There has been much hype around the announcement by the G7 of the Build Back Better World (B3W) initiative as a countermeasure to China’s Belt Road Initiative (BRI), the latter a sprawling modern-day Silk Road that includes a corridor through and projects in Myanmar.

However, the B3W is not new.

Whilst hailed as a new initiative, the idea of an alternative infrastructure programme to China’s was initiated by US President Donald Trump under the banner of the Better Utilization of Investments to Development At (BUILD).

Central to the programme was to encourage private sector investment into developing countries that would reduce the need for USA foreign aid. The focus was on hard infrastructures, such as electricity, that would help less developed countries attract investment to grow their way out of poverty. It was planned to bring $60 billion in private sector investment to fight extreme poverty by converting the US Overseas Private Investment Corporation (OPIC) into a new International Development Finance Corporation (IDFC) and modernized financing capabilities, including the ability to provide equity financing, local currency loans, and guarantees.

The new development finance corporation (DFC) was enacted under the BUILD Act that would make loans, invest in and forge partnerships for those wanting to do business in low to middle-income countries.

The reasons why the BUILD Act initiative failed to gain traction are yet unclear. Some argue that China used the anti-Trump sentiment within the USA and the EU to pour cold water on the plan. A more likely scenario is that private equity and capital did not have the appetite for risky investment.

The Blue Dot Network (BDN) in which the US joined forces with Japan and Australia, was a measure that appears to have emerged out of the BUILD programme. The BDN aimed to offer an alternative to China’s BRI and to tap into the $1.3 trillion in trade volume between China and the countries along the BRI in 2018.

Is the B3W simply a reincarnation of the BUILD ACT?

At a surface level, there appears to some political gamesmanship taking place with the B3W announcement, suggesting a coordinated effort by the USA to showcase US President Joe Biden’s foreign relations capability and to reinsert the USA into the EU alliance dismantled under his predecessor.

However, there are important changes that have been made with the BUILD and BDN having morphed into a softer, more PC version. So much so that the UK ‘s PM Boris Johnson refers to it as the “Green BRI”. Whilst planning to offer a $100bn a year in alternative loans, it is trying to formulate a path forward that is not seen to challenge China but tries to create a framework in which the G7 Nations can still engage with China. USA politicians are calling this the ‘Green Marshall Plan”, rather than be seen as demonising the BRI.

Are the B3W and the BRI the same?

At a high level, they appear to be guided by similar policy and principal guidelines in meeting the development needs of the poorer countries. All projects must meet sustainability criteria under both schemes.

However, there are fundamental differences. Whilst the B3W claims to address the transparency and accountability concerns of BRI projects, it has fleshed out what they deem as sustainable development criteria. By mobilizing private sector capital, the funding is aimed at addressing four specific areas i.e., climate, health, digital technology, gender equity. This includes Values-Driven with Good Governance and Strong Standards and Climate-Friendly. Strong strategic partnerships will be enhanced by private capital through multilateral finance.

Why the B3W is currently not suited for its target market/countries?

Unlike the BRI, the B3W approach lacks coordination, clarity, and vision. This is highlighted by the regional nature of the proposed roll-out i.e., along with geographic locations. Whilst the intent is good, it does not show a clear pathway forward that helps poor and developing countries access global trade and build their respective economies. The BRI on the other hand has an integrated, regional infrastructure development plan based on supply chain considerations connecting markets via integrated port, rail, and road transport networks. Not only does this create employment in local markets in the construction phase, but it also facilitates commercial sustainability by giving access to import and export markets.

Another advantage that the BRI has, is the Digital Silk Road (DSR) that overlays the BRI, digitally connecting even the most remote of markets. Essentially, the DSR has created a bifurcated digital world, with BRI countries obliged to use the digital network and standards of China when doing trade. The B3W does not have this level of integration, and the cybersecurity issues associated with the DSR prevents western aligned trade to interface with the DSR.

Another key weakness of the B3W is where the funding is to be spent. Take electricity and power supply as an example. Without electrical power, there is no economic sustainability. Under the B3W investment criteria, there would be no funding given to coal-fired power stations. Under China’s BRI green investment guidelines, funding would be given to High-Efficiency Low Emissions coal power stations. A middle-class suburban westerner would have great difficulty selling the idea of “saving the planet” to a person living in poverty in Africa, Asia, and Oceania.

The B3W private sector funding model will most likely result in very little, or no investment as the private capital market look to short term market and commercial returns i.e., a short-term investment horizon. The BRI on the other hand takes a long-term view on investment return, making financing more attractive.

With these weaknesses, it is difficult to see how the B3W can break through the cooperation agreements with 140 countries, 31 International Organisations enjoyed by China’s BRI, including engagement with Myanmar. It is unlikely that it will be able to detract from the BRI’s connection to the 2,600 projects with a value of $3.7tn currently under the BRI umbrella.

Timing is everything?

COVID-19 has exposed many shortcomings of the BRI, particularly with 20% of the BRI projects being put on hold. These project delays have highlighted the fundamental problem afflicting many BRI projects, i.e., the lack of upfront due diligence with the result being that many BRI projects have often simply traded speed early in the project cycle for more difficult problems later. Tied financing (requiring the use of Chinese contractors) and opaque practices have also been associated with cost blow-outs and corruption scandals, most infamously in the case of the ECRL project in Malaysia.

With several countries now challenging China’s claims that the BRI is built on mutual respect, strong people to people bonds and non-interference in national sovereignty, there is a window of opportunity for the B3W to make itself more relevant. As several multi-lateral deals with China being put on hold or suspended, the EU-China trade agreement being the most notable one, the G7 alternative can get traction. But it must first:

• Create a coordinated Vision,
• Create a single funding authority body to ensure integrated development,
• Align with developing countries needs rather than dictate a middle-class EU centric view of sustainable development.

Without these first steps, the B3W will merely be a thought bubble created in haste and perhaps a panic reaction to China.