On this page: Financing | The EIB in Africa | EIB projects | The Cotonou Investment Facility| The EU-Africa Partnership on Infrastructure
Financing
The EIB is funded through the shareholder contributions of its 25 European Union (EU) member countries. Each shareholder’s contribution is proportional to the country’s economic weight (GDP) within the EU. Because of the size of their economies, Germany, France, Italy and the United Kingdom, contribute the most, or 16.284 percent each of total shareholder contributions. Proportions are amended as new members accede to the EIB, although any changes in capital subscriptions can only be made by the unanimous decision of the Board of Governors. As of May 1, 2004 the EIB’s subscribed capital was over €163 billion.
See a breakdown of the EIB’s capital.
The EIB in Africa
The EIB began financing projects in sub-Saharan Africa in 1965, nearly thirty years before it began lending to Asia and Latin America, and has since channeled over €7 billion of investment to the region. Over a third of these funds (nearly €2.5 billion) have been invested since 2000 -- more than for any region outside Europe except for the Middle East and North Africa, demonstrating the Bank’s recent heightened interest in Africa.
In November 2006, the EU indicated new EIB lending levels for each region outside the European Union over the next five-year financial period (2008-2013), and allocated €2 billion to sub-Saharan Africa. This amount represents a 17% increase over the previous 5 years, without taking into account an additional €1.1 billion earmarked for the Cotonou Investment Facility.
The EIB opened its first three regional offices in Africa in 2005, located in: Pretoria, South Africa serving southern Africa and the Indian Ocean; Dakar, Senegal serving West Africa; and Nairobi, Kenya serving central and east Africa.
EIB projects
While the EIB maintains a policy of not providing more than half of total financing for any project, its involvement lends credibility to projects and helps attract other investors. Over a quarter of EIB investments in sub-Saharan Africa are in the energy, oil and gas sectors, totaling nearly €600 million since 2000 alone. The EIB has played a role in some of the continent’s largest hydroelectric dam projects. In July, the AfDB committed €33 million, nearly a third of the total cost, toward the construction of the Félou Hydroelectric Dam in Mali. The dam is designed to feed the West Africa Power Pool, an ambitious scheme designed to integrate national electric grids in the region. The EIB also helped finance the controversial Lesotho Highlands Water Project, which has been marred by allegations of corruption that recently led to major fines against European firms and the debarment of a German engineering company by the World Bank.
The EIB is perhaps best known in Africa for its participation in controversial extractive industries projects, such as its €144 million investment in 2000 in the Chad-Cameroon Oil Pipeline and its substantial backing of Zambia’s copper mining industry. The EIB’s heavy investment in Africa’s oil, gas and mining sectors has drawn considerable criticism because of the negative environmental, social and economic impacts of the extractive industries, and the Bank’s limited capacity to mitigate them.
The EIB also uses “global loans” as a funding tool in Africa, comprising over 20 percent of its total investment. Global loans are loans made to private banks, which in turn use those funds to finance small and medium enterprise (SMEs) projects, particularly for infrastructure. Similar to some of the International Finance Corporation’s "financial intermediary" loans, this type of financing has proven problematic since the EIB does not hold the beneficiaries of these loans accountable to standards for environmental protection or mitigation of adverse social and economic impacts, nor does it publicly disclose the loan terms or information about the end-uses of these funds.
Multilateral Development Bank Lending through Financial Intermediaries: The Environmental and Social Challenges, World Resources Institute, 2005 (WRI website)
The EIB has, in recent years, deepened its partnership with the World Bank Group, and the two institutions have become increasingly willing to collaborate on projects in Africa, particularly within the energy and extractive sectors. The EIB’s investment in the Chad-Cameroon oil pipeline, its recent approval of funding for the controversial West Africa Gas Pipeline (WAGP), and its interest in backing a proposed trans-Saharan Nigeria-Algeria gas pipeline, demonstrate this growing trend of co-financing for costly, large-scale energy and extractive infrastructure projects.
See some of the latest projects pending approval or recently approved on the EIB website, or see a civil society page tracking EIB projects.
The Cotonou Investment Facility
While EIB lending to Africa has traditionally been in support of public sector projects, the signing of the Cotonou Agreement in 2000 between the EU and 77 African, Caribbean and Pacific (ACP) countries, marked a shift toward the private sector. The trade agreement replaced previous agreements between the EU and ACP countries, instituting good governance as a condition for the removal of trade barriers.
One major outcome of the agreement was the establishment of the Cotonou Investment Facility (IF), a revolving facility (reimbursed funds are lent out again for additional projects) intended as a risk-sharing financing instrument to promote the private sector in ACP countries. The IF mandated the EIB to support the private sector by investing €2.2 billion of EU funds in ACP countries between 2003 and 2008 under the EU’s 9th European Development Fund (EDF) allocation, in addition to the €1.7 billion in loans from its own resources. The EU recently allocated an additional €1.5 billion to the investment facility under the 10th EDF allocation, which covers the years 2008 to 2013.
IF funds have been used for large, regional infrastructure projects, particularly those managed by the private sector, as well as considerable investment for small and medium enterprises (SMEs) through global loans. Such projects have included a 428 MW capacity hydroelectric dam in Ethiopia, a controversial copper smelter in Zambia, and the construction of a major power transmission line in Ghana, among others. The Investment Facility 2005 Annual Report indicates that the IF yielded over €12.8 million in profit during the year and that between 2004 and 2005 IF financing was scaled-up significantly in the energy and extractive industries sectors.
The EU-Africa Partnership on Infrastructure
In February 2006, the EU and EIB launched a trust fund to finance an EU-Africa Partnership on Infrastructure, which was set out in the European Union’s 2005 Strategy for Africa. Managed by the EIB, this financing facility is designed to provide a major scaling-up of finance for transportation, energy, water and information and communication technologies (ICT) infrastructure. The Trust Fund is financed through EU member state contributions and through the use of EIB resources. It entails a considerable infusion of financing for major infrastructure projects, with the goal of mobilizing €60 million from EU member states under the 9th EDF and another €260 million from the EIB’s own resources. Projects were expected to be presented for approval by the end of 2006, with the first funds disbursed in 2007. However, the anticipated timeline for the trust fund has reportedly been delayed for a lack of committed funds, following disputes among EU member states whether contributions to the initiative will come out of their development aid budgets, or whether they will have to allocate additional resources toward the fund.
The Trust Fund prioritizes regional infrastructure inter-connections as set out in the Infrastructure Short-Term Action Plan (I-STAP) of the New Partnership for Africa’s Development (NEPAD), an economic development program of the African Union. The Trust Fund is supposed to emphasize financing for projects that promote economic growth, regional development and “south-south” trade. Although the stated aim of NEPAD's participation in the Trust Fund Steering Committee is to ensure “ownership at all levels,” critics consider NEPAD to be unrepresentative of the interests of most Africans because of its focus on major infrastructure projects (as opposed to smaller-scale, community-driven development programs), its support for privatization, and its focus on export-led growth.
The Partnership maintains a heavy emphasis on the development of energy infrastructure and electricity expansion through regional “power pool” initiatives aimed at merging national grids and energy sharing. The development of the power pools would require the construction of major hydroelectric power plants situated on Africa’s largest rivers, including on the Niger, Senegal, Congo, Zambezi and Nile Rivers. In addition to the environmental and social impacts of massive dams, this proposition raises significant concerns about the sustainability of hydropower-based energy schemes, given that Africa is considered to be the region most susceptible to climate change-induced drought. Decreased rainfall and lower lake levels have already begun to reduce the capacity of some of Africa’s hydropower plants, such as the Akosombo Dam in Ghana and hydropower plants in Uganda and Tanzania.
The Partnership intends to integrate Africa’s water resources through support of the EU Water Initiative, which focuses on the construction of major irrigation and dam projects. The Partnership’s strategy also aims to attract private sector investment and facilitate regional trade initiatives through the laying of fiber network cables to promote ICT, as well as a major expansion of Africa’s roadways and railways. The emphasis on regional connections seems somewhat misplaced when many countries have not even managed to ensure local access to basic road, energy and irrigation networks.
Some observers are concerned that the premise of the EU-Africa Infrastructure Partnership is flawed in its emphasis on large-scale, regional projects and its failure to consider smaller and more sustainable alternatives: bigger is not necessarily better. In fact, large infrastructure projects have been found to be the most susceptible to corruption and also to be the most harmful in terms of environmental and social impacts. As such, the EU’s choice of the European Investment Bank to manage the Trust Fund is particularly troubling considering the Bank’s own lack of expertise in mitigating environmental and social concerns, as well as the weakness of its own transparency policies.