ANNEX to the Commission Decision of XXX on the individual measure for a contribution to
the EFSD Guarantee Fund to be financed from the 11th European Development Fund
1
SUMMARY
On 7 June 2016 the Commission issued a Communication on establishing a new Partnership
Framework with third countries under the European Agenda on Migration1. In the context of a new
framework, the Commission proposed a variety of measures to address the most urgent needs of
refugees as well as to support host communities and emphasised the need for a long-term strategy in
respect of addressing root causes of migration.
As a response to the invitation of the European Council of 28 June 20162, the Commission shall set
up an ambitious External Investment Plan (EIP) to support investments starting in regions of Africa
and the Neighbourhood, as a means to promote the goals of the United Nations 2030 Agenda for
Sustainable Development thus allowing tackling root causes of migration by promoting the
economic and social development of partner countries, including through the mobilisation of private
sector resources.
It also incorporates the EU commitment under the Addis Ababa Action Agenda on Financing for
Development as well as the commitments under the recently revised European Neighbourhood
Policy. It will also give the EU and its Member States the opportunity to deliver on the commitment
to leave no one behind within and outside Europe.
The External Investment Plan will be based on three pillars. A new investment fund (Pillar I);
technical assistance (Pillar II) combined with structured political dialogue targeted at improving the
investment climate; and overall policy environment in the countries concerned (Pillar III).
Implementing the first pillar of the EIP would enable using scarce public resources in an innovative
way to mobilise notably private investment offering additional guarantees and concessional funds
and providing an integrated financial package to finance investments in regions outside the EU,
thereby creating growth and employment opportunities, maximising additionality, delivering
innovative products and crowding-in private sector funds.
At the heart of the first pillar of the External Investment Plan lies the creation of a new European
Fund for Sustainable Development (EFSD), which will consist of external blending facilities with
refocused policy priorities (Regional Investment Platforms for Africa and for the EU
Neighbourhood) and a new Guarantee which will allow for the delivery of a range of innovative
instruments to crowd-in the private sector such as guarantees covering specific risks in investment
projects.
One of the main components of the EFSD will be based on the creation of an EU Guarantee to
leverage additional financing, in particular from the private sector, by addressing the key factors
that enable crowding-in private investment. The key objectives of the EU Guarantee will be to
contribute to the achievement of sustainable development goals thus addressing some of the root
causes of irregular migration and forced displacement by contributing to the economic and social
1
2
COM(2016) 385 final
EUCO 26/16, point 4
1
development of partner countries, with a focus on: sustainability and job creation (in particular
youth and women), target socio-economic sectors (infrastructure including transport, energy, water,
ICT, environment, social infrastructure including health and education, human capital, etc.) and
finance in favour of micro, small and medium-sized enterprises. Particular focus will be kept on
private sector development. These will support social and economic development in African
countries, including through the mobilisation of private sector resources.
A Guarantee Fund (EFSD Guarantee Fund) shall be established which shall constitute a liquidity
cushion to absorb potential losses incurred by eligible counterparts .The contribution from the 11th
European Development Fund to the EFSD Guarantee Fund is set at EUR 400 million.
This contribution is conditional to the adoption of the Regulation of the European Parliament and of
the Council on the EFSD.
The EU Guarantee coverage should be extended to innovative instruments aimed at addressing
bottlenecks to private investment, such as SME loan guarantees or guarantees covering specific
risks in infrastructure projects.
2
2.1
CONTEXT
Country/Regional context
Sub-Saharan Africa (SSA) is marked by strong growth rates in the last decade. Africa’s growth
proved to be resilient to a number of negative external shocks, including the 2008-2009 global
financial crises.3 According to the International Monetary Fund (IMF) and World Bank, growth has
been stronger in SSA than in the OECD-area. While GDP climbed 10% and 20% in the Euro-area
and the US respectively, GDP nearly doubled in SSA. Apart from a few countries like Kenya and
South Africa, countries in SSA are not well integrated with international financial markets. As a
consequence, the credit crisis was not severe in terms of growth effects for the countries of SSA.4
However, economic activity in sub-Saharan Africa in 2015 slumped to its lowest level in some 15
years. Output expanded by 3.4%, just a little above population growth, down from 5% in 2014 and
the still higher growth rates that were customary in recent years. The main reason for the slowdown
is the sharp decline in commodity prices, which has placed a number of the region’s larger countries
under severe strain, with a pronounced impact on the region wide aggregate. IMF projects growth is
still lower at 3% as many countries grapple with the more difficult external environment. Beyond
that, drought (particularly in eastern and southern Africa) is set to be an added source of economic
difficulties for several countries5.
Public financial management (PFM) is critical to ensuring an enabling business environment in the
region and will lead to increased private sector investments in sectors beyond the extractive sectors,
which are receiving the bulk of the attention today. Reforms in PFM (including revenue
management in resource-rich countries) are also particularly important for fragile states, as they
build the legitimacy of the state by increasing transparency, accountability, and efficiency. This will
allow them to mobilise revenue to support the delivery of public goods and services as well as to
foster robust state-society relations.6 Furthermore, poor governance across the region inhibits
3
World Bank, Africa Region (2013a): Africa’s Macroeconomic Story
Norfund/MENON Business Economics (2010): SMEs and Growth in Sub-Saharan Africa
5
IMF (2016): Regional Economic Outlook. Sub-Saharan Africa
6
IMF (2014b): see footnote 20
4
2
increased investment as well as the success of loan-driven programmes, such as blending.
Governance is especially problematic in resource-driven economies and fragile states. Reforms
aimed at improving governance and accountability will be important factors in sustaining Africa’s
current growth patterns, including improving the legal and fiscal capacity within counties (i.e.
taxation, checks and balances, delivery of services, and public investment).7
Increased public and private investment in the region is a key factor in sustaining the region’s
strong growth. Evidence from a number of key stakeholders points to strong potential for expansion
in productivity-enhancing investment in SSA.
Infrastructure investment and development remains critical to sustaining Africa’s strong growth
pattern, through economic diversification and structural transformation.8 Power and transport
infrastructure development will support the African economies diversification away from the
extractive sectors and towards growth in productive and service sectors. The result of this
diversification will be widening the industrial base in a number of countries and creating more
inclusive patterns of growth in the region.
Despite impressive growth across the majority of the region, income inequality and poverty remain
stagnant and problematic across SSA. Growth in labour intensive sectors, such as agriculture and
manufacturing, are most often connected to poverty reduction and not growth in capital intensive
sectors, such as mineral exploitation, which is the major source of SSA’s growth. Furthermore,
about a billion people live in fragile states, a third of them in Africa.
2.1.1 Public Policy Assessment and EU Policy Framework
EU development cooperation policy with Africa is based on Article 208 TFEU with poverty
eradication as its primary objective. It also refers to the need to abide to the commitments taken
within the UN Agenda 2030 and COP21, as well as the EU commitment under the Addis Ababa
Action Agenda on Financing for Development.
Relations with Sub-Saharan countries are framed by the Partnership Agreement with the African9,
Caribbean and Pacific States (the so-called Cotonou Agreement). The Agreement is based on three
pillars:
(1) Political dimension
(2) Economic and trade cooperation
(3) Development cooperation.
Poverty eradication, sustainable development and the gradual integration of ACP countries in the
global economy are the priorities. The Cotonou Agreement covers both political dialogue and
financial cooperation at the national, regional and intra-ACP level.
The EU-Africa Strategic Partnership is defined through the Joint Africa-EU Strategy (JAES). The
Joint Africa-EU Strategy (JAES)10 is the overall political framework, which defines continent-tocontinent relations based on a shared vision and common principles. JAES remains the strategic
political reference for EU-Africa relations for the years to come. The strategy implementation is
7
Ibid
IMF (2014b): see footnote 20
9
48 sub-Saharan countries belong to the EU’s comprehensive the Cotonou Agreement.
10
http://www.africa-eu-partnership.org/key-documents.
8
3
guided by the Roadmap 2014-201711, which defines key priorities as well as areas for joint actions
and provides necessary orientations for their implementation. The implementation of the Strategy
2014-2017 focuses on the following joint priority areas:
(1) Peace and security.
(2) Democracy, good governance and human rights.
(3) Human development.
(4) Sustainable and inclusive development and growth and continental integration.
(5) Global and emerging issues.
Moreover, the Commission issued in May 2014 a Communication on the Stronger Role of the
Private Sector in Achieving Inclusive and Sustainable Growth in Developing Countries12. The
Communication sets out the future direction of EU policy and support for private sector
development in partner countries. In line with the 'Agenda for Change13', it introduces private sector
engagement as a new dimension in EU development policy and cooperation and proposes concrete
actions in areas where the Commission believes it can add value and effectively complement
actions by Member States and other development partners, including through the use of blending.
Following the Commission Communication, the Council issued two sets of conclusions calling for
continued efforts to promote the active role of the private sector as a strategic and accountable
partner in achieving development objectives. The Commission has also issued communications
preparing for the new sustainable development agenda14 and for climate action before and after
2020.
The Third UN Financing for Development Conference in Addis Ababa in July 2015 agreed a
comprehensive Means of Implementation package for the 2030 Agenda. The Addis Ababa Action
Agenda (AAAA) helps establish a new sustainable development paradigm, with good governance at
the core and an emphasis on responsibilities for all, the primacy of domestic action, the importance
of good policies, the role of the private sector and a commitment to policy coherence. The EU
played a leading role in shaping this agenda and in helping to maintain a high level of ambition.
The ACP-EU Council of Ministers adopted in June 2014 a Declaration on the Post-2015
Development Agenda15, reaffirming the shared commitment to work together towards achieving
poverty eradication and sustainable development, as outlined in the Cotonou Agreement.
The Valletta Action Plan as agreed by EU and African leaders attending the Summit on migration
agreed on 11-12 November 201516 and the Strategy Orientation Document for the "EU Emergency
Trust Fund for stability and addressing root causes of irregular migration and displaced persons in
Africa" (EU TF17) which provide a framework and guidance for establishing where and how the
blending facilities, could contribute to fighting the roots causes for economic migration.
11
12
13
14
The roadmap was adopted during the 4th EU-Africa Summit in April 2014.
http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:52014DC0263&from=EN; (COM(2014) 263 final)
COM(2011)637 final
COM(2015) 44 final
15
Declaration on the Post-2015 Development Agenda. June 2014. ACP-EU Council of Ministers.
16
http://www.consilium.europa.eu/en/press/press-releases/2015/11/12-valletta-final-docs/
17
C(2015) 7293 final
4
The Communication of the Commission establishing a new Partnership Framework with third
countries under the European Agenda on Migration18 sets out the need to support investments in
regions outside the EU as a means to contributing to the achievement of sustainable development
goals and thus tackling some of the root causes of migration. It provides for a specific, coherent
overall framework to promote investment, leveraging funds from the EU, its Member States, and
other donors and financing from public Financing Institutions and the private sector.
2.1.2 Stakeholder analysis
The actions financed through the EDF contribution will benefit the population in the partner
countries. Other important benefits will flow to the private sector stakeholders and in particular
households and SMEs for categories of operations dedicated to job creation and private sector
development.
The eligible counterparts will be selected under [Regulation of the European Parliament and of the
Council (EU) No on the EFSD].
2.1.3 Priority areas for support/problem analysis
A competitive local private sector and an enabling business environment are vital to achieving
sustainable and inclusive growth, job creation poverty reduction and hence addressing some of the
root causes of migration. Sub-Saharan Africa faces many challenges in that regard, mainly related
to the lack of crowding-in of private financing.
The EFSD Guarantee aims to constitute guarantee capacity for credit enhancement that will
ultimately benefit the final investments and allow risk sharing with other investors, notably private
actors, ensuring the appropriate level of concessionality depending on the investment needs. It will
leverage additional financing, in particular from the private sector, by addressing the key factors
that enable crowding-in private investment.
The use of guarantees could significantly multiply the effect of the EU support, by covering a range
of risks, or the same risk in different countries/regions, that will be unlikely to simultaneously
materialise. In theory, pure investment grants could have covered all the risks of individual projects.
However, covering individual risks with investment grants, is in all likelihood sub-optimal use of
resources. Different from an investment component, where an investment grant will fully cover the
investment cost and will therefore be fully utilised, risks do not necessarily occur simultaneously.
Catering for expected losses, on, e.g., a portfolio of loans of different Finance Institutions, with
differentiated levels of cover, would therefore allow a multiplying effect on the use of the EU
resources.
Incentives for private sectors counterparts, both investors and project promoters would consist of
risk-mitigation, risk-sharing and possibly financial value-added.
Under this Guarantee, investment windows with a thematic/sectorial/geographic focus will be
defined and (parts of) the new Guarantee will be issued to eligible financiers on the basis of a
portfolio approach. In addition, guarantees for individual projects may also be issued.
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COM(2016) 385 final
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3
COMPLEMENTARITY AND CROSS-CUTTING ISSUES
3.1
Complementarity, synergy and donor coordination
Guiding principles of the External Investment Plan are: (i) the EU, Member States, third countries,
public financial institutions and the private sector, should all contribute, (ii) complementarity and
co-operation with the work of the public Financial Institutions and contributors in the target region
will be a key element of this overall framework in order to ensure maximised results and impact,
(iii) improve effectiveness and impact, maximise synergies, and attract private and institutional
investors. This would also allow the expansion of innovative financing in those fragile and postconflict countries which are often important for migration flows but where the potential for direct
private or public investment is currently limited.
The EFSD Guarantee will be implemented in close coordination with EU Member States with the
objective of contributing to the achievement of the Sustainable Development Goals thus tackling
some of root causes of migration and forced displacement.
By enabling joint operations the projects financed will generate greater coherence and better
coordination between donors, in line with the Paris Declaration principles and in compliance with
the EU Financial Regulation. Member States' resources will reinforce the EU effort. Co-financing
with non-EU financial institutions will certainly further improve donor coordination and
harmonisation.
Special attention will be given to ensure complementarity with other existing EU instruments for
the region, including the Africa Investment Facility (ACP-IF) managed by the EIB under the ACPEU Partnership Agreement19 ("Cotonou Agreement") as well as the Caribbean and Pacific
Investment Facilities20 and the Africa Emergency Trust Fund (EU TF21). This will be ensured
through close consultation and cooperation with the EIB in the context of its operations under the
ACP Investment Facility. On the latter, the Commission and EIB are coordinating closely on the
preparation and implementation of the ACP-IF business plan, and the Commission is being
consulted systematically on the different projects to be financed under the ACP-IF.
Complementarity will also be ensured with the operations financed under the Energy for All
initiative and the different approaches implementing the Commission Communication on Private
Sector22. Complementarity will be achieved by providing an opportunity to support a larger variety
of sectors through the investment windows and teaming up with a large group of stakeholders and
with the help of a diversified toolbox in terms of support modalities.
Overall coordination aimed at achieving complementarity between the different aid modalities and
tools (budget support actions, projects and programmes implemented under central management,
ACP Investment Facility, EU-Africa ITF, Energy for All initiative, GEEREF, "ElectriFI", and any
new initiative related to agri-business) shall be ensured through regular internal consultation
processes and exchanges between the different Commission services.
3.2
Cross-cutting issues
Partner countries and eligible counterparts will ensure that all projects financed with EU resources
respect European Union principles in terms of environmental and social impact (e.g. gender issues,
19
20
O.J. L 287, 04 November 2010
Pacific Investment facility : C(2012) 2769 final, Caribbean Investment facility C(2012)2769 final
Commission Decision C(2015) 7293 final of 20 October 2015
22
COM(2014) 263 final.
21
6
indigenous people's rights, etc.), public procurement, state aid, and equal opportunities. All
activities must also respect the principles of sound financial management with effective and
proportionate anti-fraud measures as well as gender equality, good governance and human rights
(applying the Rights Based Approach Toolbox23).
Projects benefitting from guarantees under the EFSD will be examined for their impact on
fundamental rights. Within the framework of the principles and objectives of the Union's external
action, of the European Consensus on Development and of the Agenda for Change and subsequent
modifications and additions thereto: (a) the primary objective of cooperation under the Regulation
on the EFSD shall be the reduction and, in the long term, the eradication of poverty, addressing
some of the root causes of irregular migration and forced displacement; (b) cooperation under this
Regulation will also contribute to: (i) fostering sustainable and inclusive economic, social and
environmental development, (ii)consolidating and supporting democracy, the rule of law, good
governance, human rights, gender equality and the relevant principles of international law, (iii)
implementing a rights-based approach (RBA) encompassing all human rights in line with
its guiding principles (transparency, participation, non-discrimination, accountability), iv)
implementing the Gender Action Plan. The achievement of these objectives shall be measured
using relevant indicators, including human development indicators, in particular Sustainable
Development Goals (SDG) and other indicators agreed at international level by the Union and its
Member States (e.g. "UN Guiding Principles on Business and Human Rights").
4
DESCRIPTION OF THE ACTION
4.1
Objectives/results
The main objective of the EU Guarantee will be to leverage additional financing, in particular from
the private sector, by addressing the key factors that enable crowding-in private investment. The
Guarantee will be provisioned by EU budget/EDF and other contributors and be used to absorb
potential losses incurred by eligible counterparts.
The EFSD Guarantee will provide partial guarantees to intermediary financial institutions (typically
financial institutions), which in turn provide support (via loans, guarantees, equity or similar
products) to the final beneficiaries. The leverage generated by these guarantees encompasses two
layers of leverage between the EU budget guarantee provided and the total investment mobilised.
At the first level, the EU guarantee enables the intermediary FI to provide an amount of additional
financing while at the second level the IFI financing mobilises additional investment at the project
stage.
4.2
Main activities
The new EU Guarantee coverage will be extended to innovative instruments aimed at addressing
bottlenecks to private investment, such as first-loss guarantees to portfolios of guarantees to private
sector projects, risk capital, SME loan guarantees or guarantees covering specific risks including
commercial risks in infrastructure projects (for example construction risks and off-take risk). In
addition, a portion of the available guarantee capacity may be used to help the eligible counterparts
expand investing in fragile and conflict-affected countries.
23
SWD(2014) 152 final.
7
The support of the Action can be provided through the following forms: risk capital, risk-sharing
operations (guarantees), and technical assistance.
5
IMPLEMENTATION
The amount of EUR 400 000 000 will be transferred through the EU budget to the EFSD guarantee
fund as set up by [Regulation No (EU) of the European Parliament and of the Council …..] .
Therefore, implementation modalities set out for the EFSD guarantee fund will apply.
5.1
Financing agreement
N/A
5.2
Indicative implementation period
The indicative implementation period set out for the EFSD Guarantee Fund will apply.
Extensions of the implementation period may be agreed upon by the Commission’s authorising
officer responsible by amending this decision and the relevant contracts and agreements; such
amendments to this decision constitute non-substantial amendment in the sense of Article 9(4) of
the Regulation (EU) 2015/322.24
5.3
Implementation modalities
This contribution to the EFDS Guarantee Fund may be implemented under indirect and direct
management, in accordance with [Regulation No (EU) of the European Parliament and of the
Council …..].
5.4
Scope of geographical eligibility
All African countries eligible to receive financing under the EDF regional and national programmes
as well as under the intra-ACP Programme shall be the final beneficiaries of the EFSD Guarantee
Indicative budget
EU contribution (*)
(EUR)
5.4.1 Contribution to the EFSD
Guarantee Fund
5.9 Evaluation, Audit
5.10 Communication and visibility
Indicative third party
contribution, in currency
identified
400 000 000
The contributions from other
sources will be decided at a later
stage
To be covered by another measure
constituting a financing decision
N.A.
Included in the Contribution to the EFSD
Guarantee Fund
The contributions from other
sources will be decided at a later
stage
N.A.
N.A.
400 000 000
The contributions from other
sources will be decided at a later
Contingencies
Totals
24
Council Regulation (EU) 2015/322 of 2 March 2015 on the implementation of the 11th European Development Fund; http://eurlex.europa.eu/legal-ontent/EN/TXT/HTML/?uri=CELEX:32015R0322&from=EN
8
stage
(*) The contribution to the EFSD Guarantee Fund includes the fees to be paid to the Lead Financial Institutions, as
defined in the contractual arrangements of each specific operation. It also includes any cost stemming from the setting
up and the running of the Guarantee Fund.
5.5
Audit
Without prejudice to the obligations applicable to contracts concluded for the implementation of
this action, the Commission may, on the basis of a risk assessment, contract independent audits or
expenditure verification assignments for one or several contracts or agreements.
5.6
Communication and visibility
The European Commission and its implementing partners will abide by the visibility rules for
European Union financing as per relevant provisions in the respective project agreements and
contracts. For each operation, a communication plan will be prepared by the selected eligible
financiers, allowing the involvement of the EU Delegations at key stages of the projects having
visibility potential. Additional communication measures might be taken if necessary. The European
Commission will publish an annual activity report providing an overview of the financed projects.
Communication and visibility of the EU is a legal obligation for all external actions funded by the
EU and the Communication and Visibility Manual for European Union External Action shall be
used to establish the Communication and Visibility Plans.
In any event, the European added value and European visibility in each project should be ensured
and maximised as much as possible.
In this context, operational/technical coordination and co-operation among financial institutions
remains of critical significance, so as to ensure synergies and complementarity of capacities,
knowledge and expertise.
9