Transcript A widening gap in living standards

FEMIP: the contribution of
the EIB to reinvigorating the
Euro-Mediterranean
Partnership
Structure of the presentation
• Brief overview of EIB role and
operations
• Main challenges facing Mediterranean
Partner Countries
• FEMIP as a response
Part 1
Overview of EIB role and
operations
THE EIB
EIB - European Union’s financing institution

Created by the Treaty of Rome in 1958, to provide
long-term finance for projects promoting European
integration, current mission is to promote the EU’s
policies

Subscribed capital EUR 150bn

EIB shareholders: 15 Member States of the European
Union

EIB’s annual lending (2002): EUR 39bn (of which EUR
33bn within the EU)

EIB’s annual borrowing (2002): EUR 38bn
STRATEGIC OUTLOOK
(Board of Governors)
Focus on 5 priorities
 regional development
 implementation of i2i – the innovation 2000 initiative
 environmental protection and sustainable development
 preparation of Accession Countries
 support for EU development aid and cooperation policy
EIB implements EU policies;
a policy driven Bank
CURRENT EXTERNAL EU LENDING
MANDATES
EUR million
 Central and Eastern European countries
9 280
(2000-2007) (350m for Yugoslavia)
 Pre-accession facility (EIB risk)
8 500
(2000-2003)
 Mediterranean countries
6 425
(2001-2007)
 Euro-Med mechanism (EIB risk)
1 000
(2001-2007)
 ACP Countries
3 965
(2001-2007)
 South Africa
825
(2000-2006)
 Latin America Asia
2 480
(2000-2006)
 Russia (2000-2005)
100
A global economic development partner
31
EURO-MEDITERRANEAN PARTNERSHIP
In 2002, EUR 1.8bn towards sustainable development in the
12 countries South and East on the Mediterranean shores
Key-areas:
Private sector support
Improvement of the environment
Strengthening economic infrastructure
Energy & communications
Regional cooperation projects –
South-South cooperation
Social projects (health & education
Concrete support for the Barcelona process
LOAN SIGNATURES IN EUROMEDITERRANEAN PARTNERSHIP COUNTRIES
EUR 5.9bn (1998-2002)
Syria 290
Turkey
1 629
Lebanon 105
Tunisia 977
Jordan 234
Morocco 949
Gaza-Westbank
133
Algeria 625
EURm:
Egypt 943
Israel
A partnership for economic
liberalisation and privatisation




Energy
Communications
Water
Industry &
Services
 Global loans
EIB: A LEADING FINANCIAL PARTNER
OF THE MPC
In support of
 The economic and social development of the
partner countries in the Mediterranean region
 European Policy Objectives: «The Barcelona
Process»
PROJECT FOCUS:
NO COUNTRY OR SECTOR QUOTAS
10
LOANS SIGNED IN THE MPC 1992-2002
(EUR million)
2000
1808
1476
(EUR million)
1600
1159
1200
768
400
966
1002
1998
1999
684
650
800
1214
1122
329
0
1992
1993
1994
1995
1996
1997
2000
2001
CONCRETE SUPPORT TO THE
BARCELONA PROCESS
2002
CONCRETE SUPPORT TO THE EURO-MED
PARTNERSHIP: EUR 5.9 billion (1998 – 2002)
Building
physical links
with
communications
infrastructure
21%
Underpinning
private initiative
33%
INDUSTRY,
SERVICES
AND FINANCIAL
SECTOR:
EUR 1951 MILLIONS
ENVIRONMENT:
EUR 1452 MILLIONS
ENERGY:
EUR 1238 MILLIONS
Securing
sustainable
energy supplies
21%
COMMUNICATIONS:
EUR 1250 MILLIONS
Safeguarding the
environment
25%
12
Part 2
Main challenges facing
Mediterranean Partner
Countries
Sequence of events
• Before 1995, no economic convergence
of Med and EU countries
• Barcelona process to facilitate
convergence
• Some improvement, but not enough
• Reinvigorate the Barcelona process
Euro-Med Partnership
• Establishing a free trade area:
cornerstone of Euro-Med Partnership
• Financial assistance to help partner
countries rise up to the challenge of
open markets
• Private sector response requires
enabling environment
Economic performance of MPC
• A widening gap in living standards
– GDP per capita: real growth
– GDP per capita level: MED vs EU
• Reflects disappointing overall performance of
Mediterranean countries
• Causes high unemployment and may affect
social/political stability
GDP per capita (US$) - Average
30,000.00
20,000.00
10,000.00
Mediterranean
countries
EU 15
Year 2002
2,130.00
24,670.00
Real GDP growth
4.0%
3.0%
2.0%
1.0%
0.0%
Average 1990-1995
Average 1996-2002
Mediterranean
countries
2.8%
3.4%
EU 15
1.5%
2.3%
GDP per capita growth
2.0%
1.5%
1.0%
0.5%
0.0%
Average 1990-1995
Average 1996-2002
Mediterranean
countries
0.2%
1.3%
EU 15
1.1%
2.0%
Origins of the current predicament
• Inward-looking, state-directed development
policies of the past
• Unsustainable macroeconomic imbalances
• Implementation of economic reforms often in
a less than deliberate manner
Policy reform record
•
•
•
•
•
Trade liberalisation proceeding slowly
Fiscal and exchange rate policy
Financial sector reform
Privatisation
Investment in infrastructure and human
capital
• Slow improvement in business climate
(« red tape », judicial system)
The consequences
•
•
•
•
Fewer viable investment projects
Crowding out of private sector
Deterrent for private investors
Outcome: relatively low FDI
(0.75% of GDP, compared to 2.5% in East
Asia and 1.8% in Latin America)
The way forward
• Maintain macroeconomic stability
• Adopt and decisively implement reforms
conducive to private sector development
• Develop human capital
• Improve infrastructure required by the private
sector
• EU financial assistance to be targeted at
supporting and facilitating reform
Risks
• Magnitude of the task
– Wide range of reforms
– Institutional capacity
• Resistance to change
– Public sector
– Concerns about social impact
– Private firms with rent position
Part 3
FEMIP as a response
A new impetus to the Barcelona
process
• A new major initiative by the EU Council
• A reinforced mandate for the EIB in
order to facilitate a more deliberate
approach toward reform
• A strengthened Partnership concept
Better linking financial assistance
and policy reform
• Available research shows that financial
assistance can contribute to growth and
development…
• … but that it works best when good policies
and institutional frameworks are in place
• Thus financial assistance must go hand in
hand with approriate reforms
The essence of FEMIP
• Financial assistance focused on support
for private sector
• Emphasis on quality of interventions
and better linkage with policy reforms
• More resources to finance private sector
projects and complementary projects
supporting private sector development
The PDCC: an instrument to
enhance the dialogue on policy
and strategy
• Brings together representatives of EU,
Med Partner Countries and multilaterals
• To discuss relevant policy issues and
investment strategy
• Objective: to strengthen ownership of
policy reforms affecting FEMIP financed
investments
PDCC (2)
• PDCC discussions could serve to raise
awareness about need for specific
reforms
• An incremental but realistic approach
• Could be more effective than
discussions at project level only
FEMIP: concrete actions
• Increased direct support for private
sector
• Increased support for complementary
enabling activities
• Wider array of financial instruments and
adaptation of existing instruments
• Provision of technical assistance
Types of operations with the
private sector
• Structured finance/PPPs
• Corporate lending
• SMEs
– Lines of credit (global loans)
– Investment funds
Constraints confronting SMEs
• Most local firms are family-owned SMEs
relying on self-financing (retained profits) and
short term loans
• External equity financing hampered by
– lack of institutional investors and intermediaries
– corporate culture
• Long-term credit discouraged by macro
instability and heavy collateral requirements
Risk capital (1)
• A flexible instrument used to provide equity to
private firms through a variety of channels:
private equity funds, finance companies and
equity lines to banks (over 250 m € since
1996, with high multiplier effect)
• EIB pioneered development of investment
funds in Morocco, Tunisia, Egypt, Jordan and
Turkey. Also supported privatisation (Tunisia)
• EIB presence has also acted as catalyst for
other investors
Risk capital (2)
• Under FEMIP, RC operations will increase
substantially
• Reforms create prospects for development of
private equity, which FEMIP could support
• To better serve the varied needs of SMEs,
FEMIP will support the development of new
instruments: quasi-equity, leasing, guarantees
Lending to private sector (1)
• Lack of long-term credit (reflecting
scarcity of LT deposits) creates reliance
on short term loans
• High collateral requirements restrict
long term credit
• EIB lending to help fill this gap
Lending to private sector (2)
• Credit lines to SMEs to overcome limitations
of maturity transformation by banks
• Risk-sharing mechanism (which EIB will work
to improve)
• Better serve the needs of SMEs, FEMIP
could launch local currency issues to provide
long term resources in local currency to
intermediaries
Complementary lending for PSD
• Create enabling environment by supporting
human capital and physical infrastructure
• Focus on infrastructure of common interest
with the EU, regional projects and other
investments supporting trade integration
• Focus on projects in higher and technical
education to increase availability of skills to
attract FDI
Technical assistance
• Builds on EIB’s experience with
environmental projects
• Wider range of projects, more resources
• Primarily for identification, design and
management of projects (infrastructure, PPP)
• Also in banking sector, to improve appraisal
capability in order to reduce collateral lending
Conclusion
• FEMIP: not just a quantitative increase
• Also a qualitative change:
– Focus on private sector
– New or reinforced instruments to fill identified gaps
• Enhanced dialogue with Commission, Partner
Countries and IFIs
• Implementation and effectiveness will depend
on pace of reforms