EIB and EBRD take aim at each other in pitch to EU decision-makers

BRUSSELS — The European Investment Bank and European Bank for Reconstruction and Development used their latest exchange with European Union countries to sharpen their pitches to lead the bloc’s investments in Africa — and were not afraid to throw an elbow their rival’s way in the process. As the EU works to decide which organization is best placed to take the helm as its key development bank, EU finance ministers sent in written questions to help inform the decision. The banks’ responses, submitted at the end of January and seen by Devex, seek to highlight their existing strengths and future potential for the job. “[The joint proposal] sidesteps the issue of areas of differentiated emphasis where both banks are active but with a differing emphasis and it completely glosses over any attempt to delineate a division of labor between the banks.” --— Mikaela Gavas, Center for Global Development For EBRD, EIB “does not have some key features of a development finance institution, such as, among others, market-based pricing, risk appetite, policy reform engagements, strong local presence, and the role that recipient countries play in its governance.” Whereas EIB wrote that it is “the EU’s global development bank with the mandate to operate in over 170 countries … including in [sub-Saharan Africa], LDCs and fragile states, while the EBRD is a regional development bank present in ~30 of these countries.” The problem of the pair’s sometime-rivalry was considered in the 2010 Camdessus’ report, before being resurrected by France and Germany in 2018. As a result, last October, nine development finance experts known as the Wise Persons Group proposed three options to streamline European development finance. One of those options — to create a new bank — was discarded as too complicated. That left EBRD and EIB in what one analyst called a “beauty contest” to win the prize of overseeing a more coordinated and visible development presence for the EU in Africa. The banks’ responses to the ministers’ questions will inform an independent feasibility study on the topic that was initially due by the fall — though it is now likely to be delayed by the coronavirus shutdown. EIB wrote that it intends to pursue plans to better link up with EU foreign office staff abroad, explore innovations such as results-based financing, and better coordinate communication efforts. It also set out other potential steps, such as lifting its staff numbers in lowest-income countries, and increasing investment in sub-Saharan Africa according to shareholders’ appetite for a capital increase. And EIB addressed what it called the “misconception” that it is risk-averse. “Wherever enabled to do so through a mandate or provided with additional capital, the EIB is very capable of taking increased risk,” the bank wrote, citing the work through its African, Caribbean, and Pacific Investment facility, where around 85% of investments are sub-investment grade. EBRD meanwhile used the exercise to address what EIB has argued are among its biggest potential shortcomings: its mixed-ownership by 71 shareholders, which includes many non-EU countries, and the fact that it is not yet active in sub-Saharan Africa. EBRD argued that many of its existing countries of operation in the Caucasus, Middle East, and North Africa “have some characteristics of fragility.” It said it could add value in the “already robust development finance landscape” in sub-Saharan Africa by bringing much needed expertise in the development of capital markets and SME finance, as well as new operational approaches to stimulating the private sector — all with “a strong local presence on the ground (something others are now also trying to implement).” Amidst the fisticuffs, the banks also sent EU states a joint non-paper to “showcase the existing cooperation” in countries where they already operate together. “The two banks admit to certain shortcomings when it comes to reporting / informing the respective junior partner and pledge betterment in this area,” Benedikt Erforth, a researcher at the German Development Institute, explained of the non-paper. But there is “no mention of Africa whatsoever,” he added. “The joint proposal focuses mainly on information sharing, co-financing on transition, on energy and connectivity, and regional platforms of cooperation,” said Mikaela Gavas from the Center for Global Development. “However, it sidesteps the issue of areas of differentiated emphasis where both banks are active but with a differing emphasis and it completely glosses over any attempt to delineate a division of labor between the banks.” For now, EU member states in the Council of the EU have asked EIB and EBRD not to take any steps that would prejudge member states’ decision on which bank should take a larger role. Suma Chakrabarti, the outgoing EBRD president, told attendees at a cocktail evening in Brussels on Feb. 20 that, provided its shareholders agree, he was still hopeful of winning approval for a “limited and incremental” expansion into sub-Saharan Africa at the bank’s annual meeting in May. The challenge for EIB is to find the balance between following member states’ wishes not to create any fait accompli while also reacting to the bruising criticism in the Wise Persons report, strongly refuted by EIB, that its current model lacks EBRD’s development impact. EIB President Werner Hoyer told Devex last month in Dakar that his red line is any “real change of the business model.” “But if all of a sudden we come to the conclusion that we should open a new office somewhere where it is needed, it goes without saying that we will do it,” Hoyer said. “This is not in contradiction to the council conclusions.”