EU proposes new investment plan, including Africa

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New Era Newspaper Namibia
Official Logo for New Era Newspaper 2016 version

Windhoek

The European Commission (EC) on Wednesday proposed an ambitious External Investment Plan to support investment in partner countries, specifically in Africa and other European countries.

The plan aims to strengthen the EC’s partnership and promote a new model of participation of the private sector to contribute to achieving the Sustainable Development Goals (SDGs). The plan aims to further boost investment to support jobs and sustainable growth, both in Europe and globally.

“Europe must invest strongly in its youth, in its jobseekers, in its start-ups. The €315 billion Investment Plan for Europe has already raised €116 billion in investments in its first year of operation and now we’re going to take it global,” said EC President Jean-Claude Juncker during his recent State of the Union 2016 address.

The new European External Investment Plan (EIP) will allow for the boosting of investments in Africa and European countries, in particular to support social and economic infrastructure and SMEs by addressing obstacles to private investment.

With an input of €3.35 billion (about N$53 billion) from the EU budget and the European Development Fund, the EIP will support innovative guarantees and similar instruments in support of private investment, enabling the EIP to mobilise up to €44 billion (about N$704 billion) of investments.

If member states and other partners match the EU’s contribution, the total amount could reach €88 billion (about N$1.4 trillion). By unlocking investments in partner countries, the EIP also hopes to contribute to implementing the Addis Agenda on Financing for Development.

The vice-president of the EC, Federica Mogherini, said: “If we look at the Middle East and Africa, we see regions with a huge potential that is being held back by war, poverty, the lack of infrastructure, and weak governance. Our European Union is already the first donor worldwide. We invest more in development cooperation than the rest of the world combined.

“But we also know that public resources cannot be sufficient if we want to tap this huge potential and achieve the sustainable development goals. “European firms are already creating jobs and growth in our entire neighbourhood and in Africa, for the benefit of our partners and of the European citizens.

“While creating the conditions for Europeans to expand their business and move into new countries, the new External Investment Plan will support our partners’ economies and societies, as well as our strategic foreign policy goals, from security to global development.”

The EIP consists of three planks: mobilising investment by combining existing investment facilities with a new guarantee within the new European Fund for Sustainable Development; stepping up technical assistance for broader policy environment to support public authorities and companies in partner countries; and improving the general business environment by fostering good governance, fighting corruption and removing barriers to investment and market distortions.

The European Investment Bank’s (EIB) lending operations form an integral part of the EIP.  For this purpose, the EC will expand the EU budget guarantee under the EIB External Lending Mandate by a total of €5.3 billion (about N$84.8 billion). In total the EIB will thus lend up to €32.3 billion (about N$516 billion) under the EU guarantee between 2014 and 2020.

The funding that the EU will be providing under the EIP is not traditional grant aid, but in essence a blending mechanism, that has the intention to use limited EU money to mobilise additional support for instance in the form of loans, from financial institutions and the private sector to strengthen the development impact of investment projects.

As for removing barriers to investment, the EC has already tabled initiatives to help support investment and facilitate the financing of the real economy, such as lowering capital charges for insurance and reinsurance companies as regards infrastructure investments.
In addition, the energy union, the capital markets union, the single market and the digital single market strategies, as well as the circular economy package all contain specific measures that will remove barriers, promote innovation and further improve the environment for investment, if fully implemented.

Moreover, member states must continue to implement the necessary reforms to remove obstacles to investment identified in the context of the European Semester in areas such insolvency, public procurement, judicial systems and the efficiency of public administration or sector-specific regulations.

Investment is also a key factor in transforming development policy and assistance in order to better support achieving the SDGs and address the multiple challenges in both the EU’s neighbourhood and Africa. Smart and sustainable investment can play an essential role in boosting jobs and growth in developing countries, bringing in more stability and improving conditions on the ground in fragile countries affected by conflict.

Some of the main challenges for developing countries remain achieving inclusive and sustainable growth and employment. As regards foreign direct investment (FDI) going to developing countries, only 6 percent goes to fragile countries, pushing down the investment per capita to a level almost five times lower than in other developing countries.

Similarly, the cost to start a business is almost three times higher in fragile countries than in non-fragile countries. Growth in Africa has slowed to the weakest levels since 2009, notwithstanding continued demographic growth. Combined with significant security issues, this trend exacerbates poverty.

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