Africa in frame as EIB, EU sign deal to mobilise €4bn to support businesses

BY PHILLIP ISAKPA

Caribbean, Pacific countries also to benefit
Falls under EU’s Global Gateway strategy
To boost private sector investments

Africa is in the frame to benefit from a push by the European Investment Bank (EIB) and the European Union (EU) to mobilise €4 billion that will be used to support businesses on the continent, as well as in Caribbean and Pacific countries over five years to 2027.

The EIB and the EU have signed a series of agreements to begin the fund mobilisation and they include an aspect called Guaranteed Agreement that allows tapping into an established EU fund and getting to speed on the objective of the agreements.

The €4 billion, made up of €3.5 billion in loanable funds and €500 million in Trust Fund contribution, will be targeting public and private investments in key areas like digitalisation, climate and energy, transport, health in partner countries of the EIB and the EU.

The agreement and the drive to mobilise the money is described as marking an important step in rolling out an initiative of the European Union known as Global Gateway strategy. It is a worldwide strategy aimed at achieving development impact and by the agreement, the EIB said in a statement made available to Business A.M., that it would enable it to enhance investments in the key areas outlined.

The agreement between the EIB and the EU is of two parts, according to an explanatory joint statement sent by the EIB to Business A.M. The first is the Guarantee Agreement which comes under the European Fund for Sustainable Development Plus (EFSD+) which was established by NDICI – Global Europe.

This fund will enable the EIB to provide up to €3.5 billion loans on favourable terms to create jobs and opportunities, particularly for women and youth, and support green and digital transitions in EU partner countries, in line with the Global Gateway strategy.

According to the EIB, the recent agreement signed at the EU-Tanzania Business Forum represents a pertinent example of “how the resources will be used,” where credit lines backed by the guarantee will unlock €270 million for three Tanzanian local banks who will finance projects benefiting especially women and advancing the blue economy.

Also, the Green African Agricultural Value Chain Facility which provides financing to intermediaries across sub-Saharan Africa for on-lending to eligible small and medium-sized enterprises (SMEs) active in agri-food value chains, adding that the average size of credit lines extended to local banks range from approximately €10 million to €25 million.

Some €500 million will be mobilised from the EU’s contribution to the ACP Trust Fund, which was established and is managed by the EIB to enable high impact operations that otherwise would not be possible.

“It will support, for example, small renewable energy power plants in areas with no grid connection. These will enable autonomous electricity supply, improve people’s livelihoods, and decrease dependency from fossil fuels and rising energy prices,” the EIB said in the statement sent to Business A.M.

The EU Global Gateway initiative is already running but this new agreement is said to be an addition to the €26.7 billion Guarantee Agreement for public lending signed in May last year between the EU and the EIB.

The EIB stated that new public investments rolling out Global Gateway are already underway, adding that this includes an EU-covered EIB loan on urban mobility for Senegal, signed separately at the EIB Forum as part of the Team Europe Initiative on Green Economy in Senegal, which seeks to support sustainable and digital cities, as well as strengthen and modernise public transport in Dakar.

The investment bank noted that the Senegal action illustrates European investments in the Dakar-Abidjan strategic corridor with the aim of consolidating economic exchanges in the region, strengthening regional integration and boosting sustainable growth.

Jutta Urpilainen, commissioner for international partnerships at the European Union, said sustainable development in African, Caribbean and Pacific countries hinges a lot on mobilising the private sector.

“With Global Gateway, the EU wants to facilitate local value addition, sustainable growth and job creation, especially for youth. [This] agreement is another milestone in advancing this strategic priority. The resources unlocked by the guarantee and Trust Fund contribution will benefit emerging businesses in key sectors, while enhancing partner countries’ resilience. The EU will continue to rely on the European Investment Bank as [a] key partner in successful implementation and impact on the ground,” Urpilainen said.

Werner Hoyer, president, European Investment Bank, spoke of how the agreement will aid the bank to fully support the Global Gateway initiative.

“The agreement signed today will enable the European Investment Bank to fully contribute to the Global Gateway strategy. The EU guarantee will allow us to scale-up our support for national priorities in Africa, Caribbean and the Pacific regions, in full collaboration with our partners from Team Europe and the African Union. Backing the private sector is key to foster a green and inclusive growth in ACP countries and globally. As public institutions, we need to go the extra mile to make our value proposition attractive for private investors and drive investment in climate, energy, health, food security, digital solutions that will create impact and ultimately boost prosperity,” Hoyer said.

The EU and EIB investment programmes are pursued through two main paths, notes the EIB in an explanatory note.

According to the investment bank, the first path involves a partnership with the EIB, through which the EU is providing a €26.7 billion guarantee for financing to support investments in sectors such as clean energy, green infrastructure and health. “The guarantee will have a maximum impact on Global Gateway investments in partner countries where sovereign and other public sector risks are still a major bottleneck,” it stated.

The second path falls under the EFSD+ open architecture where the EU is providing an up to €13 billion guarantee cover until 2027, adding that this will be deployed by a range of implementing partners, including international financial institutions (also the EIB) and European development finance institutions aiming to mobilise private investments in support of EU partner countries achieving the SDGs.

“In December 2022, the Operational Board of the EFSD+ gave a positive opinion to €6.05 billion in financial guarantees to support 40 investment programmes in Sub-Saharan Africa, Latin American and Asia Pacific, which is the first allocation under EFSD+ Open Architecture programme,” a joint statement by the EIB and EU explained.