EIB urges looser environmental and social standards for loans to Africa

7 December 2006

Competition from Chinese lenders prompts EIB to consider removing "excessive" conditions placed on loans

Last week, European Investment Bank (EIB) President Phillipe Maystadt was reported in Financial Times as encouraging weaker environmental and social standards on EIB loans to Africa and elsewhere, in order to compete with Chinese banks. Maystadt claimed that the EIB and World Bank are losing out, particularly in the mining sector, to Chinese lenders who do not require environmental assessments or adherence to labor standards. He suggested that western donors should meet to discuss the prospects of removing the “excessive” conditions placed on loans.

Mr. Maystadt’s statements reveal the competing imperatives facing public banks. Watering down the social and environmental requirements placed on loans may be good for business at the EIB and World Bank, but it won’t be good for the poor. If development is their priority, then public financial institutions should work to uphold and universalize the standards without which sustainable, lasting improvements in the welfare of the world’s poor are not possible.

Instead, there is a growing risk that the perceived threat of Chinese competition will become the excuse for a weakening of standards on finance throughout the world. At a time when footloose global capital needs to be more closely monitored and regulated, public financial institutions should not participate in a proverbial race to the bottom.

Maystadt’s statements, however, serve as a reminder that the EIB has no explicit development mandate, and that improving livelihoods may well not be the institution’s foremost priority. Rather, the president’s call for lower standards suggests that the institution is more concerned about losing business to competitors than it is about supporting socially and environmentally responsible projects.

What of the adage, “Two wrongs don’t make a right?” China may be unscrupulous about financing projects and practices which harm the environment or contribute to the violation of rights, but it doesn’t make it okay for the EIB or World Bank to support those same projects and practices in order to preempt China from doing so.

Some may find Maystadt’s calls for lower standards ironic, given that the institution already faces criticism for having wholly inadequate policies regarding the impacts of loans outside the European Union (EU) and for lacking the necessary expertise and staff to ensure that even basic environmental and social standards are followed.

The EIB has typically relied on a country’s own policies and laws to guide its projects, which, in many African countries, are often inadequate or not enforced. This was perhaps best exemplified in the Bwana Mkubwa copper mine in Zambia where, in contravention of Zambian law and EU regulations, the EIB approved financing for the project and disbursed the funds nearly two years before an environmental impact assessment was carried out.

The EIB president’s comments are of particular concern now, as the EIB prepares to approve a series of new loans under the EU-Africa Partnership on Infrastructure, a trust fund that will invest over $400 million in large infrastructure projects in Africa. Many of these large-scale projects aimed at “regional integration” are likely to pose significant risks to the environment and local communities – risks which will only be exacerbated if the EIB’s standards are further relaxed. The new mandate that has been given to the EIB for infrastructure investment in Africa requires a new commitment to higher standards.

Meanwhile, the EU this week set new lending levels for the EIB’s investments outside the European Union to cover the years 2007 to 2013. The new levels are over 30 percent higher than the EIB’s previous lending budget, and will reach € 27.8 billion (approximately $36.5 billion). A large fund was set aside to finance projects in countries seeking EU membership and for Mediterranean countries. According to an International Herald Tribune article, Asia, Latin America and Africa may “get less priority after some ministers criticized the EIB's aim to spread money more widely, saying it should not model itself on the World Bank.”

Additional Resources

• EIB accuses Chinese banks of undercutting Africa loans by George Parker and Alan Beattie, Financial Times, November 29, 2006 (FT website)
• 'Chinese loans to Africa dangerous' - EU Bank, Business in Africa, November 29, 2006 (Business in Africa website)
• EU house bank in no fit state to deliver for Africa, warn NGOs, CEE Bankwatch Network, January 19, 2006 (Bankwatch website)
• A no-trust fund for Africa by Stefania Bianchi, IPS News, February 9, 2006 (IPS website)
• EU clears European Investment Bank to loan €27.8 billion until 2013, International Herald Tribune, November 28, 2006 (IHT website)
• The EIB in the South: In whose interest? A report from CEE Bankwatch, Friends of the Earth, and Campaign to Reform the World Bank (Acrobat pdf 1.28 MB) (CEE Bankwatch website)