and gender divide. B3W is to mobilize hundreds of billions of dollars, in partnership with private sector and development finance institutions. Reportedly, US will announce a number of flagship projects in Africa and South America next month.
Earlier this week, the European Union launched “Global Gateway Strategy” – it’s the continent’s attempt to position itself as a leading development partner for the world. Joe Biden’s effort for leading democracies to fund development in developing countries is showing initial result. Under the plan, the EU will mobilize up to €300 billion between 2021 and 2027 to finance what it calls “smart investments” in “sustainable and high-quality” infrastructure.
The areas of intervention have been identified as climate and energy, transport, health, education and research, and digital sector. The EU has made clear its funding will be guided by democratic values, good governance and transparency, equality, and clean and green infrastructure. Without mentioning China and BRI (which has been linked with debt issues in host countries), the EU is telegraphing the developing countries that they can now expect a different kind of infrastructure financing approach.
As per initial details, the EU and its member states will utilize the European Investment Bank and the European Bank for Reconstruction and Development, along with the private sector, to identify, evaluate and finance Global Gateway projects in developing countries. EU funds will come from European Fund for Sustainable Development, from within EU budget, and through development arms. Analysts expect that most of the financing will have to come from the private sector – a tough ask.
While the size of EU’s Global Gateway is small compared to China’s BRI, it’s not bad if recipients have more choice. On paper, this is good for business on all sides. Via such investments, the EU (or for that matter, US or China) create openings for their private sector to find markets overseas and export their expertise and surplus. And recipient countries get to close some of the infrastructure gaps they are stuck with, and in due course, raise their productivity and get more integrated in world trade.
If in the near or distant future, China and the West (US and the EU) both tried to outbid one another in search for infrastructure projects and influence in developing countries with strategic relevance, what would it mean for the recipient countries? If a country is already saddled with debt and has limited exports and FDI under non-debt forex receipts (hence low capacity to repay foreign debt), then pumping in large-scale infrastructure investments will not be sustainable for it.
The EU and the US can differentiate their investment approach if they prioritized good governance (instead of quick loan approvals) in developing countries. In fact, they are promising the same. Problem is that developing countries have limited appetite for reforms, so they would rather avail large, expensive, no-questions-asked loans than undergo painstaking reforms that take years to show results. That is the main dilemma which the West faces in its battle for influence in the decade ahead.
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