Foreign and domestic investment relies heavily on the economic, financial and socio-political situation of a country, also known as the investment climate. A conducive investment climate is the backbone of inclusive and sustainable growth. Investment allows a country’s private sector to boost its development and competitiveness, which in turn creates jobs and deepens trade integration, in line with the Addis Ababa Agenda and the Sustainable Development Goals.
We have been providing support for investment in Africa, the neighbourhood, Asia and Latin America since 2007. We have also supported investment climate reforms in various ways, as part of our overall assistance by focusing on removing constraints to sustainable private investment in partner countries and supporting priority reforms, through a strengthened dialogue with the private sector.
In supporting investment, we follow the External Investment Plan (EIP), which was launched in 2017. The EIP is designed to attract much more investment than in the past in countries neighbouring the EU and in Africa. It offers 3 things:
We are using EU funds in two ways to bring in new investment:
- guarantees: we share the risk so that private investors and development banks will finance entrepreneurs or development projects.
- blending: we cover part of the costs of a development project to get it off the ground, with public and private investors financing the rest.
We also fund technical assistance from experts. They:
- help develop new projects
- enable local and EU firms to draft business plans
- support governments in enacting reforms to attract investors.
3. Investment climate support
We work closely with governments to help them improve the investment climate. This includes:
- the business environment, like how easy it is to start a business
- other factors, such as how stable a country is.
As the Communication on the new Africa-Europe Alliance sets out, our support to investment climate reforms should reach an average of €300-350 million per year in Africa for 2018-2020. This should further increase after 2020.
Improving the investment climate
To improve the investment climate under the EIP, focus is put on key investment drivers:
- macroeconomic stability
- political stability
- the business environment
- human development
- the natural environment, climate change and migration
Stable macroeconomic policies anchor economic actors’ expectations and help lower the risk of doing business by providing a more predictable environment for making investment decisions. Risk for investment is also reduced when the political environment is stable and transparent as investors must feel confident that investments are safe.
The business environment, made up of the legal, regulatory, policy and institutional frameworks for business activity, can drive investment based on factors such as simplicity. In a less direct way, human development as an investment driver is rooted in the idea that the quality of human capital is a key factor in improving productivity of labour force which can be considered as a decisive factor for inclusive growth.
Environment and climate change challenges must be integrated into investment climate interventions while favouring investments that address the root causes for regular and irregular migration. A conducive investment climate should support the integration of migrant communities, refugees and internally displaced persons into the economy.
We are supporting countries’ efforts in improving the investment climate in 3 ways:
We are working through the EU’s local offices in partner countries (delegations) to compile reports and data on the investment climate. These reports focus in particular on:
- investment opportunities
- government policies that can put off investors
- the main private sector associations and chambers of commerce and other business groups.
We are also helping to bring together governments and the local and European business communities on a regular basis. Working jointly, they discuss:
- the main issues that put off potential investors
- how to tackle them
- reforms that governments can pursue.
This is called structured public-private dialogue.
We’re also supporting governments to adopt reforms so they:
- buy goods and services in a fair way
- plan their spending effectively
- invest in high-quality infrastructure
- make it easier to start and run a business
- promote free and fair competition
- make it easier to export and import
- provide job-related training.