EIB emphasises development as Covid exposes global economic weakness
The European Investment Bank isn’t letting the Covid-19 pandemic divert it from its common purpose, but is focusing it more clearly than ever on the development sphere.
How should a development bank react to the dual economic and health crises created by the global Covid-19 pandemic? By moving fast to provide financing where it is immediately needed, while paying attention to the long-term challenges of digitalisation and climate, says EIB vice-president Ambroise Fayolle.
“We have learned some lessons from the previous crisis — act quickly, act with volume, and do whatever you can to speed up disbursements,” says Fayolle. “Having said that, there are also things we see of importance going forward, such as the digital economy, that will bring great project effectiveness. Also, we believe that, everywhere, the recovery will have to be green.”
The bank created a €25bn European Guarantee Fund to support the EU’s pandemic response package and made €6bn available for healthcare projects in Europe, while also paying close attention to its mandate in developing countries, in particular those in its Africa, Caribbean and Pacific mandate, making €6.7bn available for healthcare and support to small and medium-sized enterprises.
There is a strong economic rationale for moving quickly — as well as a humanitarian one. The impact of the Covid crisis on the global economy has been severe, and although there are some signs of recovery, uncertainty remains high. And uncertainty is traditionally what constrains investment and recovery, says Debora Revoltella, director of the economics department at the EIB. Moving to alleviate the short-term impacts, should also provide better outcomes down the line.
EIB economists carry out a 12,000 firm survey every year, and this year asked firms in the EU about the effect of the pandemic on their investment plans. Covid will have an impact on 45% of firms’ investment plans for the year — and they will either abandon or delay their investment activities, the survey showed.
But while that makes worrying reading in the short term, Covid might have a more positive effect on European firms’ investment decisions in the medium term and beyond, says Revoltella.
“We know that Covid is also changing the status quo for firms,” she says. “What is coming out quite clearly is that firms perceive in the medium to long term, due to Covid, they will have to use much more digital technology, as well as reassess global value chains and adapt the goods and services they offer.”
The key from a policy point of view is how to get firms to quickly start investing and adapting to the new normal.
“In Europe we still have a high percentage of firms that are non-digital, much higher than in the US, and we should find ways to get more firms to start the digitalisation process,” she says. “From various studies we have done, we know that adoption of digitalisation requires a combination of elements.
“Firms need to be aware of the related opportunities and the crisis might help this factor because firms now realise its importance. But also to implement digitalisation in your company, you need to have the proper skills, to have qualified workers, and then you have to embrace the process of transformation of the company. So there is a lot to do from a policy point of view to try to construct this process.”
The EIB has been a key partner in the “Team Europe” initiative spearheaded by the European Commission to respond to the crisis outside the EU.
“In partnership with Team Europe, we have increased disbursements and repositioned the bank more in favour of action in the least developed countries, especially in Africa,” says Fayolle. “In terms of sectors of activity, what we have tried to finance particularly in Africa is two things. First, everything related to the health sector, helping countries deal with Covid — in terms of testing, or of vaccine research, where there are great projects in Africa.
“And the second is support to the real economy and in particular to small and medium-sized enterprises. We have developed in recent years significant contacts and projects with banks in Africa who are very active in the SME sector and we have accelerated our support to them because Africa has suffered a lot from the economic consequences of the crisis — and not only the health consequences.”
The EIB funded a study this year with the United Nations Development Programme to understand where digital solutions could be deployed to help African economies respond to the Covid pandemic. It found that a relatively small outlay — €650m — could fund smart and low-cost technological investments such a telephone-based contact tracing system in Kenya, using drones to spread health messaging in Côte d’Ivoire and providing an online learning platform for students and teachers in Tanzania.
Maria Shaw-Barragan, director, global partners at the EIB, says that the digitalisation drive started before the pandemic, and will continue after it.
“We have seen that the digital gap is one of the big obstacles for individuals in developing countries to be able to have access to not only the economy and trade, but also for education, information and e-government,” she says.
In order to narrow some of these digital disparities, the EIB is working with Unicef on a long-term project to ensure that every school in Africa is connected to the internet. “It’s something that for us in Europe is taken for granted: of course every school needs to have access to the internet, but in Africa it doesn’t happen.”
The partnerships with UNDP and Unicef are good examples of the way the EIB’s work helps create more impact and meet development objectives for all the institutions.
“The UN agencies have a lot of knowledge, they have a lot of capacity on the ground but what they lack is the ability to leverage with finance,” says Shaw-Barragan. “Combining their know-how, with our financial and technical expertise, is a very complementary relationship.”
Partnerships are just one hallmark of the EIB’s approach to development. Another is its commitment to the values of the European Union — with the UN’s Sustainable Development Goals and the Paris Agreement on Climate Action central to its operations. Sustainability is key.
“Over the years, the way development is done has been evolving,” says Shaw-Barragan. “We need a new way of doing development because the way it was done in the 20th century showed that the impacts can be wiped out too quickly. The analysis we do for every operation puts a lot of emphasis on the environmental and social aspects in order to make sure our investments are going to be sustainable over time.
“We apply EU values when we finance operations in developing countries,” she says. “For instance, on gender, in February, we signed a microfinance operation in Mali. It is a combination of supporting non-agricultural small businesses that are led by women as well as a very strong agricultural support element, which, of course, in Mali is extremely important.
More broadly, the EIB was the first multilateral development bank to sign up to the 2X Challenge — a commitment to provide $3bn of finance for women that meets a set of globally recognised criteria and metrics in the fields of employment, leadership, entrepreneurship, consumption and access to finance.
“Our commitment in 2019 was to mobilise €1bn in finance empowering women and we are getting closer to achieving this. We are looking forward to the next challenge and the next horizon,” says Shaw-Barragan. “We are ensuring that what we are doing is fully incorporating women into economic activity. Women are half of the world’s population and we need to make sure they are actors in development and not just beneficiaries of developmental work or passive targets of our activity.”
As the first MDB to join the 2X Challenge, the EIB is in the good company of European Development Finance Institutions, using its position to help spread best practice and partnership. It’s an example of working together under the Team Europe brand — which brings together the EU, the Member States and the Member States’ development banks, as well as EIB, the EU bank. The concept was developed by the Commission this year to show the combined impact of the union.
“It is clear that Team Europe as a whole is the biggest contributor to development finance globally. For us, as an EU institution, the approach is natural — working hand-in-hand with the delegations on the ground is the most efficient way to reach out to the local authorities to build impact and to achieve more together,” she says.
The overall message from the EIB is that its development mission is more important than ever.
“Covid has already taught us more than I would ever have suspected, and this is partly horrifying and partly encouraging us to continue on our way to climate neutrality and strong climate resilience,” says EIB president Werner Hoyer. “The Covid crisis has not only hit the industrialised countries; it has already hit many, many developing countries, and I think Europe has a role to play there.
“Together with the European Commission and other actors of the European level we are on that trail. We must turn this into a development challenge — and we must therefore put development on a higher level and in a more strategic dimension.”