There are currently four challenges that could prevent successful delivery of the G7 development visions and initiatives towards global recovery.
Changing priorities amid the Russia–Ukraine conflict
Russia’s invasion of Ukraine has diverted global attention towards assisting Ukraine and deterring the threat of war from spreading across the European continent into neighbouring countries. In the short to medium term, funding of development initiatives is likely to be deprioritized in favour of more urgent needs in European defence, humanitarian aid for Ukraine and addressing the war’s impact on global supply chains. This was demonstrated by Congressional approval for US funding of nearly $53 billion towards the Ukrainian war effort in early 2022.
The unstable economic outlook carries key risks for successful delivery of development strategies, as inflationary pressures and interest-rate fluctuations will potentially reduce funding for development finance even further.
Beyond defence, impacts on food and energy security threaten cost of living increases and rising inflation globally, but particularly in vulnerable economies. Increased prices and shortages of supplies are triggering cascading risks such as political instability and upheaval of systems of governance, as well as potential conflicts that destabilize the arena for development. The unstable economic outlook also carries risks for donor countries’ successful delivery of development strategies, as inflationary pressures and interest-rate fluctuations will potentially reduce funding for development finance even further. Recipient countries must also prioritize immediate humanitarian concerns – such as food, fuel, livelihoods, peace and security – leaving little government capacity to engage in long-term development projects.
Commitment to funding
Even without the war in Ukraine and the ensuing geopolitical uncertainty, funding pledges in development finance are traditionally hard to fulfil, and it is important to acknowledge the historic disparity between commitments and disbursements. Between 2002 and 2019, G7 members’ bilateral ODA disbursements were 9 per cent below the amount initially committed. Over the same period, EU institutions disbursed 24 per cent less development finance than they had initially committed – a shortfall of over $84 billion.
For infrastructure-related development funding, there is an even starker disparity between commitment and disbursement. The OECD and WTO-led Aid for Trade (AfT) initiative (where 55 per cent of disbursements in 2017 were categorized as being for ‘economic infrastructure’) shows that, between 2009 and 2019, G7 nations disbursed on average 19 per cent less AfT ODA funds than had been committed, with Japan disbursing 32 per cent less than it had committed over the same period – a shortfall of over $33 billion. While noting that in the infrastructure sector it can take several years for initial commitments to be met, it remains unlikely that all commitments will be fully disbursed.
Fragmentation
Despite its collective announcement in June 2021, the G7 has so far failed to create an overarching framework for the governance of development initiatives broadly associated with the B3W agenda. As a ‘quintessential informal governance group’, the G7 has not historically operated as a vehicle for delivering policy, and has lacked the kind of institutional architecture enjoyed by international multilateral organizations. Rather, it has acted as a body that engages intermittently with international organizations or that shapes the bilateral programmes of individual G7 members. Tellingly, experts from G7 governments, DFIs and academic researchers who gave confidential interviews to inform this project had little understanding of the policy strategy or delivery mechanisms for B3W and other related initiatives.
There is a significant opportunity for donor agencies to collaborate on specific projects or programmes, leveraging the skills and funding of each partner. The existence of parallel initiatives by G7 members in the same sectors heightens the risk of inefficient channelling of limited funds. A clearer division of labour among G7 members, based on preferential geographies, might prove to be more efficient. Such a shift has been signalled by initiatives mentioned in this paper – for example, the US and Latin America and the EU’s Global Gateway and Africa. That being said, competition could benefit recipient countries, offering choice between partners and potentially driving up quality through competitive bidding.
The Blue Dot Network has helped to coordinate progress at a global level towards increased standards for infrastructure investment. However, much more needs to be done to operationalize activities around the world, including gaining the support of developing countries. Most recently, the US pledged in February 2022 to design an Indo-Pacific economic framework that focused on partnership with like-minded Quad and Association of Southeast Asian Nations (ASEAN) members in digital transformation and on the energy and climate transition. Such partnerships are critical when continued economic sanctions in a fractious geopolitical environment will naturally drive countries away from multilateral development delivery to pursuing a bilateral agenda – as the UK’s recently launched development policy has signalled.
Establishing genuine and equitable partnerships with recipient countries
The G7 has stated its desire to empower countries through developing equal partnerships and shifting away from traditional donor–recipient power relationships, or by offering an alternative to allegedly unsustainable debt practices from China. But it remains unclear to what extent G7 countries are ready to embrace new practices that are acceptable to, and desired by, recipient countries.
There is a large deficit of trust in relations with recipient countries, who are fully aware that the G7’s primary motivation to reinvigorate development initiatives is to counter China’s geopolitical influence. By making countries feel like pawns in a global power competition, donor countries will fail to win support. The G7 must first work to rebuild trust by focusing on the needs, strategies and agency of these countries and committing to form truly equal partnerships. To achieve this, G7 development initiatives must invite those countries and regional organizations to lead the co-development of plans and projects. G7 countries must refrain from focusing on ‘supply-side’ strategic development that prioritizes their own economic and geopolitical interests.
It is important that B3W actors take account of the factors that have made China’s offering attractive to would-be partners, as well as its subsequent pitfalls. The BRI has been willing to engage on a myriad of projects that Western development institutions have rejected – whether due to their high cost, their perceived risk as being ‘unbankable’ or their lack of alignment with geopolitical interests. It must be noted that some of these projects have later fallen into financial or operational distress.
G7 development initiatives offer an opportunity for funders to expand criteria and creativity to fit local needs. However, G7 countries must avoid approving or designing further unsustainable projects. Another key pillar is respecting and upholding existing development planning. China’s approach centres on values such as sovereignty and non-intervention, which have enabled recipient countries to craft development partnerships that prioritize their own agency and ideas. For example, the AU’s Vision 2063 is the primary roadmap for development on the African continent, complemented by national and regional development visions. While promoting Western values may be viewed as a key differentiator by those proposing G7 initiatives, recipient countries remain sceptical as to whether these values translate to interventionism. Many recipient countries have a complex colonial history with Western states, and sensitivities remain around actions perceived to distort domestic governance and national priorities.
Although G7 development initiatives have ambitions to raise infrastructure quality by improving standards, a core tension exists over certain essential projects that are perceived to be high-risk due to poor governance, corruption or other similar issues. In practice, by upholding strict standards without allowing for nuance, G7 initiatives may not be able to effectively address the infrastructure gap on the African continent, leaving high-risk projects to partners such as China that are perceived to be more accommodating.
Finally, greater channelling of funds through DFIs in a time of geopolitical shocks exacerbates the risk of unequal geographic distribution and the widening of the development gap between low- and middle- income countries. For example, in the early months of the COVID-19 pandemic, between March and October 2020, it was found that ‘only two per cent of total investment with a national scope [made by DFIs] is in low-income countries’.
