G7 proposes major international infrastructure push

Construction underway with rising steel and concrete

Global development plan would counter Chinese influence but commitments have yet to be made.

The G7 has discussed a new global push to fund infrastructure around the world as a counter-point to the Chinese Belt and Road scheme. If those discussions turn into action, the opportunities for developing nations to upgrade infrastructure would be profound.

China’s Belt and Road programme is estimated to have funded nearly $4tn of infrastructure, primarily in Africa and Asia. That funding is designed to help re-orientate global trade – particularly in valuable raw materials so as to help secure China’s long-term economic capacity for growth.

Western nations have grown concerned with China’s programme for several reasons. Many fear its relative disinterest in promoting human rights and democratisation will entrench bad practices around the world. There is also a growing concern that China is repeating past global mistakes, tying aid to what will eventually prove to be crippling new third world debt.

So when president Biden suggested a counter-programme of infrastructure funding, attention turned to how this might support greater emphasis on democracy, social impact and sustainable development for beneficiary countries.  The G7 programme is, however, presently only a proposal and there are significant concerns about whether it will really amount to major investment in global infrastructure and climate-adaptation.

Several G7 countries are wary of positioning a new programme as a confrontation with China because co-operation is so crucial to the world’s hopes of tackling climate change. There are also other strategic areas of progress being supported, such as an eventual treaty on the South China Seas that might help ease tensions in the region.

Perhaps more importantly, there is a question of how big the project might be and how it will be funded. One G7 country – the UK, who hosted this summer’s summit – has significantly scaled back international development funding recently amid concerns about its own faltering economy. Other countries have also yet to specify how much they might commit to the project via their existing international development budgets or above and beyond them.

The one clear proposal for how to finance the project came from France, which has suggested reallocating billions of dollars of rich nations’ special drawing rights. These are foreign exchange reserve assets maintained by the IMF that could be reallocated to finance infrastructure projects in poor countries. This would also open the programme up to being funded by other rich countries that aren’t part of the G7 but are aligned to their interests through NATO or the EU. 

While the plans are at an early stage, the potential for them to significantly add to sustainable infrastructure funding around the world will offer real hope for tackling climate change. Indeed, the summit saw commitments made to decarbonisation targets for 2030, not just 2050, which suggests the G7 is finding a greater shared interest in climate change than in the recent past. 

Sceptics, however, will rightly note that announcements are easy and action is often much harder. In the run up to this summit, green campaign groups highlighted past promises of $100bn of green financing that have resulted in only around $30bn of actual spending, of which only a third is believed to have directly funded projects on the ground.