G7 Plans To Deliver US$200 Billion Per Annum Until 2027 To Global Infrastructure Finance
The Partnership for Global Infrastructure and Investment appears mainly to be rehashed old schemes previously known as “Build Back Better World” and the “Global Gateway”. So, what is actually new?
By Chris Devonshire-Ellis
The G7, fresh from meetings in Germany, have announced plans to introduce USD 600 billion in funding by 2027 to deliver transparent and game-changing infrastructure projects in developing countries like India, in a move seen as a counter to China’s Belt and Road Initiative. The US has promised to raise USD 200 billion of the total through grants, federal funds, and private investment, while the EU has announced a further 300 billion Euros of investment capital from similar sources. None of this money appears to be coming from existing resources saved for the purpose.
The Partnership for Global Infrastructure and Investment (PGII) was unveiled on Sunday during the G7 Summit, and relaunches a scheme unveiled at last year’s G7 talks in England. The G7 includes Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States together with the European Union, attending in an observing capacity.
Numerous powerful nations, such as Brazil China, India, Russia, Indonesia, and others are excluded. However, US President Biden said the plan would deliver returns for everyone, saying that “Today, the nations of the G7 launched the Partnership for Global Infrastructure and Investment (PGII). Collectively, we aim to mobilise nearly USD 600 billion from the G7 by 2027 to invest in critical infrastructure that improves lives and delivers real gains for all of our people. 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.”
This appears to mean that the PGII will be a series of loan finances and will have loan finance conditions attached – just as China’s Belt and Road Initiative does.
The PGII has been hailed in the West as a counter to China’s Belt & Road Initiative, which was launched by President Xi Jinping in 2013. That scheme provides financing for emerging countries to build infrastructure such as ports, roads, and bridges.
There do appear differences between the two. China’s BRI is often rather more pragmatic, and appears to concentrate on hard finance and returns, with an aim of developing infrastructure that will lead to and from China. Recipients have varied in terms of political and religious ideologies, with China apparently making no concessions either way – as an officially atheist country it is not tied to issues concerning religious doctrine, nor has China been phased by lending to democracies or autocratic states.
US President Biden however has apparently sought to create barriers in terms of accessing the PGII by stating that “The PGII scheme would allow countries to “see the concrete benefits of partnering with democracies” suggesting there is a political element, or requests that recipients adhere to a type of democratic value system.
This is hard to judge, as democracies exist in varying shapes and forms. Critics imply that this actually means agreeing to follow US Foreign Policy under the auspices of ‘democratic values’ when numerous nations, including the United States, have used the democratic process – and in some cases are increasingly doing so – to impose undemocratic results.
Biden said the PGII will “mobilise strategic investments in areas vital to sustainable development and our shared global security.”
The White House, in a fact sheet, said that “the US will mobilise hundreds of billions of dollars and deliver quality, sustainable infrastructure that makes a difference in people’s lives around the world, strengthens and diversifies the supply chains, creates new opportunities for American workers and businesses, and advances our national security.”
It said that President Biden will announce that the US aims to mobilise US$200 billion for PGII over the next 5 years through grants, federal financing, and leveraging private sector investments.
“Together with G7 partners, we aim to mobilise USD 600 billion by 2027 in global infrastructure investments. And this will only be the beginning. The United States and its G7 partners will seek to mobilise additional capital from other like-minded partners, multilateral development banks, development finance institutions, sovereign wealth funds, and more.” the White House said.
It is unclear exactly what this means, although references to multilateral banks imply use of Western institutions such as the European Bank of Reconstruction and Development, the Federal Infrastructure Bank and potentially extend this to the International Monetary Fund. The reference to the Sovereign Wealth Funds suggest that the national funds of the G7 themselves are to be used in a policy that appears to be, in press statements and explanations alone, a US derived policy. It is unclear how much the PGII will be able to hold sway over Sovereign Wealth Funds or what the draw-down mechanisms and approvals would be.
Concerning India, the White House fact sheet said the U.S. International Development Finance Corporation (DFC) will invest up to US$30 million in Omnivore Agritech and Climate Sustainability Fund 3, an impact venture capital fund that invests in entrepreneurs building the future of agriculture, food systems, climate, and the rural economy in India.
It said the Fund seeks to invest in companies that increase food security and promote both climate resilience and climate adaptation in India, as well as improve the profitability and agricultural productivity of smallholder farms.
The Fund is targeting a US$65 million first close in September 2022 and a final close in 2023 to reach its target capitalization of US$130 million. Through this investment, DFC expects to mobilize US$30 million in private capital, the fact sheet said.
While India may be a recipient of DFC funding, it appears significant that this amount is both being mentioned within the remits of the DFC leading one to wonder if the money is actually being counted twice. It is also true to say that a target capitalisation of US$130 million is a relatively small amount for India and a drop in the bucket compared to the US$200 billion said to be in the pipeline each year.
The problem with these announcements is that the world has heard this before. They tend to be either unrealistic as the funding sources have not yet agreed to any projects, or appear to be doubled down as existing financing (such as that from the DFC) now badged under the PFII, whereas no real new financing has really been involved.
It also remains unclear how the European banking and private sector will react to policies that in the words of the White House seem designed to “create new opportunities for American workers and businesses” without any mention of benefits for European nationals, despite the apparent intention to use other G7 sovereign wealth funds.
European Commission President Ursula von der Leyen said the aim of the latest project was to present a “positive powerful investment impulse to the world to show our partners in the developing world that they have a choice” which appears to imply a need to be seen to compete with China rather than a need to provide much-needed infrastructure investment where it is needed.
That suggest much of the PGII has been created as American and European spin for their domestic audiences. What is actually on the table as a return on investment for Europeans, and whether the funding really exists, and who will ultimately finance it and reap returns – remains as usual, an elusive answer to a big, multi-billion-dollar headline. Without the details, such gestures remain empty – just as ‘B3W’ and the ‘Global Gateway’ appear to have been before this ‘new’ initiative. Because if they really existed there wouldn’t be any need for the PGII.
Another view of how the GPII is perceived can be seen in that the worlds stock markets ignored the GPII US$600 billion announcement. In fact NASDAQ declined slightly on Monday after Sunday’s GPII announcement as did markets in Hong Kong and London, meaning no-one was very impressed by GPII and there isn’t any real belief or market sentiment in it either.
Chris Devonshire-Ellis is the Chairman of Dezan Shira & Associates. The firm assists British and Foreign Investment into Asia and has 28 offices throughout China, India, the ASEAN nations and Russia. For strategic and business intelligence concerning China’s Belt & Road Initiative please email firstname.lastname@example.org or visit us at www.dezshira.com