Documents considered by the Committee on 13 November 2017 Contents

38European Fund for Sustainable Development

Committee’s assessment

Politically important

Committee’s decision

Cleared from scrutiny; drawn to the attention of the International Development Committee

Document details

Proposal for a Regulation on the European Fund for Sustainable Development (EFSD) and establishing the EFSD Guarantee and the EFSD Guarantee Fund

Legal base

Articles 209 and 212 TFEU: ordinary legislative procedure; QMV

Department

International Development

Document Number

(38085), 12290/16, COM(16) 586

Summary and Committee’s conclusions

38.1Following the increase in migrants seeking refuge in Europe in recent years, the European Commission in June 2016 proposed the creation of a new Partnership Framework with third countries under the European Agenda on Migration, incorporating an European External Investment Plan (EIP), aimed at tackling the root causes of migration. As part of this Investment Plan, the Commission tabled a legislative proposal to establish a European Fund for Sustainable Development (EFSD).

38.2The aim of the EFSD is to redeploy €3.35 billion (£2.9 billion) from within the EU budget and the European Development Fund to provide investment and access to finance to businesses in developing countries in Africa, as well as the EU’s eastern and southern neighbourhood.574 The Fund’s resources will primarily be used to provide grants that leverage further investment (from both public and private sources) to boost employment, reduce poverty and address the root causes of migration from the recipient countries to the EU. The fund also encompasses an EFSD guarantee, which aims to leverage additional non-EU investment by providing a guarantee capacity for credit enhancement.

38.3The Government has supported the establishment of the EFSD as a means of “addressing investment bottlenecks and incentivising international financing institutions and the private sector to increase the scale of their activities outside the EU”. During the consideration of the proposal in the Council, the Government sought—and obtained—amendments to ensure the Fund would be used to leverage investment in those areas that were generating the largest flows of migration to Europe, and only support projects through the EFSD guarantee where there was evidence it would deliver additionality (see “Background” for more details).

38.4In June 2017, the Council and the European Parliament reached an informal agreement on the legal text underpinning the EFSD.575 The Minister of State at the Department for International Development (Lord Bates) informed us of the outcome of the trilogue negotiations on 21 September, which was formally adopted by the Council on 25 September.576 The Minister’s letter explained that the Government was supportive of the agreement reached, and would support it in the Council. He apologised for the resulting scrutiny override, but argued that “by approving this proposal [the UK] will maintain influence over a policy that has the potential to deliver a significant amount of investment to tackle the root causes of the migration crisis in Africa and the EU neighbourhood”.577

38.5The Minister does not mention the implications of Brexit for the implementation of the EFSD or the UK’s contribution thereto through the general EU budget. However, separately in September, the Government also published a paper on its vision for post-Brexit cooperation with the EU on development aid.578 It calls for alignment between UK and EU development policy and programming on a “case-by-case” basis. On 22 September, the Prime Minister called for an interim arrangement to maintain the current framework for relations with the EU for a limited period post-Brexit, and also pledged that the other Member States “will need to pay more or receive less over the remainder of the current [EU] budget plan as a result of our decision to leave” (see “Implications of Brexit” below for more information).579

38.6As the Government supported the final text of the Regulation, we are content to now clear this proposal from scrutiny. We also consider that it was acceptable for the Government to override scrutiny at the time of the Council vote in September, as the Committee had not yet been reconstituted following the general election.

38.7With respect to the implications of Brexit for the implementation of the EFSD (and EU development policy more generally), we have taken note of the Government’s paper on post-Brexit cooperation with the EU on foreign policy, including development. We welcome the ambition to achieve a “deep and special partnership” on development policy, which would contribute to the coherence of international efforts to drive sustainable development. In light of the Prime Minister’s speech of 22 September on the Government’s Brexit proposals, we will be writing to the Department for International Development with further questions about the UK’s post-Brexit involvement in EU development policy, as well as its potential financial contributions to the EFSD, via the general EU budget, and to the European Development Funds.

38.8In the meantime, we draw the adoption of the EFSD Regulation to the attention of the International Development Committee.

Full details of the documents

Proposal for a Regulation on the European Fund for Sustainable Development (EFSD) and establishing the EFSD Guarantee and the EFSD Guarantee Fund: (38085), 12290/16, COM(16) 586.

Background

38.9The need for developmental assistance has recently been reinforced by the EU’s efforts to deal with the flow of economic migrants, and, on 28 June 2016, the European Council endorsed a Commission Communication which suggested the establishment of a new Partnership Framework with third countries under the European Agenda on Migration, incorporating an European External Investment Plan (EIP), aimed at tackling the root causes of migration.

38.10A further Communication in September 2016 set out the content of the Plan in greater detail, and suggested that a new, targeted approach was needed to attract the required level of private sector investment. This was accompanied by a proposal to establish the European Fund for Sustainable Development (EFSD), which the previous Committee first considered in November 2016.580

38.11The aim of the EFSD is to mobilise €3.35 billion (£2.9 billion) from the EU budget and the European Development Fund to provide investment and access to finance to businesses in developing countries in Africa, as well as the EU’s eastern and southern neighbourhood.581 The Fund’s resources will primarily be used to provide grants that leverage further investment (from both public and private sources) to boost employment, reduce poverty and address the root causes of migration from the recipient countries to the EU. It will also contribute to the implementation of the Paris agreement on climate change (COP 21).

38.12The EFSD consists of two distinct elements, which our predecessors explored in more detail in their Report of 2 November 2016:582

38.13The EFSD will be used for both guarantees and other grant based instruments, to be used to secure private sector investment. The Commission argues that using the Fund in this way will create a multiplier effect which the Commission estimates could leverage up to €44 billion (£39 billion) of total additional investment by 2020.

The Government’s position in the negotiations

38.14In his October 2016 Explanatory Memorandum on the proposal, the Minister of State at the Department for International Development (Rory Stewart) expressed the Government’s support for the principle of leveraging EU budget and EDF funding to secure further private investment, and has therefore been in principle supportive of the proposed EFSD.584 He described the Fund as a “comprehensive approach as an important first step towards addressing investment bottlenecks and incentivising international financing institutions and the private sector to increase the scale of their activities outside the EU”.

38.15However, the Minister also outlined four areas where the Government was seeking changes to the proposed Regulation: ensuring that the Commission work closely with the European Investment Bank to ensure that the necessary investment expertise was available; ensuring that the instrument would be used to leverage investment in those areas that were generating the largest flows of migration to Europe; ensuring that the EFSD would adopt a differentiated approach according to need and circumstance; and ensuring that there would be supporting evidence that the guarantee for other investors would deliver additional investment, rather than providing security for investment which would have taken place in any case.

38.16In November 2016, the Committee received from the Minister a letter in which he said that, whilst discussions in the Council were still continuing, there has been “significant progress” on each of the four specific UK areas of concern previously identified.585 The EIB had been added as a member of the EFSD Strategic Board, and the Government also secured support for an amendment that ensured that all “migration affected countries” (including host, origin and transit countries) would be eligible for EFSD funding. In light of this, the previous Committee granted a scrutiny waiver on 23 November 2016 to allow the Government to support a general approach in the Council.586

Developments since November 2016

38.17After the Committee granted its scrutiny waiver, the General Affairs Council adopted a general approach on the proposed EFSD at its meeting on 13 December 2016.587 The Council’s position left the financial arrangements, such as the total size of the Fund and the Guarantee Fund, to be decided at a later stage pending the mid-term review of the Multiannual Financial Framework.588

38.18As the proposal for a Regulation is subject to the ordinary legislative procedure, the Council and the European Parliament have to jointly agree on its content. The Parliament considered the proposal between February and April 2017, adopting a number of amendments to the Regulation on 26 April. Subsequently, the Maltese Presidency and MEPs discussed the legislative text in four trilogues.

38.19The Minister of State at the Department for International Development (Lord Bates) wrote to us on 26 June 2017 with an update on the trilogue negotiations between the European Parliament and the Maltese Presidency of the Council.589 In his letter he outlined what progress had been made in the negotiations. The Maltese Presidency of the Council announced shortly thereafter (on 28 June) that a deal on the Regulation had been reached informally with the Parliament’s negotiating team.590

38.20We received a further update on the final legislative text as agreed in the trilogues from Lord Bates on 21 September.591 In his letter, he noted that the outstanding issues had been resolved to the Government’s satisfaction, in particular in relation to participation of non-EU Development Finance Institutions, the limited role of the European Parliament in the oversight of the EFSD, and the explicit migration-related objectives of the Fund. The Regulation was formally adopted by the Parliament on 6 July592 and by the Council on 25 September.593 The Minister’s letter explained that the Government was supportive of the agreement reached, and would support it in the Council. He apologised for the resulting scrutiny override, but argued that “by approving this proposal [the UK] will maintain influence over a policy that has the potential to deliver a significant amount of investment to tackle the root causes of the migration crisis in Africa and the EU neighbourhood”.

Implications of Brexit

38.21In his correspondence with us, the Minister has not explicitly referred to the implications of Brexit for UK involvement in the EFSD. By default, once the UK exits the EU, it will no longer contribute into the EU budget or remain involved in the management of the EFSD. However, the Government has made several announcements in recent months which are relevant with respect to post-Brexit cooperation with the EU on matters of foreign policy, and we will be writing to the Minister to clarify certain issues related to UK and EU development policy which arise from them.

Previous Committee Reports

See (38085), 12290/16: Seventeenth Report HC 71–xv (2016–17), chapter 6 (2 November 2016) and Nineteenth Report HC 71–xvii (2016–17), chapter 7 (23 November 2016).


574 Partner countries where funding will be made available must either be signatory to the EU-ACP Agreement, or listed as eligible for EU development assistance under the European Neighbourhood Instrument or the Instrument for development cooperation.

575 The text of the Regulation was published in the Official Journal on 27 September 2017.

576 General Affairs Council, “Council greenlights the setup of the European fund for sustainable development“ (25 September 2017).

577 Letter by Lord Bates to the Chair of the European Scrutiny Committee (21 September 2017).

579 Prime Minister, “A new era of cooperation and partnership between the UK and the EU“ (22 September 2017).

580 Two other legislative proposals were tabled at the same time, relating to the EIB guarantee, and which entail amendments to Decision No. 466/2014/EU and Council Regulation No 480/2009. As these would essentially build upon the existing arrangements, our predecessors cleared them at their meeting on 2 November 2016 on the basis of a Report to the House.

581 Partner countries where funding will be made available must either be signatory to the EU-ACP Agreement, or listed as eligible for EU development assistance under the European Neighbourhood Instrument or the Instrument for development cooperation.

582 Report of 2 November 2016.

583 In July 2017, the European Commission tabled Draft Amending Budget 2017/5, which mobilised the first €275 million from the EU budget for the EFSD guarantee fund. The remaining €75 million will follow in 2018–20.

584 Explanatory Memorandum submitted by the Department for International Development (4 October 2016).

585 Letter from Rory Stewart to Sir William Cash (16 November 2016).

587 Council of the EU, “Outcome of the Council meeting“ (13 December 2016). In July 2017, the European Commission tabled Draft Amending Budget 2017/5, which mobilised the first €275 million from the EU budget for the EFSD guarantee fund. The remaining €75 million will follow in 2018–20.

588 For more information on the mid-term review of the Multiannual Financial Framework, see our predecessors’ Report of 2 November 2016.

589 Letter from Lord Bates to the Chair of the European Scrutiny Committee (26 June 2017).

591 Letter by Lord Bates to the Chair of the European Scrutiny Committee (21 September 2017).

592 See Council document 10935/17 (13 July 2017).

593 General Affairs Council, “Council greenlights the setup of the European fund for sustainable development“ (25 September 2017).




20 November 2017