The world urgently needs leadership and action to assist developing economies in overcoming multiple global challenges, thereby ensuring a more secure, peaceful and sustainable world for all. With the B3W initiative, G7 countries have laid out an ambitious and compelling vision for building a ‘better world’. But much work remains to be done to achieve the reality, especially in the context of regular dynamic shocks in geopolitics and economics.
The private sector in both donor and recipient countries will be fundamental to delivering the development visions, but state leadership remains key. Experts at a roundtable discussion supporting this project expressed the view that appropriate incentives from both Western governments and multilateral institutions are critical to unlocking private capital for development, not least because direct public funding is likely to remain at low levels amid a challenging post-COVID-19 economic environment. Appealing to domestic capital markets and developing manufacturing capacity in recipient countries are therefore central to such private sector incentivization. This would enable infrastructure projects to be achieved in line with G7 goals, and to be delivered locally and quickly.
This outcome requires not just a greater appetite for financial risk, but also a sharing of the burden between those who impact the institutional investment environment and the private institutions themselves. G7 and like-minded nations must also cooperate in information-sharing, with the aim of learning from the strengths of more established development initiatives – such as Japan’s focus on rules-based order and delivery of quality infrastructure, and Germany’s mainstreaming of green and sustainability principles.
Finally, there is a critical need to look beyond nation states and G7 boundaries to assess the suitability of the IMF and the World Bank – and other Bretton Woods institutions – to the current international development context.
If the goals outlined in June 2021 are to be achieved, several policy priorities must be addressed as these development initiatives enter their second year. This paper offers the following policy recommendations to the G7 countries and the EU:
- Reimagine international development partnerships and financing institutions to fit the needs of global recovery and resilience. Focus on partnership, inclusivity and action. Currently, the G7’s institutional architecture is not fit to deliver on development objectives at a global scale. Existing multilateral frameworks also lack the efficiency, efficacy and funding mobilization to address development needs with urgency. The US, other G7 nations and the EU must redesign development partnerships with third countries – whether through existing or new mechanisms, via bilateral or multilateral channels. DFI cooperation and reform must take higher priority, and financial instruments that urge and incentivize investment must be deployed.
- Implement with urgency and coordination. G7 members need to move on from rhetoric to taking coordinated, thoughtful action with urgency and financial backing. There is a need for greater specificity of budgets and spending commitments. Clarity is required on the leadership role that donor countries intend to take, as well as on how various initiatives will fit together. Such clarity will enable recipient countries and their private sector actors to build momentum, provide direction and encourage partners to scale and accelerate impact.
- Engage meaningfully and equitably with recipient countries. Next-generation development initiatives must prioritize equitable partnerships with recipient countries by engaging them in meaningful co-development of strategies and project pipelines. The G7 countries must rebuild trust by prioritizing partner-country needs over their own national security and domestic priorities. They must also recognize that recipient countries have an increased range of options, and that prioritizing donor-side objectives is likely to be counterproductive.
- Simplify private sector participation in development initiatives. G7 powers must work with the private sector, other G7 initiatives and recipient countries to streamline participation channels, thereby reducing costs and other burdens on firms that are interested in activating funding. G7 initiatives must broaden the range of private sector partners to include recipient-country financial institutions and enact demonstration projects that test creative financial instruments that are deemed fit for purpose. They must also leverage the strengths and participation of both the public and private sectors, including institutions from donor and recipient countries.
- Look beyond zero-sum competition with China towards the long-term, collaborative global leadership needed to address the challenges of the next century. G7 countries must recognize that to truly ‘build back better’, stability and prosperity in developing countries are critical to the G7’s own peace, security and economic growth. Cooperation with China and other non-Western development partners is necessary for success. Development initiatives need to be considered separately from other areas of geopolitical tension and conflict between Western countries and China. The G7 will need to explore opportunities to bring China into global standard-raising processes. Collaboration on project funding or implementation can leverage the strengths of individual partners, while acting in the best interest of recipient countries.
