The Biden administration has put infrastructure at the heart of its foreign policy agenda, announcing earlier this year that the US alongside other G7 members would roll out a new wide-ranging global initiative. But will the US really be able to solve the multi-trillion-dollar infrastructure gap in emerging markets through agencies such as US Exim, and take on China’s Belt and Road Initiative in the process? Felix Thompson reports.


Less than a year after entering the White House, President Joe Biden has made substantial headway in advancing one of his core election pledges and a key item on his policy agenda – infrastructure.

At home, the Biden administration has been engaged in a political battle on Capitol Hill to pass a huge infrastructure bill that the president envisages will create millions of jobs in the US, while funding the repair of roads and bridges and spurring on the energy transition.

After much corralling and negotiating between both sides of the aisle, the Senate passed a US$1tn bipartisan infrastructure package in August which, as of press time, is facing a vote in the Democrat-controlled House of Representatives.

Beyond its borders, the administration has also laid out plans for bridging the estimated multi-trillion-dollar infrastructure funding gap in developing countries around the world.

In June, the US and other G7 countries announced in a joint communique that they would work “to develop a new partnership to build back better for the world, through a step change in our approach to investment for infrastructure”.

Details on the proposal were limited, but the memo outlined plans to inject capital into emerging market projects with an environmental, social and governance (ESG) focus.

Money would be directed towards infrastructure and technology in emerging markets, with a focus on health systems, security, digital solutions and the impact of climate change, it said.

The White House shed further light in a statement released around the same time, which framed the new initiative – billed the “Build Back Better World” (B3W) plan – as a means for “strategic competition with China”.

According to the US, B3W will offer a “value-driven, high standard and transparent infrastructure partnership led by major democracies to help narrow the US$40-plus trillion infrastructure need in the developing world”.

Existing development finance tools are expected to be used alongside private sector investment to “catalyse hundreds of billions of dollars of infrastructure investment for low and middle-income countries in the coming years”, the statement said.

G7 partners will each have their own geographic focus, but the plan is global in scope, targeting Latin America, the Caribbean, Africa and the Indo-Pacific.


Taking on the BRI?

The announcement of the B3W initiative had been hinted at months before, when President Biden reportedly raised the prospect of an infrastructure strategy to rival the Belt and Road Initiative (BRI) in a call with UK Prime Minister Boris Johnson in March.

According to Reuters, Biden said: “I suggested we should have, essentially, a similar initiative, pulling from the democratic states, helping those communities around the world that, in fact, need help.”

While the White House did not make any direct mention of the BRI in its post-G7 summit press statement, numerous analysts have said the B3W plan is a clear and direct attempt to address G7 concerns over China’s infrastructure strategy.

“These include, for example, a lack of transparency around Chinese lending, corruption, unsustainable debt, adverse environmental and social impacts, and projects with dual-use potential,” said the Center for Strategic and International Studies (CSIS), a Washington DC-based think tank, in an analysis in June.

Since its launch in 2013, the BRI has pumped trillions of dollars-worth of Chinese investments into infrastructure projects globally and, in the process, also helped grow bilateral trade with participating nations.

While it is difficult to estimate the full size of the BRI, given the lack of key performance indicators or formal membership protocols, goods trade volume between China and participating countries surpassed US$6tn from 2013 to 2018, with an average annual growth rate of 4%, according to data from state-owned newspaper China Daily.

Over the same period, Chinese companies’ direct investment in countries involved in the BRI exceeded US$90tn, with an average annual growth rate of 5.2%.

Such funding has helped spur on a vast array of projects in emerging markets, including ports, roads and airports.

Yet, Beijing has reined in the financing power of the BRI in the wake of debt problems in countries such as Sri Lanka and Pakistan.

According to CSIS, Chinese investment has “plummeted” since a high of 2016, when infrastructure spending topped US$50bn. It adds that in 2019 both infrastructure investment and overall spending dipped below US$10bn for the first time since the BRI’s launch.

“China’s BRI has significantly pulled back in recent years, underscoring Beijing’s challenges in managing the endeavour and presenting an opportunity for G7 countries to offer competing alternatives,” it says.

However, government officials in developing regions have shown little inclination they will turn their back on lending from the Asian superpower.

Speaking at a press conference in June, in the wake of the G7 summit, South African President Cyril Ramaphosa said that “no single partner in the world” could develop Africa alone.

“We want a multi-partner type of process in investing on our continent…. We can never say that there is a threat to China, or pushing China out. We are very inclusive, we don’t see the exclusion of one, at the expense of the other.”

Some experts have also questioned whether the B3W is ready to take on the BRI in the near future.

Harry Broadman, managing director and chair of the emerging markets practice at Berkeley Research Group, tells GTR that G7 countries have to date released few details on the B3W plans.

“Despite some of the BRI’s core flaws, at least it has a structure and an objective – even if you disagree with them. Usually when programmes like this [B3W] are announced and put into a communique, there is substantial amount of homework done and research papers are released. But months after the G7 summit, there’s been very little information published.”


Private capital concerns

Key to the B3W will be the use of development finance to harness private sector capital, which the White House says will catalyse “hundreds of billions” of dollars of infrastructure investment in the coming years.

CSIS says in its analysis that the private sector is undoubtedly where “untapped financial firepower resides”.

It points out that wealth and money managers now handle an estimated US$110tn, with pension funds, insurers and sovereign wealth funds all seeking reliable long-term returns.

“But only a small fraction of this vast amount is invested in infrastructure, and developing economies, in particular, have appeared too risky for many investors,” it says.

To unlock such capital, the Biden administration has championed the role of multilateral development banks, as well as the country’s own development finance institutions.

“As a lead partner in B3W, the United States will seek to mobilise the full potential of our development finance tools, including the DFC [the US International Development Finance Corporation], USAID, Exim, the Millennium Challenge Corporation, and the US Trade and Development Agency, and complementary bodies such as the Transaction Advisory Fund,” it said.

In the time since, the US government has provided little information about how these government agencies will help facilitate the B3W, while the Export-Import Bank of the United States (US Exim) was not available for comment when asked what role it might play in the infrastructure initiative.

A March report from the Council on Foreign Relations, co-authored by former US Treasury Secretary Jacob Lew, suggests US Exim should widen the scope of a recent domestic content policy change made as part of its Program on China and Transformational Exports.

As reported by GTR in January, the bank’s board agreed to cut the minimum local content required from 85% to 51% for transactions in 10 key sectors.

“This new content policy should be broadened to cover all US Exim loans because the 10 areas identified do not encompass every sector in which the United States should compete with China,” the report says. “For example, in nuclear energy and traditional infrastructure, such as ports.”

The G7’s decision to rely heavily on private money for its B3W plan has puzzled some analysts.

Dr Yu Jie, a senior research fellow focusing on China at think tank Chatham House, said in June that the BRI faced hurdles in attracting private sector backing and suggested the G7 may encounter similar problems.

“For the B3W, I’m just questioning how the G7 governments will be able to convince the private sector to join this initiative, building a level of sustainable return on investment,” she said during a BBC World Service broadcast following the June summit. “The private sector will find it a hard sell to the shareholders.”

Berkeley Research Group’s Broadman says that it’s not clear how the B3W support will differ to what is already on offer from multilateral development banks such as the World Bank, the African Development Bank or the Asian Development Bank.

“The G7 is already financing these types of programmes in a number of countries, and they have been for years. While there may be problems with these existing tools, I’m not sure there’s a need to create a whole new initiative,” he tells GTR.