Ladies and Gentlemen,
Dear Colleagues and Friends,
Thank you for your warm welcome.
It is a pleasure to be here to discuss how the European Union is using innovative financial instruments in our global quest to end poverty and promote sustainable development.
Over the past five years, I have had the honour of serving as Croatia’s first European Commissioner, leading its work on international cooperation and development.
During my tenure, I have had the pleasure to oversee a policy at which the European Union continues to shine as a truly global player and global leader, driven by our strong sense of multilateralism and our values of peace, partnership and solidarity.
Not only are we the first provider worldwide of humanitarian aid and of Official Development Assistance, we are also the first trading partner almost everywhere in the world.
This is why the European Union is leading the charge on implementing the UN 2030 Global Agenda, an agenda that affects all of us.
The Agenda 2030 sets a global framework to end poverty and achieve sustainable development for all by the year 2030.
From healthcare and education, to gender equality,
From sustainable cities and communities,
To peace, justice and democracy…
…the 17 Sustainable Development Goals – the blueprint for the 2030 Agenda – are more universal, far-reaching and ambitious than ever before.
Delivering on this very ambitious and comprehensive global development agenda requires the necessary financial resources.
Official Development Assistance, as grants from public money, continues to be important.
Almost 60% of global Official Development Assistance comes from the EU and its Member states: 75 billion EUR last year.
And as the world's largest donor, the EU is particularly committed to reaching the UN’s 0.7% target of gross national income for development assistance.
But in this changing – and more challenging – world, grant aid alone is no longer enough.
The estimated 3-4 trillion dollars of annual investments needed to deliver the Sustainable Development Goals by 2030 requires resources far beyond Official Development Assistance.
In the best case scenario, Official Development Assistance could cover 10 to 15 percent of that amount.
It became clear that we needed to start thinking outside the usual development policy box.
So that’s why, with our international partners, we developed the “Addis Ababa Action Agenda”.
This agenda sets out an ambitious vision, addressing the full range of what we call “means of implementation” – the tools, policies and resources to help us deliver our global Agenda.
In particular, it stresses the fact that we need to find a smart and efficient way to bring together aid, investment, domestic resources and good policies, since no single one of these tools alone is a measure of success or failure.
Only by implementing them all together, we can succeed in our common fight against poverty, inequality and exclusion.
You heard me mention “investment” as one of the tools for delivering on our common global agenda.
In the past couple of years, the European Union has put a lot of thought into how we use development funding to leverage major public and private investments.
This is a real break-through, as the private sector was never a traditional partner in the development field.
We set up the External Investment Plan for Africa and the Neighbourhood with the very purpose of putting the private sector at the heart of our sustainable development efforts.
Under the financial pillar of the Plan – the European Fund for Sustainable Development – we are using 4.1 billion euros from the EU budget to leverage over ten times that amount – 45 billion EUR - in additional public and private investments with development outcome by 2020.
The aim is to make public money go much further than its nominal face value and – with the help of the private sector – create jobs, foster innovation and drive sustainable economic growth.
Of the 4.1 billion euros under the European Fund for Sustainable Development, 2.6 billion is going to blending operations.
Complementing other forms of assistance, blending allows us to strategically use EU financial support to encourage the financing of sustainable investments from partner international and national financial and development institutions to maximise the development impact of investment projects.
These operations are not completely new for the European Commission.
Depending on the type of investment projects, our blending operations take different forms, including:
- Direct investment grants, which reduce the overall project cost for the investors, by partly financing the investment cost;
- Interest-rate subsidies, which reduce the interest cost and in some cases help partner countries avoid the IMF debt ceiling;
- Technical assistance, ensuring the quality, efficiency and sustainability of the project; and
- Risk capital, in the form of equity and quasi-equity, thereby addressing perceived high risk and attracting more financing.
The most important impact of blending EU budget grants with banking institutions’ lending capacities is to provide the most concessional loans to private investors in development projects.
However, the real novelty of the European Fund for Sustainable Development are the EU level guarantees for a total of 1.5 billion euros.
We have already committed guarantee agreements to 28 investment programme pipelines to be implemented by a number of partner financial institutions.
We are allocating a significant share of these guarantees to fragile and conﬂict-affected, landlocked and least developed countries, who have greater need for private investment, and whose investment risk is perceived to be higher.
By de-risking those investments we are helping the private sector to participate and invest in sustainable development projects in these countries that otherwise – under regular market conditions - would have never been possible for a number of reasons.
Eligible counterparts for the guarantees are mainly development banks, financial institutions like the European Investment Bank or the European Bank for Reconstruction and Development, European development finance institutions, and other regional or multilateral development banks.
These institutions pass on the benefits of the guarantee downstream, either directly through investment operations or through local private banks and investment funds.
This allows end-borrowers, in particular small businesses, to access a wide range of financial instruments.
- Loans, including local currency loans;
- Capital market instruments;
- And any other form of funding or credit enhancement, insurance, equity or quasi-equity.
The different financial instruments reduce investment risks to varying degrees, depending on the circumstances, but always with the ultimate aim of having a sustainable development impact.
For example, one of its most attractive measures is one intervention that pools first-loss funds from multiple development financial institutions and donors, relieving the beneﬁciary of virtually all risk.
The guarantee has been structured around five “investment windows” in the areas of: sustainable energy; financing for SMEs; sustainable agriculture and rural entrepreneurs; sustainable cities; and digitalisation.
This was crucial to identify the sectors most in need of investment.
For each investment window, we have earmarked money for selected policy priorities, under which development banks or financial institutions implement their proposed investment programmes.
You might be interested in hearing some concrete examples of this in action.
For example, the “Room2Run” investment programme, with a guarantee of up to 87 million euros, will support a securitisation structure to facilitate private investment in sustainable energy projects, funded by the African Development Bank.
It will do so by taking credit risk on a defined tranche of the private sector portfolio.
Another example is the African Local Currency Bond Guarantees programme, backed by the German Development Bank.
Using a guarantee of 100 million euros and technical assistance of 2 million euros – and with the aim of developing African capital markets – this programme will create a fund for investments in local currency bonds issued in African countries by local financial institutions, utility companies, or state-owned enterprises.
At this point, let me turn to the second pillar of the External Investment Plan, where we have allocated 500 million euros for technical assistance support.
Technical assistance mainly benefits authorities, investors and companies, with the aim of supporting the development of viable projects to be financed under the guarantee and blending operations.
It can help to speed up or design a project, finance a feasibility study, or address certain risks associated with a project.
Fundamentally, technical assistance also informs and supports our efforts to create more conducive investment climates and business environments.
And this brings me to my third and final point on the External Investment Plan.
This Plan is very much about the bigger picture, and planning for the future.
What is it that investors want more than anything else?
They want stability and certainty.
This is why the External Investment Plan puts forward initiatives to promote a more attractive business and investment climate and regulatory frameworks in Africa and neighbourhood countries.
Understanding the investment climate is the necessary first step in this process.
We particularly need to understand investment climate drivers, such as political and macroeconomic stability, good governance and rule of law, human development, and the innovation and business environment.
Through structured public-private dialogue, we also identify obstacles to investments and help prioritise regulatory and legislative reforms needed to make sure the right conditions are in place for investors.
Going forward, we have big plans for the EIP’s future development.
Currently, it covers Africa and neighbourhood countries.
But, for the next EU budget, covering period from 2021 to 2027, the Commission has put forward a proposal for the EIP to go global, and to increase its firepower.
We propose the biggest ever global guarantee fund of 60 billion EUR, supported by equally ambitious blending grants facilities.
The potential of such a move is huge.
This could help raise more than 500 billion euros in investments with development impact between 2021 and 2027.
Ladies and Gentlemen,
One last word.
As EU Commissioner for International Cooperation and Development, I have travelled to the four corners of the world.
When I took on this job five years ago, the world was a very different place.
We did not yet have the Sustainable Development Goals.
We were still very much focusing on Official Development Assistance.
And we were not yet talking about innovative financing instruments seriously.
So much has changed since then.
We are now in a place where other stakeholders, including those who benefit the most from the global economy – like the private sector – can contribute to solving global problems.
This is not to say that we have it all figured out. We haven’t.
To get to where we want to be by 2030, we still have a long way to go.
But we have seen a fundamental shift in how we think about global development financing.
And I am confident that our bold approach to sustainable and innovative investment is leading us in the right direction.
(Check against delivery)