ACP-EU Joint Parliamentary Assembly The EU blending mechanism: Experiences of KfW development bank

Transcription

1 ACP-EU Joint Parliamentary Assembly The EU blending mechanism: Experiences of KfW development bank Brussels, 17 March 2016 Christoph Gabriel Krieger Regional Manager, West Africa and Madagascar KfW Development Bank Bank aus Verantwortung

2 KfW Development Bank as part of the KfW Group Domestic promotion International financing We promote Germany We support internationalisation We promote development SMEs Private clients Municipalities Export & project finance Developing & emerging countries Support for the environment and climate protection Financing volume (FV): 47.6 billion (2014, EUR) FV: 16.6 billion FV: 7.4 billion and 1.5 billion

3 Promoting development at the KfW Group Financial Cooperation Promoting development Entrepreneurial Cooperation Governments and public institutions Partners/clients Private enterprises Fiduciary funds (German federal budget) and own funds (capital market) Grants and loans, as well as advisory services for project preparation and support EUR 6.7 billion Funds Instruments Volume of commitments 2015 Mainly own funds Participations and loans as well as advisory services EUR 1.1 billion

4 German Financial Cooperation through KfW: Who gets what? Employed instruments are reflective of region s development Sub-Saharan Africa 16 Latin America/Caribbean Middle East/North Africa Europe/Caucasus Asia/Pacific Analysis based on the population of all completed programmes/projects with some budget funds (no loans of pure own funds = promotional loans included) n=2721

5 German Financial Cooperation through KfW: Development of new commitments to Africa New Commitments (in million Euros) Percentage of financial products ( )

6 Current Portfolio of KfW Development Bank in Africa 2014 Current total portfolio 9,4 billion Euros (New commitments 2014: 2,2 billion Euros) 564 ongoing projects Large variety of sectors Other: 1% Economic Development Financial Sector: 13% Infrastructures: 34% Energy: 14,5% Water/Sanitation: 17,1% Transport: 2,0% Social Development/ Governance: 21% Health: 6,5% Education: 5,7% State and Civil Society: 9,1% Rural Development/ Natural Resources Protection: 31% Agriculture, Forestry and Fisheries: 11,8% Environmental Protection: 19,7% 6

7 How to define EU-Blending? EU-Blending in a nutshell: Combination of grants provided by EU facilities and (concessional) loan financing by Development Banks / Financial Institutions (FIs) Making the most of financial choice by using grant money as leverage: (Public) grant money is a very scarce financial resource: Hence deliberate choice of financial structure can help to turn grant money into more development impact. Guiding principle: As much subsidy (grants) as necessary to create the desired development result, but no more! Grant contribution is to the benefit of the partner country, making the total financing package more favourable (e.g. larger volume, longer tenor, lower interest rates) Responsibility for the implementation of the EU grant is delegated to a (lead) FI EU grants are usually made available through the (regional) Blending Facilities

8 EU Blending in Africa ITF, NIF: success story EU Blending: Close cooperation between EU KOM and European FIs Important Value Added in Africa Major impact: preparation of bankable projects and enabling implemenation of complex regional projects SE4All: concrete projects on the ground Key factors for success Short Decision Making Process: from submission to approval Reliance on FIs competences for project concept and preparation process Predictability: at pipeline stage ( red/yellow/green ) and during the process Flexibility: to respond to partners needs Transaction Costs to be kept under control in application process, contracts, reporting and visibility actions

9 Why EU-Blending? (from an institutional perspective) AFD, AfDB, EIB, EBRD, KfW, et al. Common objective: Development Impact Improved Aid Effectiveness; enhanced impact, significance and relevance through joint (large scale) interventions Specific advantages for FIs: EU as a key additional source of grants (increasingly scarce budget funds from national Governments) enables FIs to continue blending of grants and loans, and thus to provide more development financing in line with their public mandate Specific advantages for the EU: Benefiting from Financial Institutions practical experience Improving coherence of EU-aid under the umbrella of blending Loans as an additional financial instrument in the toolbox (financial & political leverage) Enhance visibility for EU

10 Opportunities and strengths (1) Tailor made financing: Optimized financing packages for beneficiaries allow a more efficient allocation of scarce public resources for development aid Competition of ideas: Blending facilities have become a highly important forum for exchange on innovative approaches and well designed project approaches Financial Leverage & Additionality: Financial leverage: Blending allows making available additional financial resources for development aid. Thus, key aid projects can be realised that otherwise could not have been financed at all (more projects) - or that would not have been financed to this extent (scale of projects). Pro-Poor-interventions: Softening the financial conditions through the grant allows for the implementation of interventions with a strong poverty focus that otherwise would not be financially viable for the Partner Country (e.g. water or energy supply in urban slums).

11 Opportunities and strengths (2) Financial Leverage & Additionality (ctd.): Political leverage: influence of the EC and other European Actors is strengthened (e.g. concerning the definition of sector policies, reforms and priority projects) Positive externalities: Grant is used to compensate for the additional costs involved with public goods (e.g. adherence to strict social and environmental standards, climate change measures) Project acceleration: Blending may help to get a project off the ground quicker (grants used for project preparation, feasibility studies, etc.) EU Visibility: Blending facilitates joint, large scale interventions under the umbrella of the EU and thus enhances visibility of EU aid. Private sector / Risk mitigation and borrowing costs: Blending can help to directly support SMEs and job creation in partner countries (e.g. SME-financing); lay the foundation (key infrastructure) for economic growth and private sector development; mitigate risks associated with a country, sector or specific project for (private sector) investors (e.g. AFD and KfW currently discuss with the EC the set-up of guarantee scheme for private sector investments in infrastructure (European Guarantee for Sustainable Development - EGSD)

12 Limits and challenges Blending is not appropriate in all situations. Among other aspects, debt sustainability of Partner countries is to be respected: Blending has to be seen as part of the overall toolbox of aid instruments, complementary to traditional grant funding. In some cases blending projects can be complex and time-consuming: Further need to simplify and streamline the administrative procedures for the FI Avoiding market distortion and crowding out: In case of private sector interventions, any risk of market distortion has to be avoided - Loan grant blending may otherwise give a beneficiary an unfair advantage that prejudices local and international competitors. Loss of visibility for individual donors: In particular in the context of joint financing, the visibility of the donors may be reduced compared to a direct (bilateral) project which can be in some cases politically not appropriate.

13 Thank you for your attention! Contact: Tel Bank aus Verantwortung