Amid rising inflation and debt levels in emerging markets, in June 2022 G7 leaders pledged to raise $600bn in private and public funds over five years to finance infrastructure in developing countries and counterbalance the influence of China’s Belt and Road Initiative (BRI). The Partnership for Global Infrastructure and Investment (PGII) seeks to address many of the long-term global challenges related to climate change, energy and food security, ICT, health and gender equity. Led by the US, which has pledged $200bn, or one-third of the total investment, the PGII is a rebranded, slimmed-down version of the G7’s Build Back Better World, announced at the summit in June 2021, with the goal of narrowing the $40trn infrastructure gap in the developing world.
Counterbalancing
Although a sizeable investment package, the PGII is not expected to eclipse China’s investment under the BRI. Though exact figures are unknown – China does not disclose information on overseas lending – a study by the think tank International Institute of Green Finance of the Central University of Finance and Economics in Beijing estimated that China invested $755bn in BRI projects between 2013 and June 2020. Other analysts put total investment more than $1trn – and perhaps higher if private partnerships involving Chinese companies are included. Global financial data company Refinitiv estimated that the combined value of BRI and other projects with Chinese involvement stood at $4.3trn as of September 2020.
Annual investment under the BRI has slowed in recent years, from a peak of $125bn in 2015 to $60.5bn in 2020 and $59.5bn in 2021, according to a report from Green Finance and Development Centre, a research and advisory firm. This suggests that the PGII investments could outpace the BRI going forwards if this trend continues.
At the geopolitical level, in addition to counterbalancing China’s influence in emerging markets, the PGII is being taken as a signal that the US and the G7 are attempting to chart a more sustainable future for the global economy. It follows the EU’s $300bn Global Gateway strategy, which was announced in late 2021 and aims to build more sustainable energy, digital and transport links around the world, particularly in Africa. The US, for its part, launched the Indo-Pacific Economic Framework for Prosperity in May 2022 to bolster similar linkages in Asia.
Targeted Sectors
It remains unclear which specific projects will receive funding from each of the G7 nations, as only the US has released information on its initial pledges. According to an official statement, US investment in the PGII will be directed towards four areas: climate and energy, ICT, gender equity and health. Of the 10 flagship projects the administration of US President Joseph Biden announced, three target the global energy transition.
Some $2bn in public and private funds were designated to develop solar power in four provinces in Angola, which has pledged to generate 70% of its power from carbon-free sources by 2025, in line with the Paris Agreement. Another $14m was earmarked to support nuclear power in Romania, including the front-end engineering and design study for the deployment of a first-of-its-kind small modular reactor plant. The US Agency for International Development, meanwhile, will deploy a $40m investment and a projected $2bn in financing to South-east Asia’s Smart Power Programme, which aims to decarbonise and strengthen the region’s power system.
Infrastructure investment in ICT is also notable, with the US pledging to raise $335m to bolster internet service providers and financial technology companies in Africa, Asia and Latin America. The US has committed another $600m to build the South-East Asia-Middle East-Western Europe 6 submarine telecommunications cable connecting Singapore to France through Egypt and the Horn of Africa.
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