Mimica: Europe’s new plan for Africa ‘could reach €88 billion’

Commissioner for Inernational Cooperation and Development, Neven Mimca, hopes the fund can attract billions of euros for Africa. [Commission]

EXCLUSIVE / One of the keynote announcements of Jean-Claude Juncker’s State of the Union address last week was the European External Investment Plan. EU development aid chief Neven Mimica gives the details in an interview with euractiv.com

Neven Mimica is EU Commissioner for International Development and Cooperation.

Mimica was interviewed by euractiv.com’s Matthew Tempest about how the new investment scheme will work.

EU Commission President Jean-Claude Juncker announced a new “European External Investment Plan” in his State of the Union speech. What is it – and how will it work?

The European External Investment Plan (EEIP) is an innovative approach to boost investments in Africa and EU Neighbourhood countries. These investments shall contribute to creating sustainable growth and inclusive jobs, particularly in socio-economic sectors such as sustainable energy or social infrastructure and support micro, small and medium-sized enterprises.

The EEIP consists of three complementary pillars: The first provides improved access to finance. At its heart lies a new European Fund for Sustainable Development (EFSD) which combines existing investment facilities with a new guarantee. This guarantee will be passed on to intermediary financing institutions, which in turn will lend support – via loans, guarantees, equity or similar products – to final beneficiaries, such as private companies.

The second pillar focusses on technical assistance in order to help develop financially attractive and mature projects. The third includes actions to improve the general business environment, e.g. by addressing good governance, fighting corruption, removing barriers to investment and market distortions.

With an input of €3.35 billion from the EU budget and the European Development Fund (EDF), the EEIP will support innovative guarantees and similar instruments in support of private investment, enabling it to mobilise up to €44 billion of investments. If member states and other partners match the EU’s contribution, the total amount could reach €88 billion. 

Is this separate from, or complementary to, the Emergency Trust Fund for Africa, announced  last year at the Valletta summit on migration?

The EU Emergency Trust Fund for Africa and the EU External Investment Plan are two separate instruments, whose objectives are complementary, but not identical to each other.

The EU Emergency Trust Fund was established at the Valletta Summit on 12 November 2015 with the aim of supporting all aspects of stability and to contribute to better migration management as well as addressing the root causes of destabilisation, forced displacement and irregular migration.

This will be done through programmes promoting resilience, economic and equal opportunities, security and development and addressing human rights’ abuses. The Trust Fund is meant to complement existing EU instruments, national and regional frameworks, and bilateral programs of EU member states by providing a swift and flexible answer to migration-related challenges, as reflected in its character as an emergency instrument.

The External Investment Plan instead pursues a mid- to long-term perspective. Its primary objective is the reduction and, in the long term, the eradication of poverty and addressing the economic root causes of irregular migration. It will also contribute to other long-term objectives such as fostering sustainable and inclusive economic, social and environmental development ; or consolidating and supporting democracy, the rule of law, good governance, human rights, gender equality.

Have you had any indication – or even a commitment – from the EU member states that they will step up to the plate and match the EU’s contributions?

Addressing the root causes of irregular migration in our partner countries is and must be a common endeavour of the EU and our member states, in close cooperation with other partners.

We have a keen interest to closely cooperate with the member states in designing and implementing the new External Investment Plan and trigger very substantial additional investments in our partner countries.

We have thus, of course, consulted closely with member states even before presenting the proposal. It fully involves member states in the governing structure of the new European Fund for Sustainable Development, irrespective of whether or not they contribute financially. But of course, our ambition is to attract significant contributions from their side.

The proposal, therefore, sets out important incentives for such contributions: Member states can contribute in cash, but also in guarantees.

They would take only the second-loss risk, whereas the first-loss risk would be shouldered by the EU. And they could earmark their contribution both thematically and geographically.

Based on these proposals and the discussions we had so far with member states, I am very confident will make significant contributions.

‘Blending’ is a very fashionable buzzword in the aid and development sector. But how do you answer the charge that it is the EU (and thus EU taxpayers) insuring or subsidising Western corporations against losses, while they make profits from some of the poorest countries on earth?

Some of the main challenges for developing countries remain achieving inclusive and sustainable growth and creating jobs in all countries. As regards foreign direct investment (FDI) going to developing countries, only 6% goes to fragile countries, pushing down the investment per capita to a level almost five times lower than in other developing countries.

Similarly, the cost to start a business is almost three times higher in fragile countries than in non-fragile countries. Growth in Africa has slowed to the weakest levels since 2009, notwithstanding continued demographic growth.

Combined with significant security issues, this trend exacerbates poverty. To achieve sustainable and inclusive development, the active involvement of the private sector is vital, as was confirmed by the world’s leaders in the Addis Ababa Action Agenda on Financing for Development in 2015.

It is essential to highlight that the EFSD Guarantee against losses will only be provided if investments would not happen otherwise. Before supporting a project, the Commission will verify that its participation will add value to the operation, by addressing market gaps or market failures that may exist in a partner country or a market. In order to be eligible, the investment proposals will have to fulfil certain criteria, such as contributing to economic and social development.

A particular focus will lie, amongst others, on sustainability and job creation, particularly for youth and women, and dealing with addressing the root causes of irregular migration. Socio-economic sectors will be targeted in particular, for example, infrastructure including energy, water, transport, ICT, environment, social infrastructure or finance in favour of micro, small and medium-sized enterprises.

What are the criteria for deciding if the EEIP is a success? How will you measure it?

The EEIP will be a success if it delivers the envisaged additional investments and if these investments translate into sustainable growth and jobs in the partner countries. It will be a success if it helps us making sure that migration in the future becomes a choice, rather than being a necessity.

The precise criteria and indicators will be defined through the governance structure of the new EFSD for the different investment areas and projects.

The results will be reported annually to the European Parliament and the Council. We will also publish an annual activity report providing an overview of the financed projects. In addition, for each operation, a communication plan will be prepared by the selected eligible financiers to present the projects and results.

As from the first projects, we want to see and analyse in a fully transparent way, whether the EEIP delivers.

In the Council proposal, the budget for 2017 for global Europe is dropping by 10%. How is the Commission going to finance this new initiative on development (and the Emergency Trust Fund for Africa) with such a tight budget?

The funding which will be used to finance and attract investments from other sources will come from the EU budget and other sources, including the European Development Fund. It will consist of EU funds totalling €3.35 billion until 2020. Additional funds could come from the member states and other partners. If member states match the EU contribution to the guarantee, this would bring the total investment volume to €62 billion.

If they also match the EU contribution to the Blending, it would generate total investments of up to €88 billion.

Member states have made insignificant contributions to the Emergency Trust Fund for Africa so far, less than €90 million euros in total. Do you expect more contribution in the future?

I would not agree that the contributions from member states to the Emergency Trust Fund for Africa received so far are insignificant. 25 Member States have confirmed their participation, as well as two non-EU donors (Norway and Switzerland). Netherlands is contributing €15 million, Belgium and Italy €10 million, and Denmark €6 million. These are significant amounts.

But indeed the contributions are very far away from matching the contribution at EU level. We are in close discussions with member states on the advantages of the Trust Fund which pools together resources from different sources and ensures a strategic, comprehensive and at the same time flexible approach with rapid project implementation.

I hope that this will convince member states about the merits of providing additional contributions.

The Emergency Trust Fund for Africa is also open for participation to the private sector. Did you receive significant contributions?

Private entities can contribute to the EU Trust Fund for Africa (through donations), according to its Constitutive Agreement. For the time being, no donations from the private sector have been received.

Further Reading

Blending: The new buzzword at EU's 'Davos of Development'

'Blending' - a form of pump-priming private sector investment, by leveraging it onto public official development aid - seems to be the new buzzword at this year's EU Development Days, according to the UN's Xavier Michon.