BY DR SOHA MAAD
The India-Middle East-Europe Economic Corridor IMEC, announced at the Group of twenty G20 Summit held in September 2023 in New Delhi in India, has far reaching implications and necessitates giga finance for a new global infrastructure.
IMEC is expected to be a game-changer project and provide a huge boost to global trade. Some experts see that IMEC may be economically more viable than China’s flagship Belt and Road Initiative.
This article sheds light on the IMEC agreement, and the planned design, route, and timeline of the corridor. The potential benefits and challenges of IMEC are highlighted. The impact of IMEC on economic growth, global supply chain, and on various countries is analysed. Geopolitical implications are also assessed including impact on Belt and Road and Suez Canal. The article concludes with the need for a new global digital infrastructure in a world changing from unipolar to multipolar.
The United States (US), United Arab Emirates (UAE), Saudi Arabia, European Union (EU), Italy, France and Germany signed the economic the India-Middle East-Europe Economic Corridor IMEC agreement. This is expected to positively impact trade and investment, and help chart out a sustainable growth path.
United States President Joe Biden stated that “the world stands at an inflection point in history.” He described the new agreement as “historic.”
In support of this initiative, the participants committed to work collectively and expeditiously to arrange and implement IMEC and to establish coordinating entities to address the full range of technical, design, financing, legal and relevant regulatory standards, according to a White House statement.
French President Emmanuel Macron said the pact offers opportunities for manufacturing, innovation and people.
Crown Prince Mohammed bin Salman mentioned that the new project would include pipelines for electricity, hydrogen and railways and will contribute to international energy security.
IMEC Design and Route
IMEC is designed to stimulate economic development by fostering connectivity and economic integration between Asia, the Arabian Gulf and Europe.
The IMEC represents a multimode transit corridor spanning over 3,000 miles and it consists of two corridors. The eastern corridor links India to the Arabian Gulf, while the northern corridor connects the Arabian Gulf to Europe.
The corridor will include a railway that will provide a cost-effective, cross-border ship-to-rail transit network to supplement existing maritime and road transport routes. This will enable goods and services to transit to, from and between India, the Gulf and Europe. Along the railway route, the participants intend to enable the laying of cable for electricity and digital connectivity, as well as a pipeline for clean hydrogen derived from renewable energy for use in power generation.
IMEC will also make it easier for companies to transport their containers from Mumbai to Europe. Currently, they have to go through the Suez Canal, which is longer. This corridor will reduce the dependency of Suez Canal.
Amos Hochstein, US President Joe Biden’s co-ordinator for global infrastructure and energy security, laid out a rough timetable for IMEC project.
The first phase of IMEC project will involve identifying the areas that need investment and where physical infrastructure can be connected between countries.
Whilst it remains unclear as to the speed and scope of the proposed corridor aimed at enhancing rail and shipping connectivity between India, the Middle East and Europe, what is clear is that the transformative partnership could potentially open a new era of global connectivity that will increase efficiencies, reduce costs and bolster economic unity.
IMEC Economic Benefits
The cross-border, ship-to-rail transit corridors are expected to reduce shipping costs across the network and support trade in goods and services to, from and between the United Arab Emirates UAE, Saudi Arabia, India, and Europe. There will also be benefits across the Gulf Cooperation Council (GCC).
According to Jon Finer, the United States US deputy national security adviser, the deal will benefit low and middle income countries in the region, and enable a critical role for the Middle East in global commerce. IMEC aims to link Middle East countries by railway and connect them to India by port, helping the flow of energy and trade from the Gulf to Europe by cutting shipping times, costs and fuel use.
Deep trade agreements need to be signed to reap the full benefits from the corridor. The region should improve trade facilitation measures, including easing the movement of goods at the border and focusing on reducing overall trade costs.
While the participants’ political commitments are clear, the memorandum of understanding signed in New Delhi is a declaration of intent. However, it does not by itself create rights or obligations under international law, which means that there is not yet any obligation on any partner to take action toward the implementation of the IMEC. A lot depends on the priorities of the IMEC founders and the resources they are willing to commit to this ambitious project.
Global Economic Implication
The IMEC is expected to stimulate economic development through enhanced connectivity and economic integration between Asia, the Arabian Gulf and Europe. It is also likely to have far-reaching global economic implications beyond the three regions. The eight countries who signed the IMEC agreement account for about half of the world’s economy and 40 percent of its population. As such, they have the capacity to transform global trade and development if they are ready to commit the right resources.
Impact on Global Trade and Supply Chain
IMEC may secure regional supply chains, increase trade accessibility, improve trade facilitation and support an increased emphasis on environmental, social and governmental impacts. It will increase efficiencies, reduce costs, enhance economic unity, generate jobs and lower greenhouse gas emissions, resulting in a transformative integration of Asia, Europe and the Gulf.
The project will also have geopolitical implications, as it raises United States profile in the IMEC region and enhances its role as a global player. The move came amid United States efforts for a broader diplomatic deal in the Middle East.
In addition to the clear economic benefits, the IMEC could reap political benefits by defusing tensions and building trust and mutual interests along its routes. There is also an implicit commitment to security cooperation to protect the IMEC participants’ investments and ensure its speedy establishment and smooth functioning.
United States Joe Biden’s national security adviser, said that IMEC reflects Biden’s vision for far-reaching investments that come from effective American leadership and a willingness to embrace other nations as partners. The enhanced infrastructure would boost economic growth, help bring countries in the Middle East together and establish that region as a hub for economic activity instead of as a source of challenge, conflict or crisis.
Deep Integration Beyond Oil
IMEC is a manifestation of the deepening integration between India, Saudi Arabia and the United Arab Emirates UAE, and the broader geopolitical and economic convergence between the Middle East and South Asia into West Asia. India holds the distinction of being Saudi Arabia’s second-largest trading partner, with bilateral trade reaching $52.75 billion during 2022-23, elevating Saudi Arabia to India’s fourth-largest trading partner. Furthermore, trade between India and the UAE surged to $85 billion in 2022, positioning the UAE as India’s third-largest trading partner for the year 2022-23 and its second-largest export destination.
IMEC is a declaration that the bilateral relations with Saudi Arabia and the UAE are multidimensional, and energy is a core pillar but not the only pillar.
The American objective from the IMEC is to change the trajectory in the Gulf, transforming it from a dual hierarchical structure where the United States is the dominant security partner and China is the dominant economic partner by bringing India into the geopolitical and economic mix.
IMEC Threats to Belt And Road And Suez Canal
The pact comes at a critical time as United States President Joe Biden seeks to counter China’s Belt and Road push on global infrastructure by pitching Washington as an alternative partner and investor for developing countries at the G20 grouping.
The White House sees that the project would usher in a new era of connectivity. IMEC may be a direct challenge to China’s Belt and Road Initiative, a multi-trillion-dollar infrastructure project launched a decade ago by Beijing with the aim of connecting China to the rest of the world.
IMEC is a potential land-based alternative to the Suez Canal. It will reduce the risk of Suez Canal being a chokepoint, as it currently handles about 10 per cent of global maritime trade.
IMEC could be a threat to Suez Canal revenue, but it could be also seen as an opportunity to integrate the various modes of transportation creating an air-sea-land custom-free corridor to support the movement of goods.
IMEC Impact on Various Countries
Impact on United States
For the United States (US), IMEC is an implementation of the flagship Partnership for Global Infrastructure and Investment initiative, the basis for which President Joe Biden first unveiled at the Group of Seven G7 summit in 2022. At the 2023 G7 summit in Hiroshima, Japan, he persuaded the organization’s leaders to commit to identifying new opportunities to scale up the initiative to better respond to the global demand for high-quality infrastructure financing in low- and middle-income countries.
Since then, the US has announced steps to build several economic corridors with the aim of driving infrastructure investments across multiple countries and sectors. It has mobilized more than $30 billion through grants, federal financing and the leveraging of private sector investments.
Impact on China
IMEC is seen as a challenge to China’s economic power. China was absent from IMEC announcement. It seems this is a clear plan to rival China’s massive Belt and Road infrastructure initiative that was announced back in 2013, which is designed to connect Asia, Africa and Europe.
The corridor, which would include India, Saudi Arabia, the United Arab Emirates, Jordan, and the European Union, would help boost trade, deliver energy resources and improve digital connectivity.
United States president Joe Biden seeks to counter China’s Belt and Road push on global infrastructure by pitching Washington as an alternative partner and investor for developing countries at the G20 grouping.
Experts sees that China’s powers are increasing so rapidly that many countries feel the need to have alternatives. But the new project would not necessarily undermine China’s global infrastructure project, which has its own independent existence.
India was not part of the Belt and Road Initiative, so this initiative gives connectivity to India.
Impact on India
India will be at the centre of the corridor connecting it to Europe and the Middle East. It will not only improve infrastructure and communication, but also generate new employment opportunities and create new supply chains.
This corridor is a major step towards helping India become a developed country by 2047.
Impact on Europe
India and Europe are expected to gain from the new initiative as they focus on accelerating the growth of their economies and diversifying supply sources away from China.
European Commission president Ursula von der Leyen stated that the rail ink would make trade between India and Europe 40% faster.
Impact on Saudi Arabia
India and Saudi Arabia signed eight agreements to boost cooperation in a range of areas from energy to interconnectivity, digitalisation and electronic manufacturing to finance and security.
Saudi Arabia, Crown Prince Mohammed bin Salman described IMEC as transformative for the region and the global economy. Speaking in New Delhi, he pointed to the long-run job creation potential of the new project and the expected growth in trade between India and the Middle East. India is already a key trading partner for Saudi Arabia and the two countries are signing dozens of bilateral deals to strengthen their trade and investment ties.
Crown Prince Mohammed bin Salman lauded the Partnership for Global Infrastructure and Investment and announced Saudi Arabia’s pledge of $20 billion for its projects, while also suggesting the need for integration between it and the IMEC.
Impact on Uae
The new trade link between India, Middle East and Europe will help the UAE diversify its economy away from oil. It is expected to help the UAE double its non-oil trade by 2031 while benefiting other countries involved in the project and boosting trade relations with Europe and India. UAE and G20 non-oil trade up 14% in first half to reach $181.9bn. The new economic corridor will help the Emirates to increase its non-oil trade as it focuses on bolstering its trade relations with different countries around the globe. United Arab Emirates aims to sign 26 comprehensive economic partnership agreements by 2031 as it seeks to attract more investment and diversify its economy.
IMEC will also help to bolster clean hydrogen exports, as part of joint efforts to lower greenhouse gas emissions, and integrate environmental conservation in the initiative.
The UAE aims to become net zero by 2050 and is developing a number of new renewable energy projects.
Impact on GCC
From a Gulf perspective, the new venture will solidify the region’s historical position as the primary trade route linking Asia, Europe and Africa. By emphasizing trade in energy, the project is banking on the region’s comparative advantage in providing cheap and reliable energy to the rest of the world. The venture will solidify the Gulf’s historical position as the primary trade route linking Asia, Europe and Africa.
Impact on Mena
In the medium term, integrating trade infrastructure (ports, airports, logistics) in the wider Middle East and North Africa MENA region would lower costs and facilitate intraregional trade, leading to greater regional integration.
Impact on Countries on The Route
Countries along the route also stand to benefit through improved connections with two of the world’s leading markets, which should present numerous new business opportunities.
The Need for New Global Infrastructure In Changing World Power
IMEC is changing the world balance of power. The world is changing from unipolar to multipolar, where various countries exercise power in shared and collaborative manner.
This is very ambitious and need to be supported by a global infrastructure empowered by digital technology and supported by a global legal framework to facilitate trade and interconnectivity at a global scale.