Explanatory Memorandum to COM(2016)586 - European Fund for Sustainable Development (EFSD) and establishing the EFSD Guarantee and the EFSD Guarantee Fund - Main contents
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| dossier | COM(2016)586 - European Fund for Sustainable Development (EFSD) and establishing the EFSD Guarantee and the EFSD Guarantee Fund. |
|---|---|
| source | COM(2016)586  |
| date | 14-09-2016 |
1. CONTEXT OF THE PROPOSAL
• Reasons for and objectives of the proposal
On 7 June 2016, the Commission adopted a Communication on establishing a new Partnership Framework with third countries under the European Agenda for Migration. 1 Alongside a variety of measures proposed to address the most urgent needs of refugees as well as supporting host communities, the Commission calls for a long term strategy by which the EU will promote the sustainable development goals of the 2030 Agenda and thus continue to address root causes of migration.
This is also in line with the EU Global Strategy for Foreign and Security Policy with embeds challenges such as migration in the overall EU foreign policy, ensuring coherence and synergies with European Development and Neighbourhood policies and European economic diplomacy.
The European Council of 28 June 2016 invited the Commission to present a proposal for an ambitious External Investment Plan (EIP) by September 2016. The EIP will be based on three pillars working hand in hand: a new investment fund (pillar 1); technical assistance (pillar 2), to help local authorities and companies to develop a higher number of sustainable projects and attract investors; and finally a range of dedicated thematic, national and regional EU development cooperation programmes combined with structured political dialogue targeted at improving the investment climate and overall policy environment in the countries concerned (pillar 3). Pillar 3 of the EIP is the link between the European Fund for Sustainable Development (EFSD) and the broad partnership between the EU and its partner countries. This partnership materialises in political and in policy dialogue that the Commission undertakes through EU delegations and political contacts.
Pillar 1 will be implemented through the EFSD. The EFSD will have the key objective of providing an integrated financial package to finance investments starting in the regions of Africa and the Neighbourhood 2 .
The EFSD will be composed of regional investment platforms, which will combine financing from existing blending facilities 3 and the EFSD Guarantee. It will operate as a 'one-stop shop' to receive financing proposals from financial institutions and public or private investors and deliver a wide range of financial support to eligible investments.
The key objective of the EFSD is to provide an integrated financial package to finance investments starting in regions of Africa for countries that are signatories to the Partnership Agreement between the members of the African, Caribbean and Pacific (ACP) Group of States of the one part, and the European Community and its Member States, of the other part, signed in Cotonou on 23 June 2000 ('Cotonou Agreement') 4 and the Neighbourhood, thereby creating growth and employment opportunities, maximising additionality, delivering innovative products and crowding-in private sector funds. The EFSD is expected to mobilise up to EUR 44 000 000 000 investments with funds from the general budget of the Union and other sources of EUR 3 350 000 000 until 2020.
• Consistency with existing policy provisions in the policy area
Within the framework of the principles and objectives of the Union's external action, of the revised European Neighbourhood Policy 5 , the European Consensus on Development 6 and of the Agenda for Change 7 and subsequent modifications and additions thereto, a primary objective of cooperation under this Regulation should be the reduction and, in the long term, the eradication of poverty in line with Article 208 of the Treaty on the Functioning of the European Union (TFEU), thus addressing root causes of migration. In addition, cooperation under this Regulation should also contribute to: fostering sustainable and inclusive economic, social and environmental development, consolidating and supporting democracy, the rule of law, good governance, human rights, gender equality and the relevant principles of international law; implementing a rights-based approach (RBA) encompassing all human rights in line with its guiding principles (transparency, participation, non-discrimination, accountability) and implementing the Gender Action Plan 8 .
The EFSD aims at supporting investments starting in regions of Africa for countries that are signatories to the Cotonou Agreement- and the Neighbourhood as a means to achieve the Sustainable Development Goals, thus tackling root causes of migration and offering sustainable reintegration to returned migrants in their countries of origin. It is therefore consistent with the Union's instruments for financing external actions and with existing investment facilities.
Through its emphasis on private sector involvement the EFSD will also promote the objectives described in the Communication A Stronger Role of the Private Sector in Achieving Inclusive and Sustainable Growth in Developing Countries. 9
• Consistency with other Union policies
The EIP is part of the EU new Partnership Framework with third countries under the European Agenda for Migration.
The Plan is aligned with the reviewed European Neighbourhood Policy (ENP) 10 which focuses on supporting economic development in partner countries, to progressively achieve stabilisation and transition from emergency to structural response. It is also aligned with the Addis Ababa Action Agenda on Financing for Development.
The EFSD is coherent with the EU policies in the area of climate change as it will contribute to the implementation of the Paris Agreement on Climate Change (COP 21) 11 including its international climate finance commitments. As explained in the Commission Communication The Road from Paris: assessing the implications of the Paris Agreement 12 , the Paris Agreement is an opportunity for economic transformation, jobs and growth. It is a central element in achieving broader sustainable development goals, as well as the EU priorities of investment, competitiveness, circular economy, research, innovation and energy transition.
2. LEGAL BASIS, SUBSIDIARITY AND PROPORTIONALITY
• Legal basis
Since the EFSD aims at enhancing investments both in developing and other third countries, the legal basis for the cooperation activities is thus Article 209(1) (for developing countries) and 212(2) (for other third countries) of the Treaty on the Functioning of the European Union.
• Subsidiarity (for non-exclusive competence) and proportionality
In accordance with the principles of subsidiarity and proportionality set out in Article 5 TFEU, the objectives of the proposed action cannot be sufficiently achieved by the Member States and can therefore be better achieved by the EU. Action at Union level can better achieve the objectives pursued, by reason of its scale and effects. More specifically, the intervention at EU level will catalyse private investment from the whole EU and third countries, making best use of the European Institutions and their expertise and knowledge for that purpose. The set-up of the Strategic Board will ensure consistency and coherence between multiple programmes and initiatives at European level. The multiplying effect and the impact on the ground will thus be much higher than what could be achieved by an investment programme from a single Member State or a group of Member States.
• Choice of the instrument
It is suggested to set up the EFSD and establishing the EFSD Guarantee Fund through the adoption of a Regulation of the European Parliament and the Council in ordinary legislative procedure. The establishment of a guarantee bearing a contingent liability for the Union has to be done by the legislator. The Commission is proposing in parallel a revision of Regulation (EU, Euratom) No 966/2012 of the European Parliament and the Council.
3. STAKEHOLDER CONSULTATIONS AND COLLECTION OF EXPERTISE
• Stakeholder consultations
Informal exploratory consultations have taken place with the European Investment Bank (EIB), Member States' Financial Institutions, the European Bank for Reconstruction and Development (EBRD) and the World Bank Group. The EU Platform for Blending in External Cooperation (EUBEC) was also consulted as well as the private sector and civil society organisations.
• Collection and use of expertise
The Commission has established extensive experience with similar instruments, such as the European Fund for Strategic Investment (EFSI) 13 for EU internal policies and several financial instruments and structured grants supported by the EU blending facilities for EU external policies 14 . The objective has been to mobilise additional investment, in particular from private investors, through the provision of partial guarantees or risk cushions on a first-loss or pari passu basis to financial institutions, typically the public financial institutions currently present in EU Blending in external action, which themselves provide support (through loans, guarantees, equity or similar products).
• Fundamental rights
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 revised European Neighbourhood Policy 15 , of the European Consensus on Development 16 and of the Agenda for Change 17 and subsequent modifications and additions thereto: (a) the primary objective of cooperation under this Regulation shall be the reduction and, in the long term, the eradication of poverty, addressing root causes of migration; (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 18 . The achievement of those objectives shall be measured using relevant indicators, including human development indicators, in particular sustainable development goals 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. BUDGETARY IMPLICATIONS
The Union will make available a total of EUR 750 000 000 for the EFSD Guarantee until 2020 stemming both from the Union's general budget and the 11th European Development Fund (EDF) 19 . Further financing could be foreseen. The Commission intends to propose the mobilisation of the contingency margin to provide EUR 250 000 000. Other contributions from the Union budget would be made by the use of redeployments or refocusing of programmed funds. Further financing could also include other contributions by other contributors, such as Member States.
5. OTHER ELEMENTS
• Implementation plans and monitoring, evaluation and reporting arrangements
The EFSD will be managed by the Commission and implemented through regional investment platforms, which will combine financing from existing blending facilities for Africa and for the Neighbourhood and the granting of the EFSD Guarantee.
• Detailed explanation of the specific provisions of the proposal
The EFSD shall consist of the regional investment platforms, which will combine financing from existing blending facilities for Africa and for the Neighbourhood and the granting of the EFSD Guarantee.
Regional investment platforms will be focused to pursue the achievement of the sustainable development goals and better address root causes of migration.
For the purposes of the EFSD initiative the Africa Investment Facility 20 and the Neighbourhood Investment Facility 21 will have their objectives refocused and will be renamed to become the new respective regional investment platforms relying on the existing structures. This will be done by Commission Decision.
The regional investment platforms will have identical structures as the existing blending facilities.
The Commission will be advised by a Strategic Board and two Operational Boards, one for each Regional Investment Platform. The Commission will manage the EFSD Secretariat, which will ensure the performance of all tasks and functions needed to fulfil the objectives of the EIP. The Strategic Board, co-chaired by representatives of the Commission and of the High Representative of the Union for Foreign Affairs and Security Policy and composed of the Member States and the EIB, will give strategic guidance and help the Commission set overall investment goals as regards the use of the EFSD Guarantee, ensuring coordination and coherence between the Regional Investment Platforms and with the External Lending Mandate, the Resilience Initiative and the ACP Investment Facility managed by the EIB. The EIB will actively contribute through advisory functions to the Commission as regards the operational management of the guarantee.
A sound technical assessment and due diligence as well as a swift implementation of individual projects will be ensured. The bankability and risk of the projects will be assessed by the eligible counterparts and verified by independent experts to ensure the credibility vis-à-vis the private sector, before the investment proposals are approved by the Commission. The detailed practical modalities of how to implement the guarantee will be decided for each investment window.
The creation of additional investment platforms can be considered in the future.
The EFSD Guarantee is one of the components of the EFSD. 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. It will leverage additional financing, in particular from the private sector, by addressing the key factors that enable crowding-in private investment.
The EFSD Guarantee Fund will provide the liquidity in case the EFSD guarantee is called upon to cover for losses occurred under the guarantee agreements. The EFSD Guarantee Fund will be endowed by the EU budget and the EDF as well as possibly other contributors and used to absorb potential losses incurred by eligible counterparts such as international financial institutions, development banks and private sector investors.