European multilateral development banks in sub-Saharan Africa

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Various multilateral development banks (MDBs) have been active in Africa for several decades.

This article examines recent developments regarding the European MDBs, the European Investment Bank (EIB) and the European Bank for Reconstruction and Development (EBRD) in sub-Saharan Africa.

The EIB has significantly increased its engagement in Africa, providing €4 billion to support public and private investment across the continent in 2020.

The European Investment Bank

The EIB is a public international financial institution whose shareholders are Member States of the European Union. It was created in 1958 within the framework of the Treaty of Rome. As a “policy bank”, the EIB uses its financing operations to promote the EU’s policy objectives.

Although the EIB has been active in Africa for many years, it has significantly increased its engagement in recent years, providing €4 billion to support public and private investment across the continent in 2020 alone. an increase of 25% compared to 2019.

The EIB has offices in nine African countries (see Figure 1), where it works to accelerate and expand investments that contribute to the achievement of the United Nations Sustainable Development Goals (SDGs), with particular emphasis on emphasis on combating climate change and creating job opportunities. According to Werner Hoyer, President of the EIB, “Africa is a key priority for the European Union and the European Investment Bank”, and the EIB’s global technical, sectoral and financial experience reinforces the impact that its commitment can be had in Africa.1

In addition to its direct lending, the EIB has provided more than €12 billion of new financing in Africa in recent years, in cooperation with other European and international development finance institutions, including the African Development Bank (AfDB), the World Bank, the EBRD. , and the development finance agencies of the Netherlands, France and Germany.

Boost Africa is a joint initiative of the AfDB and the EIB, with financial support from the European Commission and the Secretariat of the Organization of African, Caribbean and Pacific States (OACPS). Boost Africa aims to enable African businesses to become globally competitive. It focuses on sectors such as information and communications technology, agribusiness, financial services and financial inclusion, health, education and renewable energy, in which innovations including in the digital sphere, can improve people’s quality of life.

The European Bank for Reconstruction and Development

Unlike the EIB, the EBRD is a newcomer in Africa, particularly in sub-Saharan Africa.

Established in 1991, the EBRD was founded to help former communist countries in Central and Eastern Europe transition to a market economy after the end of the Cold War. Unique among MDBs, the EBRD’s mandate, codified in Article 1 of the Agreement Establishing the EBRD, includes assistance only to countries that are “committed to and applying the principles of democracy (and) multi-party pluralism “. This distinct contribution is based on the emphasis on promoting private sector development, combining investment, policy and technical assistance in a single management and incentive structure, with the capacity to make selective interventions in the public sector.

In addition to ensuring the application of these principles in the countries where it operates, the EBRD’s current strategic objective is to support the private sector in the low-carbon “green” economy, to promote equality opportunities and accelerate the digital transition.2 In October 2020, the EBRD Board of Governors elected Odile Renaud-Basso as the seventh President of the EBRD. The EBRD’s new five-year strategy looks beyond the pandemic to what needs to be done to support member countries’ progress in achieving the SDGs. Some ideas discussed include the challenge of doing more with impact investors, as well as implementing new instruments (such as thematic funds) and new uses of old instruments (such as guarantees).3

The EIB is a shareholder of the EBRD.4 Initially focused on Central and Eastern Europe, the EBRD has expanded its scope in recent years to 38 countries, many of which are in the southern and eastern Mediterranean region.5

The ERBD, one of only two major MDBs currently expanding its shareholder base, is owned by 69 countries, including four from North Africa: Egypt, Libya, Morocco and Tunisia.6 Algeria’s membership was approved in 2020.7 The EBRD also intends to further expand its activities in sub-Saharan Africa.8

46%

of funds disbursed by the EBRD in 2019 were invested in projects linked to the “green economy”.

(EBRD Annual Review 2019)

Collaborations with MDBs

The EBRD and EIB are two of 12 MDBs, along with the International Monetary Fund (IMF), working together to help finance the SDGs. The twelve institutions released their first-ever joint report in December 2020, noting that they had funded a $230 billion global response program during the 2020-2021 period to reduce the impact of the COVID-19 pandemic , of which 75 billion dollars will be dedicated. to the poorest countries in the world in 2021.

Expanding the scope of the EBRD’s activities in Africa, particularly sub-Saharan Africa, was a priority of the previous president, Suma Chakrabarti, who said in 2020: “We believe there is a case for limited and gradual expansion in sub-Saharan Africa. , and we will present this case to our shareholders. »9 The EBRD also seeks to establish partnerships with development finance institutions (DFIs) and other active participants in sub-Saharan Africa, and intends to focus on countries closely integrated with those where it currently operates.ten

Several large MDBs have stated sustainability goals and are expected to play a crucial role in the energy transition. In 2019, 46% (around €4.6 billion) of funds disbursed by the EBRD were invested in projects linked to the “green economy”.11 By 2025, the EBRD intends for the majority of its business volume to be “green”, with a particular focus on climate finance.12 An example of this focus is the EBRD’s Innovative Sustainable Energy Finance Facility (SEFF), which the EBRD uses to provide credit lines to local financial institutions seeking to develop sustainable energy financing products.

Funding for sustainable energy projects is provided in two key areas: energy efficiency and small-scale renewable energy. Local financial institutions on-lend the funds they receive from the EBRD to their clients, which include small and medium-sized businesses, business and residential borrowers, and renewable energy project developers.13 Given the significant electricity generation deficit in Africa, SEFFs appear to be an approach that aligns very well with the continent’s development priorities and supports the energy transition.

Conclusion

The EIB has been present in several African countries for many decades and is clearly determined to accelerate these activities. The expansion of the EBRD into sub-Saharan Africa is a remarkable development. We understand that the EBRD intends to discuss this initiative in more detail at its 30th Annual Meeting in June 2021.14

We anticipate increased collaboration between MDBs and other key stakeholders in sub-Saharan African countries and, as a result, we hope to see increased focus on private sector participation in key sectors which will act as a catalyst for growth.

1 https://www.eib.org/en/press/all/2020-066-eib-confirms-eur-3-billion-of-new-investment-across-africa-in-2019
2 https://www.ebrd.com/what-we-do/strategy-capital-framework
3 https://www.ebrd.com/news/speeches/putting-climate-and-the-environment-at-the-core-of-ebrd-activity.html
4 https://www.eib.org/en/about/governance-and-structure/shareholders/index.htm
5 https://www.ebrd.com/about-the-semed-region.html
6 https://www.ebrd.com/shareholders-and-board-of-governors.html
7 https://www.reuters.com/article/ebrd-algeria-idAFL5N2EL2BE
8 https://www.ebrd.com/news/2016/creating-green-financial-markets-in-africa-.html
9 https://www.reuters.com/article/ebrd-growth/ebrd-shareholders-set-for-vote-on-africa-expansion-in-may-president-idUSL8N2AL4MY
ten https://www.ebrd.com/what-we-do/strategy-capital-framework
11 https://2019.ar-ebrd.com
12 https://www.ebrd.com/what-we-do/get.html
13 https://www.ebrd.com/what-we-do/sectors-and-topics/sustainable-resources/seffs.html
14 EBRD Strategic and Capital Framework, 2020-2025
15 https://projects.worldbank.org/en/projects-operations/project-detail/P167183

White & Case means the international law firm comprising White & Case LLP, a limited liability company registered in the State of New York, White & Case LLP, a limited liability company incorporated under English law and all other partnerships, affiliated companies and entities.

This article is prepared for the general information of interested persons. It is not exhaustive and does not claim to be. Due to the general nature of its contents, it should not be considered legal advice.

© 2021 White & Case LLP

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