Blog: European External Investment Plan - Hoofdinhoud

A new way of approaching development assistance

The new European External Investment Plan (EIP) proposed this week is a clear illustration of our strong commitment to deliver on the 2030 Agenda. It implements the Agenda's new philosophy on broad means of implementation to achieve the Sustainable Development Goals, with a view to boosting investments in particular from the private sector. It's a new integrated way of working with our partner countries, Member States, international financial institutions, other donors and the private sector.

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Addressing investment bottlenecks

The areas most in need of vital investment are often precisely those where investors are most hesitant to go - due to conflict, instability, or poor business conditions exacerbated by the aftermath of the global economic crisis. Developing countries are hit with the twin pressures of low economic growth and fast-growing population growth: economic growth is at lowest level since 2003, developing countries currently host 86% of refugees and displaced persons, and by 2050 the population of Africa alone will be as big as the entire global population following the second-world war.

Foreign direct investment and other private financial flows have declined across developing countries since the financial crisis. You only need to cast your eye over the bottom of the Global Doing Business Ranking to find some of the poorest developing countries, in particular fragile states and post-conflict economies in Sub-Saharan Africa.

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But we have also seen the massive advances increasing foreign direct investment can make in some of Africa's dynamic economies. Kenya and Uganda now receive as much foreign direct investment every week as they did every year in the early 1980s, and Ethiopia, which didn't even record foreign direct investment until 1991, received more than USD 2 billion in 2015.

Turning billions in to trillions

This kind of investment is going to be needed to deliver the ambitious outcomes agreed in Addis Ababa, New York and Paris last year. Estimations place the cost of implementing the Sustainable Development Goals at EUR 3-4 trillion every year. Even if we meet the target of 0.7% of GNI as ODA, we would only reach EUR 300 billion, or just 10% of the global need.

The Addis Agenda for financing sustainable development agreed last July provides the basis for addressing this fundamental gap. It emphasises the need to consider finance for development in the round, and not just think about ODA on one side and private investment on the other. And it highlights the potential of development banks and further blending (more on this below).

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In the margins of the Addis conference I talked about the need to catalyse private sector engagement for development. With the EIP, we've taken another important step forwards in the right direction.

Blending public and private investment

This is not a totally new adventure for us. Over recent years we have been increasingly moving towards the use of blending - that is, combining public grants with loans or equity from public and private financiers, to leverage greater financing for sustainable growth. As a result, between 2007-2015 EUR 2.7 billion EUR in EU grants leveraged overall investments of over EUR 50 billion: almost 20 times more investment.

A great example of this is the Lake Victoria Projects, designed to improve the health of people in Uganda, Kenya and Tanzania living around the world's second lake, by increasing the supply of safe drinking water and reducing the risk of waterborne diseases. An input of 44 million EUR from the EU-Africa Infrastructure Trust Fund has contributed to a total project cost of 411 million EUR.

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Leaving no one behind

The EIP is also about bringing a partnership approach, in line with the Agenda 2030 and the 2015 European Year of Development, ensuring mutual benefit for all involved. It's a comprehensive package providing not only financial backing, but also technical and policy support.

For our partner countries in the developing world it's about creating the necessary structural reforms, improving economic governance and creating the right business environment to underpin truly sustainable long-term growth, particularly for higher-risk areas such as renewables and SMEs. It's about guaranteeing investments that otherwise would not happen, and ensuring that the beneficiaries are those most in need and not the intermediaries. Ultimately it's about creating real opportunities for local societies, in particular women and young people, to build a better future.

It's a win-win for both local and European businesses, a one-stop-shop for public and private investors, opening up mutual trade and investment opportunities. For EU Member States, it's about improved effectiveness through smarter and more joined up investments. Furthermore, if our ambition is matched by contributions from Member States or other partners, its impact could reach at least EUR 88 million.

Perspectives for the future

These new approaches will also force us to reconsider some of our traditional assumptions. For example, under existing rules on ODA spending, the new guarantee would only count once triggered, i.e. if a project failed, as only money used for the public sector would be eligible ODA.

But we know that if we're going to respond to global crisis and deliver on our global commitments, we're going to have to challenge some traditional assumptions and find new innovative ways of working. We have the means, and we have the framework to reach our overall ambition of creating truly sustainable development and really transforming our world. With the EIP, amongst our other tools and policies, I hope we're proving that we have the will to make it a reality.

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