Why the EIB should not deal with the migration crisis

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Migrants sleeping in the street. [michael davis-burchat/Flickr]

The EIB is not well placed to intervene in the migration crisis. The bank’s past form shows it lacks the human touch needed to succeed in this area, writes Xavier Sol.

Xavier Sol is the head of the Brussels secretariat of Counter Balance.

Sparking the most diverse reactions, from a concerning burst of xenophobia to exceptional waves of welcoming generosity, the so called “migration crisis” remains one of the biggest challenges the EU has ever had to face. Repeatedly called on to assume its responsibilities, the Union has more than once attempted to prove its commitment to tackling this issue, so far without much success. But looking closely at the latest set of initiatives conceived by the EU institutions, a common tendency can be spotted: the increasingly prominent role acquired by the EU’s financial arm – the European Investment Bank (EIB).

Business and investment to solve the “migration crisis”?

Indeed, the EIB has been called to the rescue twice already. Firstly, following a call from the European Council in March 2016 to present “a specific initiative aimed at rapidly mobilising additional financing in support of sustainable growth, vital infrastructure and social cohesion”, the EIB put forward its “Resilience Initiative”, aimed at fostering investments in the public and private sectors in the Southern Neighbourhood and Western Balkans by 2020. To back this plan up, the European Commission is now proposing to extend the European guarantees awarded to the EIB under its external mandate by €5.3 billion ­­– €2.3bn more than the envelope under discussion initially. This would especially aim at securing commercial risks for EIB loans in the private sector to aid refugees and host communities in crisis-affected areas.

In parallel, the European Commission plans to establish an External Investment Plan, in which the EIB is likely to play a central role. The flagship objective of this plan is to “tackle the root causes of migration” by setting up a guarantee fund to leverage long term private investments in Africa and the European neighbourhood regions.

But is this new investment framework really what is needed to address challenges linked to forced displacement? And is the EIB the best-placed institution to lead such operations?

As a watchdog coalition monitoring the bank’s operations for a decade, we think that the track record of the EIB as a development actor is seriously concerning. As highlighted in the report “Going Abroad”, by Counter Balance and CEE Bankwatch Network, we identify several structural problems in the operations of the bank outside Europe regarding transparency, sustainability, taxation and human rights. The latter being a particularly sensitive issue in this case, as the countries targeted by these new financial initiatives are often led by authoritarian regimes in a highly volatile political environment. Already lacking a proper human rights assessment and monitoring system at project level, as well as featuring insufficient tools for community empowerment and participation through the whole project cycle, the bank’s new ambitions outside Europe raise serious doubts.

Among the numerous examples of the bank’s flawed human rights approach, one of the most prominent is the case of Azerbaijan, whose International Bank of Azerbaijan (the majority of whose shares lies with the authoritarian Azeri regime) was recipient of an EIB loan in 2015. Although just six days before the signing of the loan the country’s notorious human rights record had led the European Parliament to adopt a resolution appealing for the suspension of direct funding to Azerbaijan, the EIB decided to ignore such a call and go ahead with its plans.

But communities’ rights are also in danger in the case of the Nenskra Dam in Georgia, where a pristine natural environment is going to be put highly at risk, together with people’s livelihoods, by an EIB-financed hydro-power project. Equally worrisome issues arose in Ukraine, Egypt, Turkey, Laos and many other countries.

Now, instead of pushing the bank to fix these problems, the Commission wants it to take on even greater responsibilities. While the EIB is already struggling to implement its current mandate correctly, this sounds like a major hazard.

The stated priorities of the Resilience Initiative, among which are access for the most vulnerable to education, health, water and sanitation programmes, look definitely out of reach for the expertise and capacity of the EIB. Indeed, the core of the bank’s business model is based on investments in large infrastructure projects in the transport and energy sectors and support to SMEs via commercial banks and investment funds. Shifting the focus to humanitarian assistance appears to be a pretty far stretch at the moment. The bank lacks the people-centred approach that is key to deal with refugee and host communities, especially when it comes to private investments. In this context, sound mechanisms of due diligence and strong empowerment tools for communities are needed more than ever, if we want to avoid the risk of abusing and exploiting these communities even further.

Is this approach really new?

In both the External Investment Plan (EIP) and the Resilience Initiative, the underlying concept is to provide public guarantees to back up operations (mainly loans) performed by financial institutions supposed to deliver a higher added value than regular loans via targeting “risky projects”. However, while the EIB has operated outside Europe thanks to EU guarantees for decades, it has so far seldom prioritised the development impact of its operations, acting primarily as an investment bank going for revenue-generating projects in middle-income rather than least developed countries. Such an approach will hardly be changed by a simple addition of further guarantees.

What is more, the Commission argues that the EIP will take the “successful Investment Plan for Europe” as a model. Yet, more than one year after its launch, serious concerns spread about the genuine additionality of this plan, criticised by the European Court of Auditors, think-tanks and NGOs for having largely enabled business as usual at the EIB. Rather than an example to follow, the Investment Plan for Europe should constitute an opportunity to reflect on the distorted guarantee-based financial model, which is far from the development silver bullet the EU institutions describe.

Given the challenges the EIB is facing in delivering on its development and humanitarian priorities, a thorough look at the legacy of its investment portfolio together with a realistic assessment of its capacity are badly needed. In order for the bank to be able to fulfil its development role under the mandates awarded by the European Union, the EU institutions should push for a deep reform of the bank, instead of tasking it with new responsibilities.  Without it, the EIB’s intervention in the complex picture of vulnerable host and migrant communities risks heading for a guaranteed failure.