In their June 2022 meeting in Germany, the G7 countries came out with a new programme intended to meet the financial and technical needs for building quality infrastructure in low- and middle-income countries. Christened as the Partnership for Global Infrastructure and Investment (PGII), it is in the long run aimed to end the global dominance of China’s Belt and Road Initiative.
A White House communique puts the issue succinctly: “Too often, financing options lack transparency, fuel corruption and poor governance, and create unsustainable debt burdens, often leading to projects that exploit, rather than empower, workers”. This communique is a telling indictment of the BRI. As the experiences of Sri Lanka and Pakistan have shown, building infrastructure with BRI loans has landed the recipient countries into a debt trap. Both Colombo and Islamabad are now burdened with a high debt. In the worst scenario, Sri Lanka has witnessed a political upheaval as a consequence of the debt burden, failing to import its requirements of food and fuel and finally defaulting on debt repayment, leading to the collapse of the government.
By now, the reasons for which recipient countries go through such traumatic experiences are well-known. BRI loans are shrouded in opaque conditionalities. Beijing often interferes with the internal governance in the recipient countries, there are such instances again in both Sri Lanka and Pakistan. Instead of empowering workers in the recipient countries, projects are executed by Chinese firms with imported Chinese labourers. The association of builders in Sri Lanka had to demand, before the collapse of the government led by the Rajapaksas, that local firms must be made partners by Chinese contractors. The BRI projects are also highly exploitative in nature. An ongoing project for the construction of a port in Peru, the Chancay Multipurpose Port Terminal, is poised to destroy local flora and fauna, emit substantial toxic pollutants, and displace local communities. The project has been facing protests from the local communities since 2019. By contrast, to quote the White House communique: “The PGII will advance value-driven infrastructure development that is carried out in a transparent and sustainable manner – financially, environmentally and socially — to lead to better outcomes for recipient countries and societies.”
The International Monetary Fund, too, has issued a warning to other nations against the danger posed by indebtedness, citing the instance of the unprecedented economic crisis in Sri Lanka. High debt levels and limited policy space could land other countries in a similar situation. As IMF Managing Director Kristslina Gorgieva said in Singapore recently, “downslide risks about which the IMF had earlier warned have now materialised. Countries with high debt levels and limited policy space will face additional strains. Look no further than Sri Lanka”.
Notably, the PGII aims to build projects through grants and investments, while under the BRI China extends large amounts of loans that have to be usually paid over 10 years. The G7 has pledged USD 600 billion by 2027 under the PGII, but the actual amount available could be much more, as under PGII a large private capital could also be mobilised. As the BRI is state-funded under sovereign guarantee, the recipient country is subjected to much more pressure for repayment. The infrastructures that the G7 countries plan to build are technically superior and of a higher quality than the infrastructure China is building in different countries under BRI funding. The overwhelming focus of BRI investments is on traditional infrastructure projects such as ports, roads, dams, railways, power plants, and telecommunication facilities. This has often led to building projects in the wilderness, ports that no one uses, and roads that lead to nowhere. Most of the power plants that China builds under BRI in poor and less developed countries are coal-fired and highly polluting.
The emphasis of the PGII, on the other hand, is on building human infrastructure in the developing world, improving the quality of education and of health care facilities. As the White House communique puts it, “in this effort, the United States is working in close partnership with G7 and other like-minded partners towards infrastructure financing and infrastructure development that are sustainable, clean, resilient, inclusive and transparent; and that adhere to high standards”.
The emphasis on human capital has a more lasting impact on the economic growth of a country than the building of physical infrastructure, whose impact on economic growth can be uncertain. Nobel laureate Indian economist Amartya Sen is of the same view. Contrary to the opinion that investments in physical infrastructure are the way to go forward, Sen believes that the focus should be on the development of human capability. For this, good quality healthcare must be available to all the citizens of a country, and there must be 100 percent literacy. Instead of setting up polluting thermal power plants, the emphasis of PGII is on climate action and clean energy.
Unlike Chinese projects plagued by low cost, loose standards, and hurried timelines, the PGII initiative can be a major win for global welfare and sustainable development, with its emphasis on human infrastructure at the core of the global development ambitions. The G7 countries emphasise on the promotion of health security, digital technology, and also gender equality. The PGII is, in fact, a programme to deliver quality, sustainable. infrastructure that will make a difference in people’s lives around the world. It also aims to strengthen and diversify supply chains, thus breaking the stranglehold of China in the supply of critical inputs like semiconductors that are used to control the flow of current in everyday electrical appliances.
The PGII, in fact, is a more improved version of the B3W (Build Back Better World) initiative, whose goal was to create “a value-driven, high-standard and transparent infrastructure partnership to help finance projects in developing countries”, covering areas like fibre optic cables, clean transport corridors, and clean power transmission. Under pressure from B3W, China had to reframe the emphasis of BRI projects, paying importance to green infrastructure and green energy.
At the meeting in Germany in June 2022, the G7 took a step in the right direction by addressing this shortcoming. The White House communique says: “The lack of a comprehensive approach for coordinating infrastructure investments with like-minded partners often leads to inefficiencies and missed opportunities for coordinated investments to deliver at scale”.