Written by Martin Svášek,
The European Fund for Sustainable Development (EFSD) is one of the EU financial instruments that promote a proactive development aid policy. It covers three areas of activity (‘pillars’): financing, providing technical assistance for the development of bankable projects, and helping to improve the business environment in partner countries through dialogue.
The EFSD promotes investment in EU partner countries, especially fragile ones, by making financing capacity in the form of grants, guarantees and other financial instruments available to eligible counterparts. It furthermore seeks to increase access to financing, primarily in Africa and the European neighbourhood countries. EFSD investment seeks to address specific socio-economic root causes of migration, foster the sustainable reintegration of migrants returning to their countries of origin, and strengthen transit and host communities.
Another aim of the EFSD is to contribute to the achievement of the UN 2030 Sustainable Development Agenda and to the implementation of the Paris Agreement on Climate Change. The fund’s strong environmental focus requires that 28 % of its financing be invested in measures related to climate action, renewable energy and resource efficiency.
Structure of the EFSD
The EFSD includes two regional investment mechanisms – the African Investment Platform and the Neighbourhood Investment Platform. These were established on the basis of two previously existing blending facilities (which combine EU grants with loans or equity from public and private financiers): the Africa Investment Facility (AfIF) and the Neighbourhood Investment Facility (NIF), whose funds together amounted to €2.6 billion. Under the present arrangement, blending operations are combined with EFSD guarantee operations, which are based, in their turn, on the existence of the EFSD Guarantee Fund. The EFSD Guarantee Fund amounts to €750 million (€350 million from the general budget of the EU and €400 million from the 11th European Development Fund).
The EFSD Guarantee Fund provides liquidity to compensate, if necessary, losses covered under guarantee agreements. It is envisaged that, by 2020, the EFSD guarantee will reach a total volume of up to €1.5 billion and will leverage additional financing by allowing risk-sharing with private investors, international financial institutions and development banks. Depending on the total volume of the EFSD guarantee, it might leverage from an expected €44 billion, up to the double of this amount whenever eligible partners, such as EU Member States, European Free Trade Association states, or others, make important additional contributions.
According to the Commission’s (first) 2017 EFSD operational report, in 2017 the EU agreed to invest nearly €1.3 billion in 52 blending projects in Africa and the European Neighbourhood under the EIP. The EU contribution is expected to trigger around €10.6 billion in public and private investment (24.1 % of the €44 billon target for 2020) after the EFSD’s first year of operation.
The report highlighted that around €400 million of EU investments under the EFSD had gone to Neighbourhood Investment Platform countries (22 projects) and almost €900 million to Africa Investment Platform countries (30 projects). The EFSD leveraged investments worth €5 billion and €5.6 billion respectively. The report reflecting the results for 2018 should be published soon.
Read the complete briefing on ‘How the EU budget is spent: European Fund for Sustainable Development‘ on the Think Tank pages of the European Parliament.