New Structural Economics and Resource Financed Infrastructure

Abstract

The world economy needs a growth‐lifting strategy, and infrastructure financing appears to hold the key. Two new development banks have been established: the New Development Bank and the Asian Infrastructural Investment Bank (AIIB). However, what conceptual framework will they formulate? This paper addresses infrastructural financing issues from the angle of structural transformation as a strategy for global development. Based on the new structural economics (Lin, , ) we stress the ‘real’ side of transforming natural resources to productive assets using the resource financed infrastructure. As one of the innovative instruments, this approach could, first, combine two otherwise isolated supply chains, resource extraction and infrastructure building, and, thereby, bring developmental results many years ahead of what other conventional approaches could. Second, this could serve as one of the ‘least‐cost’ options for developing countries, and benefit borrowers disproportionately due to its feature of ‘non‐recourse’ loans. Finally, in a low‐yield environment, the rate of return from investing in bottleneck‐releasing infrastructure could be attractive to many investors. Future prospects of development financing, including the ‘one belt one road’ initiative are discussed.

Resource-Financed Infrastructure: Thoughts on Four Chinese-Financed Projects in Uganda

“…Many commentators have raised concerns about China's expanding economic presence in Africa. They have warned about a lack of transparency, the hiring of Chinese instead of local workers, the creation of unsustainable debt, the promotion of China's commercial interests ahead of the borrowing country's needs, and a lack of good governance [36][37][38][39][40]. As discussed in this paper and elsewhere [120][121][122], it is likely that there is little truth and much myth-making and fearmongering in these allegations.…”

“…Halland et al [39] define RFI as "a financing model whereby a government pledges its future revenues from a resource development project to repay a loan used to fund construction of infrastructure" (p. 13). Conversely, an R4I deal or 'swap' can be characterized as an exchange of the actual natural resources for the construction of infrastructure, with the infrastructure being provided upfront and the resources being provided into the future [21,25,40].…”

“…The existing literature suggests that the governance challenges associated with infrastructure development projects include: a lack of transparency and accountability; a lack of respect for human rights; limited capacity to assess the risks and manage the issues associated with these projects; the presence of corruption; a lack of observance of the legal concept of the rule of law; restrictions on freedom of speech; and limited community engagement [31,34,35]. Some specific concerns include: the process used to select the construction companies (e.g., the use of no-bid or direct assignment contracts); an increase in national debt; inflated pricing; shoddy work by construction companies; and poor working conditions [36][37][38][39][40]. In our examination of four resource-financed infrastructure projects, we considered the extent to which these issues applied.…”

Investing the fiscal resource curse: What’s China got to do with it?

“…The empirical literature suggests that resource-for-infrastructure deals have long existed as a form of borrowing and are being used increasingly to fund public goods in many countries (Alemayehu 2018;Halland et al 2014;Lin and Wang, 2016). The need to pay back external funders in the future for the provision of public goods through either resource revenues or non-resource tax revenues implies that the marginal value of public funds (𝜆𝜆 2 ) would be high.…”

“…These countries rely less on natural resources for their development and therefore have weak links with China as far as resource trade is concerned. China's influence on the global trade in natural resources is felt much more among developing regions in SSA, Latin America, and Asia (Alemayehu 2018;Lin and Wang 2016;Vasquez 2018). The resource sector often forms the lion's share of the export sector as well as the total revenue envelope of these economies.…”