How Will The EU Finance And Develop Its “Global Gateway” Belt & Road Alternative Infrastructure Plan?

Posted by Written by Bob Savic & Chris Devonshire-Ellis 

By Bob Savic & Chris Devonshire-Ellis

Ultimately, the EU will still need to collaborate with China

Although the EU has not yet provided details of the sources of finance for its Global Gateway program, nonetheless, EU Commissioner Ursula von der Leyen has said stated, in general terms, that the EU will look to develop these sources to “connect institutions and investment, banks and the business community”.  In practical terms this is likely to involve the EU sourcing a mix of new and existing financial resources, just as it did under the Juncker Investment Plan for Europe, which raised over €400 billion, for investments in infrastructure which had the highest GDP growth effects for lesser developed southern and eastern European member states.

Therefore, the Globe Gateway will probably extend the remit of the European Fund for Strategic Investment, or create a similar institution, which can act as a guarantor for riskier investments in the ‘Global South’, which includes Africa, the Middle East, South Asia, and Latin America amongst its larger land masses. The EU has indicated it especially wants to compete for infrastructure development projects in Africa.

Getting that funding on the table however would  require the involvement of the European Investment Bank and the European Investment Fund, which are likely to provide the institutional financial backbones of the Global Gateway, to target investments in infrastructure across continents such as in Africa, the Middle East and Asia where these institutions have been actively funding projects for a number of decades, albeit on a smaller scale than would be envisioned under the Global Gateway.

One can assume these supranational regional guarantees and international financial institutions’ involvement will also provide a secure level of foundation for European and other international private commercial banks to become involved in syndicated arrangements.

Indeed, the EU’s propensity for shared institutional arrangements may take on an added twist for investments in infrastructure such as in Africa. As an example, the EU could fuse the Global Gateway with the Green Deal for Europe, such that commercial gateways, say from Africa into Europe, involving sustainable development and high environmental standards could be financed. In the end, what is being undertaken in Europe under the umbrella of the Green Deal, in terms of managing climate change, is ultimately a global endeavour that will also require the involvement of developing countries around Europe.

There are practical and historic problems to overcome. Many EU nations, including Belgium, France, Germany, Italy, Portugal, and Spain have long colonial-era links to Africa that have created resentment and mistrust on both sides. France for example is currently involved with serious diplomatic disagreements with Algeria, Morocco, and Tunisia. The EU ‘Global Gateway to Africa’ is fraught with historical debris and hubris that may not be easy to sweep away. This is not a political problem that either China, or Russia, both heavily involved with infrastructure build in Africa, possess.

This means that over time, a more realistic route for the EU to take is for the Global Gateway to participate in co-ventures involving Chinese BRI banks and financial investors, and in certain infrastructure projects, given that European banks and companies are also becoming increasingly engaged in BRI projects, either directly or indirectly.

Examples are numerous and global, but one that it currently on commercial offer is Sri Lanka’s Colombo Port City, which the Chinese have built on reclaimed land, and is now undergoing its vertical build – commercial buildings are now going up with investors from the EU and elsewhere piling in to snap up at pre-completion prices. It is a similar story with many other BRI projects, and as Chris was once advised by China’s Minister of Commerce “Build the infrastructure and they will come.”

No doubt there are possibilities for tie-ups between China’s Asian Infrastructure Investment Bank (AIIB) and European-based multilateral financial agencies, both of which involve arrangements for European and Chinese government co-shareholdings.

So, while the Global Gateway has been touted as a geopolitical strategy to compete with China in the Global South, the practicalities, and risks for European institutions, are likely to be too high for the EU to merely go it alone.

Ultimately, the EU’s Global Gateway, from its very title, is not likely to be merely a singular project that operates solely within in its own eco-system. There are significant financial and economic risks associated with building infrastructure in the Global South, which the EU has increasingly withdrawn from funding ever since the 2008 Global Financial Crisis. China in the meantime has gained invaluable experience and connections across some of the most complex and riskiest parts of the developing world. It therefore seems inevitable that financial partnerships, of whatever kind, whether intra-EU or with other global partners, such as with China, will be an economic fact of life for the EU’s Global Gateway.

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Silk Road Briefing is written by Dezan Shira & Associates. The firm has 28 offices throughout Asia, and assists foreign investors into the region. For strategic advisory and business intelligence issues please contact the firm at silkroad@dezshira.com or visit www.dezshira.com

 

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