Driven by European Union policies in the ACPs

Coordination with the European Commission and the Member States

Although most of its operations are located in EU Member States, the European Investment Bank (EIB) contributes to the European Union's development aid and cooperation policies in countries outside the EU. It is strongly committed to promoting a policy of partnership aimed at coordinating efforts and increasing cooperation with, not only the European Commission and other European institutions (the Council of Ministers and the Parliament) but also with all European development agencies and other International Financial Institutions.

In the specific case of the ACPs, the EIB operates within the framework of the Cotonou Partnership Agreement, which was signed between the EU and the ACP states in Cotonou (Benin) on 23 June 2000. The Cotonou Agreement is for 20 years, with five-yearly financial protocols defining the aggregate amount of Community aid to the ACP States for each period.

Under the Agreement, the Bank manages the Investment Facility (IF), which is an EUR 2 037 million risk-bearing and revolving instrument established to promote the development of the private sector and commercially run public enterprises, alongside an interest rate subsidy appropriation aimed at providing appropriately concessional lending to the Bank's public sector borrowers in low-income countries. The IF and the subsidy endowment are both funded out of the Cotonou Agreement's first financial protocol of EUR 13.5 billion contributed by the Member States from the 9th European Development Fund (EDF), alongside EUR 11.3 billion in grants channelled through the European Commission The Bank also provides up to EUR 1.7 billion for lending from its own resources.

Coherence of the Bank's activities in the ACPs with the EU co-operation framework is ensured notably through close and continuous contact with the European Commission and European Union Member States in the preparation and implementation of its lending activities. The Bank reports to the IF Committee - on which the Member States and the Commission are represented - on the implementation of the business plan and on results achieved, through an annual portfolio report, as well as through the IF's Annual Report. At the same time the Bank contributes to the relevant EU/Commission Country Strategy papers (CSPs) that guide its approach to supporting investment in the non-EU countries in which it operates. It also maintains similar close relations with the authorities in the non-EU states concerned by its operations - especially in the African, Caribbean and Pacific states (ACPs), the Mediterranean region and in Asia and Latin America.

Although the Bank is not tied to the priority sectors identified in the CSPs agreed between the EC and the countries concerned, the CSPs form one of the inputs for the IF's annual business plan. This plan defines the strategic geographical and sectoral orientations for the IF, drawn up in consultation with the IF Committee on which the Member States and the Commission are represented. The Commission and the Member States give guidance on the balance between the IF's two key objectives: to take risks that other market participants would not usually contemplate (with the aim of promoting the development of the ACP countries), and at the same time to be financially sustainable.

The EIB and debt-sustainability in low-income countries

As an International Financial Institution the EIB has supported the efforts of the donor community to address the debt problems in the Highly Indebted Poor Countries (HIPC) from the start of the initiative. It participates in Multilateral Development Bank (MDB) coordination on debt relief and maintains regular contact with the IMF and the World Bank that monitors the HIPC framework. While the Bank has relatively limited exposure to those countries eligible for the HIPC Initiative, it shares the burden with other multilateral creditors, providing debt relief to eligible countries where it has claims outstanding on its own resources. The EIB also acts as the implementing agency to deliver debt relief on behalf of the European Community.

The EIB supports economic development in the HIPC countries and believes that governments should not be overburdened with debt but should have sufficient resources to invest in their countries. The Bank therefore provides concessional lending to its public sector borrowers in low-income countries, in particular with interest rate subsidies, to ensure the minimum grant-element for borrowing requirements as defined in the framework of IMF-supported programmes (or other similar arrangements).

Under the revised Cotonou Agreement, EIB lending has been adapted to allow the Bank greater flexibility to meet HIPC or similar debt sustainability related requirements. In addition to interest subsidies, close cooperation with the EC and other financing partners allows the Bank to put together coordinated financing packages with an appropriate grant element, which also enables it to enhance the development impact of projects it supports.

Examples include the EU-ACP Water Facility, a dedicated instrument managed by the Commission that provides grant funds for projects and for technical assistance in the water and sanitation sector. So far water projects in Ethiopia, Madagascar, Mozambique and Tanzania have benefited from the scheme. Other examples are the EU-ACP Energy Facility and EU-Africa Infrastructure Partnership, the latter aiming at combining resources of the EIB, the Commission and EU Member States in support of regional infrastructure projects in Africa. This initiative, which is expected to be fully operational in the coming months, will be complementary to, and coordinated with, the new G-8 sponsored Infrastructure Consortium for Africa.