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European Fund for Sustainable Development (EFSD) and establishing the EFSD Guarantee and the EFSD Guarantee Fund

In “Budgets - BUDG”

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Background

Creation of the EFSD was announced in a June 2016 European Commission communication on the partnership framework for cooperation with third countries under the European agenda on migration. This new framework seeks to establish migration compacts with countries where migrants originate or transit. These tailor-made agreements combine incentives to help partner countries to manage migration effectively, to cooperate on readmission of irregular migrants, and to address root causes of migration. Given the scale of challenges and funding needs, the Commission proposed a new European external investment plan (EIP) package in September 2016, to scale up private sector involvement in socio-economic development in partner countries. The EFSD is pillar 1 of the plan's three pillars. Alongside the new fund, the EIP focuses on technical assistance to support local partners prepare projects that are sustainable and attractive to investors (pillar 2), and on steps to improve the business environment and economic governance in the partner countries (pillar 3).

Content of the proposal

The proposal for a regulation on the European Fund for Sustainable Development (EFSD) and establishing the EFSD Guarantee and the EFSD Guarantee Fund provides that the new fund will be composed of two regional platforms: one for Africa and the second for the EU Neighbourhood (south and east), with the possibility of creating supplementary platforms in the future. The EFSD will function as a 'one stop shop', proposing access to well-established EU blending facilities, coupled with a new, additional guarantee for public and private investors and financial institutions that request integrated financial support for eligible investment in African ACP countries and the EU Neighbourhood. The aims are to scale up resources for addressing the root causes of migration and to contribute to the achievement of the SDGs. The Commission stresses the consistency of this objective of the regulation with the overall aim of EU development policy – the eradication of poverty – in line with Article 208 of the Treaty on the Functioning of the European Union (TFEU).

The EFSD guarantee, expected to have a total volume of up to EUR 1.5 billion, is one of the components of the EFSD, and is designed to leverage additional financing by allowing risk-sharing with private investors, international financial institutions and development banks. The EFSD will combine resources from two existing blending facilities – €2.6 billion from the Neighbourhood Investment Facility (NIF) and Africa Investment Facility (AfIF). The corresponding EFSD guarantee fund will be based on funding of €750 million, including €350 million from the EU budget and €400 million from the European Development Fund, with additional contributions from Member States and public financial institutions. The EFSD guarantee fund will provide liquidity to compensate, if necessary, losses covered under the guarantee agreement.

The swift adoption process

The European Council conclusions of 21 October 2016 reaffirmed the importance of the External Investment Plan to the implementation of the new partnership framework. At its meeting of 15 December, the European Council further stressed the need for swift implementation of the legislation relevant to the plan.

In its opinion on a Partnership Framework with third countries under the European Agenda on Migration, adopted on 8 February 2017, the Committee of the Regions welcomed the Commission proposal, including the pillar aimed at mobilizing investment in Africa and EU Neighbourhood countries. In order to match the total contribution made available by the EU, the Committee of the Regions proposes that specific agreements are signed with Member States and other international partners.

The Council of the EU agreed its negotiating position on the EFSD regulation on 13 December 2016. The Council position sees the EIB's role in the operational management of the EFSD guarantee reinforced, and embodied in a specific agreement with the Commission. It also contains a proposal to earmark at least 20 % of the funding for sectors contributing to the implementation of the Paris Agreement on Climate Change, and stresses the need for all actions under the EFSD regulation to fulfil the ODA criteria.

Following a series of  trilogue meetings that took place from the beginning of May till early July, the final agreement was adopted by the European Parliament in plenary on  7th of July 2017. On 25 September 2017, the Council has formally adopted a regulation establishing a European fund for sustainable development (EFSD).

The European Parliament ‘s contribution

Given the high political importance of the European External Investment Plan, as recalled in Joint Declaration on the EU's legislative priorities for 2017 the European Parliament has prepared its position in record time; the first discussion took place on 28 February in a joint meeting of the Development, Foreign Affairs and Budget Committees working together on the EFSD proposal under Rule 55 of the Parliament’s Rules of Procedures, followed by an exchange with stakeholders on 8 March, while, the draft report, prepared by rapporteurs Doru-Claudian FRUNZULICĂ,  Eider GARDIAZABAL RUBIAL and Eduard KUKAN has already been voted jointly by three committees on 24 April. The decision to enter into interinstitutional negotiations has been presented to the plenary on 26 April 2017. Among the committees' demands agreed in the trilogue were:

  • financed projects must fulfil official development assistance (ODA) criteria;
  • a minimum share (28 %) of EFSD funding to support investments contributing to implementation of the Paris Agreement on climate change;
  • more extensive definition of additionally and the complementarity of EFSD operations; clear eligibility criteria for investment projects, including respect of international environmental and social standards of responsible investment;
  • stronger scrutiny role for the EP, including observer status on the strategic board.

Follow up

The European Commission proposal for the next long-term budget 2021-2027 of the European Union (EU), the proposed Neighbourhood, Development and International Cooperation Instrument (NDICI) Regulation comprises a European Fund for Sustainable Development Plus (EFSD+) that would have larger geographical scope and increased ressources.

Related carriage:

Proposal for a Regulation of the EP and the Council establishing the Neighbourhood, Development and International Cooperation Instrument

References:

 Further reading:

Author: Eric Pichon, Members' Research Service, legislative-train@europarl.europa.eu

As of 20/11/2019.