Marjeta Jager, Deputy Director- General for the European Union’s Directorate-General for International Partnerships.
What is the added value brought by the EU’s support to development cooperation projects through blended finance instruments?
Particularly in this COVID period, the EU’s partner countries need to access finance from many sources. EU blending links development cooperation both to public and private sources of investment and to investment opportunities in partner countries. It channels additional finance to sectors of the economy that are important for achieving our partner countries’ priorities and for the EU’s own policy goals. Blending helps partner countries to access finance to boost public services and infrastructure; gives investors access to new markets where they would not previously have invested; and scales up the impact of EU development cooperation.
Blending is a flexible tool. Through blending, the EU uses its development cooperation at different times to boost investment volumes, subsidise interest rates for borrowers, provide risk capital and financial guarantees, support the quality of partner countries’ investment projects and improve the investment climate.
“A good example is the Huruma Fund, the first project managed by COFIDES under the EU blending facility. By underwriting private sector risk, the fund works across the world to support farmers, small producer organisations and businesses”
And blending works. Since EU operations started in 2007, EU grants of over EUR 8 billion have leveraged around EUR 70 billion in loans from financial institutions and regional development banks in support of poverty reduction and sustainable growth. These loans in turn have led to total investment of more than EUR 115 billion.
A good example is the Huruma Fund, the first project managed by COFIDES under the EU blending facility. By underwriting private sector risk, the fund works across the world to support farmers, small producer organisations and businesses, who have historically found it hard to access finance, to fund improvements to improve quality and productivity and to move up the agricultural value chain.
What opportunities can it create in the private sector, both at European and local level?
EU blending can increase opportunities for the European private sector at different levels in a number of important ways. It helps to link investment opportunities in partner countries with potential public and private sources of investment. It helps to develop high quality project pipelines that can be readily appraised by potential investors. It reduces investment risk through risk capital and financial guarantees. It also promotes contact and dialogue between investors and partner countries. For instance, the EU supports Public-Private Dialogue with European and African businesses to help improve the investment climate, by promoting government reforms to attract more investment. EU blending also provides partner countries’ private sector –including small businesses and start-ups– with access to finance. It facilitates access to quality education and skills; promotes decent work, and scales up innovative finance. All of this can have knock-on benefits for European businesses.
In the current COVID-19 pandemic, the EU’s is prioritising investment through blended finance to help countries across the world to “build back better”. This includes promoting the green transition and the digital transformation, which are core priorities for the EU’s development policy. In Africa in particular, the EU supports greater economic integration and trade promotion within regions and across the continent, through our Economic Partnership Agreements and through support for the African Continental Free Trade Area. We strongly welcome European private sector engagement in all of these areas.
The pandemic is affecting the economies of practically all the countries in the world. What measures is the European Union taking to prevent the widening of the inequalities which already exist between countries? What strategy has it developed in this respect and how is it managing the task of coordinating all its Member States in this area?
Reducing inequalities is primarily a goal, not a single measure that can be easily implemented or recommended. The structural gaps of our societies –be it skills mismatches, poor access to quality education, health and social services, or lack of job opportunities– all contribute to this multifaceted challenge, further exacerbated by COVID-19. The pandemic has nonetheless reiterated the importance of human development, because the resilience of societies to this virus is strongly linked to the capacity of their health and education systems and to social protection coverage.
The EU is therefore adopting a multi-dimensional approach to reducing inequalities, prioritising its support to partner countries to target inequality drivers and dynamics across multiple policy areas. We are promoting policies to foster sustainable, inclusive, green and just recovery from the pandemic, including progressive fiscal policies, labour market regulations, but also increasing investment in education at all levels
Under the Neighbourhood, Development and International Cooperation Instrument (NDICI) – ‘Global Europe’ for the next Multiannual Financial Framework period (2021-2027), to reach this objective, out of an overall budget of EUR 79.5 billion, we are striving for at least 20% of the overall funding to go to human development and for an increase in funding for education from 7% to 10%.
“Europe’s recovery strategy -NextGenerationEUtestifies a new spirit of solidarity among EU Member States, which committed to this unprecedented recovery plan to let our societies emerge even stronger from the crisis”
The EU, to reinforce its impact, is also mainstreaming the reduction of inequalities across its operations and intervention areas, and we are working to integrate systematically in all our programmes the analysis of the level of income inequality in our partner countries. We also need to reorient policy dialogue with partner countries by raising inequality issues, and prioritising interventions in policy areas can lead to a reduction in equalities (e.g. education, health, social protection). To further reinforce our commitment to evidence-based policy making, partner countries will be supported strengthen data collection to increase knowledge on inequality.
The pandemic is once again showing that we are more effective if we tackle grand challenges together. Among the many extraordinary measures taken at EU level, the launch of Europe’s recovery strategy – NextGenerationEU – testifies a new spirit of solidarity among EU Member States, which committed to this unprecedented recovery plan to let our societies emerge even stronger from the crisis.
Team Europe Initiatives are under development by EU Delegations around the world in close collaboration with EU Member States with this collective approach in mind, including initiatives directly and indirectly targeting inequalities related to human development and beyond.
What mechanisms does the External Investment Plan provide in order to enhance the European Union’s development cooperation and increase its impact in partner countries, especially in the private sector?
The EIP promotes private investment in the EU’s partner countries in three ways. First, funding. The current European Fund for Sustainable Development (EFSD) provides guarantees and blended finance for specific investment projects, through financial institutions such as COFIDES. From 2017 to 2020 we contributed EUR 5.4 billion to over 180 blending projects and 15 guarantees in Sub-Saharan Africa and the EU Neighbourhood region. Second, investment climate. We work with governments and private sector to improve the way to do business in our partner countries. Third, expertise. We deploy experts to design investment projects, and to support investment climate reforms. Strong coordination is essential to the success of EFSD between EU Delegations, Government, the business community and partner financial institutions such as COFIDES.
What is the new strategy that has been outlined for the period 2021-2027?
Based on the success of the European Fund for Sustainable Development (EFSD), the EU has decided to increase substantially its financial capacity as part of its new financial instrument for external cooperation for the period 2021-2027, under the name “Global Europe”. As a major part of the instrument, a new European Fund for Sustainable Development+ (EFSD+) is proposed which would cover all EU partner countries –not just Sub-Saharan Africa and the EU Neighbourhood as the original EFSD did–. The EFSD+ will use different types of implementing modalities according to need, including blending and budgetary guarantees, supported by technical assistance. It would include an External Action Guarantee, with an increased volume of up to EUR 60 billion. The guarantees channelled through the EFSD+ will now cover the full spectrum from private sector to sovereign operations, including commercial and non-commercial sub-sovereign operations.
“The EFSD+ gives the EU a comprehensive, global financial mechanism to support partner countries in building a green, digital, just and resilient recovery from the pandemic, in support of the SDGs and the Paris Climate Change Agreement”
The EFSD+ gives the EU a comprehensive, global financial mechanism to support partner countries in building a green, digital, just and resilient recovery from the pandemic, in support of the Sustainable Development Goals and the Paris Climate Change Agreement.
Climate change is one of the biggest issues we face and one which the EU and its Member States are fully committed to tackling. What strategy and measures are the EU developing in order to facilitate the transition to a low-carbon economy in our partner countries also?
The EU is the strongest advocate of global climate action and remains strongly committed to achieve the Paris Agreement’s objectives. True to this commitment, the EU and its Member States are the largest global provider of public climate finance to developing countries, having committed around EUR 22 billion in 2019 and having more than doubled their contribution since 2013.
The EU’s future external action for the period 2021-2027 offers a unique opportunity to further boost our engagement with partner countries to make collective progress towards climate neutrality. NDICI, with its 30% climate-related spending target, will provide the resources and our work will be organised along four main strands of action.
The first will be the full integration of climate considerations into partner countries’ policies, strategies, projects and investments that are financed through EU money. The second will be to assist our partners with the implementation of their commitments under the Paris Agreement on climate change. The third will be dedicated to enhancing partners’ capacities to adapt to climate change and manage disaster-related risks. This will imply supporting them in preparing national disaster risk reduction strategies; improving data analysis, collection and management; and mobilising the corresponding investments. Lastly, we intend to promote economic policies that are climate-friendly. Work under this heading will address environmentally harmful subsidies, the design of economic incentives for climate action, and the mobilisation of private capitals.
Given that Africa appears to be one of the top priorities and that the EU intends to remain a global player, what importance does it give to other regions of external cooperation, such as Latin America, considering the fact that this region is suffering particularly badly from the effects of the pandemic?
For some time now, factors such as globalisation and digitalisation, among others, have been turning the world into a global village, where we are all interconnected and affected by the same challenges. Therefore, in order to face these challenges more efficiently, we have to be united: global problems, global answers. This is why the EU, as a global player, is showing its thoughtful commitment with multilateralism, not only in theory but also and above all, in practice.
The EU is committed to continue working with all partner countries, without discriminating against any of them, as they are all important and key to us in this global scenario. Such it is the case of Latin America, a region with which we enjoy a close and fruitful relationship, which have been strengthened due to the need to join more efforts to recover from the COVID-19 pandemic.
It is worth noting that the EU is the largest donor to the World Health Organisation’s (WHO) COVAX initiative, which seeks to ensure global access to the COVID-19 vaccine for those countries that cannot afford it. Four Latin American countries have already received COVID-19 vaccines through COVAX and this list will grow in the coming weeks and months. This demonstrates the EU’s strong and sincere commitment to multilateralism and to our partner countries with facts and not just words.
Unfortunately, Latin America and the Caribbean are facing the worst recession on record and the pandemic only aggravates pre-existing structural challenges such as social inequalities, informal employment or insecurity. The EU recognises these enormous constraints our partner countries face to recover from the ongoing crisis and for that reason we will continue supporting Latin America and the Caribbean in its effort to “build back better”, advancing in its green transition, digital transformation and sustainable economic recovery.
“Team Europe has has already mobilised millions of euros through various funds to finance the global recovery and achieve an even greater impact in the Latin America and the Caribbean region”
Some of our shared objectives are related with climate, such as the protection of the Amazon tropical forest, advancing the Agenda 2030 and the Paris Agreement and promoting climate and economic resilience in particularly vulnerable island states in the Caribbean. Other ones are linked to democracy and economy, such as committing to democratic, open and inclusive societies and transitioning to a sustainable and diversified economy that supports jobs and growth through targeted support, like harnessing the potential of SMEs.
To push forward this ambitious multilateral agenda, the EU counts on the support of different European actors, such as Member States, the European Investment Bank and European Development Financing Institutions, including COFIDES. All these stakeholders are joining forces and promoting partnerships and initiatives, like the well-known “Team Europe”, which has already mobilised millions of euros through various funds to finance the global recovery and achieve an even greater impact in the Latin America and the Caribbean region.
*This publication is part of the COFIDES' 2020 Activity and Sustainability Report.
