FEMIP: the contribution of the EIB to reinvigorating the Euro-Mediterranean Partnership.
Transcript of FEMIP: the contribution of the EIB to reinvigorating the Euro-Mediterranean Partnership.
FEMIP: the contribution of the EIB to reinvigorating the
Euro-Mediterranean Partnership
Structure of the presentation
• Brief overview of EIB role and operations
• Main challenges facing Mediterranean Partner Countries
• FEMIP as a response
Part 1
Overview of EIB role and operations
THE EIBEIB - European Union’s financing institution
Created by the Treaty of Rome in 1958, to provide long-term finance for projects promoting European integration, current mission is to promote the EU’s policies
Subscribed capital EUR 150bn
EIB shareholders: 15 Member States of the European Union
EIB’s annual lending (2002): EUR 39bn (of which EUR 33bn within the EU)
EIB’s annual borrowing (2002): EUR 38bn
STRATEGIC OUTLOOK (Board of Governors)
Focus on 5 priorities
regional development
implementation of i2i – the innovation 2000 initiative
environmental protection and sustainable development
preparation of Accession Countries
support for EU development aid and cooperation policy
EIB implements EU policies; a policy driven Bank
CURRENT EXTERNAL EU LENDING MANDATES
A global economic development partner 31
EUR million
Central and Eastern European countries 9 280 (2000-2007) (350m for Yugoslavia)
Pre-accession facility (EIB risk) 8 500 (2000-2003)
Mediterranean countries 6 425 (2001-2007)
Euro-Med mechanism (EIB risk) 1 000 (2001-2007)
ACP Countries 3 965 (2001-2007)
South Africa 825 (2000-2006)
Latin America Asia 2 480 (2000-2006)
Russia (2000-2005) 100
Concrete support for the Barcelona process
EURO-MEDITERRANEAN PARTNERSHIP
Private sector support
Improvement of the environment
Strengthening economic infrastructure
Energy & communications
In 2002, EUR 1.8bn towards sustainable development in the 12 countries South and East on the Mediterranean shores
Key-areas:
Social projects (health & education
Regional cooperation projects – South-South cooperation
A partnership for economic liberalisation and privatisation
Loans andRisk capital
Israel
LOAN SIGNATURES IN EURO-MEDITERRANEAN PARTNERSHIP COUNTRIES EUR 5.9bn (1998-2002)
Turkey1 629
Morocco 949Egypt 943
Tunisia 977
Algeria 625
Jordan 234
Lebanon 105
Syria 290
Gaza-Westbank133
EURm:
Energy
Communications
Water
Industry & Services
Global loans
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EIB: A LEADING FINANCIAL PARTNER OF THE MPC
In support of
The economic and social development of the partner countries in the Mediterranean region
European Policy Objectives: «The Barcelona Process»
PROJECT FOCUS:
NO COUNTRY OR SECTOR QUOTAS
LOANS SIGNED IN THE MPC 1992-2002(EUR million)
CONCRETE SUPPORT TO THE BARCELONA PROCESS
329
768
1159 11221002
1214
1476
1808
684
966
650
0
400
800
1200
1600
2000
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
(EU
R m
illio
n)
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CONCRETE SUPPORT TO THE EURO-MED PARTNERSHIP: EUR 5.9 billion (1998 – 2002)
INDUSTRY, SERVICESAND FINANCIAL SECTOR: EUR 1951 MILLIONS
ENVIRONMENT:EUR 1452 MILLIONS
ENERGY:EUR 1238 MILLIONS
COMMUNICATIONS:EUR 1250 MILLIONS
Underpinning private initiative
33%
Securing sustainable
energy supplies21%
Building physical links
with communications
infrastructure21%
Safeguarding the environment
25%
Part 2
Main challenges facing Mediterranean Partner
Countries
Sequence of events
• Before 1995, no economic convergence of Med and EU countries
• Barcelona process to facilitate convergence
• Some improvement, but not enough
• Reinvigorate the Barcelona process
Euro-Med Partnership
• Establishing a free trade area: cornerstone of Euro-Med Partnership
• Financial assistance to help partner countries rise up to the challenge of open markets
• Private sector response requires enabling environment
Economic performance of MPC
• A widening gap in living standards– GDP per capita: real growth– GDP per capita level: MED vs EU
• Reflects disappointing overall performance of Mediterranean countries
• Causes high unemployment and may affect social/political stability
-
10,000.00
20,000.00
30,000.00
GDP per capita (US$) - Average
Mediterraneancountries
2,130.00
EU 15 24,670.00
Year 2002
0.0%
1.0%
2.0%
3.0%
4.0%Real GDP growth
Mediterraneancountries
2.8% 3.4%
EU 15 1.5% 2.3%
Average 1990-1995 Average 1996-2002
0.0%
0.5%
1.0%
1.5%
2.0%
GDP per capita growth
Mediterraneancountries
0.2% 1.3%
EU 15 1.1% 2.0%
Average 1990-1995 Average 1996-2002
Origins of the current predicament
• Inward-looking, state-directed development policies of the past
• Unsustainable macroeconomic imbalances
• Implementation of economic reforms often in a less than deliberate manner
Policy reform record
• Trade liberalisation proceeding slowly• Fiscal and exchange rate policy• Financial sector reform• Privatisation• Investment in infrastructure and human
capital• Slow improvement in business climate
(« red tape », judicial system)
The consequences
• Fewer viable investment projects
• Crowding out of private sector
• Deterrent for private investors
• Outcome: relatively low FDI(0.75% of GDP, compared to 2.5% in East Asia and 1.8% in Latin America)
The way forward
• Maintain macroeconomic stability• Adopt and decisively implement reforms
conducive to private sector development• Develop human capital• Improve infrastructure required by the private
sector• EU financial assistance to be targeted at
supporting and facilitating reform
Risks
• Magnitude of the task– Wide range of reforms– Institutional capacity
• Resistance to change– Public sector– Concerns about social impact– Private firms with rent position
Part 3
FEMIP as a response
A new impetus to the Barcelona process
• A new major initiative by the EU Council
• A reinforced mandate for the EIB in order to facilitate a more deliberate approach toward reform
• A strengthened Partnership concept
Better linking financial assistance and policy reform
• Available research shows that financial assistance can contribute to growth and development…
• … but that it works best when good policies and institutional frameworks are in place
• Thus financial assistance must go hand in hand with approriate reforms
The essence of FEMIP
• Financial assistance focused on support for private sector
• Emphasis on quality of interventions and better linkage with policy reforms
• More resources to finance private sector projects and complementary projects supporting private sector development
The PDCC: an instrument to enhance the dialogue on policy
and strategy• Brings together representatives of EU,
Med Partner Countries and multilaterals
• To discuss relevant policy issues and investment strategy
• Objective: to strengthen ownership of policy reforms affecting FEMIP financed investments
PDCC (2)
• PDCC discussions could serve to raise awareness about need for specific reforms
• An incremental but realistic approach
• Could be more effective than discussions at project level only
FEMIP: concrete actions
• Increased direct support for private sector
• Increased support for complementary enabling activities
• Wider array of financial instruments and adaptation of existing instruments
• Provision of technical assistance
Types of operations with the private sector
• Structured finance/PPPs
• Corporate lending
• SMEs– Lines of credit (global loans)– Investment funds
Constraints confronting SMEs
• Most local firms are family-owned SMEs relying on self-financing (retained profits) and short term loans
• External equity financing hampered by – lack of institutional investors and intermediaries – corporate culture
• Long-term credit discouraged by macro instability and heavy collateral requirements
Risk capital (1)
• A flexible instrument used to provide equity to private firms through a variety of channels: private equity funds, finance companies and equity lines to banks (over 250 m € since 1996, with high multiplier effect)
• EIB pioneered development of investment funds in Morocco, Tunisia, Egypt, Jordan and Turkey. Also supported privatisation (Tunisia)
• EIB presence has also acted as catalyst for other investors
Risk capital (2)
• Under FEMIP, RC operations will increase substantially
• Reforms create prospects for development of private equity, which FEMIP could support
• To better serve the varied needs of SMEs, FEMIP will support the development of new instruments: quasi-equity, leasing, guarantees
Lending to private sector (1)
• Lack of long-term credit (reflecting scarcity of LT deposits) creates reliance on short term loans
• High collateral requirements restrict long term credit
• EIB lending to help fill this gap
Lending to private sector (2)
• Credit lines to SMEs to overcome limitations of maturity transformation by banks
• Risk-sharing mechanism (which EIB will work to improve)
• Better serve the needs of SMEs, FEMIP could launch local currency issues to provide long term resources in local currency to intermediaries
Complementary lending for PSD
• Create enabling environment by supporting human capital and physical infrastructure
• Focus on infrastructure of common interest with the EU, regional projects and other investments supporting trade integration
• Focus on projects in higher and technical education to increase availability of skills to attract FDI
Technical assistance
• Builds on EIB’s experience with environmental projects
• Wider range of projects, more resources• Primarily for identification, design and
management of projects (infrastructure, PPP)• Also in banking sector, to improve appraisal
capability in order to reduce collateral lending
Conclusion
• FEMIP: not just a quantitative increase• Also a qualitative change:
– Focus on private sector– New or reinforced instruments to fill identified gaps
• Enhanced dialogue with Commission, Partner Countries and IFIs
• Implementation and effectiveness will depend on pace of reforms