What Private Capital Cannot Do Alone: The Future of Global Infrastructure Development (carnegie)

For Global South governments to treat the United States as a credible partner in their economic development plans, U.S. policymakers must tackle the macroeconomic and structural constraints that kneecap the overall goals of sustainable development.

(This essay was published on December 20, 2024, through the Carnegie Endowment's Sustainability, Climate, and Geopolitics Program, which is running the U.S. Foreign Policy for Clean Energy Taskforce. I am excerpting the introduction of the piece here, and you can read the rest on the Carnegie Endowment's website.)

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December 20, 2024

The Partnership for Global Infrastructure and Investment (PGI) is a collaboration between the United States and partner nations in the Group of Seven (G7) to put $600 billion toward global infrastructure development by 2027. Spearheaded by the Biden administration in 2022, PGI is a thinly veiled reaction to China’s Belt and Road Initiative (BRI), which has already invested over $1 trillion abroad over the past decade.[i] PGI’s promise is that the investments under its umbrella, focused on energy, supply chain resilience, digital connectivity, health, and gender equity, will be safer and more transparent for Global South countries and communities than China’s more opaque deals.[ii] To that end, the United States has committed to mobilize $200 billion of PGI’s $600 billion goal, and senior White House, State Department, and Treasury officials are helping oversee the program alongside their counterparts across the G7.[iii] So far, White House officials claim to have mobilized, or “catalyzed,” $60 billion. It is safe to say that the United States is no longer content with China’s dominance over global development.[iv]

PGI’s emphasis on financing sustainable infrastructure development in the Global South is welcome, if late, particularly as climate change challenges the foundations of the global economy―to say nothing of the triple threat of the COVID-19 pandemic, the Russian invasion of Ukraine, and high interest rates, all of which have rattled the Global South’s economic stability. Even absent China’s challenge, PGI makes political sense. The United States and its G7 partners are staking a claim to global leadership through their acknowledgment that Global South countries, particularly their most vulnerable communities, require significant investment to prepare for the challenges of the coming century.

But there is a problem with PGI: it rests on the promise that G7 governments will mobilize private capital to meet the $600 billion target. The rhetoric around private capital mobilization is a long-standing plank of the Biden administration’s international development initiatives—from the Just Energy Transition Partnerships (JETPs) to the reform of the World Bank―but it is unrealistic to argue that the private sector can put up such sums for infrastructure in the Global South without significant public sector investment and policy innovation.[v] Policymakers cannot coordinate private investment without significant public financial support. While the Biden administration has pushed the World Bank to lend more ambitiously, national-level action has been insufficient.

The incoming administration of President-elect Donald Trump can take initiative to realize U.S. leadership in global development finance by pushing to expand the mandates of and financing for the Development Finance Corporation (DFC) and the Export-Import Bank (EXIM), deploy the U.S. Treasury’s Exchange Stabilization Fund (ESF) creatively, and enable Global South countries to better use Special Drawing Rights (SDRs) from the International Monetary Fund (IMF). Just as importantly, the next administration should empower other countries to emulate the best parts of the U.S. Inflation Reduction Act (IRA) by building the state capacity needed to undertake their own industrial policies.

There is no question that incoming Trump administration officials will hold different global priorities from those of their Democratic counterparts. But, insofar as the Biden administration followed the first Trump administration in publicly positioning itself as opposed to Chinese dominance over the global economy, Trump administration officials will not entirely be working at cross-purposes with their predecessors. A U.S. retreat from significant investments in industrial capacity and, by extension, global infrastructure development is a planet-sized foregone business opportunity.[vi] If the United States truly wants to compete with China in the realm of global development through initiatives like PGI and put substance behind the style of American leadership, it needs to quite literally put its money where its mouth has been. For the sake of the planet and its people, creating a coherent global infrastructure development policy is a task the next administration should champion.

Read the rest of the piece here.

footnotes

[i] Christoph Nedopil Wang, “China Belt and Road Initiative (BRI) Investment Report 2023,” Green Finance & Development Center, February 5, 2024, https://greenfdc.org/china-belt-and-road-initiative-bri-investment-report-2023/?cookie-state-change=1733336842777

[ii] “Factsheet on the G7 Partnership for Global Infrastructure and Investment,” Ministry of Foreign Affairs of Japan, https://www.mofa.go.jp/files/100506918.pdf

[iii]  “Fact Sheet: Partnership for Global Infrastructure and Investment at the G7 Summit,” press release, The White House, June 13, 2024, https://www.whitehouse.gov/briefing-room/statements-releases/2024/06/13/fact-sheet-partnership-for-global-infrastructure-and-investment-at-the-g7-summit-2/

[iv] Adam Behsudi, “The ‘rift is there’: China vs. the world on global debt,” Politico, April 11, 2023, https://www.politico.com/news/2023/04/11/china-lending-imf-world-bank-00090588

[v] “Remarks by Treasury Assistant Secretary for International Trade and Development Alexia Latortue at the OECD Community of Practice on Private Finance for Sustainable Development Conference,” press release, U.S. Department Of The Treasury, January 31, 2023, https://home.treasury.gov/news/press-releases/jy1234

[vi] Bentley Allan, and Tim Sahay, “Trump’s Proposed Clean Energy Retreat: US costs And Global Rewards,” Net Zero Industrial Policy Lab, November 6, 2024, https://www.netzeropolicylab.com/trump-retreat