EU turns to development banks to boost private investments

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The European Commission is pushing for further public-private collaboration by seeking the closer involvement of development banks in financing bigger projects, but that requires governance reforms. EURACTIV France reports.

The European Union is moving closer to development banks such as the European Investment Bank (EIB) and the European Bank for reconstruction and Development (EBRD), in order to maintain its position as biggest provider of development aid, despite the economic crisis.

Together, the Commission and the banks can finance large investment projects in energy or transport, allowing the EU to make a bigger impact without additional expenses.

The EU subsidises the projects and provides the technical assistance, including impact assessments and institutional help, to facilitate the financing of international lenders. In practice, the EIB showed that for each euro invested as technical aid in the EU-Africa fund for infrastructures €13 of loans were raised.

In December 2012, a European platform composed of the Commission, the Member States and European financial institutions was created to do a feasibility study on improving financing.

This technique, known as “binding”, allows for a quicker disbursement of European money, known to be slow. The banks present the project to the Commission and the countries which take the final decision.

Efficiency and transparency

However, the selection procedures and the follow-up of the operations should become more efficient and transparent, says a document assessing the platform. The organisation of these investment facilities is not satisfactory, due to the large number of financial institutions that are associated with it.

According to the European Federation of Engineering Consultancy Associations, the procedures vary depending on which organisation has been selected. New assessment criteria of the projects and common governance norms defined by the platform should be applied to all financial institutions as of 2014.

This increased transparency of the reform could help put an end to the of distrust of NGOs, such as Bankwatch or Eurodad, who consider that the profile of some of the donors creates a bias.

As the non-financial selection criteria are not clear, the financial logic overrules the development logic, says Mikaela Gavas of the Overseas Development Institute in London. A network of development NGOs, Cifca, also added that there was a lack of participation mechanisms for civil society.

These issues were stealthily tackled in the assessment reports of the platform.

Working with local partners

“The EU delegations should be more involved in the preparation of the projects,” one of the documents said. The inclusion of local populations in the conception and the implementation of the projects is an acknowledged weakness.

However, the rapporteurs maintained that partner countries should be consulted, except for those few small regional programmes of assistance to small and medium businesses.

According to the African Development Bank (AfDB), €51 million will be needed up to 2020 only for regional infrastructure projects, considered to be a priority on the African continent.

To tackle the growing demands for financing, the European Commission intends to cover more risky projects through guarantee mechanisms or acquisition of interest in the company.

The Commission was already open to those kinds of procedures but so far it has never succeeded. The AfDB also recommended allowing donors who support the private sector to be eligible for funding. The Commission is currently studying the proposal.

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