Guarantees and blending
In the past, we have mostly used direct grants to promote development in our partner countries. We now aim to bring in other sources of public and private finance to complement our own development funding, mainly through guarantees and blending.
With guarantees we share the risk associated with investing and lending in developing countries, so that private investors and development banks will finance entrepreneurs or development projects. That means in the unlikely event that a loss occurs, the EU will pay part of it.
Blending uses public money to cover part of the costs of a development project to get it off the ground, with public and private investors financing the rest.
EU External Investment Plan
The External Investment Plan (EIP) is a flagship EU initiative launched in 2017, that uses both blending and guarantees. It is designed to attract more investment, in particular from businesses and private investors, into countries neighbouring the EU (EU Neighbourhood) and in Africa. It is expected to leverage €47 billion of investment through an EU input of €4.6 billion.
The EIP does so by using public money to share the risk of investing in:
- small businesses
- renewable energy
- urban infrastructure
- access to digital services
Through the EIP, the EU seeks to:
- generate much more investment in countries in Africa and the EU Neighbourhood than would otherwise be possible - especially from private sources
- create jobs, raise living standards, and reach the UN Sustainable Development Goals
- target in particular vulnerable countries affected by conflict or political instability
- tackle many of the reasons people leave their countries of origin in these regions
- support countries’ reforms to make doing business easier and attract more investment
How it works
The EIP will bring on board private investors on business ideas that meet our partner countries’ social needs. It does so in three ways:
The new European Fund for Sustainable Development (EFSD) is the EIP’s financial part. €4.6 billion of EU public money should create new investments of up to €47 billion.
The EIP provides expertise (also referred to as technical assistance) to:
- develop new projects that attract potential investors
- enable local businesses to compete and grow more effectively
- support governments to enact reforms to attract investors and make doing business easier
Through the EIP, the EU is working with governments and businesses in our partner countries to help them make their countries more attractive places to invest and do business in.