As the world economy fractures into “West” and “East,” the race for the Global South is on. Decoupling is reconfiguring supply chains, and the Global South wants a part of these new global industrial policies. Washington, Brussels, London, and Tokyo have new leadership and a chance to create a positive development agenda that supports this ambition.
When the G-7 meets in 2025, the group dynamic will be more robust and focused on more action and fewer communiques. Infrastructure – digital, energy, roads, and ports – remains a huge need in the Global South. Twenty years ago, for the developing and emerging markets, Western capital and technology were the only options. Not anymore.
The answer is not just a simple dichotomy between the United States and China, but everything in the middle will be determined by the balance of strength and structural forces. Countries’ choices will define how the world will be governed and who will govern it.
In the past, developing and emerging economies had limited options for needed investment – slow-moving development agencies, development banks and patronizing governments, or Western banks which overloaded countries with unsustainable debt. Meanwhile, the “real” investment from the Western private sector went to China for its huge cheap labor force, large domestic market, and simplicity of doing business.
But in 2013, China changed this premise through the Belt and Road Initiative (BRI), which offered the scale, speed, and risk appetite to fund consequential work in the less stable environment of developing countries. Beijing understood that these countries desperately needed modern infrastructure.
And long before the COVID-19 pandemic, China also understood that value and supply chains would become the core instrument of geopolitics – and a conduit to a China-centric economic network.
The BRI has served Chinese geopolitical interests beyond China’s wildest dreams. Providing desperately needed infrastructure funding with few restrictions, and in return securing access to rare earths and natural resources, China opened export markets, inserted its tech standards into vast geographies, created dual use outposts (the latest example being the $3.5 billion port of Chancay, Peru), provided an active platform for political pressure, built up Chinese economic security, and raised Chinese influence overall. The BRI had failures, but China did not shy from absorbing the risk, innovating, and making course corrections as needed.
Meanwhile, the G-7 dragged their feet, and came up with the Development Finance Corporation, Build Back Better, the Global Gateway, and the Partnership for Global Infrastructure Investment – all still based on development logic, tools, and narratives, with no coherence, no transformative scale, and not much concrete implementation on the ground.
When the new G-7 leaders meet in 2025, however, a new opportunity begins. The Chinese economy is slowing, foreign investment is receding, and businesses are diversifying their supply chains out of China. In the past few years, new production and confidence arrived in countries like Vietnam, Mexico, Costa Rica, Indonesia, and Morocco. which understood and seized the opportunity to benefit from “reglobalization.” Disruptions like decoupling, derisking, and diversification have changed the playing field and opened new opportunities for a fresh approach.
But for a structural change, waiting for disruptions will not suffice.
What the G-7 needs is a new development business model with the Global South, one that takes advantage of re-globalization to create diversified supply chains and resilient networks.
Instead of policies of the last century, and development assistance frameworks where the rich “assist” and “give” aid to less developed and less fortunate, we need a platform that combines different instruments but is firmly based on profitability, mutual interests, and respect – a new North-South Industrial Policy Pact. Key principles of this pact must include:
Think structural and long term: The Global South has what the West needs beyond raw materials and markets – demographic resources. The average age in Europe is 43 years and in the United States is 39; in Africa, it’s 18. The North has what the South needs: financial depth, a want for new production hubs, and capacity to transfer knowledge and skills. China cannot be as generous, as it must keep its 1.4 billion citizens fully employed, resulting in overproduction and a reluctance to invest or relocate high-value industries outside its borders.
Think scale and scarcity: Scale – and therefore success – cannot happen without private capital. But private money will not invest in policy frameworks and fancy words – they invest if there is confidence in a future profit. Countries need a massive increase in energy, infrastructure, and networks to support new technologies and capabilities, while also wanting to learn and encourage the transfer of technology to their countries. How do we link all of this with the necessary ecosystems that guarantee security of investments? All this at a time when there is limited public and private money to invest. Investment decisions will have to be far more disciplined and focused. And public monies going to support or derisk investments abroad will need to generate visible returns for taxpayers.
Think about system competitiveness: Tech decoupling will only deepen as technology becomes a key component of national security and creates a new reality of two distinct standards and governance systems. That impacts networks of billions of people around the world. The stakes are massive. North and South need to explore interoperability and a body of common standards that will enable connectivity.
The work on a new North-South Industrial Policy Pact is urgent and the rest of the world isn’t waiting. As goes the saying, the best time to plant a tree is 20 years ago – the next best time is today. The G-7 has an opportunity in 2025 to deepen linkages with the Global South via supply chains in a North-South Industrial Policy Pact. We cannot delay – this is a marathon, not a sprint, and we need to start running.