Is the West ready to invest? Biden’s Build Back Better World is a mild alternative to Chinese ambitions

  • In the last G7 Summit, the Built Back Better World (B3W) initiative took off with Biden’s allies by his side. 
  • While seeking a united vision for global infrastructure development for low and middle-income countries, B3W is still too ambitious to be hot. 
  • With surprisingly similar and catchy names, Biden’s B3W comes to challenge the Chinese Belt and Road Initiative (BRI), opening yet another ring for the world’s largest economies to compete in.
Source: Social Jasoos

Why is Biden’s heat level mild?

Answer: His new infrastructure global plan might be too little, too late (and too vague) 

Following the last G7 Summit, on June 12th, 2021, Biden and the rest of the leaders launched a new initiative: the Build Back Better World or B3W partnership. The White House Briefing Room Fact Sheet describes it as an affirmative initiative for meeting the tremendous infrastructure needs of low and middle-income countries. The B3W is about catalyzing hundreds of billions of dollars of infrastructure investment in the coming years by following a path guided by values such as transparency, sustainability, good governance, strong standards, and climate-friendly actions. The four main areas: climate, health, and health security, digital technology, and gender equity and equality. 

How are these values and areas related to the infrastructure needs of the developing world? Great question. It is not certain. How will financing actually work? Yet another great question lacking a serious answer. As German Chancellor Angela Merkel explained, the details on the workings of the initiative are not at a stage to be released. However, Biden assured this partnership of democracies (G7) will help narrow the 40+ trillion infrastructure needed in the developing world. 

In terms of where the money will be coming from, Biden has merely stated that the United States plans to mobilize the full potential of their development finance tools such as the Development Finance Corporation and USAID, among others. However, B3W has a global scope hence we could expect other G7 members to help out as well. From Latin America to Eurasia and Africa, Biden is attempting a unified vision for global infrastructure development. Will it work? Again, it is uncertain. 

There are two certainties one should keep in mind. The first is that, as the mentioned White House document states in its first paragraph: this measure is a direct counteraction to the Chinese Belt and Road Initiative. And the second is that debt-trap initiatives in infrastructure have failed. The best example of said failure is the Blue Dot Network initiative Trump made with Japan and Australia in 2019. Not only was this initiative unsuccessful in its goals, but it notoriously lacked any serious recognition. However, the trigger from cold to mild might come from more support from allies, which is unsurprising considering Biden’s moves to make multilateralism great again. 

Who is changing Biden’s temperature? 

Answer: More allies means more money which, in turn, could mean more roads where roads are needed. 

It is no surprise that the G7 has a lot of capital. In fact, according to statistics in 2019, these 7 countries account for 30.7% of global GDP. And while numbers are not out yet, it is safe to assume there is an immense financing capacity deriving from this partnership. Regional ties to Latin America, Central Europe, and Asia could also allow for this mild possibility to become a hot reality. 

However, the vagueness of it all highlights some problems with the initiative keeping its temperature at mild. The main issue, not only faced by the B3W but also with its moral foe, the BRI, is the unprofitability of the needed infrastructure investment. Investment tends to be profitable with large-scale projects such as six-lane motorways or lengthy railways. However, most of the infrastructure gap consists of paved streets, running water, and functional sewage systems. As Brinza states: “These aren’t exactly the business opportunities Western investors are looking for.” 

Another crucial aspect of the project keeping it mild, connected to one of its main areas, is the environment. Biden was quick to take an anti-coal investment stance which is problematic in two main ways. First, it’s quite hypocritical to demand green development from low and middle-income countries considering half of the G7 countries (mainly the US, Japan, Germany, and Canada) are among the ten nations which produce the most carbon emissions; the US alone relies on petroleum and coal for almost 50% of its overall energy. Secondly, requiring stringent green goals on infrastructure projects coils further increase their price and decrease the already low profitability of the necessary investments. 

What is driving Biden? 

Answer: There is an undeniable infrastructure gap in the developing world, and Xi seemed to notice first. 

As mentioned above, according to Biden’s communication, the world currently has a 40+ trillion infrastructure gap that undermines development where development is needed the most. So, what is an infrastructure gap? The gap lies in the need for infrastructures such as roads, ports, railways, and sewage systems, and the lack of investment to fulfill these needs. Countries like Kenya for example lacked a connection between their capital and their major ports. Others like Nepal lack a full highway system. Most sub-Saharan nations lack reliable access to water. There is a clear need for better infrastructure all around the world. 

Xi saw this very real need as an opportunity for expanding Chinese interest and business abroad. Sometimes referred to as the “New Silk Road”, the BRI is both grandiose and opaque. This vast collection of infrastructure projects includes maritime, land, and polar corridors. While Xi has never been known for his transparency with numbers, it is estimated the Chinese will have invested over $1.2 trillion by 2027. However, as with most of China’s opaqueness, the West has been critical of this endeavor. Most observers highlight the threat of debt-trap diplomacy or investment projects pushed by China that strap developing countries with debts that they cannot possibly pay off. The best example is Sri Lanka with the port of Hambantota. 

The story was simple. After the port failed to be as successful as promised, Sri Lanka defaulted in its debt and China took the port as collateral. While former Vice President Mike Pence was quick to call out this a debt trap, the reality was far more complex. The port was initially financed by the Candian Development Bank and carried out with ample studies of its viability before the Chinese stepped in. The civil war in Sri Lanka did not help either. Even though Chinese companies now own over 70% of the stock on the port, there is no solid evidence that the Chinese took control of the port.

While sinophobia could exaggerate the fear of the BRI’s “traps”, the actual economic benefits for the recipient countries are still uncertain, leading many other nations, such as Malaysia to back away from plan projects. Therefore, with the BRI losing traction, the B3W could be heating up. 

What does this mean for you? 

Answer: More investment opportunities for needed infrastructure could be around the corner

If you happen to be reading this article from a low or middle-income country, you probably suffer directly or indirectly from the global infrastructure gap yourself. While development economists have yet to find the correct path for economic growth, infrastructure is an obvious must. However, infrastructure investment must be tailored to the specific needs and it must be transparent. 

Therefore, the opaqueness and fear of debt are rightfully reasons for countries to seek options other than the Chinese BRI. Having a US-led G7 global initiative with the described liberal and democratic values could be a good alternative. Its execution, on the other hand, only time will tell. In any case, for the poorest countries, it is good news that the West is ready to invest.