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  • Written by Mzukisi Qobo Senior Lecturer, International Political Economy at University of Pretoria
Global infrastructure agendas must not marginalise developing countries
Global infrastructure agendas must not marginalise developing countries


Australia’s G20 infrastructure agenda aims to increase quality investment into global projects. The agenda advocates using the private sector to develop infrastructure in order to boost global growth and job creation. However, these initiatives need to ensure developing countries are not left marginalised.

Research by the World Economic Forum argues that “increased public infrastructure investment can have positive effects on the macro-economy”. This is through raising output in the short term by boosting demand. The net long term effect, as the researchers argue, is to increase the economy’s productive capacity.

However, for many developing countries meaningful benefits from infrastructure investment hinge on the existence of sound legal frameworks and credible policy tools – something that remains woefully lacking in many parts of the African continent.

There are few developing countries endowed with development finance institutions holding healthy balance sheets. These countries also don’t possess sufficient fiscal weight to undertake massive public investment in infrastructure projects across energy, transport and water.

It is precisely for this reason that instruments such as public private partnerships (PPPs) are increasingly seen as silver bullets for building infrastructure in the developing world. They can attract equity and debt finance as well as the technical competencies required for implementing complex large scale projects.

When the G20 finance ministers and central bank governors met in Cairns this September, Australia championed the establishment of a knowledge sharing platform on infrastructure. This would presumably assist on how to structure PPPs and also address information gaps regarding available opportunities and investors.

However, the global infrastructure compact is yet to be formally endorsed at the G20 Brisbane Summit in November this year. It is also noteworthy that the first time infrastructure development emerged as a G20 focus area was during the Seoul Summit in 2010. Yet up until now the area has not gained much traction, beyond rhetoric, as a serious and actionable development theme.

The Australian agenda

To inform the G20 framework, the Australian government is drawing on its own Infrastructure Australia initiative. Established under the Labor prime minister Kevin Rudd in 2008, Infrastructure Australia is a central body responsible for planning and coordinating infrastructure across the country. While its main feature is the PPPs mechanism, Infrastructure Australia has various dimensions including an infrastructure priority list and tax incentives aimed at wooing the private sector. Prime Minister Tony Abbott is so committed to this agenda that he has even dubbed himself the “Infrastructure Prime Minister”.

Abbott’s goal is to internationalise the concept of Infrastructure Australia as part of his G20 legacy. This is despite criticism that PPPs tend to socialise private sector risk and lack developmental sensitivity. They can also be narrowly focused on value for money objectives above measures related to sustainability, environmental safeguards and inclusive development. True to its conservative ideological predisposition, Australia’s G20 presidency places primacy on private sector led growth as opposed to government directed efforts.

Challenges to a successful G20 outcome

There are three major challenges to the G20’s grand ambitions. The first is the G20 is institutionally weak with limited legitimacy. It lacks any teeth to enforce commitments.

If there is any embodiment of what Ian Bremmer refers to as the G-Zero world in the domain of global economic governance, the G20 is the prototype. It has no leadership anchorage and its agenda shifts every year when the presidency changes hands from one country to another. Turkey may choose to have its own pet projects as the centrepiece of its G20 presidency in 2015.

Underrepresentation of developing nations

Second, a large number of countries affected by infrastructure constraints, especially in Africa, are underrepresented in the G20. They have no voice in the deliberations that could possibly affect them. Some of these countries, such as Nigeria and Kenya, are among the fastest growing economies in the world. They are also restructuring their state utilities and their infrastructure projects are magnets for both institutional investors and private equity funds. Without such key players, the G20 may miss out on important input on how to promote an economic recovery in the developing world.

Too many competing initiatives

Finally, there are too many competing infrastructure initiatives that are being simultaneously touted at a regional and global level.

They include China’s proposed Asia Infrastructure Fund, with a seed capital of US$100 billion, and the Asian Development Bank. India has also been pushing for a SAARC Development Bank of South Asian nations.

The African Development Bank’s Africa50 Infrastructure Fund is to be initially capitalised with US$3 billion. While the BRICS New Development Bank was launched in Fortaleza, Brazil early this year.

In addition, the World Bank will also be soon launching its Global Infrastructure Facility. This facility seeks to attract private sector participation in infrastructure supply as well as lessening the risk of such projects. This is precisely the same thing that Australia claims it wants to do.

It is open secret that China’s push for an Asia Infrastructure Fund is born out of dissatisfaction that the Asian Development Bank is dominated by Japan. Similarly, the BRICS New Development Bank and the supplementary currency reserve arrangements are viewed as a rival to the Western-dominated World Bank and International Monetary Fund.

If not managed well, these initiatives may just achieve the opposite of global cooperation. At worst, they could lead to misallocation of resources towards efforts that do not generate significant economic value for the regions of the world that need infrastructure investment the most.


Author

  1. Mzukisi Qobo

    Senior Lecturer, International Political Economy at University of Pretoria