Ivan Ebejer

Economist, European Commission Representation in Malta

Warning: More investment support ahead!

Monday 26th December 2016

In my last contribution to this blog, I outlined the main characteristics of the Investment Plan for Europe – the EU's response to reverse the decline in investment in the aftermath of the economic crisis. A number of key developments are worth highlighting since then.

First, the European Commission's investment offensive continued unabated. More financing agreements have been concluded – including between the European Investment Fund and APS Bank for the financing of innovative Maltese SMEs – that will lead to a sustainable increase in investment and ultimately translate in growth and jobs.

Equally important, and building on the success of the Investment Plan's first year, President Juncker tabled a proposal to further reinforce the European Fund for Strategic Investments (EFSI) – the financing arm of the Plan. This proposal, agreed by last week's Council of Finance Ministers, provides for doubling EFSI in terms of both duration and financial capacity. Once approved, the proposal would provide the necessary certainty to project promoters and allowing for it to be continued in the future.

How will the proposals under the so-called EFSI 2.0 benefit Malta? For starters, the total firepower available to finance projects will increase from the current EUR 63 billion to EUR 100 billion over five years. In turn, this should draw in more private capital, which is expected to mobilise some EUR 500 billion of total investment by 2020.

It is worth highlighting that, unlike traditional EU funding, an important feature of EFSI is that no pre-determined national or sectorial quotas are set for the allocation of financing. Project support is demand-driven. Still, the Commission agrees that geographical coverage of financing can be further improved. To this end, EFSI 2.0 will improve geographical coverage by placing stronger emphasis on leveraging local knowledge to facilitate targeted technical assistance across the EU. Local outreach will be stepped up either by opening local European Investment Bank (EIB) offices or by closer co-operation with development banks who have local expertise and understand where the local financing needs are.

Another benefit for Malta stemming from the new Commission proposal is the easier combination of ESFI financing with other EU funds. For this purpose, the Commission has proposed a simplification of regulations to facilitate such complementarities. This blending has already worked in practice. In my September contribution, I mentioned the TRI – Nord-Pas-de-Calais project in France, as an example. Since then, Latvia also exploited the synergies that exist between the two funding sources. A recently-approved project will see EFSI supporting the Riga transport company in building infrastructure to run hydrogen fuel cell buses.

Some criticise that the threshold which sets a level above which financing will be considered, renders ESFI useful only to larger Member States. In reality, nothing in the regulations foresees a fixed threshold for EFSI projects. The EIB will consider small ticket projects similar to what is being currently reviewed for Portugal, Greece and Romania. In addition, scale limitations can be overcome through the setting up of investment platforms which may be of particular interest to small investment opportunities. Such platforms pool projects with a thematic focus (ex. energy efficiency, broadband, SMEs etc.) or geographic focus (e.g. projects in several Member States), which themselves may be too small to benefit from financing, to make bundled projects accessible to investor groups. Bottom line – the overarching criterion is that the projects for which EFSI financing is sought are bankable.

These are some of the main issues highlighted by three evaluations on EFSI's first year carried out by the Commission, the EIB and Ernst and Young. ESFI 2.0 will tackle these issues with a view to ensuring a smooth continuation of financing operations and encouraging project promoters and investors to come forward with deals that support innovative investment and contribute to growth and job creation.

Although it is early days to measure with certainty the economic impact of the Investment Plan, there are strong indications that it could impart a significant positive impact on EU growth. The ILO estimates that if the Investment Plan proceeds as planned, 1.8 million direct and indirect jobs could be generated. The opportunity is there and more will be made available. There is something in the Investment Plan for project promoters and investors of all shapes and sizes. Those interested in the financing opportunities offered by EFSI can contact the EIB directly or local financial intermediaries.