ITUC-PERC/FGTB/LO-TCO Workshop on IFIs – EIB Investment Projects Brussels, 4-5 November 2014 European Investment Bank and Investment Projects Bruno S. Sergi University of Messina IFIs’ and EIB’s Investment Strategies Sources of financing for new investment strategies Economic growth, infrastructures and long-term growth. Projects carefully dissected: Competitiveness Low interest rates and slow growth Why the EIB? Because it is the largest supranational borrower and lender in the world! Created in 1958 by the Treaty of Rome, headquartered in Luxembourg and >30 local offices, is the financing institution of the EU-28 (financing over 400 projects per year in > 160 countries). It operates not-for-profit and doesn’t burden the EU budget, raising funds on the capital market (benefiting from the highest possible credit rating, i.e., AAA). EIB’s investment projects (to finance public and private investment) contribute to: European integration, balanced development, the economic and social cohesion, and the development an economy based on knowledge and innovation. Investing in areas such as the strengthening of EU’s industry competitiveness and SMEs, the trans-European networks (transport, telecommunications and energy transfer), the protection of the natural and urban as well as investment in health, education and information technology; to support less-favoured regions. Why the EIB “abroad”? About 10% of its lending goes to projects outside the EU-28 to support the EU policy beyond its borders. In 2012 this amounted to some EUR 7bn. EIB lending also aims to promote the conditions for sustainable development in the Mediterranean countries, Africa, the Caribbean and the Pacific, as well as projects of common interest in Latin America and Asia. The EIB prioritises key projects: (1) climate change mitigation and adaptation (e.g. renewable energy, energy efficiency, urban transport and other projects that reduce CO2 emissions); (2) development of social and economic infrastructures, including water and sanitation; (3) local private sector development, in particular of SMEs. Note that to be eligible for Bank financing, projects are required to have good potential to contribute to the economic development of the beneficiary country too. The EIB and the current economic crisis The EIB has played to some extent a counter-cyclical stabilising role by increasing its investment in 2009 and in 2013 and by investing more in harder-hit countries The EIB has increased its investments from € 47.5 billion (0.38% of EU GDP) in 2007 to € 78.8 billion (0.67% of EU GDP) in 2009 (modest compared to fiscal stimulus in other advanced countries such as the US and Japan. Unfortunately, there was a decline in EIB investment in 2010-12, at a time when the cyclical situation of the European economy deteriorated. In 2012 EU leaders agreed to provide €10bn of new capital to the EIB (which leads to much more investment, because the EIB leverages up its capital) and encouraged the EIB to invest more, which is reflected in the increase in EIB investments in 2013 to € 71.7bn (0.55% of EU GDP). However, the EIB plans to reduce investment to €67bn in 2014 and 2015, while the middle of the targeted range for 2016 is €58.5 bn. Rather the EIB should increase its investment, which would require a call for new capital to the EIB beyond the €10bn agreed in 2012. Annual investment by the European Investment Bank according to main sectors in 2000-2013 and the targets for 2014-16 (€ bn) EIB in The New EU Commission The EU could release up to € 300bn of additional public and private investment over the next three years, Commission President Jean-Claude Juncker said, who also supports the need for more effective financial instruments and a further increase of the share capital of the EIB. No doubt a further expansion of capital and business loans from the EIB might lead to a significant recovery in investment. To increase the capital of the EIB, in mid-2012 EU leaders had all agreed to double the paid-up capital of the EIB, an increase of € 10bn. The measure has led the EIB to increase the activity of loans: in 2013 the EIB loans have gone up by almost € 20bn, 42% more than in 2012. The loans aimed at SMEs have almost doubled. Now the EU Commission proposes to further increase the capital of the EIB and this would allow a further increase (up to € 80bn) of loans granted by the EIB and an increase of up to € 160bn of total loans and private investment over the next years. In the East, the current EUR 3.7bn mandate runs from 2007 to 2013 and covers Russia, Ukraine, Moldova, Armenia, Azerbaijan, Georgia, and subject to future Council and European Parliament agreement, Belarus. EIB in Eastern Neighbourhood Ukraine: EIB supports Agri-Food Sector with € 50 million Moldova: EU supports development of agriculture with € 120 million Armenia: EIB supports development of the water sector Georgia: EIB continues to support the upgrade of water infrastructure Ukraine: EIB supports construction of Beskyd railway tunnel linking Ukraine with the EU EIB activities in the Eastern Neighbourhood. Loan signatures by sector up to end of 2013: EUR 4.9bn EIB loans in Asia. 1993-2013: EUR 5.1bn EIB in Central Asia The EIB received approval from the Council of EU Ministers to become active in Central Asia (Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan and Uzbekistan) in late 2008, following the adoption of the EU strategy for a new partnership with Central Asia in June 2007. In order for the EIB to begin operations in the region, it must first conclude bilateral framework agreements with the countries concerned policy objectives of diversification of energy sources by focusing its financing on projects in energy supply and energy transport, as well as protection of the environment. The loans come from the € 1bn lending window for Asia provided under the mandate from the Council and European Parliament as well as from the Bank’s Energy Sustainability and Security of Supply Facility of € 4.5bn for investment grade projects in energy and the environment. Eligible projects in the energy sector will include expansion, modernisation and upgrading of infrastructure and procurement of equipment for (1) gas and oil transit networks leading to improved performance and increased safety and security of gas supplies to the EU; (2) oil and gas extraction facilities, with a focus on equipment and infrastructure for environmental protection purposes; (3) electricity generation plants and electricity transmission lines, which will bring substantial energy saving and environmental protection benefits. ALA -- Asia and Latin America Its lending in ALA started in 1993. During the period 2014-2020, the EIB might lend up to € 3.4bn for operations supporting the EU cooperation strategies and complementing other EU development and cooperation programmes (ca. € 2.3bn for Latin America, 0.9bn for Asia, € 0.182bn for Central Asia). Most recent examples (priority projects): Bolivia: €50 million for F21 highway Chile: € 150 million for climate action projects Bangladesh: loan for improvements to Dhaka water supply India: € 200 million loan for climate change mitigation projects and € 200 million loan for renewable energy and energy efficiency An important project in Africa A few months ago, the EIB has funded with 23 billion Kenyan shillings (ca € 200 million) the Tukana Lake Wind Power Project, a huge wind farm of 70 billion shillings (ca € 620 million), which will cover 20% of the energy needs of Kenya and guarantee share of renewable energy in the whole area of East Africa. Albania Since 2000, the EIB has lent € 344 million to Albania. The focus has been key transport infrastructure, including TransEuropean Transport networks, i.e., € 18 million for Vlora motorway bypass. These will improve the country’s integration and connections to the rest of the region and Europe as a whole. A € 40 million loan was granted towards improving thermal energy supplies and municipal water services with € 27 million, while extending credit lines to assist smaller businesses to the tune of € 15 million since 2009. Macedonia A candidate country since 2005, although accession negotiations have not started. Starting in 1977 with a € 3m loan to the energy sector, the EIB has provided a total of over € 330m in financing since 1998, and € 110m in 2012. Efforts have been made to support the local economy through a network of local banks, including a € 100m project in 2009 with the Macedonian Bank for Development Promotion to back SMEs, skills and innovation, energy and environmental protection in the country. Montenegro EIB lending activities in Montenegro amount to over € 260 million. In 2009, the Bank signed a € 90 million umbrella guarantee with the government, covering EIB loans with locally licensed banks, and supporting working capital and investments for SMEs, as well as small scale municipal investments. The EIB supported two loans worth € 45 million in 2012, one in favour of the Investment and Development Fund, and the other to repair flood damages. Serbia EIB has lent more than € 4.1bn since 2000. The principal focus has been on transport projects (including trans-European networks) to provide better links for the country and the region. SMEs have also been a priority objective; EIB has lent over € 750m to the manufacturing and services industries to help boost growth and job creation. The EIB Results Measurement (ReM) Framework Introduced in 2012, it replaces the previous Economic and Social Impact Assessment Framework. Building on a three-pillar methodology, the ReM framework shows how EIB loans or equity participations generate outputs. The three pillars address three separate project dimensions, which cannot be compared with one another. They are rated independently (on a qualitative 4-point scale), and no overall aggregated project rating is given: Pillar 1: An assessment of a project’s consistency with EIB mandate objectives as well as its contribution to EU priorities and country development objectives. Pillar 2: A series of sector-specific standardised indicators to capture economic, social, environmental and institutional outcomes of the project. Pillar 3: An assessment of the EIB additionality over market alternatives in terms of financial product, technical, structuring and sector contribution and standards and assurance. Reporting on results requires appropriate aggregation of indicators across the entire portfolio where this is possible, or across a given sector (e.g. energy distribution). These indicators are measured throughout the project cycle at appraisal and during monitoring until the project is fully implemented, operational and the first development outcomes are measurable - typically up to three years after project completion. The framework is designed to be flexible enough to reflect differences in regional economic and social environments. Summary The long-term success of investment is dependent on proper focus and unlock new sources of long-term growth: To support innovation and structural adjustment. To promote bankable public-private partnership projects. To ease bottlenecks to trade and mobility due to increasing volume of goods and people flows. To innovate financing models, to explore public-private partnership modalities. To support the environment and advance technological upgrading. To support the growth of SMEs and foster new growth sources so as to build a more sustainable economy. Thank you!