Investing in Mega-Corridors: A development model at odds with the Paris Agreement

In recent years Counter Balance has explored the new wave of large-scale infrastructure projects financed all over the world in an attempt to understand the main drivers behind the “global infrastructure agenda”. International Financial Institutions like the EIB are a key driving force behind this trend. This blogpost builds on a chapter of our recent report “The ‘EU Climate Bank’ – Greenwashing or a banking revolution?”to highlight why this agenda is not at all compatible with the Paris Agreement.

The EIB has been strongly supporting the expansion of ports, roads for exporting raw materials and airports, special economic zones and logistic centres. A key example is the EIB’s recent € 140 million loan for the expansion of the Port of Piraeus, Greece’s largest port which is now largely owned by the Chinese COSCO Corporation.

Established as a Special Economic Zone, the Port of Piraeus is now the main platform in Europe for China’s maritime ambitions as part of the Belt and Road Initiative (BRI), an infrastructure mega-corridor spanning around 60 countries. Other examples include a € 100 million loan for new logistics and warehousing facilities at the logistics platform in the Port of Barcelona and a € 150 million loan for the construction of new warehouses and modernising supply chains in Romania.

The promoters of this agenda rely on the role of infrastructure investments as a means to restore economic growth, demand and jobs in the global economy. A consensus has emerged on a “global infrastructure agenda” largely based on the assumption that there is a huge “infrastructure gap” to be filled. For example, the Organisation for Economic Co-operation and Development (OECD) estimates that an additional $ 70 trillion in infrastructure will be needed by 2030. It is important to point out that this infrastructure gap does not focus solely on bringing light and water to deprived communities through highly needed infrastructure, but is based on a much more commercial objective – ensuring accelerated extraction, production and consumption along infrastructure mega-corridors.

In the hopes of many governments, infrastructure is to become a new “asset class”, attracting private liquidity and alleviating the financial burden on constrained public coffers. To do this, various actors, including the EIB, are called to put in place various prerequisites for this new agenda to materialise. This is typically based on a series of key assumptions:

• Infrastructure projects have to be mega-sized to attract large amounts of capital for a long time.
• Infrastructure needs to be turned into an asset class so that investors can look at infrastructure as pure revenue streams, rather than as hospitals, schools, bridges, power plants or windmills. An ad hoc financial environment has to be built in order to manage and trade the new financial assets: for instance, by dismantling restrictions on investments for pension and insurance funds, increasing derivative-based financial products, and developing debt markets.
• A new wave of public-private partnerships (PPPs) and privatisations needs to happen, including infrastructure in the health or education sector.

This agenda increasingly seeks support from development banks and public finance to materialise. Indeed, public funds are necessary for infrastructure projects to see the light of day, but also to reduce the risk that comes with the participation of private actors. There is a real threat that public finance is actually captured by this agenda, to the detriment of local communities and citizens. The idea that public money ends up guaranteeing the profits of private investors from revenue streams associated with user fees paid by citizens is a real risk.

The “global infrastructure agenda” also seeks – in the name of development – to create new infrastructure “mega-corridors”. These infrastructure corridors are not new, but the plans that are now being developed are on a scale we’ve never seen before, which explains the growing use of the term “mega-corridors”. From Africa to Asia, infrastructure master plans have been drawn to reconfigure whole land masses – and the seas connecting them – into “production and distribution hubs”, “development corridors”, “special economic zones” and “interconnectors”.

China’s Belt and Road Initiative (BRI) is the most famous of the corridor plans but the European Union is also promoting mega-corridors. For instance, the communication from the European Commission “Connecting Europe and Asia – Building blocks for an EU Strategy” presented in September 2018 is a clear attempt to promote a similar – if not competing – mega-corridor to link the European and Asian continents.

The gigantic scale of infrastructure proposed will profoundly transform and redesign entire territories, regions and economies, and consequently the life of billions of people. Mega-corridors are primarily aimed at enhancing the export of raw materials and goods and integrating economies in global markets. They will also streamline transportation routes globally, and enhance access to a limited number of hubs where demand will be centralised. In short, this agenda aims at speeding circulation in the production sphere globally and thus revamp economic globalisation.

This model is having devastating impacts on the climate, despite efforts at European level through the Sustainable Finance agenda or recently by the OECD and the World Bank to label this agenda under the heading of “sustainable infrastructure” (See for example: OECD 2018 report Financing Climate Futures: Rethinking Infrastructure).

Large dams, power grids, transport projects, water and waste management provision or energy extraction/generation projects have tended to come with significant environmental and social costs. The top-down mega-project model that has prevailed for decades has usually proven to be ineffective in serving the needs of people and their communities, or of society in general, as affected communities and civil society groups monitoring infrastructure finance have long pointed out.

In addition, mega-corridors all over the world are based on high-carbon transport (airports, motorways) and energy infrastructure (including fossil fuels). As a result, this infrastructure agenda is simply not in line with decarbonisation targets, or with commitments to tackle climate change on a global scale and align financial flows with the objectives of the Paris Agreement.

In this context, public banks like the EIB should aim at supporting infrastructure that prioritises social and environmental justice, instead of scaling-up efforts to financialise infrastructure projects that are disconnected from the needs of citizens and territories. Therefore, it will be crucial for the EIB not to further promote projects which are key components of mega-corridors. The recent loan to the Piraeus port and its Chinese-led owner should act as a wake-up call for the EIB in this regard.