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This week, we’re covering the 10th anniversary of China’s Belt and Road Initiative, next steps after the World Bank-IMF meetings, and progress on debt restructuring. |
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Top newsTrillion dollar belt: Dozens of leaders – including Kenya’s William Ruto, Ethiopia’s Abiy Ahmed, Republic of Congo’s Denis Sassou Nguesso, and Russia’s Vladimir Putin – gathered in China this week to celebrate the 10th anniversary of its Belt and Road Initiative. The initiative has invested US$1 trillion in state-backed lending across 149 countries. That includes 3,000 projects aimed at creating 420,000 jobs and critical infrastructure like railroads, ports, bridges, and wind farms. While many question the economic viability of this big bet (not to mention the heavy debt burden imposed on some countries, which we detail here), China achieved its primary objective: expanding its global influence. A 2022 survey of African youth ranked China as the most influential foreign power, ahead of the US. 👀 Not so Evergrande: China’s faltering economy has resulted in a retreat from its largesse of the last decade. Problems with state-backed property developers Evergrande and Country Garden are posing major challenges for the superpower: last week the IMF trimmed China’s 2023 growth forecast from 5.2% to 5%. This has knock- on effects for African countries. China has restructured many of its loans to countries struggling to repay, but has refused to cancel the debt and has pulled back on the scale of financing. Lunatic express: Despite a growing debt problem, President Ruto is seeking an additional US$1 billion loan from China to pay for infrastructure. That includes money for stalled road projects and an easing of the repayment of a Chinese loan for the railway linking Lake Victoria with Mombassa. That railway – which replaced a British-made line called the Lunatic Express — was originally intended to link Uganda and other landlocked countries to the Kenyan seaport, but Uganda pulled out. Elsewhere, Ethiopia secured a debt suspension on loans maturing in 2023-24 as it announced an “All Weather” strategic partnership with China. Zambia agreed a deal with official creditors to restructure its debt. The east African country only had to wait 985 days. 🕰️ Leaner and greener: The next 10 years of the Belt and Road Initiative will be smaller and greener. Limits on lending by Chinese banks mean investment deals are 50% smaller than five years ago, and Beijing is increasingly pooling risk with other investors. But this does not signal lower ambition. Two white papers released this month by Beijing signalled "the global community of shared future.” The BRI, they say, was proposed by China, but belongs to the whole world.It’s a more inclusive and less judgmental vision than those led by "hegemonic" Western powers which, they say, seek a "zero-sum game." Experts say China is pivoting from building bridges to re-routing the roads of global governance. Green Marshall Plan: China’s economic woes didn’t stop President Xi Jinping from laying out the imperial scale of his ambition. In his opening speech, he made clear that “China can only do well when the world is doing well. When China does well, the world will get even better.” Trolling the US policy of “friend shoring,” he said “we stand against unilateral sanctions, economic coercion and decoupling and supply chain disruption.” In what sounded quite like a modern day green Marshall Plan, he announced the removal of investment restrictions, RMB 430 billion financing (US$58 billion), cooperation agreements worth US$97 billion, the greening of the initiative and institution building — AKA multilateral reform. Alternative facts: The G7, US, and EU have proposed a number of “alternatives” to the Belt and Road Initiative. But sceptics rightly question the details. The G7’s “Build Back Better World” initiative heralded a transformation of global infrastructure. But it was only backed by enough finance to buy the equivalent of half an escalator on the New York subway. The EU’s Global Gateway announced a €300 billion package. But no one inside or outside the EU’s institutions can explain where the money is coming from or where it’s going. The G7’s most recently announced BRI alternative, the Partnership for Global Infrastructure and Investment, aims to raise US$600 billion by 2027 to fund the development of everything from “climate resilient infrastructure” to “secure information and communications technology networks.” US President Joe Biden announced last month that the US and EU would team up to build a railroad across the African continent. He didn’t say when Africans would be able to ride it. 👀 Speed and scale: The World Bank’s Development Committee approved a reform plan that could begin to unlock the kind of finance needed at the speed of a Chinese contractor. The paper, “Ending Poverty on a Liveable Planet,” outlined a plan to increase lending by US$100 billion (should shareholders do what they are being asked to do). The bank will cut its corporate scorecard from 153 items to around 20 and reduce the project review and approval time by one-third. Final call: The US set a timeline of April 2024 for unlocking callable capital at development banks. This US$2 trillion guarantee, if included in risk assessments, could allow the World Bank alone to lend an additional US$500 billion without endangering its coveted AAA rating. Insiders say the World Bank is working on a terms of reference for the deal. The counter argument – that including this could create too much risk – appears to be spurious: the World Bank could stop getting repaid on outstanding loans for three years before it would be at real risk of financial harm. With a US election looming next year, this might be the last best chance to secure a deal. With a world that’s on fire and the need for urgent investment, leaving this money on the table would be an act of vandalism. What about us? With so much focus on increasing loans to middle-income countries, low-income countries are rightly asking what’s in it for them, especially as they face increasing climate threats and mounting debt burdens. A new G20 report argues for a tripling of IDA, the World Bank’s fund for low-income countries. But only China has signalled willingness to put in more money — and on condition of gaining more influence at the bank. At the last replenishment, IDA’s previous largest donor, the United Kingdom cut its cheque by half. Preparations now begin for the IDA20 mid-term review in Tanzania in December. From the ONE Team
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