The EU’s new offer to Africa
By Benjamin Fox
The European Commission’s plan for a multi-billion African investment vehicle was one of few highlights in Jean-Claude Juncker’s often turgid state of the Union speech earlier this month.
As with the original European Fund for Strategic Investments (EFSI), the main plank of the Juncker commission’s economic policy, there’s not much hard cash behind the initiative.
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The investment vehicle will be based on a €1.5 billion guarantee from the EU budget, and a further €1.85 billion from the European Development Fund and EU budget. It will subsume the existing EU-Africa Infrastructure Trust Fund, which has paid out more than 90 grants to infrastructure projects since 2007.
EU officials hope that the seed capital and new guarantees, which will allow the European Investment Bank (EIB) to cover €750 million of potential losses, will persuade private firms to fund riskier projects in sub-Saharan Africa.
African investment based on blending small amounts of public money with private capital is not new. The EIB has been steadily expanding its operations in sub-Saharan Africa over the past decade.
Sweetening the pill
The EIB is not the only player in an expanding market. In Europe alone, the consolidated portfolio of European Development Finance Institutions (EDFI) members jumped from €10 billion to €28 billion between 2003 and 2014. The big international players are the World Bank’s International Finance Corporation, the African Development Bank, along with the French, German and Japanese development agencies.
So what’s the big deal?
Unlike other development finance vehicles, the EFSD is overtly political. The commission says the fund will "address the factors that constitute the root causes of migration and to support partners to manage its consequences".
At a time when European governments are seeking to increase their deportation rates, the fund is a bid to sweeten the pill on tackling migration to their African counterparts.
The fund will also be formally directed by the commission, rather than the EIB, and the hope of the EU executive is that MEPs and ministers will have passed the legislation needed to make the fund operational by the next EU-Africa summit planned for autumn 2017.
The rationale behind the fund and, indeed, the individual "country compacts" launched earlier this year, under which the EU will offer financial support to countries who work to stem economic migration, and that the EU is seeking to broker with a group of African governments, is that economic incentives will persuade African governments to do more to control their borders.
As Juncker put it, the fund “will offer lifelines for those who would otherwise be pushed to take dangerous journeys in search of a better life”.
What is new are the incentives that the Fund offers to European companies, governments and their African counterparts.
In a bid to persuade European treasuries to cough up some money, the commission proposes that national contributions to the fund be classified as "off balance sheet" to avoid being classified as public spending, and allow governments to earmark their contributions to a specific region or sector.
The commission hopes that its €3.35 billion will lead to projects worth €44 billion, and potentially more if national governments boost the coffers.
However, EU governments have so far been reluctant to back up their rhetoric with cash, stumping up a €80 million to the EU-Africa Emergency Trust Fund set up last December to pay for migration-control related projects.
The commission also sees the fund as a way to encourage European firms to invest in African countries, potentially making them a competitor to Chinese firms who dominate the infrastructure investment sector in the region.
Yet it is also part of the move away from conventional development aid in favour combining public guarantees with private investment,
A carrot among the sticks
The EU has been pushing blended finance for many years. “Official Development Assistance does not have the capacity alone to eradicate extreme poverty… it should be used to mobilise domestic and private finance,” said one EU development minister at last year’s Financing for Development conference in Addis Ababa, and this sentiment reflects a consensus view amongst European governments.
"Humanitarian aid is not the solution for dealing with long-term migration," a senior commission official told EUobserver in August.
The Fund may be intended as a complement to the EU-African "compacts", but linking the investment fund to migration tool is a risky political move.
Amnesty EU director Iverna McGowan described the proposed "compacts" as amounting to “little more than ‘let’s throw money at keeping them out’”.
An investment fund based on €3 billion isn’t going to suddenly turn around the boats making the treacherous journey from North Africa across the Mediterranean. Improving the long-term economic prospects across sub-Saharan Africa will take years, and much more investment. At best, it is another incentive for African leaders to give higher priority to border management.
But it is, if nothing else, a carrot among the sticks.
Benjamin Fox, a former reporter for EUobserver, is a consultant with Sovereign Strategy, a London-based PR firm, and a freelance writer