Launched in November 2014, the Investment Plan for Europe (IPE) was the EU’s main response to reverse the downward trend of low levels of investment, and put Europe on the path of economic recovery. As Jyrki Tapani Katainen, the Prime Minister of Finland between 2011 and 2014, and European Commission Vice-President since July 2014, explains, there were three things that needed to be changed.
“Firstly, the business environment in Europe wasn’t always conducive to encouraging investment, meaning structural reforms were crucial. Secondly, companies required technical support to bring their investment proposals to light and, conversely, investors needed to know what sort of opportunities existed in the areas that interested them.”
“And, thirdly, as a continent, we needed to use the precious resources we had in a smarter way by investing public money wisely to attract private resources into projects of strategic importance for the EU.”
At the heart of the IPE plan is an EU-budget guarantee, known as the EFSI (the European Fund for Strategic Investments). This, crucially, allows the EU’s public bank, the European Investment Bank (EIB), to finance projects that are riskier than its average investments so as to attract other investors.
These projects often tend to be highly innovative and are undertaken by small companies without a credit history. “An example of a business that recently took advantage of the EFSI financing scheme was a child-friendly hotel resort in Croatia,” Mr Katainen says. “But there are many more in other industries beyond tourism, like transportation, research and the development of pharmaceuticals. And the Plan isn’t only for large businesses – in fact, so long as a project or business meets all the criteria, then they will get financing.”
Asked to explain how it works, the Vice-President says that, “smaller companies such as start-ups, micro-enterprises and SMEs can seek loans and equity from the banks with which we have signed EFSI-guaranteed agreements. To get bespoke advice and see what financing opportunities exist, I would recommend that companies use the European Investment Advisory Hub as a first port of call or, if their project is already at a mature stage, contact the EIB directly to apply for financing.”
Alternatively, local businesses can contact the newly-established Malta Development Bank, which is collaborating with the EIB on this initiative, or APS Bank, which is an official intermediary of the EIF.
“Another way is for smaller companies to join forces and set up an investment platform,” Mr Katainen continues. “This is a way of pooling together projects which have something in common – like being from the same sector or in the same region – so that investors are more likely to be attracted to the larger investment potential. A platform can combine EU funds, national support and financing from private investors, and it's a good way to get noticed. Around 40 such platforms are already active in many sectors and countries, and almost half of their investment is benefitting small companies.”
The EFSI has been so successful that, by July 2018, it had already surpassed its original investment target: that of mobilising €335 billion in new investment across the EU. More importantly, however, two thirds of that total had come from private investors rather than from public coffers. While large businesses can also make use of the EFSI scheme, by its termination in 2020, 700,000 start-ups and SMEs will have benefitted from financing, and it will have generated around 1.4 million jobs.
“When investors see that the European Investment Bank Group, with its AAA credit rating, is a partner in a deal, and that the EU budget is providing a guarantee should anything go wrong, it creates a ‘crowding-in’ effect,” Mr Katainen explains, when asked about why the Plan has been so successful. “The EU will cover the first loss, so private investors end up taking less of a risk than they might do in a project where the EIB wasn’t a partner.”
Calculations have shown that the Plan has already increased EU GDP by 0.6 per cent, and it is set to increase EU GDP by 1.3 per cent by 2020. In fact, there are already plans in place for when the EFSI comes to an end in 2020.
“In June, we proposed to create the InvestEU Programme, which will run from 2021 until 2027. InvestEU will bring together the multitude of EU financial programmes currently available, and expand the successful model of the IPE. It will consist of InvestEU Fund, the InvestEU Advisory Hub and the InvestEU Portal; aiming to trigger an additional €650 billion in investment.”
The InvestEU Fund will support four policy areas: sustainable infrastructure; research, innovation and digitisation; small and medium-sized businesses; and social investment and skills. Moreover, it is set to be flexible and have the ability to react to market changes and policy priorities that change over time.
Meanwhile, the Advisory Hub will continue to provide technical support and assistance to help with the preparation, development, structuring and implementation of projects, including capacity-building. Finally, the Portal will continue to bring together investors and project promoters by providing an easily-accessible and user-friendly database.
The proposal is currently being debated by the European Parliament and member states, and we are set to hear more about it in the near future. But, before that, the EFSI is still in full swing and local companies could benefit greatly from this financing scheme.
To find out more about the European Fund for Strategic Investments, visit http://ec.europa.eu
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