Over the next 15 years, more infrastructure is projected to be built globally than currently exists. Major countries around the world are actively pursuing both economic and strategic opportunities this infrastructure transformation presents—activity that will continue and accelerate with or without U.S. involvement. Such development has long-term implications for the United States. Will the United States act strategically to protect and advance its interests? Without U.S. supporting the global infrastructure it will be build-to intensify competition and fracture the global commons.
The U.S. is home to nine of the world’s ten largest
institutional investors, seven of the world’s ten largest technology firms, and
eight of the world’s ten most valuable brands. U.S. innovation culture,
technical expertise, financing capacity, and abundant and affordable energy
resources and expertise are globally sought. The world’s developing economies
want and need the technology that U.S. firms provide. Infrastructure projects,
especially those in the transport, energy, information and communications
technology, and water sectors, are recognized as the backbone of modern
economies.
The world now needs an estimated $94 trillion in infrastructure by
2040, creating opportunities can translate into U.S. economic growth, jobs, and
return on investment.
U.S. efforts are necessary but far from sufficient. China is
filling the void. China’s Belt and Road Initiative promises over a trillion
dollars of investment and has attracted more than 80 countries since it was
announced in 2013. China has been willing to take its checkbook to places where
the United States has been unwilling to invest. China also brings the
construction and engineering prowess and frequently the workers themselves to
deliver projects, often in record time. China has demonstrated some interest in
meeting global standards through the Asian Infrastructure Investment Bank
(AIIB), The China Development Bank and the China Export-Import Bank.
China's approach is fast and flexible. When a recipient country considers an offer from China, it typically interacts with a unified group of builders, financiers, and government officials. With less stringent social and environmental safeguards, Chinese projects often take less time to move from conception to construction and deal with risks as they arise. This differs from the “Western approach,” which involves dealing separately with a wider range of actors and often emphasizes mitigating risk earlier in the project evaluation process. Getting projects from idea to execution faster is appealing to politicians facing term limits. China will also work with any government and accept a wide range of repayment methods. For recipient countries, this approach magnifies incentives for starting projects and masks debt sustainability and other risks.
The key feature of the China approach can be found in its highly
coordinated and centralized approach that keeps the government, private banks
and state-owned enterprises aligned with over-arching policy objectives. China
relies on public financing, which is often opaque and designed to favor Chinese
firms. Beijing’s own government-directed banks, led by the China Development
Bank and the Export-Import Bank of China, have doubled in size since 2000, and
Chinese lending to developing countries now exceeds the major Western-backed Multilateral
Development Banks (MDBs).
At present, however, U.S. firms are often at an economic and
diplomatic disadvantage. Outside the United States, many of the world’s largest
construction firms benefit from direct state subsidies and functioning export
banks. Foreign firms not only receive more sustained high-level diplomatic
support, but that support is often better coordinated than U.S. commercial
diplomacy. U.S. diplomats are barred from advocating for a single U.S. firm
(“picking a winner”) if multiple U.S. firms are competing, deferring to the
target country’s decision. While that approach is well intentioned, many U.S.
competitors put forward a single firm, simplifying the target country’s decision.
The United States is now sharpening its approach to infrastructure
after decades of neglect. U.S. foreign assistance began to shift away from infrastructure
programs in the 1970s. The “New Directions” legislation, passed by Congress in
1973, accelerated the transition from providing loans to providing grants and
from focusing on delivering large capital projects to providing technical
assistance.
SUMMARY:
The United States is way behind the power curve. Incremental
improvements will not do. The United States needs to take a series of bold
steps to become competitive and to play a leading role in those infrastructure
areas and geographic regions. Enabling and energizing private business and
private capital will be critical, but government has an essential catalyzing
role to play.
SOURCE: Based on CSIS https://www.csis.org/higherroad
SOURCE: Based on CSIS https://www.csis.org/higherroad
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