Robert M. Cutler

Ten years late, the U.S. has launched a Third World infrastructure program to challenge China’s Belt and Road Initiative (BRI). This comes after China has announced that it would be dividing the BRI into three separate programs. Chinese President Xi Jinping had launched the BRI in 2013 to connect China with Europe and Africa through a network of roads, railways, ports, and other infrastructure. The new programs are a public-relations response to criticisms that the original BRI was characterized by debt-trap diplomacy and poor environmental impact.

China’s three new Third World infrastructure programs are the Global Development Initiative (GDI), which is announced to focus on poverty reduction, climate change, and health care; the Digital Silk Road, to focus on connectivity and cooperation among countries already participating in the BRI; and the Green BRI, which will allegedly promote sustainable development and environmental protection.

When these new programs were announced at the Boao Forum for Asia in April 2023, the Chinese government said that the BRI was being changed because of the stage that it had already reached and also because the structure of the global economy had changed in the last ten years.

It is not clear how China intends to implement the new programs, to overcome the criticisms of lack of transparency (which makes it difficult for developing countries to assess the risks of participating in the new programs), debt-trap diplomacy (which has already damaged China’s reputation), and environmental impact (for which China is infamous).

The implementation of the new programs is still in its early stages, although China has pledged to provide $1 trillion in aid to developing countries through the GDI, and the Digital Silk Road has made some progress through the signature of memoranda of understanding with some third countries.

The Chinese rebranding of BRI followed by about a year the U.S. Biden Administration’s rebranding in June 2022 of its Build Back Better World (B3W) initiative, originally launched by the G7 after an American proposal in June 2021, as the Partnership for Global Infrastructure and Investment (PGII), targeting Third World infrastructure. The B3W had been launched as a post-pandemic follow-up in view of the economic destruction wrought upon the global economy by the government-ordered lockdowns.

The PGII is targeting the mobilization of $200 billion in public and private investment in infrastructure projects in developing countries over the next five years. It is focused on four key areas: mitigation and adaptation to climate change, improvement in health-care delivery, expansion of access to digital technology, and promotion of gender equity and equality. The PGII initiative is more focused than the B3W was, clarifying specific areas of investment and being more inclusive of private-sector investment.

The American PGII thus parallels the Global Gateway Initiative (GGI), launched by the European Union (EU) in 2022 to invest in Third World infrastructure projects. The EU has projected an investment of $320 billion in such infrastructure projects over the next five years. However, The EU tends to be slower and more bureaucratically encumbered than the U.S. when it comes to implementing such broad initiatives.

Also, since the devil is in the details, it remains to be seen exactly what the GGI will signify in practice. That is especially the case, since the EU has a tendency to announce such grand packages only as a repackaging of previously existing programs. However, it is clear that there are significant potential synergies between the GGI and PGII if the two programs cooperate in substantive ways.

Since the Chinese initiatives favor China’s own state-owned enterprises, the PGII and the GGI offer better clues to the general investor interested in taking advantage of opportunities. These initiatives open up a range of avenues to invest in equities and bonds. They include direct investment, indirect investment, public equities, and bonds.

Concerning direct investment, investors can get involved by channeling into infrastructure projects that receive backing from either the PGII or the GGI. This investment can be facilitated either through dedicated investment funds that focus on infrastructure or by investing directly in individual companies that play a role in these infrastructure projects.

Indirect investment involves putting money into instruments that are not directly involved in the construction or operation of infrastructure, but which play a role in their financing. These instruments include entities like banks, insurance companies, and even pension funds.

Investing in public equities, such as stocks, of companies engaged in infrastructure projects concerned, is another option. Finally, bonds present another opportunity, since governments or companies involved in infrastructure projects frequently issue bonds. These tend to be a more conservative investment compared to equities, more certain but offering lower returns.

Of course, both PGII and GGI are not Third World infrastructure projects themselves, but only broad programs. Therefore gauging their full impact on investment opportunities requires more detailed study. However, the potential is undeniable. Both initiatives offer fresh investment opportunities, particularly in fields concerned with sustainable and resilient infrastructure.

Moreover, before diving headfirst into infrastructure investment, it is necessary to conduct appropriate risk analysis. In this instance it is possible to identify four types of risk. The first is political risk, since any political instability can directly influence the profitability of an infrastructure project. The second is financial risk, which refers to adherence (or not) to the timeframe and budget of the project.

The third type of risk here is currency risk. Since many infrastructure projects are priced in foreign currencies, the risk of currency-value fluctuations can affect the investment’s value. Finally, environmental risk is a crucial consideration, because of the potential for regulatory challenges to infrastructure projects that might adversely affect the environment.

The American PGII and the European GGI thus represent significant strides in Third World infrastructure programs offering opportunities to investors. While the EU’s approach may be more bureaucratic and potentially slower, the sheer scale of their investment commitment underscores the importance they place on infrastructure development.

Both initiatives, despite their distinct operational nuances, offer good investment opportunities for the discerning investor. As these initiatives evolve, collaboration between the PGII and GGI could amplify their joint impact. Investors and stakeholders alike should remain vigilant and take steps to remain well informed in order to capitalize on the opportunities while navigating the inherent challenges.