Towards a common strategy
Since the G7 summit in June 2021, there have been shifts in development policy from the US, the European Union (EU) and the UK. Though these initiatives are still under development, this section will examine each and assess their strategic direction, geographic focus, funding and progress to date.
At a group level, the COP26 UN climate summit in November 2021 provided a touchpoint for declarations of continued collaboration in maintaining global connectivity and closing infrastructure gaps. Such declarations built on pre-existing G7 and G20 partnerships, and are being carried forward under Germany’s presidency of the G7 in 2022. However, outside of the G7 structure, discussions on B3W themes have primarily taken place between bilateral partners or within exclusive groups like the Quadrilateral Security Dialogue (Quad), whose leaders agreed to strengthen their ongoing infrastructure initiatives in September 2021.
The US
Build Back Better World (B3W) – since rebranded as a partnership for global infrastructure – was launched as a new initiative focused on infrastructure, and promotes values-driven, high-standard, transparent partnerships. However, only the US meaningfully used the term ‘B3W’ to describe its efforts, and the rebranding hopes to reinvigorate the promotion of partnerships. The initiative builds on the US’s position as the leading global donor of official development assistance (ODA) in 2021 (US ODA totalled $40.7 billion in that year). US development assistance is currently distributed primarily through bilateral channels.
The Biden administration has articulated clear links between its development strategy and its national security and domestic policy priorities. Strengthening partnerships and alliances and creating resilient supply chains are at the centre of this strategy. During visits to countries in Africa, the Indo-Pacific and Latin America, US officials promised investments in ‘soft’ infrastructure (i.e. institutions and services for human development), across priority areas including climate, digital technology, gender, health, security and transport.
In contrast to the years in which Biden’s predecessor, Donald Trump, pulled the US back from leadership in multilateral and international arenas, B3W attempts to reassert that leadership, grounded in democratic values, as an attractive and competitive alternative to China’s infrastructure investments. With a strong emphasis on governance and private sector leadership, B3W was viewed as a significant opportunity for the ‘wealthiest like-minded countries to mobilize their collective capacity for spurring private investment where it is most needed’.
The US hopes to use a wide array of state development finance partners in the delivery of B3W, primarily the US International Development Finance Corporation (DFC), the US Agency for International Development (USAID) and the Export–Import Bank of the United States.
Since the G7 2021 announcement, US Secretary of State Antony Blinken has embarked on several tours to countries in Africa, the Indo-Pacific and Latin America. The US focus on Latin America, which far exceeds that of other G7 countries, reflects that region’s political and economic significance to the US, as a source of migration and a partner in stemming the movement of people into the US, and in creating opportunities for ‘near-shoring’ of supply chains.
The US’s B3W strategy has so far consisted of patchwork commitments, and no overarching monetary value has been committed to date. The US’s core strategy assumes that the US is well-placed to stimulate the rise of blended finance, where US budget funding seeds a much larger potential contribution from the private sector. For example, the flagship USAID programme ‘Digital Invest’ intends to leverage $3 million in government funding to mobilize a total of $335 million from private and blended finance partners. Yet the extent to which such partners are fully onboard is not known. Direct budgetary funding is not expected to come close to that of China’s BRI. Select recent funding announcements include a $150 million commitment by President Biden in May 2022 to assist Southeast Asian countries, to be focused on areas such as artificial intelligence, clean infrastructure, digitization, health and maritime security. Similar commitments have been announced for Africa and Asia, including $3.5 million to bolster local production of vaccines via DFC, and $75 million in seven research hubs, as well as a commitment to electrify 10,000 healthcare facilities over 10 years via USAID’s Power Africa initiative.
Many recipient countries, whose investment priorities often focus on ‘hard’ infrastructure, perceive the US offering as inadequate, vague and uncertain.
Since the US initially championed the B3W strategy, it has made limited progress on rollout and implementation. Many recipient countries, whose investment priorities often focus on ‘hard’ (i.e. physical) infrastructure, perceive the US offering as inadequate, vague and uncertain. There is ambiguity over which initiatives fall within or outside of B3W’s scope, and over what specific responsibilities or targets various state agencies hold. As the domestic Build Back Better agenda stalled due to political opposition in Congress, the Biden administration sought to distance its international development assistance agenda from these domestic problems. Based on recent conversations between Chatham House researchers and members of the Biden administration, the US will rebrand the initiative as a partnership for global infrastructure, placing a heavier emphasis on collaboration and partnership with other G7 and recipient countries. But it remains to be seen whether renaming the initiative will be sufficient to achieve domestic political buy-in and to accelerate US leadership and progress in year two and beyond.
Progress has been made in pursuit of the US goal of investing in global standard-setting for high-quality infrastructure. In early 2022, the OECD released its proposal for a global certification framework for quality infrastructure investment to operationalize the Blue Dot Network, co-founded by the US and its Quad partners Australia and Japan. The Blue Dot Network is intended to incentivize investments into ‘market-driven, transparent and sustainable infrastructure projects’.
The EU
The EU’s Global Gateway is underpinned by a values-based approach promoting democratic values, high standards, strong governance and transparency. The initiative prioritizes the improvement of connectivity, via both digital and physical infrastructure, clean energy, global health security and increased education capacity.
Global Gateway attempts to move away from the traditional development finance ‘donor–recipient’ relationship towards increasing investments aimed at building partnerships rather than embedding dependency in target countries. The European Commission intends to achieve this by using a series of new financial tools like the Neighbourhood Development and International Cooperation Instrument (NDICI), which streamlines a group of previously fragmented financing initiatives.
While Global Gateway is distinct from other G7 initiatives, European Commission president Ursula von der Leyen’s comments make clear the intent for like-minded partners to demonstrate that ‘mainly democracy, value-driven investments can deliver [infrastructure] on the ground’.
At least one-half of Global Gateway funding is targeted towards Africa, with a €150 billion investment package announced at the EU–Africa summit in February 2022. A headline Global Gateway project is the designing of ‘Strategic Corridors’ – connectivity systems that leverage and build on regional infrastructure masterplans and development corridors led by regional economic communities in Africa. These corridors intend to facilitate sustainable, secure and safe mobility and trade, both within Africa and between Africa and Europe. However, events in Ukraine may prompt a shift in the geographic focus of planned EU funding.
In Asia, the EU had courted India as its main regional partner before the B3W announcement and, in May 2021, launched the EU-India Connectivity Partnership. This treats India simultaneously as a recipient and as a co-investor, collaborating with the EU on projects both in India and in third countries.
The headline figure for Global Gateway was an investment of up to €300 billion with €145 billion of ‘planned investment volumes by European financial and development finance institutions’. Via the European Fund for Sustainable Development Plus (EFSD+), guarantees and other de-risking mechanisms will be provided to enable private investment. It appears that blended finance institutions and EU funders are open to developing financial instruments to fit this purpose. However, it is unclear to what extent the various institutions have committed to unlocking investment under this strategy; €79.5 billion of funding has been approved in the EU development budget for the period from 2021 to 2027.
Global Gateway is thus far the most comprehensive and developed of all the initiatives discussed in this paper. Benefiting from the multilateral ‘Team Europe’ approach, it has gone beyond headline promises into action plans and initial investment announcements. It offers a promising model of multilateral coordination, but it is unclear whether it can match the scale and impact of China’s BRI.
In consultation with the African Union (AU) and with national development strategies, the ‘Team Europe’ institutions are building a credible pipeline of high-quality infrastructure projects, with regional commitments such as the March 2022 pledge of €8.4 billion over the next seven years to support ‘job creation, sustainable agriculture and renewable energy’ in Morocco.
The UK
The last two years have brought unprecedented change to the UK’s development strategy. Political and economic pressure led to the merger of UK government departments concerned with foreign policy and international development into the Foreign, Commonwealth & Development Office, and ultimately to a dramatic cut in UK ODA commitments by £4.6 billion between 2020 and 2021. These cuts attracted widespread criticism for their immediacy and damaged the UK’s reputation as a reliable development donor.
This restructure, aimed at creating an integrated approach to global challenges that combined development and foreign policy priorities, culminated in the release of a new UK development strategy in May 2022. This included the announcement of a ‘rebalancing’ of development spending from multilateral to bilateral channels and confirmed the deepening role of the private sector in development finance. The strategy takes a more country-specific approach underpinned by British Investment Partnerships, a packaging of mostly pre-existing financing instruments.
The strategic themes of the UK’s development finance institution (DFI) substantively predate the B3W announcement but align to a degree with the development visions of both the US and the EU. They address core pillars of climate finance (including green infrastructure), digital infrastructure transformation, and gender and diversity finance.
A tilt towards the Indo-Pacific region (while still maintaining a presence in Africa) is an example of the UK’s ongoing integration of development and foreign policy goals. The UK is looking to strengthen economic and security ties in the Indo-Pacific, as demonstrated by its application for membership of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, by its Roadmap 2030 for boosting relations with India, and by the AUKUS security partnership with Australia and the US.
The UK’s shift in development strategy demonstrates an emphasis on investment over aid and a preference for DFI delivery via increased private sector participation.
Blended finance delivery (i.e. concessional development funding that mobilizes additional private capital) via the revamped UK DFI, British International Investment (BII), is particularly prominent in the UK government’s development plans to mobilize up to £8 billion a year of public and private sector investment. There is a commitment to scale up investment to around £9 billion between 2022 and 2026, representing a 46 per cent increase on the investments of BII’s predecessor, CDC, between 2015 and 2020. However, the announcement of the new UK development strategy did not feature detailed budget allocations and total funding arrangements remain unclear.
The UK’s shift in development strategy is too recent for this paper to assess policy impact. What has been released demonstrates an emphasis on investment over aid and a preference for DFI delivery via increased private sector participation. Indeed, the term ‘aid’ was noticeable by its absence in UK foreign secretary Liz Truss’s speech at Chatham House in December 2021. The UK vision embodies historic aims of ‘mutual prosperity’ in UK aid programming, criticized for potentially undermining ‘its contribution to the reduction of poverty’. It represents one more step from the UK towards adopting ‘tied aid’ principles – i.e. conditional development finance spent on businesses from the donor country – that have been the hallmark of development initiatives by, for example, Germany, Japan, South Korea and the US. Finally, the UK’s bilateral shift raises questions about its ability to affect the development landscape and whether the vision of exclusive partnership with ‘like-minded’ allies is realistic.
Following the blueprint of Germany and Japan
Fellow G7 members Germany and Japan have long deployed similar strategies offering a blueprint for these ‘relaunches’.
Germany is recognized as a ‘leader in sustainable development and climate change’, and has historically placed climate sustainability at the forefront of its development policy, as demonstrated in 2021 by the alignment of German development policy to the 2030 UN Sustainable Development Goals (SDGs). It is ranked the highest of any G7 nation for its progress towards achieving all SDGs. Germany has also prioritized the promotion of private investment in this area, for example with its 2021 Green Infrastructure Initiative in collaboration with Indonesia. This initiative was allocated a value of up to €2.5 billion to finance green infrastructure projects and has started pre-feasibility studies for 15 projects requiring significant private sector involvement.
The aims of Germany’s 2022 G7 presidency remain consistent with their development principles. ‘[A] sustainable planet’ is the first policy priority towards a vision of more equitable global development. It is also notable that B3W themes are prominent in the German G7 agenda – particularly investment in, and promotion of, sustainable infrastructure. However, in 2020, Germany preceded the trend of other G7 members in shifting their overall approach by reducing the number of bilateral partnerships with recipient nations in favour of an approach of fostering self-sufficiency in those countries. It remains to be seen how likely reductions in bilateral funding impact the trajectory of Germany’s sustainable policy delivery.
Japan deploys a model of infrastructure-focused, private sector-led, bilateral and loan-based development which underpins its 2016 Free and Open Indo-Pacific (FOIP) vision and provides a blueprint for the three newest G7 initiatives. Japan is an emerging force in global development and is now the world leader in total official and private development flows ($32.4 billion) among OECD Development Assistance Committee members.
Critically, FOIP centres on quality infrastructure development to strengthen connectivity in Asia, where Japan delivers 62 per cent of its bilateral ODA, with over one-half of its global bilateral ODA focused on the economic infrastructure and services sector. This strategy is replicated in other regions, with economic diplomacy to assist COVID-19 recovery in Africa focusing on projects in urban infrastructure and transportation. Japan endeavours to uphold the six voluntary G20 Principles for Quality Infrastructure Investment: sustainable growth and development; raising economic efficiency; environmental considerations; resilience; social considerations; and appropriate infrastructure governance. The country’s continued commitment to enact and uphold international infrastructure standards was demonstrated further by its co-founding of the Blue Dot Network.
One year on
One year on from the Carbis Bay summit, the G7 development initiatives announced there have made some progress in terms of policy and funding, although they remain some distance from the grand promise of ‘building back a better world’. Notably, G7 government representatives interviewed for this project stated that they thought B3W was launched too early and that a lack of sufficient operational detail had hampered progress.
The US, EU and UK initiatives detailed above share similarities in their Western-values-first approach, as well as in their intent to offer a compelling alternative to Chinese finance. Their key priorities (climate, digital technology, gender, security and transport) and their overall approach (i.e. calling on the private sector and focusing on high-quality, sustainable projects) also appear to be aligned. Where G7 initiatives have diverged is in the progress made towards delivery, the extent to which ambitions have been raised and the success of political leaders in convincing their respective electorates of the link with domestic priorities.
B3W has formed part of a concerted effort by G7 nations to provide global stewardship, cooperation and leadership – primarily through multilateral institutions. This represents a welcome respite from the decline of multilateral cooperation during the early stages of the COVID-19 pandemic. For example, the G7 countries have committed 76.7 per cent of global public donor funding to the World Health Organization (WHO)’s Access to COVID-19 Tools Accelerator (ACT-A). Alternative health funding approaches to unsustainable aid financing are also being utilized, such as increased capital markets funding raised by Gavi in the International Finance Facility for Immunisation (IFFIm) and the World Bank Debt Service Suspension Initiative to support low-income countries during the COVID-19 pandemic.
However, it remains unclear whether the G7 nations fully recognize that sustainable development in developing countries is not just an act of altruism but is critical to the health, wealth and stability of their own nations. What remains to be seen is which new forms of global partnership and collaboration will emerge from the momentum of announcements and pledges, and whether multilateral cooperation and partnership will truly be reinvigorated by G7 initiatives. G7 countries have great aspirations to mobilize private capital, but it is important also to interrogate both the evolving role of donor states and where public sector leadership will be most critical.
The rebranding of G7 development initiatives does not yet appear to have affected China’s strengthening of bilateral relations with developing countries. Recent Chinese peacebuilding activities in the Horn of Africa and diplomatic alliance-building in the Pacific Islands and among Islamic countries, for example, demonstrate China’s increased willingness to engage in diplomacy with both new and existing partners, as well as recipient countries’ continued openness to working with China.
