EU External Investment Plan

EU External Investment Plan

 

Promoting investment in countries neighbouring the EU and in Africa

 

The EIP in a nutshell

The External Investment Plan (EIP) is a new EU initiative launched in 2017. It is designed to attract more investment, in particular from businesses and private investors, into countries near the EU ('EU Neighbourhood') and in Africa. It is expected to leverage €44 billion of investment through an initial EU input of €4.1 billion.

The Plan will do so by using public money to lower the risk of investing in key sectors like sustainable energy or lending to small businesses.

In this way it aims to:

  • create jobs, raise living standards and reach the UN Sustainable Development Goals
  • support entrepreneurs and enable economies to grow
  • help tackle some of the reasons why people leave their countries of origin in Africa and the EU Neighbourhood (migration).

Rationale

Tackling obstacles to investment

The global economic crisis has aggravated instability and conflict in Africa and countries neighbouring the EU. This has made it harder for them to access finance for investment, particularly for fragile states, which currently receive just 6% of the foreign direct investment that flows into developing countries.

Instability and conflict have also worsened the migration crisis, with more people than ever on the move in Africa and the EU Neighbourhood.

Scaling up investment from the private sector

The EU and its Member States are collectively the world’s biggest providers of development assistance, providing €76 billion in 2016 - almost 60% of the global total.

But development cooperation needs to evolve. The EU now seeks to ensure that the development grants it has traditionally provided are complemented by other sources of finance.

The External Investment Plan is one way to do this. It seeks to scale up investment by mobilising private resources, especially in fragile states. It builds on the successful model used within the EU - the so-called ‘Juncker Plan’. This has already triggered over €200 billion in new investment within the EU.

 

Goals

  • Secure more investment in countries which currently find it hard to attract financing
  • Encourage investment by private investors who would otherwise invest less or not at all
  • Target priority areas, in particular infrastructure and finance for small businesses
  • Support countries' reforms to make doing business easier (business environment)  
  • Promote sustainable development in the countries we work with
  • Address the root causes of irregular migration
  • Strengthen the EU's partnerships with countries in Africa and the EU Neighbourhood

Financing the EIP

The new EFSD is the financial part of the EU External Investment Plan. It's expected to attract further financing of at least €44 billion by 2020, in particular from the private sector.

It combines:

  • Blending - the EU's existing so-called 'blending' programmes (€2.6 billion budget), which mix loans and grants
  • Guarantee - a dedicated financial guarantee (€1.5 billion budget)

The guarantee can:

  • attract financing for some of the initial capital ('equity' or 'risk capital') a project needs to get off the ground
  • serve as a pledge (guarantee) to pay back part or all of a loan if a borrower incurs losses and defaults on it.

In this way the guarantee reduces the risks involved in investment projects and can absorb potential losses. For example, in renewable energy projects, it can help to alleviate short-term liquidity problems and this way encourage investors to get on board.

 

Focus areas

The EFSD guarantee has several priority areas. So far the EU has allocated funds to support 12 guarantee tools (programmes) across these areas:

Areas covered by 12 guarantee programmes

 

Progress so far

For the Guarantee:

  • The total budget is €1.5 billion.
  • Of this the EU has so far allocated €800 million to support 12 guarantee programmes.
  • This is expected to leverage €8-9 billion of public and private investment.

For blending:

  • The total budget is €2.6 billion.
  • Of this the EU has allocated €1.6 billion for blending programmes.
  • This will help to leverage up to €14 billion in public and private investment.

The EFSD 2017 Operational Report gives full details of blending programmes which the EFSD has financed so far. 
 

EIP Investments via EFSD