As Beijing pushes for global health leadership amid the coronavirus pandemic, the U.S. International Development Finance Corporation (DFC) — which came into being just last year — announced a new ‘Health and Prosperity Initiative’ on Monday morning.
“It is encouraging the DFC is increasing its contribution to the global pandemic response at this critical time,” Jonathan Hillman, senior fellow at the Center for Strategic and International Studies, told Yahoo Finance. “To date, rather than being a leading provider of global public goods, the U.S. has mostly been the recipient of global sympathy.”
The agency is calling for proposals from private sector entities to support the DFC in making health-related investments, which are primarily aimed at helping low- and middle-income countries build sustainable health systems.
DFC is looking to invest $2 billion. Investments are expected to be made all the way along the supply chain — such as with medical equipment, parts, supplies — as well as in vaccines.
“I sincerely believe that this provides us with an opportunity to transform traditional approaches to development, specifically in the global health sector, which has customarily relied on aid and grants,” Nafisa Jiwani, senior advisor and managing director for health initiatives at the DFC, told Yahoo Finance.
Investment in each specific project will be between $5 million and $500 million, through various financial tools such as equity and debt financing, political insurance, technical development. The agency anticipates the private sector to invest $3 billion alongside that.
“The United States initiative to try to use the Development Finance Corporation to move into the health space during this time of deep international crisis is exactly what the organization should be doing,” Mira Rapp-Hooper, Steven A. Schwarzman Senior Fellow for Asia Studies at the Council on Foreign Relations, told Yahoo Finance.
Particularly since “it’s become clear in recent weeks that China is making a major bid for global health leadership despite its early missteps domestically, and its hard-edged approach internationally.”
The BRI — also known as the New Silk Road — is envisioned as a revival of an ancient trading route between China and Europe. Being a signature development finance play launched by Chinese President Xi Jinping, the country has poured billions of dollars into various economies in between — some of which are opaque — to expand influence around the world.
Through the BRI, China lends funds from government-controlled banks such as the Export-Import Bank of China and the China Development Bank to governments across the world.
Workers in a workshop produce a large building material exported to countries along the “One Belt And One Road” route. Hai ‘an City, Jiangsu Province, China, April 27, 2020. (Photo: Costfoto/Barcroft Media via Getty Images)
Many have flagged several issues with the BRI.
Washington, D.C.-based think tank Center for a New American Security found that when countries take on significant Chinese investment as part of the BRI, there were several risks involved, ranging from whether the projects were financially sustainable for the host country, to whether it would experience an erosion of national sovereignty.
Democratic presidential candidate Joe Biden also called out the risks of the BRI, particularly its environmental impact.
“China is far and away the largest emitter of carbon in the world, and through its massive Belt and Road Initiative, Beijing is also annually financing billions of dollars of dirty fossil fuel energy projects across Asia and beyond,” Biden argued in one of his plans to address climate change.
The COVID-19 outbreak has caused some disruptions along BRI, however. A recent report by Reuters noted that China was concerned about anti-China sentiments sparked by the coronavirus could threaten BRI investment projects, which could propel Washington into that space to financially and militarily support its allies.
Chinese workers build the first rail line linking China to Laos, a key part of Beijing’s ‘Belt and Road’ project across the Mekong, in Luang Prabang in February 2020. (Photo: AIDAN JONES/AFP via Getty Images)
But several reports have indicated that China been trying to merge the infrastructure-focused BRI into a ‘Health Silk Road.’
The term itself isn’t new — in August 2017, Tedros Adhanom Ghebreyesus, the China-backed WHO director-general, had given a speech commending the creation of a Health Silk Road — Rapp-Hooper said, the intention to “resurrect” it as part of the BRI was, as it trying to do more “health-related infrastructure building and international cooperation under the aegis of his preexisting initiative.”
For instance, China’s Xi Jinping referenced the term in a call with Italian Prime Minister Giuseppe Conte in mid-March, as per Chinese state newswire Xinhua: “China is willing to work with Italy to contribute to international cooperation in combating the epidemic and to the construction of a Health Silk Road.”
In early May, Xi made a BRI reference again, this time with Portuguese President Marcelo Rebelo de Sousa.
“It is hoped that when the situation improves, the two countries will deepen cooperation in all areas, achieve more progress in the Belt and Road projects, and explore third-party cooperation in public health and other fields,” a press release from China’s foreign ministry states. “These efforts will help advance the comprehensive strategic partnership between the two countries.”
With these developments in mind, the move by DFC “is really interesting,” Rapp-Hooper stated.
A staff member unloads Chinese medical supplies from an airplane at the Kotota International Airport in Accra, capital of Ghana, April 6, 2020. (Photo: Xu Zheng/Xinhua via Getty) (Xinhua/Xu Zheng via Getty Images)
Sub-Saharan Africa
The first region the DFC has chosen is Sub-Saharan Africa, which includes countries like Nigeria and Uganda, among many others.
[MICHAEL; TAKING DEFINITION OF SUB SAHARAN FROM WORLD BANK, SO DJIBOUTI WONT FIT]
“Part of our mandate … [is that] we are to prioritize low- and low-middle-income countries by World Bank standards,” DFC Chief Operating Officer Edward Burrier told Yahoo Finance. “All of Sub-Saharan Africa is going to fit into then category.”
At the same time, numerous countries in the region have also signed on to many BRI projects — from roads to railways. Uganda, for one, has a national debt at over $10 billion in 2018, with nearly a third owed to China, according to one report by the Associated Press.
“The focus on Africa is encouraging — Africa’s needs are immense, including a $100 billion hit to GDP this year, falling remittances, and crippling debts,” said Hillman. Hence, “every bit helps.”
Addressing the Health Silk Road, Burrier said that DFC’s announcement wasn’t necessarily formulated as a direct counter.
“I don’t think about it in that way … I think about this as a continuation of U.S. global leadership abroad in the health sector,” Burrier said.
“I’ve seen those articles about China and their donation diplomacy, which really is an effort to whitewash the the pandemic’s origins, rather than something that’s going to be sustainable,” he added.
And since the DFC is working with private sector companies, the healthcare systems it’s planning to build will not only be long-lasting, but also have more transparency, he argued.
And for private investors interested in joining the DFC, this was an opportunity to put money to work for a cause.
“Companies that will realize that over the long haul, there’s going to be tremendous opportunities is in this building up with the global health infrastructure,” Burrier said.
Jack Ma, the richest man in China donate medical supplies to Africa for 3rd time to combat the spread of coronavirus (COVID-19) in Africa at Bole International Airport in Addis Ababa, Ethiopia on April 27, 2020. (Photo: Minasse Wondimu Hailu/Anadolu Agency via Getty Images)
Digital Silk Road
While modern medicine works on a treatment and a cure for the coronavirus, the containment strategy largely depends on technology. That presents another opportunity for China to flex its BRI muscles, Rapp-Hooper argued.
DFC’s Jiwani highlighted about the importance of using digital tools to address COVID-19, such as digital tracing, to control the outbreak.
Given that necessity, Rapp-Hooper said she would be “unsurprised” if China ended up merging its Digital Silk Road with its Health Silk Road.
“It would not be surprising to see China seeking to then export these pandemic management apps via the Digital Silk Road as part of this helps sell the ‘concept’ as well,” she explained.
The Digital Silk Road refers to projects such as the massive undersea fibre optic cable China is building connecting Asia and Europe overland, or national 5G networks. Experts have been wary of these developments, particularly as China pushes companies like ZTE, Alibaba, and Tencent, which could be underlined by “broader normative and security aims.”
With the expectation that “it’s very likely that a lot of those [big infrastructure] projects will stall out … [and] countries are unable to repay their debts to China … if China is looking to repurpose the Belt and Road Initiative for a post-pandemic world,” it could merge the two roads “as a way to try to save the initiative when it’s otherwise going to be in crisis,” Rapp-Hooper stated.
But the DFC cannot be the only agency to address this multi-fold issue given its spending limitations, she added.
Since the DFC is still subject to caps in terms of its funding, and “it’s budget just simply isn’t enough to do all that much,” Rapp-Hooper said.
Hillman concurred with the fact that more money was required to be effective. “The reality is that even $2 billion only goes so far,” he said, referring to DFC’s initial pledge for the health initiative.
Nevertheless, it will be interesting to watch, Rapp-Hopper added, especially if “Congress is willing to put more muscle behind this initiative.”
Debts owed
Meanwhile, in response to the coronavirus outbreak and the economic downturn, G20 countries had earlier this month agreed to freeze bilateral government loan repayments, particularly for low-income countries at then end of this year.
China, the biggest bilateral lender to many of the countries, has granted some debt relief in the past depending on the request, and was willing to talk too low-income countries about their challenges repaying debts, according to the Financial Times.
The DFC, on its part, has also offered some flexibility to its investors and the countries it’s working with, particularly with monthly repayments or interest.
“We want to make sure that they are able to be bolstered through the crisis as they can have that impact,” said DFC’s Burrier. Particularly since many countries have been adversely hit by the crash in oil prices, the environment has “really given them a double whammy.”
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Aarthi is a reporter for Yahoo Finance. Follow her on Twitter @aarthiswami.
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