6 The Facility for Euro-Mediterranean
Investment and Partnership
| (27924)
13558/06
COM(06) 592
+ ADD 1
| Commission Communication: Assessment of the Facility for Euro-Mediterranean Investment and Partnership (FEMIP) and Future Options
Commission Staff Working Document
|
| Legal base | — |
| Document originated | 17 October 2006
|
| Deposited in Parliament | 23 October 2006
|
| Department | International Development
|
| Basis of consideration | EM of 3 November 2006
|
| Previous Committee Report | None; but see HC 34-xxxvii para 8 (11 October 2006)
|
| To be discussed in Council | 28 November Economic and Finance Council
|
| Committee's assessment | Politically important
|
| Committee's decision | Not cleared; ask for further information
|
Background
6.1 The Facility for Euro-Mediterranean Investment and Partnership
(FEMIP) was created in October 2002 following the conclusions
of the Barcelona European Council in March 2002, to stimulate
economic growth and private sector development in the Mediterranean
region.[16] It combined
European Investment Bank (EIB) loans with EU budget resources
to provide technical assistance, interest rate subsidies for environmental
projects and risk capital. A dialogue structure between EU and
Mediterranean Partner Countries was also created.
6.2 In November 2003, the Council, on the basis of
a Commission assessment, carried out a first review of FEMIP's
activities and decided to reinforce the Facility with new features:
creation of a Special FEMIP Envelope for loans with a higher risk
profile, establishment of a donor Trust Fund, reinforcement of
the dialogue structure and further extension of FEMIP's local
presence in the region. It also agreed to increase the amount
of Community guarantees for loans to the region — an increase
which was formalized in December 2004, in the context of the mid-term
review of EIB external mandates.
6.3 The European Council also invited the Ecofin
Council to conduct another review in 2006, after consulting the
Mediterranean partner countries. The Commission says that this
consultation process involved a direct exchange of views amongst
Ministers, the Commission and the EIB in the FEMIP Ministerial
meeting in June 2006, bilateral discussions between the EIB and
authorities in Mediterranean countries in the first half of 2006
and consultations with FEMIP stakeholders through both targeted
and internet-based questionnaires.
Commission Communication
6.4 The Communication summarizes the main findings
of the review and presents options for the future. The Commission
Staff Working Document provides more detailed and technical information
from the review.
6.5 The review notes that FEMIP has significantly
contributed to investment in the region. The financial value added
was generally substantial, as the type of finance provided by
EIB was not readily available in local markets. The non-financial
contribution to the projects varied depending on the project,
but was generally found to be adequate. Since October 2002, 77
operations for a total amount of €7.2 billion (£4.87
billion) have been signed by FEMIP in Mediterranean partner countries,
of which Turkey, Egypt, Tunisia and Morocco have been the main
beneficiaries. 60% constitutes support for infrastructure projects.
The risk capital budget of €350 million (£237.18) —
of which more than €200 million (£135.53 million) is
disbursed and still outstanding — is expected to be fully
used by end-2006, and makes the EIB the largest international
provider of risk capital to the region. One hundred technical
assistance operations amounting to €105 million (£71.15
million) were undertaken before end-2005, and 64 service contracts
amounting to €42 million (£28.46 million) were concluded
with consulting firms by August 2006. But only about 23% of loans
were made directly to the private sector at end 2005, as opposed
to a target of 50%. And less than 30% of the technical assistance
has been used for the private sector. Small enterprises, which
constitute more than 95% of businesses and 50-70% of employment
in many Mediterranean countries, "have even less access to
credit than the private sector as a whole".
6.6 The review describes the main obstacles in this
respect as: the business environment; insufficient cooperation
from the Mediterranean governments and the insufficient adaptability
of FEMIP's instruments to the needs and risk profile of private
sector projects in the region. It concludes that the Facility
needs to be "fine-tuned and diversified."
6.7 The Communication acknowledges that the European
Neighbourhood Policy (ENP) and the introduction of the European
Neighbourhood and Partnership Instrument (ENPI) will affect the
future of the FEMIP. It outlines three options for the future:
— Option
1: Maintain the reinforced
FEMIP with no changes in instruments, an increase in the volume
of loans and stronger linkages with the ENP, including EU country
strategies. EIB would need to increase staff numbers to around
110 by 2013, from approximately 70 operational staff as of end
of 2005. This option would be the least costly but "would
not address the pitfalls as regards private sector development."
— Option 2: Fine tune and diversify
FEMIP's financial instruments, while reinforcing partnership and
local presence, so as to further improve FEMIP's effectiveness
and value added for private sector development. In addition to
the features under Option 1, Option 2 proposes to better match
private sector needs through a wider range of financial instruments
and services with added focus on SMEs. EIB local presence would
also be reinforced by expanding local offices, with 130 local
staff being envisaged. Under this option, the private sector's
needs would be better served, EIB would move closer to its customers
and other stakeholders, and Mediterranean countries would become
more involved in FEMIP's strategy and results. It would also increase
the intensity of FEMIP's support to SME creation and development.
— Option 3: Upgrade FEMIP into a
fully-fledged Euro Mediterranean Bank. This bank would use at
least the same variety of instruments to provide flexible financing
as Option 2 but with a stronger focus on higher risk products.
This option would enhance ownership but it would entail additional
costs for shareholders, and would take time to set up.
6.8 The Communication concludes that Option 2 "appears
to be the most cost- and time-efficient option".
The Government's view
6.9 In his 3 November 2006 Explanatory Memorandum,
the Parliamentary Under-Secretary of State at the Department for
International Development (Mr Gareth Thomas) says that the Government
is supportive of FEMIP and its aims, and supports EIB's ability
to use grant funds for technical assistance, risk capital and
subsidies where appropriate.
6.10 He notes that FEMIP forms part of the External
Lending Mandate of the EIB, which he says is being negotiated
separately (and which we considered on 11 October).[17]
He continues as follows:
"Our main aim in those negotiations is to
improve the quality of EIB lending but we are also working to
restrict the lending ceiling. Our broad approach is consistent
with this line.
"We want to ensure that FEMIP is reinforced
in a way that increases its impact on socio-economic development
in the Euro-Med Region, without substantial additional cost. We
also want to avoid any appearance of downgrading of Euro-Med relations.
Current indications are that the majority of Member States favour
Option 2.
"We want to avoid any moves towards the
establishment of a Euro-Med Bank (Option 3). The costs of this
are high and in any case, there is not strong support for it among
the Partner Countries in the region.
"We are in principle supportive of Option
2 as it fits with our objectives for EIB to be better coordinated
with the Commission in support of a coherent EU offer (HMT and
DFID have jointly written to EIB President Maystadt setting out
that the UK would like to see a formal role for EIB in the EC's
Country Strategy process), which also needs to be coordinated
with the work of international financial institutions (IFIs) and
regional development banks.
"However, we remain concerned about the
apparent focus on volumes of lending and we would need to be assured
that any new EIB financing facilities genuinely address problems
with accessing finance and do not just undercut existing finance.
It is also important that each of the proposals identified under
Option 2 is considered on the basis of affordability and EIB's
likely comparative advantage, taking into account the activities
of other IFIs and technical assistance providers in the region.
"For example, better-targeted lending to
other financial intermediaries (which will themselves lend to
SMEs), and use of local currency loans would improve the effectiveness
of FEMIP's activities in reaching SMEs. Providing more and better
targeted technical assistance linked to specific project proposals
is also likely to increase FEMIP's effectiveness. However, we
recommend further analysis of the value added of FEMIP involvement
in trade finance, loan guarantee schemes, general support to business
development services and micro-finance.
"We have indicated our general support for
Option 2 but we have stressed that the UK's preference is to see
more focus on adding value and providing finance where it would
not otherwise be available. We will press the Commission to select
aspects that are affordable within the External Lending Mandate
(ELM) settlement and offer the most value-added in terms of reaching
SMEs. We will also focus on improving FEMIP's linkages with the
Commission's ENP.
6.11 He goes on to say that the Financial Implications
of Option 3 would be substantial for EIB shareholders, including
the UK, although there appears to be a consensus amongst Member
States against this option. Option 1 would be the least costly,
"with lending volumes dependent on the Council decision on
EIB external mandates which will be taken before the end of 2006".
The financial implications of Option 2 "are not yet clear,
as it comprises proposals for a range of innovative new instruments,
strengthening of local offices, and increased levels of equity
investment".
6.12 Finally, on the Timetable, the Minister says
there the Communication was discussed at the Economic and Finance
Committee (EFC) alternates meeting on the 19th/20th October and
"will be discussed during the next round of EFC meetings,
leading to the 28th November ECOFIN meeting of Finance Ministers".
Conclusion
6.13 The review suggests that FEMIP has some creditable
achievements to its name. However, something more rigorous might
have been expected in a review not just reviewing progress but
also proposing significant additional expenditure. We wonder if
the Court of Auditors has had anything to say about FEMIP's operations
thus far; and if so, what?
6.14 We should also be grateful to be reminded
by the Minister of the legal base for this mix of EIB and EU funding.
6.15 We should also like an explanation, with
reference to the €350 million risk capital budget, of what
is meant by more than €200 million (£135.53 million)
being disbursed and still outstanding, and of this being "fully
used by end-2006".
6.16 As well as achievements, the review illustrates
clearly the limits so far, particularly with regard to effective
support for the type of business that constitutes the major source
of private sector employment, viz., the small and medium-sized
enterprise. However, although he supports Option 2, he clearly
has a number of reservations, both as to the proposed scope and
the increased cost. As he succinctly puts it: "we would need
to be assured that any new EIB financing facilities genuinely
address problems with accessing finance and do not just undercut
existing finance".
6.17 It is not altogether apparent to us either
that the Commission's proposals will adequately address the obstacles
identified. One of the major obstacles has been the unwillingness
of some, or all (it is not clear), Mediterranean partner governments
to permit EIB to lend in local currency. How will Option 2 remedy
this? Who would cover the exchange risk of such lending?
6.18 There are then the central questions of greater
coherence, particularly with regard to the European Neighbourhood
process and the new European Neighbourhood Policy Instrument,
avoiding overlap with the work of other international financial
institutions, and affordability. The Minister is plainly alive
to them. The EIB President has been lobbied — but with what
outcome? He says that he will "press the Commission to select
aspects that are affordable within the External Lending Mandate
(ELM) settlement and offer the most value-added in terms of reaching
SMEs", and that he will also "focus on improving FEMIP's
linkages with the Commission's ENP". All well and good. But
how will he ensure that the Commission responds appropriately?
Although he says that the proposal is to be considered by the
Ecofin Council on 28 November, the Minister does not say what
is intended thereafter.
6.19 As he notes, there is a read-across to the
overall question of the EIB's lending mandate, with regard to
which, on 11 October, we have kept a draft Council Decision under
scrutiny, pending further information on negotiations in which
the UK objective is to improve the quality of EIB lending and
limit the quantity.[18]
In this present instance, there are disturbing signs of a similar,
familiar Commission reflex response, of increased expenditure
and staffing as the answer to a problem.
6.20 We therefore keep the document under scrutiny
and ask the Minister to write to us after that meeting and before
any "green light" is given to the Commission to go ahead
on the present sketchy basis, to explain how his reservations
are being addressed and his overall objectives achieved.
16 The so-called "Barcelona process" countries:
Morocco, Algeria, Tunisia, Egypt, Gaza-West Bank, Israel, Lebanon,
Syria, Jordan and Turkey.
Back
17
See headnote. Back
18
Ditto Back
|
