EIB chief says Europe falling short on development finance

BRUSSELS — The European Union and its member states may be the world’s largest donor, but European Investment Bank President Werner Hoyer says the continent’s contribution to global development remains “under par.”

“We stand ready to help establish an EU development finance architecture that is fit for purpose,” Hoyer told reporters in Brussels, Belgium, Tuesday. “One that helps Europe to finally start to punch above, or at least in line, with its weight as the largest global provider of development assistance. Presently, we are fighting under par as Europeans.”

Hoyer was announcing EIB’s 2018 results, which included €8.1 billion ($9.25 billion) in financing outside the EU, or about 12.5 percent of its total financing, up from around 10 percent in the preceding two years. Of that amount, there was €1.6 billion for sub-Saharan Africa and a record €3.2 billion of new financing across the African continent. Hoyer also flagged plans to issue more sustainability bonds this year on issues such as health care and education, inspired by a first offering last year for water supply, flood protection, and sanitation.

“We stand ready to do more,” Hoyer said. “We stand ready to help bundle EU resources and increase EU visibility outside the EU.”  

How to do that, however, is the subject of a feud between EIB and the European Commission, with both seeking to coordinate European development finance actors under the EU’s 2021-2027 budget and beyond. The EC wants to chair a new platform of all European development finance institutions benefiting from EU budget guarantees to de-risk investments in developing countries. Meanwhile, Hoyer told the European Parliament’s development committee earlier this month that EIB is ready to “facilitate and coordinate EU external investment for our policymakers” through a potential development subsidiary of EIB.

That “ongoing reflection” is due to “many inefficiencies today within Europe’s development financing architecture” and “growing demand for greater coordination, new financial instruments, and innovative banking solutions,” Hoyer told lawmakers.

A stronger European development effort is all the more necessary, Hoyer added, given “tectonic” geopolitical changes, including China’s growing role in Africa and the “new U.S. development bank, with unclear consequences for the multilateral institutions where the United States of America is a member, like the World Bank and EBRD [European Bank for Reconstruction and Development].”

The EC is wary of giving EIB too much control through a subsidiary, however, and says it needs to exert more of a policy steer to ensure investment goes where it is most needed, including least-developed countries. The African countries that benefited most from EIB financing in 2018 were: Egypt (with just over €1 billion), Morocco (almost €444 million), Guinea (€130 million), Zambia (€120 million), and Madagascar (€114.7 million).

EIB insists it is working in the most difficult places. Maria Shaw-Barragan, director of EIB’s Global Partners section, told parliament’s development committee about the bank’s work on bringing mobile phone coverage to remote areas in Central African Republic. “There are a lot of myths about EIB — that we only do big infrastructure, that we are only in safe environments. It is not true,” she said. “We can do impact finance, high-risk, high-developmental, and that is what we are doing.”

“The reality is that today in [the EC’s proposal] there is no position for EIB,” Shaw-Barragan told members of the European Parliament. EIB is seeking “a baseline: some mandates where EIB can count in a predictable manner on a certain amount of activity to maintain the teams and maintain the offices that we have on the ground,” she said.

In response to Hoyer’s comments, EU development commissioner Neven Mimica told Devex that the EU and its member states provide over half of global official development assistance and defended the EC’s plans for the next budget.

“We proposed a package of up to €60 billion in development finance instruments and guarantees,” Mimica said. “While we are awaiting the positions of the European Parliament and the council on the proposal, we are in discussion with the EIB and our other financial partners to reflect how to best operationalize the strengthened instrument in the future."

The parliament’s development and foreign affairs committees will vote for their position on the EC’s proposed development instrument on March 4. This will then be taken into negotiations with member states in the council, facilitated by the EC, later in the year.

Charged by frustrated EU member states with finding a common position before negotiations intensify, the EC and EIB have been meeting bilaterally, so far without success. EIB told a meeting with the EC, member states, and development finance institutions last week that one of its key principles was maximizing the different EU institutions’ comparative advantages, using EIB’s skills on risk management and banking services.

Hoyer told reporters Tuesday that when it comes to trying to mobilize private finance to help meet the Sustainable Development Goals, “we need to speak the language of those whose money we are trying to raise.”