Leaders of the wealthiest democracies meeting in Germany’s Bavarian Alps for the G7 Summit have announced a $600bn lending initiative to fund infrastructure projects in the developing world, which they say will have a particular focus on Africa.
The leaders of the G7 – which comprises Canada, France, Germany, Italy, Japan, the US and the UK – say that the Partnership for Global Infrastructure Initiative (PGGI) will help to close the infrastructure gap in developing countries and will provide an alternative to China’s Belt and Road Initiative (BRI), an infrastructure and investment programme spanning multiple continents.
Initiated by the US one year ago at the last G7 Summit in Cornwall, UK, the PGII was officially launched at this year’s meeting by President Joe Biden and German Chancellor Olaf Scholtz, with the announcement of flagship projects for Africa and other regions.
The G7 wants to make the world a better offer on infrastructure investment. Today, we are re-launching our joint work as “Partnership for Global Infrastructure and Investment" – @Bundeskanzler at a side event of the G7 Summit. #G7GER pic.twitter.com/PqTEOdsRfI
— G7 GER (@G7) June 26, 2022
US takes the lead
Biden has announced that the US will mobilise $200bn for PGII over the next five years through grants, federal financing, and leveraging private sector investments.
Several deals have already been announced under the new initiative. Biden said that the Angolan government has signed a $2bn contract with two American companies, AfricaGlobal Schaffer and Sun Africa, to implement various solar-powered utilities including solar mini-grids, solar phone booths, and home-power kits in four southern Angola provinces by 2025.
After a business mission to West Africa by the US Chamber of Commerce earlier this month, the Philadelphia-based company ABD group was awarded $320m for the building of 100 hospitals and clinics across Côte d’Ivoire.
Last week, the US International Development Finance Corporation (DFC) announced a $15m equity investment in Norrsken22 Africa Fund, and $25m in Uhuru Growth Fund, to drive capital growth in African tech companies and consumer-facing SMEs respectively.
African countries will also benefit from the Digital Invest Program, a blended finance programme launched by USAID, which aims to gather $335m in private capital to supply secure network equipment in Africa, Asia, and Latin America.
“These deals are just some of what’s in store. And we’re ready. We’re ready to get to work, together, all of us,” said President Biden at the launch.
G7 counter-offensive to China’s Belt and Road
On Monday, South Africa President Cyril Ramaphosa and Senegal’s President Macky Sall, current chairperson of the African Union, joined the meeting in talks expected to touch on the initiative and other areas of mutual concern, including the global economic fallout of Russia’s war on Ukraine.
The meeting with the G7 comes just a few days after the two presidents appeared at the 14th BRICS Summit virtually hosted by Beijing, in which the Chinese government called for multilateral cooperation between members who wish to reform what it sees as a Western-dominanted multilateral system.
Analysts say the launch of the PGII at the current G7 Summit shows the West’s ambition to compete with the Belt and Road Initiative, launched in 2013.
Biden alluded to the political ambitions of the scheme in his comments at the launch.
“…when democracies demonstrate what we can do, all that we have to offer, I have no doubt that we’ll win the competition every time,” he said.
In a tweet, UK foreign secretary Liz Truss was even more direct in linking the provision of “honest, reliable finance” to the G7’s wider political goals.
“Acting as an economic NATO, the G7 will offer an alternative to investment from autocratic regimes,” she said.
According to the China-Africa Research Initiative, Beijing is believed to have signed some 1,141 loan commitments worth $153bn over 2000-19 in Africa, mostly in large-scale infrastructure projects, some of which falls under the Belt and Road initiative.
According to a Chatham House report, it is difficult to estimate the overall cost of the BRI due to the lack of transparency around its funding but Beijing has not pledged any new state capital to the initiative since 2019.
“Worsening relations with the US have caused Beijing to rethink its approach to the initiative and the risk involved. Ambitions have been scaled back to China’s immediate sphere of Southeast Asia, South Asia, and Central Asia, with less investment in Europe and Latin America,” say the authors.
Yet Chinese finance has proved controversial when countries have struggled to repay loans. Last week, Zambia launched talks with China and Paris Club lenders in a bid to renegotiate external debts of $17.27bn, approximately $6.6bn of which is held by 18 official and commercial Chinese financiers.
The China-Africa Research Initiative estimates that another 18 African countries are in talks with China about renegotiating their debts.