Sunday

18th Nov 2018

The EIB in Africa: How the Juncker plan might work

  • The Olkaria geothermal plant in Kenya is one of the EIB's main projects in the region (Photo: frank van der vleuten)

The European Investment Bank (EIB) advertises itself as ‘Europe’s bank’ but the Luxembourg-based bank is active elswhere too, co-ordinating projects and credit lines worth almost €2.5 billion in east Africa.

Jointly owned and financed by the EU’s 28 countries, the bank has been active in east Africa since the 1960s and has had a bureau in the Kenyan capital Nairobi since 2005.

Read and decide

Join EUobserver today

Support quality EU news

Get instant access to all articles — and 18 year's of archives. 30 days free trial.

... or join as a group

  • The EIB is expected to be the driving force behind European Commission President Jean-Claude Juncker’s plans to turn between €20 - €25 billion of seed money into a €315 billion infrastructure investment fund. (Photo: EIB)

The EIB is expected to be the driving force behind European Commission President Jean-Claude Juncker’s plans to turn between €20 - €25 billion of seed money into a €315 billion infrastructure investment fund.

There are many questions about how the Juncker plan will work in practice - the bank’s work in east Africa could serve as a good example.

The sums involved in financing energy and transport programmes are too large for the EIB to fund alone. So it puts up a portion of the money in a loan with an attractive interest rate, while other development banks stump up the rest.

Infrastructure projects are the main jewels in the EIB’s East African crown. The EIB likes to highlight its role in the Olkaria geothermal power stations in Nakuru, about 100 kilometres north of the Kenyan capital Nairobi in the Rift Valley, and with a wind farm in the country’s Turkana province to which the EIB is the largest single lender to the tune of €200 million.

“We’re very happy to be part of this success story,” says Kurt Sorenson of the Olkaria power stations.

Sorenson, the EIB’s bureau chief in Nairobi, co-ordinates its activities in the region. He tells EUobserver that the latest tender for the fourth turbine at Olkaria was so competitive that not all of the EU’s available money was tapped. The bank will provide a €119 million loan to a programme meant to increase the capacity of the Kenyan electricity grid by 15 percent.

The EIB is also expected to stump up a €100 million loan as part of a highly ambitious project co-ordinated by the EU, World Bank and the Kenyan government to set up a €1 billion bus network in a bid to unblock an increasingly grid-locked Nairobi.

European taxpayers

Why is European taxpayers’ money being used in such ways?

Part of the rationale is that using EIB loans rather than grants can relieve the burden on cash-strapped governments in East Africa, but also on their counterparts in Europe, who are keen to reduce the amount of aid they offer to developing countries.

Another reason is that the projects reflect the EU’s priorities in the region and are a relatively cheap form of development financing. The EIB, with its triple-A credit rating, finds it very easy to borrow money on the markets, and only tends to invest in safe projects.

They are also filling a gap in the market since commercial banks do not tend to invest in infrastructure projects where the pay back will be over the long term and the profitability steady rather than spectacular.

In line with the Cotonou agreement signed between the EU and African countries in 2000, the EIB focuses its activities in the region on directly supporting the private sector and funding infrastructure projects that will help develop business opportunities.

The EIB is not the only European player in town. The German and French national development banks both have more people on the ground in the region, and regularly contribute funds to the same projects. The World Bank and the Japanese development bank are also frequent funding partners.

However, the EIB’s role in sub-Saharan Africa goes beyond investment in infrastructure. It also provides support for local banks, including around €700 million in support for Kenya’s growing financial sector over the past five years. Unlike most commercial banks in East Africa, the EIB offers local currency loans for twenty years and dollar and euro loans for up to ten years.

Largest project

Last month the EIB paired up with the region’s trade and development bank - known as PTA - to launch a €160 million investment facility, its largest business lending programme for businesses in East Africa so far.

Both banks will contribute €80 million to the fund, which can be tapped by agribusinesses, as well as firms operating in the energy, manufacturing and service sectors. At €80 million, the deal represents the largest single credit line the EU’s investment bank has ever signed off on in Africa.

Under the programme, which will be managed by PTA, firms operating in twelve countries in East Africa, including Kenya, Uganda, Tanzania, Rwanda and Burundi, will be able to access loans for up to fifteen years in dollars and euro, and for up to seven years in local currency - longer than the ten-year euro and dollar loans the EIB typically offers.

“It’s a very large facility for us by any standards,” said Patrick Walsh, the EIB’s director for lending in Africa. He added that the credit line was “the first step in what we hope will be a deeper relationship”.

“It allows us to make available lines of credit on exceptionally long term basis…which should be a great help to the small and medium sized businesses, and also mid-caps,” said Walsh. “We are finding in Europe that mid-caps are very important to job creation and opportunity.”

Speaking at the launch of the programme in Nairobi, PTA President Admassu Tadesse said it would “give a much needed boost to increased investment in the real economies of eastern and southern Africa.”

Doing more with less

There is clearly no plan to scale down the EIB’s work in sub-Saharan Africa. Sorenson says that the EIB plans to open offices in Cameroon within the next year.

Meanwhile, the recently created EU-Africa Infrastructure Trust Fund, which has paid out more than 70 grants to infrastructure projects for a total value of more than €6.5 billion, is a new way to generate private sector investment from public money. The fund combines grants from the European Commission and national governments with the EIB’s lending capacity.

As long as EU governments try to do more with less, and gradually replace development aid with loans, the EIB’s role in sub-Saharan Africa is unlikely to get any smaller.

Investigation

The discreet banker of Africa development

The European Investment Bank has grown, largely unnoticed, into the world's largest lender and borrower, but who is really in charge is anyone's guess.

Italy defiant on budget on eve of EU deadline

Italy would be committing economic "suicide" if it fell in line with EU rules, its deputy leader has said, in a sign that Rome has little intention of bowing to pressure ahead of Tuesday's budget deadline.

News in Brief

  1. US warns EU banks and firms against trading with Iran
  2. Merkel urged Romania not to move embassy to Jerusalem
  3. Protesters call for Czech leader to step down
  4. Former German chancellor labelled 'enemy' of Ukraine
  5. French lead opposition to Brexit deal on fisheries
  6. Private accounts of Danske Bank employees investigated
  7. UK's May defends Brexit deal to MPs, after ministers resign
  8. Brexit MP calls for 'no confidence' vote on May

Stakeholder

An open China brings opportunities to Europe

Some 60 years ago, the first major World Fair after World War II was held in Brussels. Sixty years on, China International Import Expo (CIIE), the first world expo dedicated to expanding imports, will open in Shanghai, China.

Stakeholders' Highlights

  1. NORDIC COUNCIL OF MINISTERSTheresa May: “We will not be turning our backs on the Nordic region”
  2. International Partnership for Human RightsOpen letter to Emmanuel Macron ahead of Uzbek president's visit
  3. International Partnership for Human RightsRaising key human rights concerns during visit of Turkmenistan's foreign minister
  4. NORDIC COUNCIL OF MINISTERSState of the Nordic Region presented in Brussels
  5. NORDIC COUNCIL OF MINISTERSThe vital bioeconomy. New issue of “Sustainable Growth the Nordic Way” out now
  6. NORDIC COUNCIL OF MINISTERSThe Nordic gender effect goes international
  7. NORDIC COUNCIL OF MINISTERSPaula Lehtomaki from Finland elected as the Council's first female Secretary General
  8. NORDIC COUNCIL OF MINISTERSNordic design sets the stage at COP24, running a competition for sustainable chairs.
  9. Counter BalanceIn Kenya, a motorway funded by the European Investment Bank runs over roadside dwellers
  10. ACCACompany Law Package: Making the Best of Digital and Cross Border Mobility,
  11. International Partnership for Human RightsCivil Society Worried About Shortcomings in EU-Kyrgyzstan Human Rights Dialogue
  12. UNESDAThe European Soft Drinks Industry Supports over 1.7 Million Jobs

Latest News

  1. Brexit dominates EU affairs This WEEK
  2. How the EU commission got tunnel vision on self-driving cars
  3. No-confidence calls against May put Brexit deal in doubt
  4. Key points of the Brexit deal (if it ever comes into effect)
  5. Romania heaps scorn on 'revolting' EU criticism
  6. US steps in to clean up Cyprus
  7. 'Decisive progress' on Brexit as British cabinet backs deal
  8. Asylum for Macedonia's ex-PM puts Orban on spot

Stakeholders' Highlights

  1. Mission of China to the EUJointly Building Belt and Road Initiative Leads to a Better Future for All
  2. International Partnership for Human RightsCivil society asks PACE to appoint Rapporteur to probe issue of political prisoners in Azerbaijan
  3. ACCASocial Mobility – How Can We Increase Opportunities Through Training and Education?
  4. Nordic Council of MinistersEnergy Solutions for a Greener Tomorrow
  5. UNICEFWhat Kind of Europe Do Children Want? Unicef & Eurochild Launch Survey on the Europe Kids Want
  6. Nordic Council of MinistersNordic Countries Take a Stand for Climate-Smart Energy Solutions
  7. Mission of China to the EUChina: Work Together for a Better Globalisation
  8. Nordic Council of MinistersNordics Could Be First Carbon-Negative Region in World
  9. European Federation of Allergy and AirwaysLife Is Possible for Patients with Severe Asthma
  10. PKEE - Polish Energy AssociationCommon-Sense Approach Needed for EU Energy Reform
  11. Nordic Council of MinistersNordic Region to Lead in Developing and Rolling Out 5G Network
  12. Mission of China to the EUChina-EU Economic and Trade Relations Enjoy a Bright Future

Stakeholders' Highlights

  1. ACCAEmpowering Businesses to Engage with Sustainable Finance and the SDGs
  2. Nordic Council of MinistersCooperation in Nordic Electricity Market Considered World Class Model
  3. FIFAGreen Stadiums at the 2018 Fifa World Cup
  4. Mission of China to the EUChina and EU Work Together to Promote Sustainable Development
  5. Counter BalanceEuropean Ombudsman Requests More Lending Transparency from European Investment Bank
  6. FIFARecycling at the FIFA World Cup in Russia
  7. Nordic Council of MinistersOECD Report: Gender Equality Boosts GDP Growth in Nordic Region
  8. Centre Maurits Coppieters“Peace and Reconciliation Is a Process That Takes Decades” Dr. Anthony Soares on #Brexit and Northern Ireland
  9. Mission of China to the EUMEPs Positive on China’s New Measures of Opening Up
  10. Macedonian Human Rights MovementOld White Men are Destroying Macedonia by Romanticizing Greece
  11. Counter BalanceControversial EIB-Backed Project Under Fire at European Parliament
  12. Nordic Council of MinistersIncome Inequality Increasing in Nordic Countries

Join EUobserver

Support quality EU news

Join us