By Oyintarelado Moses and Keren Zhu
Last month, the United States and the European Union launched new agreements under the Partnership for Global Infrastructure and Investment (PGII) on the sidelines of the G20 meeting and the European Commission announced the Global Gateway’s (GG) Team Europe Initiative on Climate Change Adaptation and Resilience in Africa at COP27.
These developments, alongside China’s Belt and Road Initiative (BRI), promise to address the immense infrastructure and climate finance gaps in the Global South. How do the PGII and BRI stack up against each other? And when it comes to seeking finance for projects, how can recipient countries maximize the benefits of these opportunities?
Our new research provides an overview of the BRI and the PGII, describing the similarities and differences to determine to what extent the initiatives complement one another and offer effective options for recipient countries.
In terms of commonalities, both initiatives have similar scopes and goals. They both contribute to addressing infrastructure gaps through the provision of development finance. Second, both initiatives were first announced as initiatives of intent, but as their governments developed guidelines, the initiatives moved into implementation. Third, the initiatives have served to rebrand the efforts of their development finance institutions to fit their respective geo-economic strategies. Fourth, collectively, both initiatives aim to bolster domestic growth within China and Group of Seven (G7) countries by supporting the corporate actors that expand market share in recipient countries with the support of development finance.
On the other hand, they have some notable differences. The BRI has largely supported “hard” infrastructure projects, such as ports, roads, dams, railways, electric power plants and telecommunication facilities due to China’s comparative advantage in cost and project turnover in traditional infrastructure. BRI institutions have supported these projects at a large scale, primarily with public finance from China’s policy banks to limited success and leveraging private capital. In contrast, the PGII appears to be largely targeting “soft” infrastructure, namely improvements in climate, health and health security, modernized digital technology and gender equity and equality. These project types are smaller in investment scale and are funded through smaller amounts of public finance meant to catalyze the involvement of the private sector.
The initiatives also approach coordination differently. China’s Belt and Road Construction Leadership Group appears to lead coordination between BRI institutions, while the PGII has yet to generate an overarching coordination mechanism across all G7 countries that builds on each country’s domestic institutional coordination.
Given such similarities and differences, the BRI and PGII should consider collaboration to complement each other in the long run or alternatively complementary competition in the short run. Through collaboration, institutions within these initiatives could learn from one another’s comparative advantages and support different aspects of the same project based on their competitive edge. Within complementary competition, institutions would not compete solely on the most bankable or less risky deals, but spread their capital across a diverse set of projects that leverage their comparative advantages while strengthening risk mitigation practices.
Given such high potential for these initiatives and widening infrastructure finance gaps, competitive infrastructure initiatives may provide a diverse set of options for countries in the Global South to explore different pathways to economic development.
Recipient countries should leverage the differences in the initiatives to negotiate the best deal for their development projects. They can choose to work with certain partners based on their own preferences for financing options, contractor services, standards and bilateral relationships. Requesting more concessional finance is also on the table since these initiatives could produce more blended finance options based on their ability to coordinate multiple financing institutions across their respective governments. Ultimately, recipient countries can choose to work with any or all partners based on their needs, rather than geopolitical concerns.
While the temptation for great power competition between China and the G7 has never been greater, global infrastructure finance must be seen as complementary. The stakes are too high for infrastructure finance to be another zero-sum game.
Oyintarelado Moses is the Data Analyst and Database Manager for the Global China Initiative at the Boston University Global Development Policy Center.
Keren Zhu is a Global China Post-doctoral Research Fellow at the Boston University Global Development Policy Center. She holds a Ph.D. in Policy Analysis from the Pardee RAND Graduate School.