Australasian Science: Australia's authority on science since 1938

Mega-Banks Unleash an Infrastructure Tsunami

By William Laurance

The rise of investment bank lending for infrastructure projects in developing countries is driving a “feeding frenzy” of developments with lower environmental controls.

“If we don’t do it, a Chinese corporation will – and they’ll make a horrible mess of things.”

That is a direct quote from a biologist working for an environmental non-government organisation (NGO) in Cambodia. The German Development Bank had come to the NGO with a proposal to fund a paved road that would slice through the heart of the one of the most important protected areas in the country. They wanted the NGO to help them design the road in a way that would limit its environmental impacts.

Virtually nobody in the NGO wanted to see the road go ahead. Far too often, such roads open a Pandora’s Box of environmental problems, such as promoting illegal deforestation, habitat fragmentation, poaching, fires and mining. There are few ways that one can “design” their way around such basic problems.

But the alternative nightmare scenario for the NGO was that if they didn’t help the German bank do it, someone far less environmentally concerned would be more than happy to do so.

This, increasingly, seems to be the logic behind a lot of big infrastructure and development projects. And it’s a scary proposition because we are living in the most explosive era of infrastructure expansion in human history.

For example, during their 2014 summit in Australia, the G20 nations argued for US$60–70 trillion in new infrastructure investments by 2030. This would more than double the total value of infrastructure globally. The next few decades are expected to see some 25 million kilometres of new paved roads, thousands of additional hydroelectric dams, and hundreds of thousands of new mining, oil and gas projects.

The environmental impacts of this infrastructure tsunami could easily dwarf climate change and many other human pressures, as thousands of projects penetrate into the world’s last surviving wild areas. Roughly nine-tenths of the new projects are occurring in developing nations, often in the tropics or subtropics, which harbour the planet’s biologically richest and environmentally most critical ecosystems.

Some of the biggest fans of major infrastructure projects are the international development banks, such as the World Bank, International Monetary Fund and the Asian, African and Inter-American Development Banks. These big lenders are far from perfect, but after years of criticism most of them have gradually implemented measures designed to limit the environmental and social impacts of their projects. Even these safeguards are often inadequate, but at least they are a big improvement over past practices.

But the playing field for the big lenders is changing. The past few years have seen the rise of other major investment banks, such as the recently founded Asian Infrastructure Investment Bank (AIIB) in China, as well as the Brazilian Development Bank (BNDES).

For many years, the BNDES has been heavily criticised for funding scores of environmentally and socially harmful projects such as massive dams in the Amazon. Fears were raised that China’s AIIB would behave similarly, especially when it announced that it would be using “streamlined” procedures to evaluate its projects.

When China opened up the AIIB to other countries, 30 nations initially joined as founding members. Among these were many western economies, including the UK, Germany, France, Italy, Norway, Australia and New Zealand. At the time, many hoped that its broadened membership would encourage the AIIB to moderate its hard-charging stance and instead foster environmental and social safeguards more akin to those of the existing major lenders.

But the exact opposite appears to be happening. Rather than the AIIB raising its game, the World Bank recently announced that it will effectively be weakening its environmental and social safeguards. It is doing so, it says, in order to remain “competitive” with other international lenders, most notably the AIIB.

What will this mean? The global economy has slowed for the moment, but the infrastructure tsunami is still happening. If the world economy rebounds to a degree, a feeding frenzy of projects could easily return.

This could be bad news for the global environment and socially disempowered peoples. For instance, a 2009 analysis found that many developing nations had become “pollution havens” for projects funded by the Chinese government or its major corporations, which were attracted to nations with weak environmental controls. Notably, other advanced (OECD) economies showed no such tendency.

With the AIIB essentially forcing the World Bank to lower its standards, will other major lenders follow suit? Will there simply be a “race to the bottom” among big lenders in order to remain competitive?

Are the western nations that have joined the AIIB going to stand idly by and watch this happen? Or might they have enough determination and influence to make a difference? With China, India and Russia holding the biggest shares of the bank’s capitalisation, it’ll be an uphill battle.

Time will soon tell. Right now, for the environment and human rights, the signs are all pointing in the wrong direction.

William Laurance is a Distinguished Research Professor and Australian Laureate at James Cook University, and director of JCU’s Centre for Tropical Environmental and Sustainability Science.