Building Up Competitiveness and The G7's Infrastructure Ambitions

GEOECONOMICS AND INDO-PACIFIC ENTERPRISE INITIATIVE
The G7 challenge
Building Up
in facing China’s and
Competitiveness
infrastructure ambitions
the G7’s Infrastructure
Ambitions
Michele
Essays by:Acciaro
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W. Édes, Department of
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Kent Hughes,
Shelby Lauter, John H. Matthews, Ingrid Timboe
GEOECONOMICS AND INDO-PACIFIC ENTERPRISE INITIATIVE
Building Up
Competitiveness and
the G7’s Infrastructure
Ambitions
Essays by: Michele Acciaro, Bart W. Édes, Stephen Ezell,
John W. Fowler, Shihoko Goto, Kelsey Harpham, Kent Hughes,
Shelby Lauter, John H. Matthews, Ingrid Timboe
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Contents
3 Preface
Shihoko Goto
5 Aligning the G7’s Strategic Interests and the

Indo-Pacific’s Infrastructure Needs
Shihoko Goto and Kent Hughes
10 The G7’s Way Forward For Semiconductor Infrastructure

Development in the Indo-Pacific
Shelby Lauter and Stephen Ezell
21 The Challenge to Cultivate Global Semiconductor Talent

John W. Fowler
32 Water as a Resilience Multiplier for an Inclusive

Indo-Pacific
John H. Matthews, Ingrid Timboe, and Kelsey Harpham
44 The G7 Challenge in Facing China’s Infrastructure

Ambitions
Michele Acciaro
55 International Financial Institutions Key to Meet the

Infrastructure Financing Gap
Bart W. Édes
Preface
In April 2022, the Wilson Center founded the Geoeconomics and Indo-
Pacific Enterprise Initiative in recognition of the need to focus on economic
interests that are increasingly driving foreign policy priorities in the world’s
most populous region. While Asia’s economies continue to face traditional
challenges including inflationary pressure and fluctuations in financial mar-
kets, they are also finding themselves facing new challenges including the
need to reassess supply chain resilience, embrace technology shifts, address
energy security risks, and of course, deal with the impact of ever-growing ten-
sions between the world’s two largest economies.
The G7’s decision to mobilize $600 billion for infrastructure projects
worldwide in June 2022 was a clear indication by the world’s richest coun-
tries that they needed to work together to counterbalance the threat posed by
China’s Belt and Road Initiative to the regional order of the Indo-Pacific and
beyond. Beijing’s steady efforts for the past decade to develop infrastructure in
emerging markets may have been welcomed in many parts of the world at least
initially, but growing frustration and indeed fears about the risks of depend-
ing on Chinese capital have also become clearer in recent years. By focusing
on four areas of investment, namely communication technology, sustainable
energy, healthcare, and equality, the G7 is seeking to play a greater role not
only in meeting the needs of the global South, but also their own priorities in
partnering with developing countries moving forward.
The essays in this booklet not only highlight the need for greater in-
frastructure investment, but the changing nature of infrastructure itself.
Although the world’s richest nations are not expected to match the finan-
cial commitments made by China in building roads and bridges across
borders, they will be redefine the nature of quality infrastructure that lead
to longer-term growth together as well as greater opportunities for private
capital investments.
3
Shihoko Goto
The purpose of this publication is to identify some of the areas for coop-
eration and ways of financing infrastructure projects that will garner the sus-
tained support of the G7 countries. We hope that the essays will further the
debate in coordinated policies regarding effective and sustainable infrastruc-
ture investments that meet both the needs of emerging markets as well as the
strategic goals of the world’s leading democratic economies.
Shihoko Goto
Director, Geoeconomics and Indo-Pacific Enterprise
October 2022
Washington, D.C.
4
CHAPTER ONE
Aligning the G7’s

Strategic Interests
and the Indo-Pacific’s
Infrastructure Needs
Shihoko Goto is Director of the Wilson Center’s Geoeconomics and
Indo-Pacific Enterprise Initiative.
Kent Hughes is a Public Policy Fellow at the Wilson Center and a

former President of the Council on Competitiveness and Associate
Deputy Secretary of Commerce.
A t their meeting in June 2022, the G7 countries announced the Partnership

for Global Infrastructure and Investment focused on the infrastructure
needs of the Indo-Pacific region. The decision was driven by the opportunity to
invest in countries with great economic promise, the recognition of the fragil-
ity of existing supply chains, and to meet the competition posed by China’s Belt
and Road Initiative.
Countries need extensive investments in traditional infrastructure include
roads and rail, power plants, and water supply sectors. At the same time, coun-
try after country is seeking to build a modern infrastructure that will foster
growth and innovation. In addition to traditional infrastructure, the Indo-
Pacific wants investments that will bring high-speed internet, global commu-
nications, and research driven universities. The G7 countries are well situated
to provide investments in 21st century infrastructure, and the purpose of this
select collection of essays is to draw attention to how to invest effectively in
infrastructure projects that will have lasting results.
With an educated population, investment friendly policies, and a commit-
ment to innovations, the Indo-Pacific offers the G7 an opportunity to help
drive their own economies and innovations. At the same time, heightened
interest among the world’s wealthiest nations to invest in much-needed in-
frastructure provides on opportunity to reimagine infrastructure beyond the
traditional structural projects of roads and bridges.
Of course, G7 interest in the Indo-Pacific is in part a response to China’s
Belt and Road Initiative (BRI). Through BRI, China has clearly been ahead
of the curve when it comes to outlining and financing infrastructure project
in the region. But Beijing’s approach using loans rather than grants have led
to charges of unsustainable loans. Because China is not a member of either
the Paris Club (of nation’s who have made loans) or the London Club (private
companies that have made loans to developing countries) China does not have
an international approach to dealing with non-performing loans. As a result,
there is a decrease in the Chinese appetite to finance infrastructure projects
across the Indo-Pacific region. At the same time, China’s investments have
focused on traditional infrastructure such as rail networks, roads, and ports.
In addition to responding to China, the G7 countries are taking a new
look at supply chains. The Pandemic has focused attention on the way inven-
tories, domestic production, or reliance on more than one source supply can
6
Aligning the G7’s Strategic Interests and the Indo-Pacific’s Infrastructure Needs
aid economic resilience. The concern is heightened when countries are depen-
dent on a potential adversary. The Indo-Pacific is already attracting interna-
tional investments by G7 countries as they seek a more diverse supply chain.
Investments in traditional and modern infrastructure will contribute to the
effectiveness of diversified supply chains.
The United States is committed to providing one-third of the total GDP to
the tune of $200 billion, which will be spent over the next five years through
grants and federal financing.1
Part of Washington’s strategy is to encourage more private investments
into projects as the G7 countries step up their commitment to infrastructure.
Certainly, public financing alone cannot meet the needs of the region, espe-
cially at a time when all industrialized countries are themselves focused on in-
vesting in their down domestic infrastructure needs. The U.S. Infrastructure
Investment and Jobs Act which was signed in November 2021 will provide
$550 billion in new investments by the government over the next five years to
provide much-needed funding for public transit, communications, water, and
energy systems across the country.
Yet if infrastructure were to be defined more broadly as a common
good, then the need to invest in the production of technology components
is vital for the future of the global economy. In their essay entitled The G7’s
Way Forward For Semiconductor Infrastructure Development in the Indo-
Pacific, Shelby Lauter and Stephen Ezell of the Information Technology and
Innovation Foundation note that the complexities and prohibitive costs of
manufacturing semiconductors requires a concerted approach. They call for
a coordinated approach in technology development, ecosystem support, and
technology protections together with countries across the Indo-Pacific. At the
same time, Lauter and Ezell call for the recognition of the centrality of semi-
conductors in the national and economic security goals of the G7, and develop
a semiconductor-specific infrastructure strategy.
Meanwhile, John Fowler of Arizona State University focuses on the need to
develop a technology focused workforce in his essay The Challenge to Cultivate
Global Semiconductor Talent. He points out that one of the biggest risks fac-
ing the chip sector is access to highly skilled talent, and that talent shortages
1 https://www.whitehouse.gove/briefing-room/statements-release/2022/06/26/
fact-sheet-chips-and-science-act-will=lower-costs-jobs-strengthen-supply-chains-and-country-china/
7
in turn will hurt innovation and competitiveness. At the same time, the talent
dearth is seen across the board in all countries, and calls for more funding
not only for research, but also to grow talent focused on the semiconductor
industry from the ground up at universities in addition to providing financial
incentives to attract the best and brightest.
Yet semiconductors are hardly alone in requiring more funding and coor-
dinated support from the G7. Investing in water resources too is highlighted
by John Matthews, Ingrid Timboe, and Kelsey Harpham of the Alliance
for Global Water Adaptation. In Water as a Resilience Multiplier and an
Inclusive Indo-Pacific, they note that access to water, containing water, and
risks posed by water as a destructive force due to climate change continue
to rise rapidly. The authors call for greater awareness of the need for water
resilience in the Indo-Pacific that can ultimately lead to greater social as well
as economic security.
Even the best of strategies, however, cannot be put into action without ad-
equate financing. In International Financial Institutions and the Infrastructure
Financing Gap, Bart Édes of Canada’s Asia Pacific Foundation points out that
the G7’s ambitious plan to boosting infrastructure financing in developing
countries cannot be done without the support of multilateral development
banks, not only for their ability to finance projects, but also to provide the
expertise as well as capacity to ensure that projects are actually implemented.
In turn, the development banks will need the continued financial support of
the G7 to ensure that they are able to deliver upon expectations.
As for Michele Acciaro of the Copenhagen Business School, he provides
insight into the history of infrastructure development that had initially been
dominated by western powers in his essay The G7 Challenge in Facing China’s
Infrastructure Ambitions. In outlining China’s motivations for promoting
its own infrastructure vision, Acciaro also points out the challenges facing
European nations as they too look to Chinese capital to fund some of their
own critical infrastructure needs. He also cautions the lack of clarity of the
G7 infrastructure proposal beyond financing measures, and points out the
need for specific collaborative projects to ensure that the plan does not simply
end without action.
To be sure, the G7 each have their own ambitious infrastructure devel-
opment plans either in the making or being signed into law. In the United
8
Aligning the G7’s Strategic Interests and the Indo-Pacific’s Infrastructure Needs
States, commitments have been made not only to fund infrastructure, but
Washington has also shown a renewed commitment to investments in re-
search and innovation. There is no doubt that fear of China has been a driving
force for new capital on that front too. The $52.7 billion Chips and Science
Act garnered bipartisan support in September of buildup the U.S. semicon-
ductor industry and enhance U.S. technology and research and innovation
more broadly, including in information technology. While responding to
China is an important motivation for the G7, the emphasis on the informa-
tion technology sector. That focus on information technology nicely paral-
lels the Indo-Pacific’s interest on modern as well as traditional infrastructure.
That focus is echoed in PGII and its goal to further 5G and 6G networks and
enhance cybersecurity.
As President Biden stated in unveiling the G7 initiative, the infrastructure
is not aid or charity. Rather, plan can be an opportunity for the establishment
of a true partnership between the richest countries and the Indo-Pacific, where
the interests of both sides are aligned. Only then can investments come to full
term, given the need for bipartisan support to ensure continued commitments.
9
CHAPTER TWO
The G7’s Way Forward

For Semiconductor
Infrastructure Development
in the Indo-Pacific
Shelby Lauter is a Policy Fellow at the Information Technology and
Innovation Foundation.
Stephen Ezell is Vice President for Global Innovation Policy at the

Information Technology and Innovation Foundation.
The G7’s Way Forward For Semiconductor Infrastructure Development in the Indo-Pacific
T he June announcement of the Group of Seven’s (G7) Partnership for

Global Infrastructure and Investment (PGII) reflects the shared urgency
to secure global supply chains and compete with China’s ambitious Belt and
Road Initiative; importantly, it provides the financial momentum to actually
do so. Intended for low- and middle-income countries, the investment funds
establish global supply chain resiliency as a top priority, alongside the expan-
sion of open trade and enhancement of national and regional security. How
this investment will impact critical infrastructure and the semiconductor in-
dustry remains to be seen, but as a key arena for manufacturing, assembly, and
testing, the Indo-Pacific region should be central to the G7’s strategy.
While the PGII pledged over $600 billion in sustainable infrastructure
development, the announcement provided few details on where and how the
money will be spent.1 This briefing recommends more than 20 ways to invest
in the semiconductor supply chain and offers approaches for greater G7 coor-
dination that extends beyond financial support. Through coordinated semi-
conductor innovation, ecosystem development, technology protections, talent
expansion, and trade liberalization, the G7 can aid the region’s industries, im-
prove supply chain resiliency, and build strategic influence in the Indo-Pacific.
An Integrated and Costly Semiconductor Industry

The semiconductor industry is one of the world’s most highly complex and in-
tegrated industries, enabling rapid leaps in technological development on one
hand, while creating several points of vulnerability on the other. The global
semiconductor network’s reliance on free trade to transfer products, intellectual
property (IP), and other goods reflects one such dependency. The Semiconductor
Industry Association identified the following additional vulnerabilities threat-
ening semiconductor supply: geographic concentration of manufacturing, de-
sign, and other production; geopolitical tensions leading to security threats and
material shortages; protectionist trade policies; talent shortages; and a lack of
1 The White House, “FACT SHEET: President Biden and G7 Leaders Formally Launch the Partnership
for Global Infrastructure and Investment,” June 26, 2022, https://www.whitehouse.gov/briefing-room/
statements-releases/2022/06/26/fact-sheet-president-biden-and-g7-leaders-formally-launch-the-
partnership-for-global-infrastructure-and-investment/.
11
new research funding.2 Shoring up the supply chain will entail an equally inte-
grated strategy that takes into account these multifaceted risks.
Semiconductors are also an extremely costly industry, thanks to the com-
plexity of designing and manufacturing chips, as well as the level of specialty
of material inputs, the scale of production, and the technical knowledge re-
quired for production. Strong global demand for semiconductors drives these
costs further. As a basis of multiple end products that touch nearly all aspects
of modern life, demand for semiconductors has only continued to swell, driv-
ing sales up 13.3 percent in Q2 of 2022, compared to the same period last
year.3 Demand for cutting-edge semiconductor technology is also increasing,
with AI-related semiconductors expected to grow 50 percent annually from
2019 to 2022.4 Semiconductors are expected to grow from a $570 billion
global industry today to a $1 trillion one by the end of this decade. Achieving
that growth will require enormous capital investment (cap ex), with the indus-
try investing a total of $339 billion in cap ex across 2021 and 2022 alone. To
meet global demand, industry experts estimate that an additional $3 trillion
in capital and R&D investment is needed.5
Given the high level of global integration and enormous financial costs of
operation, plurilateral investments in semiconductors are a necessity. The G7’s
PGII provides an opportunity to fund such investments where they will have
the greatest impact: the Indo Pacific. G7 nations can look to the Quad’s ex-
ample for guidance. In September 2021, the Quad—Australia, India, Japan,
and the United States—announced a Semiconductor Supply Chain Initiative
focused on resiliency.6 As members of both the G7 and the Quad, Japan and
the United States should be leaders in the Indo-Pacific in order to achieve
semiconductor resiliency and competitiveness.
2 Antonio Varas, Raj Varadarajan, Jimmy Goodrich, Falan Yinug, “Strengthening the Global Semiconductor
Supply Chain in an Uncertain Era,” Boston Consulting Group & Semiconductor Industry Association,
April 2021. https://www.semiconductors.org/strengthening-the-global-semiconductor-supply-chain-
in-an-uncertain-era/
3 Semiconductor Industry Association, “Global Semiconductor Sales Increase 13.3% in Q2 2022 Compared
to Q2 2021,” August 1, 2022, https://www.semiconductors.org/global-semiconductor-sales-increase-
13-3-in-q2-2022-compared-to-q2-2021/.
4 Trisha Ray, Sangeet Jain, Arjun Jayakumar, and Anurag Reddy, “The Digital Indo-Pacific: Regional
Connectivity and Resilience,” Observer Research Foundation, February 15, 2021, https://www.orfonline.
org/research/the-digital-indo-pacific-regional-connectivity-and-resilience/.
5 Varas et al, 2021.
6 The White House, “FACT SHEET: Quad Leaders’ Summit,” September 24, 2021, https://www.
whitehouse.gov/briefing-room/statements-releases/2021/09/24/fact-sheet-quad-leaders-summit/.
12
A Coordinated G7 Strategy
The complexities and prohibitive costs of manufacturing necessitate an allied
approach to strengthening the supply chain.7 Beyond the financial support of
the PGII, G7 nations should engage Indo-Pacific nations, of which there is some
overlap, in a dialogue that seeks cooperative agreements and a shared under-
standing of extant threats in the supply chain. Through coordinated technology
development, ecosystem support, and technology protections, G7 leaders can
comprehensively bolster the semiconductor industry in the Indo-Pacific.
Technology Development
To augment future technological innovations, G7 leaders must invest in ad-
vanced manufacturing cooperation and collaborative, pre-competitive R&D.
Funding should be targeted to encourage reciprocal R&D agreements and
integrated research partnerships among universities, private institutions,
government agencies, and public-private associations. A key vulnerability at
certain points of the supply chain is the high degree of geographic specializa-
tion, which can lead to bottlenecks and other disruptions. In fact, the Boston
Consulting Group has identified more than 50 points of high geographical
concentration across the supply chain where one single region accounts for
over 65 percent of the market share at a certain point in the semiconductor
supply chain.8 Investment incentives for production diversification can reduce
the risk that a disruption in any one nation has an outsize effect on the rest of
the supply chain. To start, channel investments where infrastructure already
exists. For instance, G7 funds could go toward existing design firms in India
or manufacturing hubs in Singapore where there are not already high levels of
geographic concentration in these fields, compared to other nations.9
Another way to boost R&D collaboration in the Indo-Pacific would be
by creating a G7 jointly operated R&D fab for semiconductor prototyping
and testing and G7 centers of excellence to develop leadership, best practices,
7 Stephen Ezell, “An Allied Approach to Semiconductor Leadership” (ITIF, September 2020), https://
d1bcsfjk95uj19.cloudfront.net/sites/default/files/2020-allied-approach-semiconductor-leadership.pdf
8 Antonio Varas et al., “Strengthening the Global Semiconductor Supply Chain in an Uncertain Era” (BCG
and SIA, April 2021), https://www.semiconductors.org/strengthening-the-global-semiconductor-
supply-chain-in-an-uncertain-era/.
9 Ray et al, 2021.
13
research, and training in specialized areas.10 Coordinated R&D and design

should be met with strong pre-standardization policies for emerging tech-
nologies, such as common technical standards, terminology, methodology,
and concepts.11 Crucially, joint standards establish foundations for better data
gathering and, thereby, better assessment of supply chains. Pre-standardization
policies also ensure information sharing among allied countries, even if the
national legal policies differ.
The G7 technology development strategy should also foster innovation-
focused dialogue among allied nations in the Indo-Pacific. For example, an
innovation policy experts’ group could exchange knowledge on innovation
methods, increase development and application of digital technologies en-
abled by semiconductors (e.g., IoT/AI/robotics, etc.), address how to use such
technologies to bolster faltering productivity levels, and communicate find-
ings to enable responsive policymaking.12
Semiconductor Ecosystem Support

Reinforcing the supply chain also entails strengthening the ecosystem that sup-
ports semiconductor design and manufacturing. Thus, a G7 allied approach
should include investment for ecosystem supports like joint mapping and pre-
dictive analysis, secure computing infrastructure, and rules in the competitive
market. Joint mapping can be used to identify current gaps in the supply chain,
while predictive analysis using AI/ML technology can forecast future shortages
for early action. Together, these technologies form a critical knowledge advan-
tage, but their success ultimately relies on good data collection and sharing prac-
tices, in addition to greater development of AI capabilities.
The ecosystem surrounding semiconductors extends to the digital integra-
tion and security of networks. In the Indo-Pacific, the funding and adoption
of Open Radio Access Network (“ORAN”) equipment is critical to the se-
curity of networks and development of 5G and 6G digital connectivity. The
G7 should look to the Quad’s “Memorandum of Cooperation on 5G Supplier
10 Stephen Ezell, Pranay Kotasthane, and Glenn Downey, “Semiconductors—it takes a village to raise a chip,”
The Times of India, May 24, 2022. https://timesofindia.indiatimes.com/india/3-ideas-for-4-countries-
hunting-for-chips/articleshow/91748347.cms.
11 Nigel Cory, “Comments to the U.S. Commerce Department on the Indo-Pacific Economic Framework,”
Information Technology and Innovation Foundation, March 21, 2022, https://www2.itif.org/2022-indo-
pacific-economic-framework.pdf.
12 Ibid.
14
Diversification and Open RAN” and “International Standards Cooperation

Network” to guide its own cooperative digital agreements in the region.13
Further, the G7 should work with Indo-Pacific leaders to form cooperative
rules and norms governing ecosystem development. At the competitive-mar-
ket level, this partnership could include cooperative development financing;
export credits that incentivize partnerships with allied vendors and compa-
nies; and shared standards of globalized development.14
Strategic development financing—when successful—spurs additional
investment from other actors, such as in the private sector. Take, for in-
stance, the swell of private-sector investment that followed a U.S. govern-
ment-led initiative in 2018; the effort—involving the U.S. Department of
State, U.S. Agency for International Development (USAID), and other
agencies—contributed $2.9 billion in Indo-Pacific infrastructure aid and
prompted millions more from private contributions.15 To build on these in-
vestments, the G7’s PGII initiative should involve experienced operators in
the region, like the U.S. International Development Finance Corporation
(DFC), among others.
G7 leaders can generate an even greater impact by working collaboratively
with like-minded nations to target financing opportunities and encourage
funding from Indo-Pacific governments. Importantly, such collaboration can
foster greater adoption of semiconductors and supporting technologies, in-
cluding AI, high-performance computing, and 5G. In this sense, cooperative
development financing increases the supply of semiconductors, as well as the
demand. When paired with other incentives, like export credits, and shared
development standards, such coordination will better position the G7’s PGII
to offer an alternative to China’s Belt and Road Initiative.
Technology Protections: IP Protections, Export

Controls, and Foreign Investment Screening
The semiconductor supply chain also hinges on strong technology protec-
tions, including management of IP, export controls, and foreign investment
13 The White House, “FACT SHEET: Quad Leaders’ Tokyo Summit 2022,” May 23, 2022, https://www.
whitehouse.gov/briefing-room/statements-releases/2022/05/23/fact-sheet-quad-leaders-tokyo-summit-2022/.
14 Ezell, Kotasthane, and Downey, 2022.
15 Ezell, 2020.
15
screening. For each of these protections, the G7 and Indo-Pacific leaders

should strive for reciprocal agreements among like-minded nations.
Foremost, IP and related trade secrets must be protected against theft. IP
is the backbone of semiconductor design, and it provides important market
protections like combating the sale of counterfeit semiconductors and related
products. Broader IP information sharing, as well as more robust protections
for trade secrets and penalties against their theft, are a start. Allied nations can
go further by maintaining a comprehensive index of IP theft in order to better
track and prevent threats. In particular, G7 nations need to build a consoli-
dated list of foreign enterprises that engage in unrelenting unfair trade prac-
tices such as IP theft and cyberespionage and collaborate to collectively block
such firms from enjoying access to G7 markets. And this should go beyond
blocking the import of specific products that have benefited from pilfered IP
or technology—as the United States’ 337 rules at the U.S. International Trade
Commission has done—but to wholesale blocking of the infringing firm’s ac-
cess to G7 markets entirely.
The G7 and Indo-Pacific nations can further protect technology by col-
laborating on export controls and agreeing upon the use of narrow and tar-
geted controls as deemed strictly necessary by the level of sensitivity or threat.
Multilateral controls can effectively protect sensitive technologies, while
avoiding the dangers that unilateral controls may pose for global partnerships.
Additionally, G7 leaders can align investment screening practices as an extra
safeguard against malfeasance.16
Talent Supply Chain Resiliency

Underlying the resiliency of semiconductor supply chains is that of talent
supply chains. The present talent shortage most acutely threatens the pace of
innovation and chip design.17 But the shortage’s effects spill over into other
stages of semiconductor production, including predictive software and sys-
tems development, validation and testing, and end-market expertise.18 The
need for highly skilled workers must be met with greater investment in science
16 Ibid.
18 Selena Loh LaCroix, “Talent solutions for today’s semiconductor shortage,” Korn Ferry, October 12, 2021,
https://www.kornferry.com/insights/featured-topics/talent-recruitment/talent-solutions-for-todays-
semiconductor-shortage.
16
and engineering programs, particularly at the graduate level. Further, immi-

gration laws must facilitate the flow of global talent and ensure that education
programs are able to attract international students.
Yet, if G7 leaders truly want to evade the worst threats of the talent short-
age, they must think outside of the typical boxes of education investments and
changes to immigration law. Further, the talent pipeline must be addressed
comprehensively, not just at the levels of training and recruitment. Some ideas
for an unconventional G7 talent strategy could involve the following:
● Targeted education for impact. Investment in education and training

centers could be targeted to match national competencies and strengths—
for example, education investment in Japan could emphasize silicon and
semiconductor manufacturing equipment.19 This approach would ensure
simultaneously diverse yet complementary training that strategically
prepares workers throughout the industry. Another opportunity for
targeted programs could be to accelerate training in specific technical
areas where the need is greatest. In such cases, governments should work
with the private sector and universities to identify and fill training gaps.
● A competitive recruitment and engagement plan. The abundance

of software and consumer technology jobs creates significant talent pool
competition. In order to compete for high-skilled workers, G7 nations
need an engaging recruitment plan that attracts applicants through
effective marketing and branding and matches recent graduates with
relevant work based on skills and interests. The marketing strategy, in
particular, is key to recruiting diverse candidates. By communicating the
tremendous impact of semiconductors in everyday life, as well as the scope
of specialties and room for growth in the semiconductor industry, the
marketing plan could engage new applicants who would otherwise enter
adjacent fields.20
19 Semi village
20 Loh LaCroix, 2021.
17
● Train for crisis management. The climate and health crises of the last
two years are not isolated events; rather, crises will inevitably grow worse
and become more disruptive. Supply chain resiliency requires a flexible
workforce that can adapt to unforeseen challenges and crises, whether
they be climate-related, political, or global health-related. Training for
crisis management should involve predictive analysis instruction and
cross-functional training, as duties are likely to shift in a time of crisis.
In order to navigate crises, the semiconductor workforce must be agile,
flexible, and alert to new challenges.
● Upskill current talent. Investment must be made throughout the

talent pipeline, including current talent. Upskilling workers is important
for adapting to new technologies and, even more so, is crucial for talent
retention. Nurturing current talent ensures comprehensive reinforcement
of the talent supply chain at all stages.
● More flexible industry. Employees in the semiconductor industry

report lower worker satisfaction levels than those of other tech
companies.21 This finding clearly poses retention challenges, but when
taken together with other trends in the employment market, it signals the
need for the industry to change its workstyle, particularly with regard to
worker flexibility. Elsewhere in the tech market, employees are still able
to work from home, a pandemic practice that appeals to many who do
not wish to return to the office or to relocate, if needed. Some parts of
the industry are also seen as more attractive than others due to real and
perceived differences in compensation, benefits, and career opportunities.
Improving talent pipelines will ultimately require more flexible offices
and attractive benefits in order to compete.
21 Ondrej Burkacky, Ulrike Kingsbury, Andrea Pedroni, Guilietta Poltronieri, Matt Schrimper,
and Brooke Weddle, “How semiconductor makers can turn a talent challenge into a competitive
advantage,” McKinsey & Company, September 7, 2022, https://www.mckinsey.com/our-insights/
how-semiconductor-makers-can-turn-a-talent-challenge-into-a-competitive-advantage.
18
Supportive Trade Rules and Regulations

Semiconductors represent the fourth-largest globally traded good, behind
crude and refined oil and motor vehicles.22 Fortifying the supply chain means
promoting greater trade liberalization in the Indo-Pacific region. Strong trade
regimes that promote openness and free trade are crucial for the transfer of
knowledge and technology, especially as components of greater innovation
and learning. They are also important for fostering regional connectivity and
resilience to supply chain shocks.
The Indo-Pacific region already has a rich environment of formalized trade
agreements: the ASEAN Free Trade Area, the Comprehensive and Progressive
Agreement for Trans-Pacific Partnership (CPTPP), the Asia-Pacific Trade
Agreement, and the Regional Comprehensive Economic Partnership (RCEP)
to name a few, as well as independent ASEAN agreements with individual
nations.23 The region also has a diverse range of trade regimes, from the very
liberal to the more protectionist. Yet, the trade environment still faces high re-
gional transaction costs, barriers to technology flows, and missed opportuni-
ties for economic growth through trade. The G7 can support the Indo-Pacific
in realizing these opportunities through development of a coherent agreement
and updates to existing trade partnerships. The ultimate goal of these negotia-
tions should be a free and open Indo-Pacific.
As part of a comprehensive Indo-Pacific trade strategy, G7 nations should
advocate for an ITA expansion. Following the establishment of the WTO’s
Information Technology Agreement (ITA) in 1997 and its expansion in 2015,
the semiconductor industry experienced a 20 percent increase in trade, and par-
ticipating nations experienced a boost in economic growth thanks to lower price
of ICT goods.24 A further expansion of the ITA would eliminate tariffs on an-
other 250 ICT product categories, including at least 60 next-generation semicon-
ductors and semiconductor products or inputs. The reduction in prices via tariff
elimination an ITA-3 could deliver carries the potential for an additional $784

23 Ray et al, 2021.
24 Ibid.
19
billion in global economic growth over 10 years.25 With the adoption of a so-
called ITA-3, signatory countries could also spur deeper participation in global
value chains and faster adoption of new ICT technologies, the impact of which
could have tremendous ripple effects throughout the semiconductor industry.
Multiple and Multi-layered Alignments

Lastly, G7 nations could raise the efficiency of the Indo-Pacific’s multiple
and multi-layered national alignments. As a very large and diverse region,
varying geopolitical, national, and economic interests compel the formation
of many alliances. However, the presence of distinct yet sometimes overlap-
ping alliances—the Quad and the Supply Chain Resilience Initiative (SCRI)
share Australia, India, and Japan as core members, for instance—creates re-
dundancies and inefficiencies in reaching their common goal of supply chain
resiliency. Without adequate information sharing between these groups, their
efforts to improve resiliency may be less effective. By communicating more
often, combining talents where possible, and balancing priorities when neces-
sary, major groups focused on the Indo-Pacific can maximize impact. The G7
nations should become leaders in this space by setting an example.
Conclusion
The G7 nations need to turn their words into action in enacting new policies
to support a free, open, and inclusive Indo-Pacific by recognizing the centrality
of semiconductors to their national and economic security goals, and by acting
to develop a coordinated semiconductor-specific infrastructure strategy in the
Indo-Pacific. The PGII’s investment funds could be used to build infrastructure
for R&D and advanced manufacturing capacity, improve identification and
prediction of supply chain shortages, support digital infrastructure for semicon-
ductor development, incentivize allied vendor partnerships, and draw new tal-
ent. Beyond funding infrastructure, the G7 should also take leadership roles in
plurilateral agreements and in creative solutions for resilient supply chains.
25 Stephen Ezell and Luke Dascoli, “How an Information Technology Agreement 3.0 Would Bolster Global
Economic Growth and Opportunity,” Information Technology and Innovation, September 2021, https://
d1bcsfjk95uj19.cloudfront.net/sites/default/files/2021-ITA-3.pdf.
20
CHAPTER THREE
The Challenge to
Cultivate Global
Semiconductor Talent
John W. Fowler is the Motorola Professor in International
Management at the Arizona State University’s W. P. Carey Supply Chain
Management and Senior Global Futures Scientist, Global Futures
Scientists and Scholars.
John W. Fowler
A s the main component in all modern electronics, semiconductors are

critical to the global economy. Countries around the world serve as key
nodes in a dispersed network of suppliers for the core building blocks of the
technology that modern society has come to rely upon. Over the past three
decades, the chip industry has been a driving force for global growth as well.
The semiconductor market worldwide grew at a 7.5 percent compound an-
nual growth rate from 1990 to 2020, outpacing the 5 percent growth of global
GDP during that time.
The risks for disruption in the semiconductor supply chain are therefore
significant, and G7 leaders have clearly recognized the need to address supply
chain resiliency challenges. There are no shortage of risks, from disruptions
due to a natural disaster such as an earthquake or typhoon, global shocks to
the trading system like the COVID-19 pandemic, or upheaval caused by polit-
ical considerations such as an armed conflict. Clearly, all these risks can cause
significant disruptions in the semiconductor supply chain. But the world’s
wealthiest nations must also recognize the urgent need to invest in the infra-
structure of a technology-focused workforce. After all, a shortage of talent to
design the next generation of computer is becoming acute at even as innova-
tion remains key for competitiveness.
Semiconductor devices are highly complex products to design and manu-
facture. In 2021,the Semiconductor Industry Association (SIA) reported that
that the semiconductor supply chain “consists of four broad steps, supported
by a specialized ecosystem of materials, equipment and software design tools
and core IP suppliers.”1 The four broad steps are: 1) Pre-competitive research;
2) Design; 3) Frontend manufacturing (wafer fabrication); and 4) Backend
manufacturing (assembly, packaging, and testing). All of these require a so-
phisticated workforce, but the specific needs are different .2
Pre-competitive research focuses on identifying fundamental materi-

als and chemical processes and to make innovations in design architectures
1 Varas, Antonio, Varadarajan, Raj, Goodrich, Jimmy, and Falan Yinug, “Strengthening the Global
Semiconductor Supply Chain in an Uncertain Era,” Semiconductor Industry Association, April, 2021, https://
www.semiconductors.org/strengthening-the-global-semiconductor-supply-chain-in-an-uncertain-era/
2 “United States, Taiwan, and Semiconductors: A Critical Supply Chain Partnership”, Project
2049 and US-Taiwan Business Council, June 8, 2022. https://www.us-taiwan.org/events/
report-release-event-initial-report-us-taiwan-and-semiconductors-a-critical-supply-chain-partnership/.
22
The Challenge to Cultivate Global Semiconductor Talent
that will enable the next commercial leaps in computing power and efficiency.
Much of this basic research is done at universities, and is supported by gov-
ernment funding. Pre-competitive research is then followed by industrial
research, which helps translate the new innovative ideas into practice — al-
though direct benefits are often not realized for over a decade. This step re-
quires a mix of highly educated scientists and engineers.
Design involves developing the architecture for integrated circuits. While

computer chips were originally designed manually, that is not possible for
the complex chips produced today. Instead, current chip design work relies
on sophisticated Electronic Design Automation (EDA) software and reusable
architectural building blocks. Even with these tools, developing leading-edge
chips can take several years and requires the work of hundreds of highly spe-
cialized design engineers. U.S. IDMs and fabless companies are still the lead-
ers in chip design, with 10 of the top 20 semiconductor design companies,
including both fabless and IDMs, headquartered in the United States.
Frontend manufacturing starts with a wafer made of raw silicon or

other semiconductor material. The electronic circuitry is fabricated onto
the wafer layer by layer in a wafer fabrication facility (wafer fab). Frontend
processing is very capital-intensive, comprising approximately 64 percent of
industry-wide capital expenditures. These plants also require a wide variety
of top notch engineering support including chemical, electrical, and indus-
trial/manufacturing engineers. Wafer fabs are therefore usually built where
there is a strong supply of engineering talent at the BS, MS, and PhD levels.
When it comes to wafer fabrication, four regions in Asia make up the bulk
of the manufacturing capacity. The United States is down to a 12 percent
share, while Taiwan is at 20 percent, South Korea at 19 percent, Japan at
17 percent, China at 16 percent, Europe at 9 percent, and the rest of the
world with 6 percent.3 The growth of wafer fabrication capabilities in East
Asia was primarily due to decades-long government investment strategies
and incentives.
3 “World Fab Forecast (WFF),” op.cit.
23
John W. Fowler
Backend manufacturing begins by slicing the wafers produced in the

frontend processes into individual chips and then assembled and packaged
into protective plastic or ceramic frames and encased in a resin shell to be-
come usable in electronic devices. Finally, the chips are thoroughly tested to
determine their operating characteristics, such as the speed for a micropro-
cessor. While backend processing requires sophisticated equipment, it is not
as capital-intensive as the frontend. Backend processing does not require the
same level of highly trained engineering support as the frontend, but is more
labor intensive. Therefore these facilities have traditionally been in countries
with relatively inexpensive labor. Currently, only about 2 percent of backend
operations are done in the United States, and China and Taiwan account for
more than 60 percent of the world’s assembly, packaging, and test capacity.
The six regions mentioned above have strengths in different parts of the
semiconductor supply chain. While the United States was once the leader in
all aspects of the industry, that has evolved over time. Today, the United States
is still the leader in intensive R&D activities, but the bulk of manufacturing is
now conducted in East Asia.4
Talent shortages will hurt innovation

The largest risk on the design side of the global semiconductor industry is
access to highly skilled talent. Talent shortages may not pose an immediate
threat of large-scale disruption for the industry, but it could significantly
reduce the industry’s long-term ability to maintain its rapid pace of innova-
tion. The industry workforce is aging, with a significant number of current
employees in technical positions likely to retire over the next ten to 15 years,
Furthermore, the industry needs to attract talent with different skill sets, par-
ticularly in software development and artificial intelligence.
In the near term, talent has also become a major concern for the indus-
try. In a 2021 survey of semiconductor industry leaders by KPMG, 30 percent
named talent as one of the top 3 risks threatening their ability to grow over
the next three years.5 This was the third-highest risk factor behind territori-
4 See Exhibit 14 in “Strengthening the Global Semiconductor Supply Chain in an Uncertain Era” report,
op.cit., for a detailed breakdown.
5 “Global Semiconductor Industry Outlook,” KPMG, February 2021, https://advisory.kpmg.us/content/
dam/advisory/en/pdfs/2021/semiconductor-industry-outlook-2021.pdf
24
alism—including cross-border regulation, tariffs, new trade agreements, and

national security policies- and supply chain disruptions. In the 2020 version
of this survey, talent was tied for the number one risk. The report went on
to speculate that the decrease in the 2021 ranking was likely due to the new
work-from-anywhere paradigm.
Most of the needed new talent for the semiconductor industry will come
from university undergraduate and graduate programs. More sophisticated
roles will likely be filled by graduate students, who are conducting research
with funding grants from the government, research consortia, and directly
from industry. While U.S.-based academic institutions have traditionally
provided much of the talent for industry, this is changing. First, many of the
Chinese students now choose to go back to China upon graduation. Second,
academic institutions in Taiwan, China, Korea, Japan, and Europe now have
strong graduate programs that help support the industry.
The U.S. talent dilemma

Even before COVID and the announcement of new fabs being built in the
US by Intel, Micron, Samsung, and TSMC there were thousands of semicon-
ductor jobs were going unfilled.6 The new fabs are expected to create at least
70,000 new semiconductor manufacturing jobs.7 This does not include the
additional jobs that are needed in the chip design arena.
The U.S. semiconductor talent shortage is being addressed by both the gov-
ernment and the semiconductor industry with the government helping more
on the mid-term and long-term problem, while the companies are more fo-
cused on the short-term problem. In the recently enacted CHIPS and Science
Act, $13.2 billion is allocated for R&D and workforce development.8 R&D
funding is important in addressing the talent shortage because many of the
6 Silverberg, Elliot and Hughes, Eleanor, ”Semiconductors: the skills shortage”, theinterpretor, September 15,
2021, https://www.lowyinstitute.org/the-interpreter/semiconductors-skills-shortage.
7 VB Staff, “Report: Critical talent shortage for over 70,000 semiconductor manufacturing jobs”,
VentureBeat, December 9, 2021, https://venturebeat.com/social/report-critical-talent-
shortage-for-over-70000-semiconductor-manufacturing-jobs/.
8 “FACT SHEET: CHIPS and Science Act Will Lower Costs, Create Jobs, Strengthen Supply Chains,
and Counter China”, The White House, August 9, 2022, https://www.whitehouse.gov/briefing-room/
statements-releases/2022/08/09/fact-sheet-chips-and-science-act-will-lower-costs-create-jobs-
strengthen-supply-chains-and-counter-china/.
25
John W. Fowler
students working on R&D projects at universities ultimately go to work in

the industry. The experience gained in working in the R&D environment
makes the transition to industry easier than it is for students who don’t have
this experience. Without much governmental R&D funding for semicon-
ductor manufacturing over the last two decades, a number of research labs
at US universities were shut down. In looking even further into the future,
the legislation authorizes new and expanded investments in STEM education
and training from K-12 to community college, undergraduate and graduate
education, particularly for marginalized, under-served, and under-resourced
communities.
In the private sector, semiconductor firms are looking for ways to attract
and retain the talent needed to run their business. An important aspect of this
to increase diversity of the workforce. Many of the companies have goals and
strategies regarding seeking out more women, unrepresented minorities, and
veterans. There also significant efforts underway to reskill their workers to ad-
dress changes in the nature of the work. Salaries in the industry have also been
increasing in response to competition from other industries.
Beefing up Europe’s tech talent pool

Europe’s microelectronics sector currently has 200,000 direct jobs (and
1,000,000 indirect) high-skilled jobs. As worldwide demand for chips contin-
ues to increase, the need for semiconductor workers in Europe will increase.
Intel plans to invest up to €80 billion over the next decade to build up Europe’s
supply chain for semiconductor chips including every part of the chip supply
chain with investments also going to France, Ireland, Italy, Poland and Spain.9
Their initial investment of 33 billion euros will create about 5,500 jobs at the
company, plus thousands more in construction and at suppliers and partners.
In 2019, SEMI and 19 partners from 14 European countries launched
the METIS—Microelectronics Training, Industry and Skills—initiative to
fill the skills gap and boost workforce diversity by strengthening collabora-
9 Cooban, Anna, “Intel will invest nearly $90 billion in Europe’s chipmaking industry”, CNN Business,
March 15, 2022, https://www.cnn.com/2022/03/15/tech/intel-chips-europe/index.html.
26
tion between the microelectronics industry and education providers.10 The

four-year project focuses on the skills and related training needed to support
emerging verticals such as artificial intelligence, autonomous driving and
Industry 4.0 in Europe.
Taiwan’s China challenge in the chip space

The recently released Taiwan 104 Manpower Bank 2021 Taiwan Semiconductor
Talent White Paper, indicates that the second quarter average monthly talent
gap in the semiconductor industry was almost 28,000 which was the highest
total over the last 6-and-a-half-years11. The white paper also broke down the gap
by discipline and indicated that 55 percent of the gap was for engineers, mostly
for Frontend and Backend manufacturing. The average monthly salary of the
industry is 52,288 yuan which ranked second to the computer and consumer
electronics industry. The higher salaries are one of the main ways that Taiwanese
firms are attempting to attract and retain top talent.
The Taiwanese government has done a couple of things to address the
semiconductor gaps. First, the Taiwanese government devoted significant re-
sources to establish “chip schools” within top universities on the island.12 The
leading chip companies are partnering with the government to establish these
talent pipelines. According to the Taiwan Ministry of Education, four chip
schools were established in 2021 and one additional school has been approved.
Each school was given a quota of about 100 master’s and PhD students. The
schools will operate year round with no winter and summer breaks in order to
produce graduates more quickly.
10 Pelé, Anne-Françoise, “ Semiconductor Industry Needs to Close Talent Gap, EE Times Europe, July 8, 2021,
https://www.eetimes.eu/semiconductor-industry-needs-to-close-talent-gap/.
11 iNews, “Taiwan’s semiconductor talent gap hits a 6-and-a-half-year high, the most shortage of engineers”,
iNews, September 26, 2022, https://inf.news/en/taiwan/348b5ee33b530474fb4f8e95007457b4.html.
12 Wu, Sarah, “Taiwan invests in next generation of talent with slew of chip schools”, Reuters, March 10, 2022,
https://www.reuters.com/markets/funds/taiwan-invests-next-generation-talent-with-slew-chip-
schools-2022-03-10/.
27
John W. Fowler
Part of the problem for Taiwan is the fact that the over 3,000 engineers
and corporate leaders from Taiwan have accepted employment in China.13 In
response, the second thing that the Taiwanese government has done is to tell
recruiting firms to remove listings for high-tech positions based in China.14
Those firms that violate this rule will be subject to fines and those fines
will be greatest for those job openings in the semiconductor industry. It
should be noted that this is also a signal to the US that Taiwan views China
as a major threat.
Growing South Korea’s tech talent

The South Korean semiconductor industry is faced with a significant talent
shortage. In addition to the challenges faced by other countries in the indus-
try, South Korea has long had an extremely low birth rate. Both the South
Korean government and South Koreans companies have taken actions to
reduce the current and future talent shortages in the semiconductor indus-
try. The South Korean Ministry of Education recently set a goal of training
150,000 people with semiconductor expertise over the next ten years.15 The
plan includes the establishment of new departments of semiconductor stud-
ies at four advanced research institutions across the country. It also will raise
current student quotas at universities in and around Seoul for departments
with semiconductor-related and semiconductor-supporting programs. It plans
to bolster academic-industrial cooperation programs in advanced degree pro-
grams to promote chip engineers and hope to expand exchange programs with
overseas schools, institutes, and tech companies. 16 In a somewhat controver-
sial move, the government also will redirect $2.8 billion from its childhood
education budget to higher and lifelong education including educational
13 Ihara, Kensaku, “Taiwan loses 3,000 chip engineers to ‘Made in China 2025’,” Nikkei Asia, https://asia.
nikkei.com/Business/China-tech/Taiwan-loses-3-000-chip-engineers-to-Made-in-China-2025
14 Mott, Nathaniel, “China’s Efforts to Recruit Semiconductor Talent Hit by Taiwan Ban”, Tom’s Hardware,
April 30, 2021, https://www.tomshardware.com/news/taiwanese-ban-hits-chinas-efforts-to-
recruit-semiconductor-talent
15 Lem, Pola, “Korea’s semiconductor talent boost ‘too little, too late’”, Time Higher Education, August 31,
2022, https://www.timeshighereducation.com/news/koreas-semiconductor-talent-boost-too-little-too-late.
16 “3,000 semiconductor professionals to be trained”, Korea Joong Ang Daily, May 30, 2022,
https://koreajoongangdaily.joins.com/2022/05/30/business/tech/Korea-semiconductor-
talent/20220530183757599.html.
28
efforts to develop and grow semiconductor talent. 17

South Korean semiconductor companies have also been making efforts
to attract and retain semiconductor talent. The industry faces stiff competi-
tion for talent from gaming and internet companies as well as Chinese com-
panies who are offering ever-increasing salaries. This has led Samsung and
other semiconductor companies to offer significant bonuses to all employees
and to increase entry level salaries.18 In order to retain some of their top tal-
ent that is aging, several South Korean semiconductor companies are offer-
ing employees the chance to put off retirement past the standard retirement
age of 60. Some of these companies are also moving some of their younger
employees into “honored engineer” positions in order to retain their top
performing younger employees.
Japan’s private and public investments to meet demand

The Japan Electronics and Information Technology Industries Association
(JEITA) estimated that the eight large Japanese semiconductor companies
will need to hire 35,000 engineers in the next 10 years to support expansion of
the industry. 19 These companies are targeting local universities for entry-level
talent and are expending large amounts of money in their recruitment efforts.
In response to the current and future talent challenges, the Japanese gov-
ernment is looking into establishing talent development programs that involve
industry, academia, and government collaboration. The programs are based on
a framework established in a joint chip-making venture By TSMC and Sony
Group Corp. that involved Kyushu University and nine local governments.
17 “South Korea will redirect 3.6 trillion won (US$2.8 billion/100.8 billion baht) from its budget for
childhood education to higher and lifelong education, such as nurturing semiconductor talent, the
government said on Thursday”, The Nation Thailand, July 8, 2022, https://www.nationthailand.com/
international/40017515.
18 “The semiconductor talent war heats up Samsung employees purse bulging”, RMC Team, February 10,
2022, https://www.realmicentral.com/2022/02/10/the-semiconductor-talent-war-heats-up-samsung-
employees-purse-bulging/
19 Valero, Beatriz, “Skills shortage threatens Japan’s semiconductor industry”, Engineering
and Technology, June 28, 2022, https://eandt.theiet.org/content/articles/2022/06/
skill-shortage-threatens-japans-semiconductor-industry/.
29
John W. Fowler
China’s goal for self-sufficiency

China has set a target of 2035 to be fully self-sufficient in tech by 203520 and
some believe that they will lead the global semiconductor industry by 2030
due to its growing market size and domestic production capacity.21 Even
though China plans to invest about US$150 billion by 2030 to ramp up its
semiconductor manufacturing capacity, the biggest obstacle to achieving
self-sufficiency is not funding, but is a chronic shortage of talent.22 China
reportedly needs 400,000 more semiconductor employees to meet its goals.
23
China’s biggest talent challenge is the need for chip manufacturing talent.
Even though China has numerous excellent universities that turn out a sig-
nificant number of graduates with advanced degrees in microelectronics and
communications, they suffer the same issue faced by their competitors—many
of the top graduates prefer to go to work for internet firms.24 In addition, they
need engineers with practical work and leadership experience as they try to
close the gap on their competition.
China has reacted to the current and future talent shortage by doing what
most of their competitors have done. They have established integrated cir-
cuit schools at two of the top Chinese universities: Tsinghua University and
Peking University. These new schools will provide the students with classroom
knowledge and hands-on experience. The Chinese government has given tax
breaks, incentives, and subsidies to Chinese semiconductor companies to
scale up production. Chinese companies have been increasing wages for their
key semiconductor talent which has resulted in a somewhat larger number
of Chinese students who studied abroad (mainly the US) returning to their
20 Gaikwad, Sumeet, “Opportunities with China’s semiconductor push”, Asia Fund Managers, July 18, 2022,
https://www.asiafundmanagers.com/us/opportunities-with-chinas-semiconductor-push/.
21 Williams, Lara, “China will lead the global semiconductor industry by 2030 due to its growing market size
and domestic production capacity”, Investment Monitor, July 25, 2022, https://www.investmentmonitor.
ai/analysis/china-lead-global-semiconductor-growth-2030.
22 Qu, Tracy, “China’s semiconductor talent shortage poses biggest obstacle to Beijing’s chip self-sufficiency
ambitions, SMIC founder says”, South China Morning Post, November 18, 2021, https://www.scmp.com/
tech/tech-war/article/3156576/chinas-semiconductor-talent-shortage-poses-biggest-obstacle-beijings.
23 Silverberg, Elliot and Hughes, Eleanor, ”Semiconductors: the skills shortage”, theinterpretor, September 15,
2021, https://www.lowyinstitute.org/the-interpreter/semiconductors-skills-shortage.
24 “China’s semiconductor industry faces a growing talent shortage as Beijing aims for global dominance in
chip manufacture”, Colombo Gazette, October 26, 2021, https://colombogazette.com/2021/10/26/chinas-
semiconductor-industry-faces-a-growing-talent-shortage-as-beijing-aims-for-global-dominance-in-chip-
manufacture/#:~:text=China%20faces%20a%20chronic%20shortage%20of%20scientific%20and,a%20
dearth%20of%20qualified%20senior%20professionals%2C%20they%20said.
30
homeland. Chinese companies also use promotions as a way to retain key per-
sonnel.25 Finally, Chinese companies have actively been recruiting engineers
and semiconductor leaders away from their Asian competition (particularly
Taiwan) to join them.
No silver bullet to cultivate much-needed tech talent

It is clear that the current and future semiconductor talent shortages are not
restricted to a single country. While there are some differences in the prob-
lems faced by each country, all are challenged by the fact that many of the stu-
dents that in the past would have gone into the semiconductor industry, now
prefer to go to work for gaming and internet companies. Governments and
consortia are investing in workforce development programs. In the United
States and Europe, there are special efforts to get more participation from un-
derrepresented groups. In Asia, there is considerable focus on creating new
semiconductor degree programs and/or on allocating more MS and PhD slots
in existing programs. Governments are also putting more funds into R&D
at key universities. The R&D funds are allowing the universities to produce
highly educated students with an increased understanding of the challenges
faced by the industry. Semiconductor companies are offering higher salaries
and promotions to recruit and retain the talent that they need.
25 Hsu, Edward, “Spotlight on pay and talent trends in Asia’s lively Semiconductor industry”, WTW, January
2022, https://www.wtwco.com/en-US/Insights/2022/01/spotlight-on-pay-and-talent-trends-in-asias-
lively-semiconductor-industry.
31
CHAPTER FOUR
Water as a Resilience
Multiplier for an Inclusive
Indo-Pacific
John H. Matthews is Executive Director of the Alliance for Global
Water Adaptation.
Ingrid Timboe is Policy Director at the Alliance for Global Water

Adaptation.
Kelsey Harpham is the Project Manager of the Water Tracker for

National Climate Plans with the Alliance for Global Water Adaptation.
Water as a Resilience Multiplier for an Inclusive Indo-Pacific
I n concluding the September 2021 Quad meeting with the heads of India,
Australia, and Japan, President Biden proclaimed that “the future of each
of our nations—and indeed the free world—depends on a free and open Indo-
Pacific enduring and flourishing in the coming decades.” As the world’s most
dynamic and populous region, the Indo-Pacific is full of potential, but it is not
without its challenges. Almost all of the Indo-Pacific nations have “difficult
hydrologies,” which present persistent and long-term structural challenges
for development. Climate change is exacerbating these challenges still further
as novel, previously unexperienced climate conditions emerge across the re-
gion more quickly than predicted by groups such as the IPCC. Continued
economic fallout from the COVID-19 pandemic, coupled with global supply
chain disruptions, geopolitical instability, and record high food prices threat-
ening to undermine worldwide development gains of the past 30 years, and
aggravating the situation still further. Clearly, new approaches to building and
sustaining water security for growth and development are needed urgently.
Additional water-sector investment has been identified as a clear gap. The
benefit-cost ratio of investments in water and sanitation infrastructure in
least-developed countries such as Lao PDR or the Solomon Islands can be as
high as 7 to 1, allowing for greater economic opportunities, income genera-
tion, and poverty reduction. While the Indo-Pacific has made historic gains in
access to water, sanitation and hygiene over the past 25 years, as of 2019, over
a billion people in the region still do not have reliable access to water, sani-
tation, and hygiene (WASH) services, while existing water service providers
struggle to keep up with ever-increasing demand.
Rapid urbanization continues to strain the limits of water infrastructure in
cities like Manila, Dhaka, and Karachi, where over 40 percent of the urban
populations already live in slums without access to safe, clean, and reliable
drinking water and sanitation supplies. According to the AIIB, over 770 mil-
lion cities and urban settlements in Asia are now annually exposed to flood
risks. At the same time, traditional water sector investments are not enough to
cope with emerging climate and development challenges.
There are unintendend water consequences of longstanding development
policies too. Subsidized fuel sources have accelerated the use of groundwater
pumping in Pakistan and India, causing rapid aquifer depletion. Groundwater
consumption are, ironically, creating significant flooding issues in Hanoi and
33
Jakarta through subsidence. In rural areas, expanded groundwater pumping

has increased the feasibility of irrigated agriculture, which has an overall posi-
tive effect on food security in the short term. Such pumping is almost uni-
versally unregulated and has led to widespread overextraction, sometimes
exacerbated with “clean” solar-fueled pumps. As groundwater often provides
a back-up source of water during periods of surface water scarcity, the loss of
these aquifers is particularly alarming and may produce the perverse result of
undermining food security over the medium to long term.
Increased water-related climate

risks for Indo-Pacific nations
Most of the region is already highly exposed to water related climate risks
including melting glaciers, more frequent and intense typhoons or cyclones,
sea level rise, and more powerful droughts. Such risks affect the ability of
water service providers to maintain reliable and profitable operations; these
challenges for water services are only increasing. According to a recent OECD
report, in order to meet their sustainable development targets under SDG 6,
most Indo-Pacific countries will need to allocate between 1 and 2 percent of
their GDP on water supply and sanitation infrastructure over the next decade.
Given that most water infrastructure is designed to last for fifty years or more,
uncertainty about future climate is a serious threat to planning and designing
resilient infrastructure. Many countries may in effect be investing in designs
and systems that are outdated at the time that they launch operations because
they depend on a traditional and widespread past-predicts-the-future plan-
ning methodologies.
Low-lying Pacific nations such as Timor-Leste and the Marshall Islands,
meanwhile, face the threat of losing their entire land base. As the finance min-
ister of Tuvalu warned at the 2021 UN Climate Conference in Glasgow: “It is
not fiction, it is not projected to happen in the future—our land is fast disap-
pearing. Tuvalu is literally sinking.” At the same time, Pacific Island countries
are at the forefront of taking action against climate change themselves. They
are developing and mainstreaming climate adaptation and resilience solu-
tions, including resilient water infrastructure. Given the implications of mass
displacement on regional stability and security, efforts to ensure their survival
34
should be viewed as a strategic national priority for the United States and its
G7 partners.
Rethinking investments in water resilience

Most investment processes mobilizing intra- and international resources and
both public and private investors are often using business-as-usual frameworks
for nontraditional and often complex problems. Building up infrastructure
alone may also be insufficient for ensuring that issues around equity and the
promotion of a strong civil society grow in tandem with infrastructure ser-
vices. Strengthening societal resilience to confront unpredictable shocks and
stressors requires a transformation in how to invest in the future. Planning for
resilience requires reducing the emphasis on achieving highly optimized, pre-
dictable outcomes and increasing the adaptive capacity of our economies, pol-
icies, financial institutions, ecosystems, and physical infrastructure in order
to help them to withstand and adjust as conditions change. If investments are
to deliver inclusive, equitable, and environmentally sound growth for low and
middle income countries in the Indo-Pacific region, they must embrace a re-
silience perspective.
Water has been recently emerging as a kind of organizing principle for
climate adaptation and resilience projects, perhaps notably in the call for
“water-based adaptation” for all sectors by the Intergovernmental Panel on
Climate Change (IPCC) sixth assessment report. Water resilience, in par-
ticular, has been identified by the Global Commission on Adaptation as a
key enabler of broader societal resilience. Both the Asian Development Bank
(ADB) and World Bank have begun to mainstream water resilience within
their broader investment portfolios. The PRC-backed Asian Infrastructure
Investment Bank (AIIB) has also developed a new water infrastructure invest-
ment strategy; however, it remains to be seen how this new strategy will guide
the AIIB’s investment since only four water infrastructure projects have been
approved since its adoption in late 2020. Likewise, major water reforms at the
Green Climate Fund (GCF) have only just been realized; implementation
through water projects to date around water resilience has been limited but
could change dramatically.
35
Moving Beyond Crisis: Developing Systemic

Solutions for Systemic Threats
Water resilience must be a key part of ensuring the future growth of the Indo-
Pacific, and water resilience must also be integral to the strategy to promote
sustainable growth. Most water interventions by donor countries have focused
on traditional WASH (water sanitation, hygiene, and health) projects, such as
expanding urban water utilities or provisioning rural household clean water
programs. These programs will remain regionally important and indeed have
expanded through internal investment processes, such as India’s aggressive en-
gagement with SDG 6. Water resilience, however, is an approach that seeks
to transform sector- and ministry-specific programs designed to expand spe-
cific areas of growth, such as energy generation capacity, to defining the water
linkages between sectors and ensuring that these programs are invested with
attention to the potential synergies and conflicts. Recognizing the transfor-
mative, disruptive role of climate change is central to water resilience.
Water resilience assumes three factors, namely:
1. Climate change is a new and unfamiliar disruptive force that will

influence the region in profound ways for at least decades to come. While
the existing political and economic systems are designed for a “stationary”
(i.e., fixed) climate, climate change is rapidly stranding infrastructure,
governance, and policy agreements as often unspoken assumptions about
“normal” climate conditions are profoundly violated. Climate change is,
in effect, a profound threat multiplier.
2. Water is arguably the medium of most negative climate impacts, and

many of these impacts are challenging to predict with the accuracy
necessary for traditional planning, design, and operational functions.
3. Infrastructure for energy production, data processing, storage,

transportation, manufacturing, clean water, and the food system last over
climate-relevant lifespans, ranging from a few decades to a century or
longer, but they are not designed for the range of climate conditions they
will face over these periods. While existing infrastructure and policy
36
systems are declining in functionality as a result of essentially unforeseen

climate impacts, new investments and approaches remain unlikely to
go beyond de-risking a narrow set of climate impacts. Thus, new
clean energy or sustainable forestry programs may be rapidly left behind
with accelerating climate change, losing efficiency or even experiencing
damage as a result of novel events. In some cases, trade agreements and
transboundary resource sharing frameworks may be undermined by the
same kinds of climate risks as infrastructure.
There are no quick fixes to issues related to water risks. Indonesia is essen-
tially abandoning its national capital as a result of flood issues, while the scope
of 2022 flooding in Pakistan—most often viewed as a water-scarce country—
shows many climate impacts are nonlinear and very challenging to anticipate.
Island nations in both the Indian and Pacific oceans face potentially exis-
tential challenges from the pinch of scale of severe freshwater scarcity for all
sectoral use, intense tropical cyclones, and rising sea levels, which so far have
largely seen solutions that are either small relative to the scope of the problems
or so expensive as to present significant economic challenges simply to main-
tain current conditions.
Water resilience is a comprehensive approach to these issues, and one in
which donor aid and a community of regional learning and capacity building
can be catalytic. Moreover, water resilience relies on actively engaging with civil
society and a vision of infrastructure and policy investments embedded in a
social-ecological context. Water resilience at its core recognizes that not all eco-
nomic development problems can be engineered and that long-term solutions
almost always require a mixture of built, hybrid and green, and governance op-
tions. One group has also referred to these approaches as “deep resilience.”
Some policymakers have highlighted the transition to a water resilience
approach. In March 2022, the IPCC stated that “water-based adaptation”
should be the core focus of most adaptation and resilience interventions glob-
ally. California Governor Gavin Newsom identified water issues as an exis-
tential threat to the basis of much of his state’s economy, including the grad-
ual loss of summer water storage in snowpack (extending and intensifying the
dry season), the emergence of a 1200-year scale “drought,” water governance
systems designed to fit a long-past economy and a much lower population size,
37
and the threat of increasingly extreme pluvial flood events, in addition to un-
precedented wildfires and exceptional heat that stresses the state’s energy sys-
tem. Many of these issues have resonance throughout the Indo-Pacific.
Newsom’s essential focus, beginning with a 2019 executive order, has
been to reorient state agencies to water resilience. Beginning in August 2022,
Newsom announced a new state water plan that transitions state policies and
programs “away from a scarcity mind-set to one more of abundance.” That
is, how can the state radically adapt to emerging climate conditions, especially
around water scarcity, in ways that can actually fuel prosperity and attract ad-
ditional social and capital investment? If climate change is a threat multiplier,
California has clearly identified water as a “resilience multiplier.”
In the Indo-Pacific, Singapore has developed an arguably longer track re-
cord along very similar lines. According to a recent national report, Singapore
clearly demonstrates that a lack of abundant local water resources need not be
an obstacle to successful economic development:
Water has always been an existential issue for Singapore. Singapore is

classified as being water scarce and as the most water-stressed country in
the world, according to the World Resources Institute’s 2015 report. We
also rank 170th out of 190 countries in terms of freshwater availability,
according to the first UN World Water Development Report in 2002.
Yet because of Singapore’s strategic prioritization of water for economic

development priorities, water has not been a significant limiting factor for the
country for many decades.
Operationalizing Water Resilience for the Indo-Pacific

There are five ways that can enhance water resilience in the Indo-Pacific while
also leading to greater social and economic security, namely:
1. Promoting water resilience leadership: the 2015 UNFCCC Paris

Agreement created a new framework for economic development in
the form of five-year periodic national climate planning and reporting
systems called NDCs or Nationally Determined Contributions. The
38
NDCs defined a new class of national level climate planners (NDC focal
points) who report national climate ambitions to the global community.
Perhaps more importantly, the NDC focal points also look across sectors
and ministries to identify potential gaps and synergies from a climate
perspective. A number of countries and both UN, donor, and NGO
actors have called on the NDCs to be drivers of water resilience that can
align the water and climate agendas and enhance the ambitions around
climate action. Indeed, at least one collaborative global donor-funded
program has started to build this capacity within national parties,
while the UNFCCC itself is conducting a certification program for
NDC focal points on water-based adaptation and resilience. Existing
capacity-building and education efforts such as the Quad Fellowship
or the ADB-Japan Scholarship Programme could be expanded to
include funding for the recruitment and development of individuals
from a variety of technical and policy backgrounds. Arguably, these
approaches should also be extended to other policy frameworks, such as
transboundary water sharing agreements (e.g., India-Pakistan, the Lower
Mekong River, following patterns already apparent in the Zambezi,
Danube, and Colorado Rivers), which all appear quite sensitive to
violations of assumptions as the water cycle continues to evolve rapidly
in unplanned directions. PGII could very tangibly support the process
of preemptively ensuring that these agreements will remain durable
under a wider range of conditions in ways that lead to guidance for new
institutions and processes to avoid conflict and insecurity.
2. Addressing the cost of water resilience: Water-centric economic planning

and management is an important perspective for how to approach
resilience between and within sectors. Traditional macroeconomic
approaches by finance and economic ministries (including Integrated
Water Resources Management [IWRM] and water-food-energy nexus
[WEF] methodologies), have focused on efficiency and optimization
for critical resources and outputs, but “efficient” solutions may also be
“brittle” and prone to failure if basic climate assumptions are violated.
Efforts to develop capacity and promote macroeconomic planning,
monitoring, and evaluation that addresses water resilience as a key
39
additional quality in addition to efficiency and optimization could be

transformative across the region. The reverse is also true: when countries
over optimize without considering potential climate impacts, especially
around high-uncertainty resources such as water, disruptions can trigger
a downward economic spiral or even disinvestment. These risks may be
heightened as developing economies transition from water-intensive
agricultural commodities to preparing for manufacturing economies by
increasing energy generation capacity via water-intensive sources. Such
hidden water insecurity may be most prominent in energy systems. Much
of South and southeast Asia falls into these categories, certainly for
hydropower development (Bhutan, Nepal, Vietnam, Thailand, Laos), but
also with the construction of new coal-fired, natural gas, and hydropower
plants (e.g., India, Pakistan, China).
3. Enhancing stakeholder engagement for defining problems and

coordinating solutions: Engaging technical agencies and line ministries
in the process of stakeholder engagement early in strategic planning is
critical for long-term efficacy and coherence in resilience efforts. Globally,
infrastructure investment has taken a traditionally technocratic and
top-down approach to identifying needs, defining project scope and
siting, and identifying beneficiaries from investment. Often, these
methods have also developed quite simplified and limited solutions
to complex problems, such as generating energy while hampering
or eliminating traditional livelihoods, irreparably damaging critical
ecosystems, or adding significant burdens to other sectors such as
agriculture or downstream countries. Climate proofing may be limited
to risk assessment frameworks (e.g., an SEA or EIA), but realistically
these often occur late in project development and remain quite narrow
in scope. More recently, water resilience practitioners such as UNESCO
have recommended the use of more inclusive approaches that partner
technical decision makers with a diverse array of stakeholders early in
the project cycle. In one Thai city, for instance, recent emerging sectoral
conflicts and climate risks for hydropower, flood control, irrigation water
scarcity, and urban resilience were diffused by creating an integrated and
conjoined set of urban lakes to solve multiple problems.
40
The processes of stakeholder engagement expand the set of criteria

used to determine project success (e.g., quality of life, ecological resilience)
and also reinforce inclusive, equitable growth through such methods as
“shared vision planning.” The US made this transition with groups such
as the US Army Corps of Engineers decades ago and is well placed to
facilitate capacity building. Such bottom-up approaches strengthen civil
society, transparency, and democratic processes but often require some
transition support from more experienced external actors for technical
and senior decision makers. Expanding support for initiatives such as the
The Coalition for Disaster Resilient Infrastructure (CDRI) and its
Infrastructure for Resilient Island States (IRIS) project or the USAID
and Australia Mekong Safeguards Program (Mekong Safeguards) is
one way to support transparent, locally developed infrastructure invest-
ments. Adopting existing tools and frameworks for bottom-up infrastruc-
ture development such as the World Bank’s Decision Tree Framework,
the Asian Development Bank’s recent water resilience guidance, or
UNESCO’s Climate Risk Informed Decision Analysis (CRIDA) may
also be beneficial.
4. Finding nature-based solutions: Nature-based solutions, or NBS, should

become a new target for investment across the Indo-Pacific, especially for
groundwater resources. Groups such as the ADB have recently published
a practitioner’s guidance that aligns NbS with climate resilience,
and in 2022 the ADB has launched a new NbS project preparation
and financing facility. Of course, developing regulatory, monitoring,
governance, and enforcement systems for groundwater is essential. Some
investments should also end, such as donor efforts that have reinforced
poor behavior (e.g., solar-powered groundwater pumps, which have
lowered the costs of groundwater and led to even less sustainable use).
In mountainous and snowpack-fed low-elevation areas, dry seasons are
generally becoming longer and drier while yet seasons are becoming
flashier. A major part of California’s program to move to an “abundance”
orientation has been to develop groundwater recharge systems as
regional snowpack storage disappears; these systems capture rainy-
season floodwaters in recharge zones, essentially shifting storage from one
41
nature-based solution (snowpack) to another (aquifers). These approaches

could be transformative in much of southern Asia and, potentially, in
island regions as well.
5. Supporting transnational cooperation along rivers: Given the fact that

nearly all of Asia’s major rivers cross international borders, efforts to
strengthen riparian cooperation between countries should be supported.
Infrastructure investments upstream, such as hydropower dams, may have
significant impact on downstream communities and ecosystems, as is
currently being seen in the Mekong River Delta and in the lower reaches
of the Kabul River, a major tributary of the Indus shared by Afghanistan
and Pakistan. Similarly, unregulated pumping of transboundary aquifers
is becoming a serious problem in many Indo-Pacific countries including
Pakistan, India, and Vietnam. According to one recent analysis, countries
sharing the Ganges-Brahmaputra-Meghna (GBM) basin lose over $14
billion per year due to poor cooperation amongst the partners. Programs
that support the creation and maintenance of transboundary water
sharing agreements and technical working groups, such as IUCN’s
Building River Dialogue and Governance (BRIDGE) or the Mekong-
U.S. partnership, are one way to advance transboundary cooperation.
6. Establish agencies focused on resilience: Following the model of the 100

Resilient Cities (100RC) initiative, consider appointing “chief resilience
offices” within the PGII implementation team to ensure that climate risk
is mainstreamed into all PGII investments from the start of the project
lifecycle. Funding a CRO could enable officials to “own” resilience and
direct capacity as well as develop tailored decision making guidelines.
The 2022 U.S.-Indo-Pacific Strategy notes that the United States “has long
recognized the Indo-Pacific as vital to our security and prosperity.” Investing
in climate-resilient water infrastructure is an investment in the long-term
economic resilience and stability for the Indo-Pacific region, especially for
resilience that reflects broader civil society engagement through shared vi-
sion planning. In particular, by investing in water resilience, the U.S. offers a
compelling alternative to PRC infrastructure investments under the Belt and
42
Road Initiative, which continues to promote ‘technocratic, incremental,

and industry-oriented’ approaches to development. The events of the past
two years have clearly demonstrated that the challenges facing the region can-
not be effectively addressed with incremental change.
43
CHAPTER FIVE
The G7 Challenge
in Facing China’s
Infrastructure Ambitions
Michele Acciaro is Associate Professor at the Department of
Strategy and Innovation of the Copenhagen Business School.
The G7 Challenge in Facing China’s Infrastructure Ambitions
I n June 2022, the Biden administration made clear its commitment to meet
the world’s infrastructure needs. The Partnership for Global Infrastructure
and Investment has been promoted as a way for the United States together
with the world’s richest nations to contribute to building infrastructure in se-
lect emerging economies, with the objective of advancing their development
and strengthening global security. The declaration follows years of negotia-
tions which resulted in a commitment in Summer 2021 from G7 countries for
a global infrastructure plan and can be seen as a response of the efforts from
the BRIC economies of Brazil, Russia, India, and China to expand on the
Chinese infrastructure and aid plan generally referred to as the Belt and Road
Initiative (BRI), or the New Silk Road.
The partnership has a variety of objectives but it is clear that its main role
is rebalancing a loss of economic, and indirectly political, influence in the
countries where China has been most active in the last decade. It is of par-
ticular relevance for countries in Central and West Asia, Africa and South
East Asia, although it should be acknowledged that both the BRI as well as
the Partnership for Global Infrastructure and Investment, are global in their
scope. t the June 2022 meeting, the G7 announced that the Partnership will
provide $600 billion for development efforts, of which one-third would be
provided by the United States and as such the largest contributor to the ini-
tiative, while half would be provided by the European members of the G7,
namely Britain, France, Germany, and Italy.
The plan is to invest the commitment over the next five years, and its suc-
cess ultimately depends on significant private finance being raised as well.
There are four principle areas of investment focus, namely: climate change
and energy security; communication and connectivity; equity and gender
equality; and global health security. These four areas echo the political
agenda of both the Biden administration and the European Commission,
and are a response to the ongoing energy crisis and the COVID-19 pan-
demic. The infrastructure partnership frames a variety of existing and
planned projects of a development and humanitarian nature, with the im-
plicit objective of tying developmental objective with the priorities of the
G7 economies.
International development projects have been for decades an instrument
for advanced economies to exert influence in the developing world. This
45
Michele Acciaro
approach has often improved living conditions and economic growth, but
in recent decades, development assistance projects have also been seen to
favor Western businesses in general. Assistance has often followed patterns
reminiscent of old colonial areas of influence, and has increasingly attached
conditions to funding aimed at advancing the regional political agendas of
European countries, such as reducing migration, and in North America, try-
ing to counteract global terrorism.
From the COVID-19 pandemic to international terrorism and cross-bor-
der migration, many of the truly destabilizing phenomena of modern times
are global in nature. These challenges have highlighted the limitations of
global institutions and have come under scrutiny from some quarters as being
sources of instability themselves. The traditional approach towards managing
risk and instability has been that of prevention, cooperation and strengthen-
ing democratic institutions. However, this approach has not been able to pre-
vent crises that have unfolded rapidly or that involved territories that were
peripheral to global reach, either because they are situated in failed states, or
in marginalised economies, or under the control of countries that are placed
outside of the main multilateral collaboration.
The climate crisis is a clear example where developing an approach to a
global challenge that most likely will affect developing economies dispropor-
tionately has been met with resistance often specifically by those economies
that are to benefit the most from such approach. The reasons for the limited
success of multilateral approaches to fight the climate crisis are multifaceted.
A common denominator is the decreasing willingness of the political elites in
developing economies to accept policies driven by a western political agenda,
which can be seen as the result of the weakening hold of the global North on
the global South. The role of multinationals has come under greater scrutiny
too between the wealthiest and less prosperous nations.
At the same time, the strategic importance of Africa, Central, and South
East Asian countries is increasing in view of the rebalancing of the geopolitical
power towards the Indo-Pacific. As a bipolar world order crumbled with the
collapse of the Soviet Union, a more fragmented, and arguably more balanced,
world order is emerging, as the interests of countries that are not great powers
are increasingly reflected. While a new form of multilateralism, where coun-
tries’ negotiating power is proportional to their population and not only their
46
military and economic power, has yet to emerge, many smaller economies find
themselves on an imaginary Maginot Line, tempted to pledge their allegiance,
together with their strategic geopolitical position or natural resources, to the
power that best meets their needs.
Infrastructure’s role in shaping the

emerging world order
Infrastructure is critical in establishing and consolidating power relation-
ships. Infrastructural power is a key precondition for countries’ legitimacy
and their ability to stir and control their people. The world has been reminded
in the ongoing war in Ukraine of the strategic role played by transport infra-
structure, telecommunications and energy infrastructure in aiding military
and political power.
Maritime transport and ports are a clear example of how infrastructural
developments can be an example of geopolitical muscle flexing beyond the
apparent objectives of fostering connectivity and economic development.
The increasing dominance of China as a global power and the influence of
Chinese entities through the Belt and Road Initiative has become all too ap-
parent not just politically, but also economically. Certainly, BRI has only fur-
thered China’s central position in global supply chains. While supply chains
over the last three decades have become synonyms with globalization, the
interconnectedness of markets worldwide have also made countries far more
vulnerable to Chinese economic coercion than ever before.
Neither the BRI nor the Partnership for Global Infrastructure and
Investment are not simply infrastructure investment programs. but rather
they also look to reshape global value chains. The BRI is instrumental for the
internal Chinese economy, for China’s political system’s legitimacy, and for
the actualization of the “Made in China 2025” strategy and its latest Dual
Circulation strategy for greater Chinese economic leadership. The intercon-
nected nature of economics, geopolitics and country specific development
strategy is particularly evident in the case of the BRI. Although the BRI is not
only about infrastructure, it is the initiative’s focus on transport infrastruc-
ture in particular that has been exemplified as reflecting China’s economic
47
Michele Acciaro
ambitions as well as values globally1.

German geographer Ferdinand von Richthofen used the word Seidenstraßen
to describe the web of exchange networks that linked the Han dynasty China
with the rest of the world. The Silk Roads was never a specific route, but rather
a concept of bridging China and its ideas to Europe. The modern version of the
Silk Roads is the BRI, and the initiative too has expanded as a concept to in-
clude the entire world. Given the sheer size of China, it is hardly surprising that
they place Beijing at the center of global action, and not simply define itself by its
connection to Europe.
The Belt and Road initiative comprises of a vaguely defined set of projects,
roughly divided between land-based projects, originally conceived to take place
on Eurasia (the ‘belt’) and a set of projects aimed at developing the maritime con-
nections between Asia and Europe (the ‘road’). The MERCATOR Institute for
China Studies has a database of over 2000 projects including ports, railways and
energy infrastructure, from the port of Piraeus in Greece, the dry port of Khorgos,
at the border between China and Kazakhstan, through the Arctic route and ports
in Portugal and Spain. A large share of the projects focus on energy infrastructure
including oil and gas pipelines that are necessary to maintain the supply of energy
for Chinese internal consumption. A considerable part is dedicated to rail proj-
ects and the construction, expansion and upgrade of port infrastructure.
China’s articulation of long-standing ambitions

China’s ambitious development plan has been compared to the Marshall Plan
for the 21 century. While the idea of strengthening connectivity among cen-
tral Asian countries is not new , what has been novel is that the Chinese lead-
ership under Xi Jinping has been willing to support the vision outlined during
his trip to Astana (now Nur-Sultan) during his trip in September 2013 with
sizeable investments.
1 Some of these considerations are based on notes prepared by the author for a speech held at the European
Parliament in the occasion of the presentation of the “Maritime Economy Report 2018—Italy, China, energy
corridors, ports and new routes: geomaps of a changing Mediterranean”, held in Brussels on the 8th November,
2018 and the introduction to the round table: “The New Silk Road: Risks and Opportunities for the Economy”,
held as part of the third International Forum Conftrasporto, on October 9, 2017 at the “Villa d’Este” in
Cernobbio (Como), as well as notes taken during the Opening of the Hapag-Lloyd Center for Shipping and
Global Logistics (CSGL) and the International Symposium: “The Belt & Road Initiative’s Impact on Global
Logistics”, held at the Kühne Logistics University, in Hamburg, on the 22 and 23 of November 2018.
48
The overall project expanded over time, first with the inclusion in 2013 of
the Maritime Silk Road during a visit in Indonesia, then adding a wide array
of projects to include the Northern Sea Route, and more recently, projects in
Africa and South America. Initiatives are underway too to include cyberspace
and outer space. The strategy did not, however, emerge in a vacuum, but is
actually an extension of previous strategies, including the Great Western
Development Strategy, also known as Open Up the West Program, and the
Going Out Strategy (zou chuqu zhanlue—走出去战略) aimed at incentiviz-
ing Chinse businesses to invest abroad. The project is complementary to the
Made in China 2025 strategy, which aims to develop China’s manufacturing
sector towards high value-added activities including the pharmaceutical in-
dustry, advanced computing, new materials, components for marine, aviation,
aerospace and rail transport and electric cars. Clearly, in order to allow China’s
manufacturing sectors to evolve, lower value-added products such as textile
and construction, which today form the basis of China’s industry, need to
find other outlets. The maritime sector also plays a critical role in the Chinese
economy not only because of its dependence on maritime trade, but of the
importance of the blue economy. In 2017, the annual Ocean Development
Report indicated that China’s “marine GDP” represented a total of 9.5% of its
total GDP in 2016.
In 2015, the China Development Bank declared it had reserved $890 bil-
lion for the project, and further amounts of money have been earmarked by
other financial institutions. Today projects have been financed with $500bn2 ,
mainly in Asia, and is expected to be completed in 2049, a century after Mao
Zedong’s statement in Beijing on 1 October that he founded the People’s
Republic of China, and according to estimates the total investment would
amount to $4 trillion3.
The BRI project is an integral part of China’s strategy to support national
growth, consolidate the prestige of Xi Jinping, take advantage of long term
investment opportunities for Chinese capital, provide additional sources of
revenue abroad for Chinse contractors, increase the political influence of
2 World Bank. 2019. Belt and Road Economics: Opportunities and Risks of Transport Corridors.
Washington, DC: World Bank. License: Creative Commons Attribution CC BY 3.0 IGO.
3 Dezan Shira and Associates, “China Belt And Road Projects Value Now Exceeds US$4
Trillion”, 16 September 2021 in https://www.silkroadbriefing.com/news/2020/11/25/
china-belt-and-road-projects-value-now-exceeds-us4-trillion/
49
Michele Acciaro
China globally, and increase control on peripheral provinces and neighbor-

ing countries. The diversity of the projects makes it difficult to see a coher-
ent pattern behind the investment, but it could be argued that the BRI is a
long-term strategy to take advantage and create growth opportunities. In the
minutes of the meeting of the Central Committee of the Communist Party of
China from November 2013, officials noted that “We will set up development
oriented financial institutions, accelerate the construction of infrastructure con-
necting China with neighboring countries and regions, and work hard to build
a Silk Road Economic Belt and a Maritime Silk Road to form a new pattern of
all-around opportunities.4”
Xi is the driving force of the BRI. At a Beijing forum in 2017, he referred to it
as the project of the century and added that “exchange will replace estrangement,
mutual learning will replace clashes and coexistence will replace a sense of superior-
ity”. Beyond the humanistic objectives of the project, it is clear that the BRI is
first and foremost a project to the benefit of China. This is summarized in the
words of China’s vice-minister for foreign affairs, Le Yucheng in a 2018 inter-
view to the Financial Times: ‘If you want to get rich, build roads first.’5
The main impact of the BRI has been felt in the Indo-Pacific, particularly
in countries bordering China, such as Vietnam, Myanmar, Pakistan, and
Kazakhstan. At first glance, the model adopted so far does not seem to be
characterized by a coherent vision, but more by an opportunistic investment
policy. Rather than completing a predefined puzzle, the Chinese investment
plan makes one think more of a mosaic image, whose final design, made up
of the various infrastructure ‘tiles’, only makes sense in a long-term vision.
On closer examination, however, one realizes that to understand the BRI it is
necessary to abstract from a cost-benefit analysis of a single project, from the
perspective of global industrial policy, with important geopolitical and eco-
nomic results, motivated both by internal pressures within the system and by
the need to consolidate China’s international position6.
4 China.org.cn: “decision of the Central Committee of the Communist Party of China on some major issues
concerning comprehensively deepening the reform, Article 26, Section VII, 12 November 2013, as reported
by Peter Frankopan, The New Silk Roads, (pg. 98).
5 J. Anderlini, ‘Interview: ‘We say, if you want to get rich, build roads first’, Financial Times, 28 September 2018.
6 Michele Acciaro, 2019. “The Belt & Road Initiative and its Implications for European Ports, speech
delivered at the Botschaftertag Osteuropa in Hamburg, on June 6th, 2019.
50
The challenge in coordinating G7

infrastructure development efforts
In light of these developments, it is not surprising that the G7 is working to-
gether to develop the Partnership for Global Infrastructure and Investment
in order to address the increasing influence, or some might say encroachment,
of China globally. The urgency for G7 cooperation is acute in areas that had
been traditionally been under European, and by proxy of U.S., sphere of influ-
ence. An example of this is the EU-Africa partnership, which was formally
established in 2000, but that has been acquiring increasing importance with
the new European Commission as a way to reassert the role of European insti-
tutions in the continent that was gradually been eroded by Chinese interest.
Chinese institutions have been able in the last decades to consolidate their
position in Africa by offering investment packages that combined telecom-
munications, infrastructure and economic aid, often with no conditions for
the receiving countries. Meanwhile, the European and North American ap-
proach has been much more fragmented, often led by a variety of actors with
diverging priorities and political agendas. In particular, European aid was
driven by advancing strategic agendas for Europe, such as migration and cli-
mate change, that imposed conditions on investment that were less attrac-
tive for African, and other developing, economies. These considerations are
reflected in the pillars behind the Partnership for Global Infrastructure and
Investment outlined before.
Europe’s needs for Chinese infrastructure investments

At the same time, the importance of China for Europe’s own future growth
is evident, most notably in the Chinese maritime investment program of
which the Maritime Silk Road strategy is part of. In addition to the obvi-
ous dependence on Chinese manufacturing and growing export markets,
Europe has observed with concern the government sponsored merger of
the industry giants China Shipping Company and COSCO, and the debt
acquisition of OOCL. This control over the global container fleet is com-
pounded to the already growing role that China plays in shipbuilding, and
its growing position in emerging blue economy niches. These aspects, to-
gether with increasing presence of Chinese navy globally and the political
51
Michele Acciaro
influence that Beijing seems to be eager to command, have been sources of

concern for EU policy makers.
Investment in maritime infrastructure in Europe, that included ports such
as Piraeus, in Greece, Zeebrugge in Belgium, and Vado Ligure in Italy have
been seen as particularly controversial part of the BRI strategy. The decision
by the Italian government in early 2022, to openly support the BRI has in-
creased tension among EU members. Italy is also the first G7 country to do
so as well. For China, Italian support for BRI was a great win on the inter-
national stage, and from the perspective of the Italian government it was an
opportunity hard to miss. As Bruno Maçães argued in a recent opinion piece:
“The game gets even more interesting once you realize that EU states can use the
China lever to reopen controversial European issues, going far beyond bilateral
economic ties” 7. But beyond the political dimension of the maritime compo-
nent of the BRI in Europe, there is a need to understand the role Chinese in-
vestments play in developing European ports is only part of a broader strategy
that has its focus on Southeast Asia.
The Maritime Silk Road resulted in several controversial port projects in
the Indo-Pacific that made European countries disdainful if not even suspi-
cious of Chinese investment in Europe. In particular some project appeared of
little economic potential such as the port of Kyaukpyu in Myanmar, or even
debt traps, as in the case of Sri Lanka’s port of Hambantota.
The lack of commercial activity made it impossible for the port’s opera-
tors to repay debts to China, and the port was handed over to China in 2017
on a 99-year lease. Meanwhile, ballooning costs associated with the China
Pakistan Economic Corridor that includes expansions in the port of Gwadar,
is now under Chinese operation for 40 years through a build-operate-transfer
agreement. There are others deals and investments that appear more promis-
ing, such as the lease of the port of Darwin in Australia for 99 years, or some
of the investments in Africa. What is interesting is that China has adopted
different models depending on the regions and the port of interest.
The response of the European Union to the maritime strategy of China has
been slow, first with the inclusion of some TEN-T land-based related projects in
7 Maçães, B. “China’s Italian advance threatens EU unity: Trieste port plans could change north-south
economic balance”, The Nikkei Asian Review, 23 March 2019, available at: https://asia.nikkei.com/
Opinion/China-s-Italian-advance-threatens-EU-unity
52
2017 in the framework of the Expert Group on Investment and Financing of the
EU-China Connectivity Platform primarily on a Member-State voluntary base
in the attempt to resolve a financial gap. The list was refined in July 20188 dur-
ing an event held on the sidelines of the EU-China Summit held in Beijing. The
Cabinet of the former European Commissioner for Transport, Violeta Bulc,
created the ad hoc EU-China Connectivity Platform with the aim of coordinat-
ing the European responses to the BRI. None of these platforms, however, are
aimed at challenging the investment plan of China in the Indo-Pacific.
The G7 infrastructure plan therefore seems to be the first coordinated at-
tempt to address increasing Chinese influence across the Indo-Pacific. Yet
the G7 plans to address the region’s financial needs and developing a strat-
egy to counterbalance Beijing’s influence seem for now to be more comple-
mentary than providing a substitute to the BRI. The Partnership for Global
Infrastructure and Investment could certainly offer a good alternative for
Southeast Asian economies that might be growing weary of Chinese influ-
ence in the region. There is certainly more contestable space when it comes to
telecommunications, including competition in 5G technologies as Malaysia
and Singapore partnered with Ericsson, while Vietnam too chose to cooperate
with non-Chinese 5G developers to develop their own standard.
The Biden administration is clearly now more focused on Southeast Asia,
and the region’s potential given its technological transition, population size,
and economic potential is apparent. From a European perspective, the Indo-
Pacific is also of strategic importance. The September 2021 EU strategy for
cooperation in the Indo Pacific9 outlined the opportunities for a closer co-
operation between Europe and the Indo-Pacific, as it noted that cooperation
with the Indo-Pacific will be critical for the advancement of the EU objectives
in relation to sustainable and inclusive prosperity; green transition; ocean
governance; digital governance and partnerships; connectivity; security and
defense, and human security.
Yet for all the words calling for commitment and cooperation, it re-
mains unclear beyond the amount of money already committed just how
8 https://ec.europa.eu/transport/sites/transport/files/2018-07-13-european-transport-infrastructure-
projects.pdf
9 JOIN(2021) 24 final Join Communication of the European Parliament and the Council, The
EU strategy for cooperation in the Indo-Pacific. https://www.eeas.europa.eu/sites/default/files/
jointcommunication_2021_24_1_en.pdf
53
Michele Acciaro
such activities will materialise in concrete projects. How private interests

will be negotiated with the priorities set up in the Partnership for Global
Infrastructure and Investment and the EU strategy for cooperation in the
Indo-Pacific are only some of the issues which will need to be addressed
moving forward. Uncertainty is a major concern to the success of such ambi-
tious initiatives, and with elections going on in various countries in Europe
and the mid-term elections planned in the USA for November 2023, priori-
ties in relation to the Indo-Pacific might need to be revisited. China might
be awaiting the most propitious moment to provide its strategic response to
the G7 initiatives in an increasingly complex geopolitical context.
54
CHAPTER SIX
International Financial
Institutions Key to
Meet the Infrastructure
Financing Gap
Bart W. Édes is a Distinguished Fellow at the Asia Pacific Foundation
of Canada, and a Professor of Practice at McGill University’s Institute
for the Study of International Development. He previously served as the
North American Representative of the Asian Development Bank, based
in Washington, D.C.
Bart W. Édes
A t the June 2022 G7 summit, leaders from the world’s richest countries
announced1 the launch of the Partnership for Global Infrastructure
and Investment (PGII) to mobilize up $600 billion in public and private in-
vestments by 2027. The goal was to meet the infrastructure needs of low- and
middle-income countries, and the Biden administration declared it would
offer one-third of the mobilized amount through grants, federal financing,
and private sector investments.
The White House memorandum set forth the administration’s approach
to executing PGII, highlighting infrastructure-related priorities that “will be
especially critical for robust development in the coming decades: climate and
energy security, digital connectivity, health and health security, and gender
equality and equity.”
In their joint communiqué, G7 leaders recognized the role multilateral de-
velopment banks (MDBs) play in leveraging private capital in particular. The
new G7 resource mobilization effort envisions joint action with the MDBs
and other financing institutions to consolidate a pipeline of bankable proj-
ects, improve project preparation capabilities, and align support for policy and
regulatory frameworks for sustainable infrastructure investments.
As international financial institutions, the MDBs provide loans and grants
as well as technical assistance and policy advice- to low-income and middle-
income countries to promote economic and social development. These institu-
tions allow donor nations including G7 countries to share the cost of develop-
ment interventions. MDBs are able to provide aid on a larger scale than many
development cooperation agencies operated by individual countries such as
USAID and Germany’s GIZ.
The MDBs also set high standards for projects when it comes to environ-
mental, social, and governance issues. They can act as a force multiplier too
by crowding in financing from other public and private finance institutions
when preparing loans for major infrastructure projects. MDBs also seriously
consider a country’s debt burden before approving loans (something not done
by China in its overseas lending). In short, they promote high quality and sus-
tainable infrastructure development in ways that complement and reinforce
the PGII’s objectives.
1 https://pm.gc.ca/en/news/statements/2022/06/28/g7-leaders-communique
56
International Financial Institutions Key to Meet the Infrastructure Financing Gap
The Biden administration has directed the U.S. Secretary of the Treasury
to consult with other federal officials to develop a plan for engaging the
MDBs to promote investment and increase private-capital mobilization for
low- and middle-income countries, and coordinate with like-minded partners
in the plan’s execution. In addition, White House has pushed for the chief
executive of the U.S. Development Finance Corporation “to develop a plan
to enhance engagement with national and international development finance
institutions,” including MDBs, to mobilize private capital. These plans must
propose actions to facilitate commercial financing to developing countries.
All G7 countries are shareholders in the major MDBs, namely the African
Development Bank (AfDB); Asian Development Bank (ADB); European
Bank for Reconstruction and Development (EBRD); Inter-American
Development Bank (IDB); and the World Bank. Collectively, the G7 mem-
bers, together with other traditional donor countries such as Australia and
several Western European countries hold a large share in the MDBs. They
entrust these institutions with large sums of capital for use in tackling eco-
nomic, social, and environmental challenges in the developing world. G7
countries played a key role in raising $93 billion for the most recent cycle
of the International Development Association2 to assist the world’s poorest
countries to boost their economies and support their populations in the midst
of multiple crises.
Given their substantial shareholdings in the MDBs, G7 countries can exert
considerable influence on the decisions on MDB boards of governors and di-
rectors, particularly when they work in concert on shared interests. The MDBs
are very well placed to advance progress on the key infrastructure-related pri-
orities identified by the Biden administration in the context of the PGII and
its focus on key issues including energy security, climate risks, digital connec-
tivity, health and health security, and gender equality).
Climate change is a good example of multilateral consensus and coopera-
tion. Eight leading MDBs committed $66 billion for climate finance in 2020.
This figure was complemented by $85 billion in co-financing from public and
2 The International Development Association, more commonly known as “IDA”, is the part of the World
Bank Group that provides development assistance to poor countries. It provides zero to low-interest loans
and grants to these countries for projects and programs to increase economic growth, reduce inequalities,
and raise living standards.
57
Bart W. Édes
private sources. The MDBs have substantially boosted their funding of cli-
mate adaptation and mitigation projects in recent years, and have identified
climate action as a priority in their plans for the coming years.” The ADB has
teamed up with the Green Climate Fund to support the ASEAN Catalytic
Green Finance Facility, which aims to mobilize more than $4 billion in public
and private financing for green infrastructure projects across Southeast Asia.
The bank has also partnered with other international donors to provide fi-
nancing for the restoration, conservation and management of coral reefs in
Fiji, Indonesia, the Philippines and the Solomon Islands.
Knowledge, and Strategies to Meet

This Critical Challenge
On energy security, the MDBs have long been major funders of energy proj-
ects and have increasingly promoted renewable energy in their portfolios.
For example, the ADB recently approved a $600 million loan to Indonesia’s
state-owned power company to improve the reliability and resiliency of elec-
tricity services on the island of Java, and to promote the use of clean energy.
The EBRD has put together a $74 million financing package to construct the
largest renewable project in Central Asia, a greenfield wind power plant in the
Navoi region of Uzbekistan.
The ADB, Japan International Cooperation Agency, and the International
Finance Corporation, the private sector arm of the World Bank Group, are
among those contributing funds to the Uzbek project. The EBRD has also
brought in Natixis, a leading French corporate and investment bank, provid-
ing a recent example of how the MDBs generate project co-financing from the
private sector.
The MDBs are also investing to promote digital connectivity, as high-
lighted in a joint report published earlier this year by five MDBs. The report
observes that “MDBs have assisted developing economies to adopt new digi-
tal technologies and harmonized procedures and practices to expand trade;
strengthened regional public health; increase South-South learning and tech-
nology sharing; and contributed to making tourism safe, more inclusive and
greener.” The IFC alone made a record $1.3 billion in investments in telecom-
munications, media and technology during the last fiscal year. This amount
58
represented a five-fold increase in digital infrastructure commitments by the

institution over the past five years.
MDBs have traditionally provided much more financing for hard, physi-
cal infrastructure projects than projects in the social sectors. But these insti-
tutions have typically responded with robust lending and grant packages in
the wake of health emergencies, as has been the case during the COVID-19
pandemic. For example, financing for health accounted for around 3 percent
of the ADB’s total commitments in 2019. In 2021, the share of health com-
mitments soared to about one-quarter of the bank’s business. Although the
Manila-based institution is unlikely to dedicate such a large share of its overall
financing to health over the remainder of the decade, it intends to give much
more support than before the pandemic to helping Asian and Pacific develop-
ing countries achieve universal health coverage, and prevent and contain com-
municable and non-communicable diseases.
Many developing countries see the MDBs as an important source of
health-related financing and technical assistance. In June 2022, the World
Bank approved the establishment of a financial intermediary fund to support
pandemic prevention, preparedness, and response, with a focus on low- and
middle-income countries. The fund, which will complement existing resources
of the World Bank, has received more than $1 billion in financial commit-
ments from charitable foundations and governments, including Germany, the
United States, and the United Kingdom.
All of the leading MDBs have policies to integrate gender action across
their operations and track their gender-related impacts. Proposed loans are
examined for their potential impact on girls and women, and performance is
closely tracked. In May 2022, the MDBs held a Global Gender Summit on
how to advance gender equality after the pandemic, with a focus on the care
economy, climate change, and digitalization.
The World Bank houses the Women Entrepreneurs Finance Initiative
(WE-FI), a financial intermediary facility that brings together several MDBs
and 14 governments, including most G7 countries. Launched five years ago,
WE-FI has allocated $354 million to address financial and non-financial
constraints faced by women-owned and women-led enterprises in developing
countries. Activities are planned in 60 countries, mostly low-income and frag-
ile states. It is expected that 200,000 enterprises will be reached through the
59
Bart W. Édes
facility. WE-FI has mobilized an additional $3.5 billion (achieving a remark-

able leverage ratio of 1:10) to improve enabling environments and access to fi-
nance, markets, training, mentoring and networks for women entrepreneurs.
How to enhance the effectiveness of MDBs

in infrastructure development
The MDBs already play a major role in financing and building essential capac-
ity in the priority areas targeted by the PGII. They have been able to do so with
the strong political and financial support of G7 countries. Yet more support
will be needed for the MDBs to effectively leverage their valuable compara-
tive advantages to help achieve the PGII’s massive infrastructure financing
target. In particular, there are four key areas in which MDBs can substantially
boost their contributions over the coming years, namely: project preparation,
attracting institutional investors, making more effective use of their current
capital, and their base capital
Improve Project Preparation

One of the reasons for bottlenecks in infrastructure investment in develop-
ing countries is the lack of well-prepared projects where risk allocation meets
the requirements of those providing the financing. Attention therefore needs
to be paid to critical aspects of project preparation, such as financial metrics,
compliance with performance standards, cash flow generation, technical en-
gineering, risk allocation, and the quality and the capacity of the operations,
maintenance and management teams.
There are numerous MDB initiatives that aim to improve project readiness
on a national or regional level. One example is the NEPAD Infrastructure
Project Preparation Facility Special Fund, for which AfDB was assigned the
role of trustee. The fund, launched with support from several donors, includ-
ing four G7 countries, provides grant resources for the preparation of regional
infrastructure projects in Africa.
In the Asia and Pacific region, ADB provided a $100 million loan to the
Philippines to help identify, analyze, and plan for infrastructure gaps in roads,
urban transport, urban water, sanitation, and flood sectors. The facility en-
abled Filipino government departments responsible for public works and
60
transport to engage international expertise for the preparation and implemen-

tation of complex and priority infrastructure projects.
By bolstering MDB efforts to provide capacity building and technical assis-
tance for project preparation, G7 would help to expand the range of credible
infrastructure opportunities for investment. Ramped up support to reforms
leading to more predictable regulatory environments and strengthened rule
of law would also create conditions more conducive to business investment.
Attract Institutional Investors

The development policy world has been talking for many years about the need
to tap institutional investors, such as pension funds and insurance funds,
to substantially scale up financing available for infrastructure in low- and
middle-income countries. Pension funds alone manage $54 trillion globally.
Institutional investors are eager to expand their exposure to the developing
world if the conditions are right. The Ontario…
MDBs have improved their leverage of institutional investment in the last
decade. The IFC offers an innovative example for unlocking private capital for
direct lending to borrowers in developing countries through its Managed Co-
Lending Portfolio Program.
The program allows institutional investors to provide capital alongside
IFC on commercial terms in globally loan portfolios that mimic the IFC’s
portfolio. Investors establish loan eligibility criteria and portfolio concentra-
tion limits with the IFC, and then pledge capital. When the IFC identifies
eligible transactions, financing from investors is allocated together with the
IFC’s own loans. Through this program, the IFC has raised more than $10
billion in collaboration with a dozen partners to steer capital to assets that it
has originated.
Notwithstanding the success of this initiative, MDBs have yet to mobilize
very large pools of institutional investor capital. A variety of obstacles have yet
to be overcome. Constraints specific to less liquid investments, regulations,
actual and perceived risks in the political, regulatory, economic spheres are
some of the key concerns. Investor mandates and the capacity to understand
of developing country markets are also roadblocks to unleashing private capi-
tal. There is also the aforementioned issue of a lack of high-quality projects
ready to receive investment.
61
Bart W. Édes
With growing attention to environmental, social and governance consider-

ations and limited room for growth in mature markets, institutional investors
are open to increasing their exposure to large infrastructure projects in more
challenging country contexts, so long as the conditions are right. One thing
that MDBs could do is adopt more pooled investment approaches to diversify
risk. New financial products could be introduced to cater to the varying risk
appetites of different institutional investors.
The Organization for Economic Cooperation and Development has rec-
ommended several actions to mobilize institutional investors for sustainable
development. Among them: make investment regulations more flexible in
countries hosting sizable pension funds and insurance companies, encourage
greater institutional asset allocation towards developing countries, increase
availability and incentives for blended finance to reduce deal risk, and en-
hance transparency of asset distribution by institutional investors.
Given their decades of experience in preparing and financing infrastruc-
ture projects in developing countries, the MDBs are natural partners for in-
stitutional investors seeking to diversify their investments toward what they
consider more frontier and emerging markets (as shown by the IFC example).
G7 countries should take a more active role in promoting and facilitating co-
operation between the MDBs and institutional investors.
Improve Use of Existing MDB Capital

The way that MDBs are structured and operate, and the high credit ratings of
their sovereign shareholders, enable these institutions to borrow from world
capital markets at comparatively low rates. MDBs use the relatively cheap
funds generated through bond issues to on-lend to borrowing governments at
lower rates than those governments could access on their own. Leading credit
rating agencies continue to award the MDBs very high ratings because they
maintain low risk profiles. (MDBs also rely on member contributions, earn-
ings from lending operations, and repayment of loans).
MDBs are intent on keeping these high ratings (typically AAA), and thus
operate in a very conservative fashion. They keep relatively high levels of capi-
tal, which sacrifices room for further lending to support critical development
interventions. On average, MDBs’ available statutory headroom is generally
four times larger than their headroom based on their prudential limits.
62
Independent analysis of the benefits and costs of expanding and optimiz-

ing MDB balance sheets suggests that the institutions could increase their
lending by hundreds of billions of dollars if they were to increase their lending
exposure. To date, however, shareholders have been reluctant to allow MDBs
to entertain slightly greater risks in their sovereign lending, and credit agen-
cies continue to struggle with how to properly assess the true creditworthi-
ness of public financial institutions that have certain advantages that are not
enjoyed by private entities. Such MDB advantages include the ability to draw
upon substantial callable capital from their shareholders, and the MDBs’ pre-
ferred creditor status with sovereign borrowers.
There is growing pressure on MDB shareholders to revise their capital ad-
equacy frameworks and engage credit agencies on changes that could be made
to lending policies without sacrificing very high credit ratings. The G7 coun-
tries could play a constructive role by advancing this agenda. In the meantime,
the MDBs continue to possess large and unexploited lending potential.
Inject More Capital into the Banks

Getting more out of the capital that they MDBs already have could greatly
increase international funding for infrastructure finance. But changes to
lending and credit review practices would be difficult to negotiate given the
well-entrenched positions held by the management and shareholders of these
institutions. Another means of increasing the resources that MDBs make
available to developing countries is a general capital increase. Yet this path
would also require delicate and complicated negotiations that require consid-
erable political manoeuvering. That said, it has been accomplished many times
over the years.
A general capital increase is an increase in contributions from all MDB
shareholders. It leverages equity capital from shareholders to enable more
lending. Shareholders only have to pay a fraction of their agreed contribution,
with the largest part coming in the form of guarantees (callable capital). The
MDBs are allowed to count callable capital as part of their resources and lend
against it, even though, in practice, they never draw on it.
Although the shareholders of a few MDBs, such as the AfDB and the
World Bank, have approved a general capital increase since 2018, the continu-
ing high demand for their financing in an extended period of recurring and
63
Bart W. Édes
related crises translates into an eventual need for more resources at these and
other MDBs. The AsDB and EBRD have not seen a general capital increase in
over a decade.
Earlier this year, the boards of governors at IDB and its private sector arm,
IDB Invest, mandated a proposal for a capital increase for IDB Invest. This
would be accompanied by changes in the way that IDB Invest operates. The
envisioned new model for IDB Invest involves the origination of projects
with greater impact, more de-risking of private sector investment, and the use
of new financial and technical tools to mobilize capital. This planned move
should provide inspiration for capital increases at other MDBs, including at
ADB and EBRD, which operate in an environment of growing expectations.
Climate change presents a serious threat to sustainable development, and
the effort to tackle it will be won or lost in Asia given the continent’s enor-
mous population and booming economies. It is thus critical that ADB’s share-
holders provide the institution with more resources to leverage in supporting
low- and midlle-income countries in the adoption of climate adaptation and
mitigation measures. The EBRD is likely be called upon to ramp up its invest-
ment in the Ukraine to help that war-ravaged state rebuild and modernize
after its ongoing war with Russia. Discussions should begin now on capital in-
creases for these two banks, and G7 countries should take the lead with stated
intentions to provide additional contributions.
In addition to supplying MDBs with more resources, G7 members should
also support greater staffing of these institutions. During the COVID-19
pandemic, MDB personnel have been stretched to the limit while working
to meet the urgent needs of beneficiary countries struggling with the major
human and economic costs imposed by COVID-19 and its consequences. The
MDBs need more experts in a variety of subject and functional areas to deliv-
ery vital support to social and physical infrastructure in the developing world.
The G7 countries have announced a very ambitious, time-bound plan to
boost infrastructure financing in developing countries. To mobilize anywhere
near the PGII target of $600 billion within the next five years, these global
economic leaders will have to depend heavily on the MDBs, which have un-
paralleled expertise and geographic presence to finance, plan, and implement
major infrastructure projects. To ensure the credibility of their major commit-
ment, they must act boldly and quickly.
64
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One Woodrow Wilson Plaza
1300 Pennsylvania Avenue NW
Washington, DC 20004-3027

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21 The Challenge to Cultivate Global Semiconductor Talent

32 Water as a Resilience Multiplier for an Inclusive

44 The G7 Challenge in Facing China’s Infrastructure

55 International Financial Institutions Key to Meet the

Aligning the G7’s

Kent Hughes is a Public Policy Fellow at the Wilson Center and a

A t their meeting in June 2022, the G7 countries announced the Partnership

The G7’s Way Forward

Stephen Ezell is Vice President for Global Innovation Policy at the

T he June announcement of the Group of Seven’s (G7) Partnership for

An Integrated and Costly Semiconductor Industry

research, and training in specialized areas.10 Coordinated R&D and design

Semiconductor Ecosystem Support

Diversification and Open RAN” and “International Standards Cooperation

Technology Protections: IP Protections, Export

screening. For each of these protections, the G7 and Indo-Pacific leaders

Talent Supply Chain Resiliency

and engineering programs, particularly at the graduate level. Further, immi-

● Targeted education for impact. Investment in education and training

● A competitive recruitment and engagement plan. The abundance

● Upskill current talent. Investment must be made throughout the

● More flexible industry. Employees in the semiconductor industry

Supportive Trade Rules and Regulations

22 Varas et al, 2021.

Multiple and Multi-layered Alignments

A s the main component in all modern electronics, semiconductors are

Pre-competitive research focuses on identifying fundamental materi-

Design involves developing the architecture for integrated circuits. While

Frontend manufacturing starts with a wafer made of raw silicon or

3 “World Fab Forecast (WFF),” op.cit.

Backend manufacturing begins by slicing the wafers produced in the

Talent shortages will hurt innovation

alism—including cross-border regulation, tariffs, new trade agreements, and

The U.S. talent dilemma

students working on R&D projects at universities ultimately go to work in

Beefing up Europe’s tech talent pool

tion between the microelectronics industry and education providers.10 The

Taiwan’s China challenge in the chip space

Growing South Korea’s tech talent

­efforts to develop and grow semiconductor talent. 17

Japan’s private and public investments to meet demand

China’s goal for self-sufficiency

No silver bullet to cultivate much-needed tech talent

Ingrid Timboe is Policy Director at the Alliance for Global Water

Kelsey Harpham is the Project Manager of the Water Tracker for

Jakarta through subsidence. In rural areas, expanded groundwater pumping

Increased water-related climate

Rethinking investments in water resilience

Moving Beyond Crisis: Developing Systemic

Water resilience assumes three factors, namely:

efforts to develop and grow semiconductor talent. 17