The private sector holds the largest potential for generating jobs and growth. It is therefore essential to boost responsible private investments — both domestic and foreign — in Africa. Africa’ s strong economic progress over the last two decades shows that there are substantial opportunities. At the same time, it is necessary to generate millions of new jobs, especially for young people entering the job market. Yet, in many African countries, instability and conflicts reduce the access to finance for much needed investment.
The EU is a key investor in Africa and supports investment further through de-risking and facilitating access to finance. The main tool to encourage investment in Africa and the EU neighbourhood is the EU External Investment Plan (EIP). With the Plan, the EU scales up sustainable finance in countries neighbouring the EU and in Africa, which will encourage both private and public investors to contribute to sustainable development in these locations.
The European Fund for Sustainable Development (EFSD) is the financial arm of the Plan. With it, the EU supports investments by public financial institutions and the private sector. The priority goes to sectors with a high potential for job creation, such as sustainable energy and sustainable agriculture, rural entrepreneurs and agroindustry, sustainable cities and digitalisation for sustainable development.
Through the EFSD, the EU helps countries create a virtuous circle that accelerates development. The three parts of the circle are:
1. More investment in countries outside the EU
The EU helps countries neighbouring the EU and in Africa attract much more investment, especially from the private sector, than they could otherwise.
2. More jobs, higher growth
This investment helps to bridge the gap between the financing already available and the financing still needed to create jobs, boost growth and meet the other UN Sustainable Development Goals (SDGs).
3. More stability, prosperity – and opportunities
More jobs and faster growth make those countries more stable and prosperous. This gives people living in those countries more opportunities and investors more reasons to enter those markets.
How the EU External Investment Plan works
Through the Plan the EU offers three things: finance, expertise, and investment climate support.
The European Fund for Sustainable Development (EFSD) has been allocated €4,6 billion, which will bring in new investments of up to €47 billion. The EU provides financing for development projects and programmes in two ways: guarantees and blending.
Guarantees (€1.5 billion)
This is an innovative way of financing development projects. The EU shares the risks involved in investing, so development banks and private investors will come in and lend to local entrepreneurs or finance development projects.
Blending (€3.1 billion)
The EU also funds ‘blending’ projects. These blend a grant from the EU with loans and/or other financing from public and private investors. The grant covers a part of the costs of the project and helps to get it off the ground. The EDFS blending is made up to smaller funds: Africa Investment Platform (AIP) and Neighbourhood Investment Platform (NIP).
The EU funds technical assistance from experts in different fields, from accountancy to engineering. The experts help develop new projects, drafting business plans and support governments in enacting reforms to attract investors.
Investment climate support
The EU works closely with governments to help them improve the investment climate. This includes the business environment, things such as the stability of a country, and bringing together governments and businesses to discuss possible challenges.
Since 2017, the following progress has been made with regards to the implementation of the EIP:
At the start of 2020, the EU had allocated €1.54 billion available through the Plan for financial guarantees – financing 28 individual guarantees focusing on specific sectors. So far, 7 risk-sharing guarantees have been signed with partner institutions to put guarantees into practice, with more signatures to follow in the rest of 2020.
It is expected that the 28 guarantees will bring in €17.5 billion in overall investment.
The EU has allocated €3.1 billion available through the Plan for grants for blending projects, which will contribute to financing 142 projects in all.
This should bring in about €30 billion in overall investment.
Investment climate support
To date, the EU has helped:
finance detailed reports to identify what puts off potential investors from certain countries and how to bring them on board, for 15 partner countries
bring together governments and businesses to discuss challenges to securing investment in 16 partner countries
implement government reforms to attract more investment by investing over €600 million.