For IMEC to have any real impact, fix the finance first. Only then it can counter China’s BRI

One of the most important outcomes of India’s historic G20 presidency in 2023 is the India-Middle East-Europe Corridor connectivity project, which was launched on the sidelines of the summit. At its core, IMEC is an economic corridor that could potentially reshape trade patterns in the Indian Ocean Region, the Arabian Gulf, and Europe. The idea of connecting these diverse geographies was first floated by Michaël Tanchum in a 2021 report published by the National University of Singapore. He argued that such realignment could be achieved by creating a commercial connectivity arc spanning from India’s Arabian Sea coast to Greece’s eastern Mediterranean coast.

It is only in 2023, during the New Delhi G20 summit, that this idea has finally taken shape and seems to have galvanised support from various diplomatic and multilateral actors. The signatories to IMEC are India, Saudi Arabia, the UAE, the European Union, France, Germany, Italy, and the US. Greece is also likely to join the project, as the busy Greek port of Piraeus is expected to play a key role. With a mélange of actors spanning across 4,800 kms of rail and sea routes, IMEC is symptomatic of the shifting geopolitical and geostrategic dynamics both within these regions and in their relation with other global players. One interesting aspect is the likely impact of IMEC on the participating countries’ relations with China. Unlike China’s Belt and Road Initiative (BRI), which has led to debt crises and unsustainable environmental fallouts, IMEC is centred on sustainable and inclusive economic growth.

For the US, supporting IMEC does seem to suggest a counter to the hegemony of China’s massive BRI. The Joe Biden administration has consistently portrayed IMEC as a safer alternative to the BRI. Incidentally, IMEC’s announcement coincides with the tenth anniversary of the BRI’s launch. Most of the IMEC signatories also have close economic ties with China, making IMEC a promising platform to diversify their trade pathways. Therefore, the execution and expansion of IMEC raise several important questions that warrant closer analysis.

It should be remembered that while the Adani Group owns the port of Haifa in Israel, its operations are still controlled by China. In 2021, operations at Haifa were handed over to China’s state-run Shanghai International Port Group for a 25-year period. Similarly, the logistics of the Greek port of Piraeus must be realistically evaluated, given that the Chinese shipping giant Cosco owns 51 percent of the Piraeus Port Authority. China remains the top trading partner for countries in the Gulf and Europe. As for India, not only is New Delhi’s trade with China humongous, the IMEC should be conceptualised as an alternative route, rather than a substitute, for the International North-South Transport Corridor (INSTC).

Therefore, IMEC is a safer addition to trans-regional connectivity architectures, not a mechanism to contain or counter China. At the heart of the IMEC is a re-iteration that the global economic order is becoming more multipolar.

The financing, however, remains a multi-pronged challenge.

US interest and the financing factor 

The US’s support for IMEC opens up new dimensions to its broader economic vision and preparations. The Memorandum of Understanding (MOU) mentions that signatories will convene within 60 days to work out further details. The most critical part will be financing, which the programme aims to facilitate by enabling the participation of the private sector.

It is noteworthy that the US, while situated away from the geographies of the trans-regional corridor, is a signatory to the MOU. What explains the US’s interests and role in the project? At successive G7 meetings since 2021, the US has been trying to provide feasible alternatives to China’s BRI. The US’s current interest in the IMEC is a derivative of those efforts whose success will be determined by how effectively the financing works.

In 2021, the Biden administration announced the Build Back Better World (B3W) initiative at the G7 summit in the UK. However, by the end of the year, analysts began to write off B3W as an ill-conceived strategy to counter China’s BRI. It seemed to suffer from the same twin undoing it sought to counter – overpromise and underperformance. The ambitious B3W plan to mobilise $40 trillion for the developing economies by 2035 did not seem to be backed by credible financial planning, especially when it came to de-risking capital.

In 2022, the Biden administration made another attempt to provide a viable alternative to China’s mammoth vision. During the G7 summit in Germany, the US and other members introduced the Partnership for Global Infrastructure and Investment (PGII). The PGII wasn’t a rechristened B3W, but a better improvised programme. It aimed to close the infrastructure gap in developing countries, strengthen global economies and supply chains, and advance US national security. At the G20 summit in New Delhi, a special session of PGII and IMEC was co-chaired by Prime Minister Narendra Modi and President Biden, emphasising PGII’s role as a developmental initiative aimed at narrowing infrastructure gaps and accelerating progress on SDGs globally.

This explains the US’s motivation to become a signatory to IMEC, despite not sharing the geographical region. While IMEC underscores the multipolar nature of the global economic order and its resilience against geopolitical or pandemic disruptions, it also presents a test for the US and its allies to de-risk the capital required to finance the project.

Sound financial planning becomes even more important because while the ship to rail transit system is expected to slash shipping costs and expedite transit times, it seems most unconvincing for the overall cost to remain feasible when accounting for the loading and unloading and reloading of cargo across diverse geographies. The differences in subsequent insurances too seem pretty complicated at the outset. The first meeting to develop a further action plan, scheduled within 60 days of signing, is expected to throw light on national taxation issues.

The key difference between IMEC and BRI is that the former relies on collaborative efforts involving private capital. Other US-EU-backed connectivity projects in Africa, such as the Lobito Corridor, have yet to prove their resilience and promised outcomes. IMEC players also need to formulate a common strategy to provide guarantees and de-risk investments, given that private investors have become risk-averse in the wake of widespread disruptions caused by the pandemic.

In the aftermath of an unequal economic recovery from the pandemic, several interconnected factors are transforming global capital markets. De-risking financing for IMEC remains a crucial challenge in harnessing its full connectivity potential and pursuing plans for expansion.