EFSI Results Prove Innovative Financing More Than a Buzz-word

Int’l Relations

Exclusive op ed for the Budapest Business Journal by Vazil Hudak, European Investment Bank Vice President.

Vazil Hudak

When the European Fund for Strategic Investment (EFSI) was launched three years ago, critics labelled it “a fairy tale”, questioning its ability to address investment gaps in crisis-stricken Europe.  

“Impossible,” doomsayers said about Juncker’s investment vehicle, backed by a budget guarantee from the European Commission of EUR 16 billion and with EUR 5 bln of the European Investment Bank’s (EIB) own resources.

Results prove the pessimists wrong. In fact, the EIB – tasked to manage this investment vehicle – has over-delivered. The EU bank succeeded in mobilizing EUR 335 bln in additional investments across Europe, compared with the original target of EUR 315 bln.

Thanks to EFSI, we are reshaping and modernizing investment culture in Europe. We’re effectively de-risking investments for private investors, crowding them in on a large scale, at a level of around 65%.

EFSI is a revolutionary project. The first systemic attempt to endorse the use of a financial instrument at the EU level.

The Juncker plan is also underway in Hungary, where we see a great potential. Projects are designed to help improve the quality of life of citizens, strengthen competitiveness of SMEs and foster innovations.

To date, EFSI financing in Hungary amounted to EUR 332 million, triggering some EUR 1.787 bln of additional investment.

Scale Up

One example among many others: thanks to EFSI, in close cooperation with Hungary’s K&H Bank, we’ve helped PP Tech to scale-up its welding operations and custom metal fabrication. Our mutual project led to an expected 30-40% rise in its annual turnover and strengthened its market position.

The transition from grants to guarantees is bumpy, especially in cohesion countries. Amplitude of structural and investment funds, deficiency of eligible and bankable projects are not exactly helping. Current over-liquidity in the financial sector and ultra-low interest rates combined with a lack of experience with innovative financing are another drag.

The response? Enhanced cooperation with our advisory capacities and experts trained in financial innovations. Our task is to help our partners to learn and assist them with transition. All this is orchestrated in close cooperation with national promotion banks, our key allies.

To improve the odds, we’ve deployed our European Investment Advisory Hub (EIAH) or the Hub, designed to improve the quality of investment projects by offering tailored advisory support to European project promoters.

Why all this effort? Simple. Smarter use of EU financial resources is the future.

Ongoing talks about the size and priorities of the next, post-2020 European Union’s budget highlight the need of innovative financing.

More With Less

We have to learn to do more with less, there’s no other way around.

We’re talking here about changing the culture, the philosophy of how this region approaches the use of European funds.

EFSI is designed to explore new markets, develop new products, design new forms of cooperation… to serve new clients that were previously considered too risky.

We’re talking about projects often highly innovative, undertaken by small companies without a credit history, or they pool smaller infrastructure needs by sector and geography. Through this, we’re helping to create the infrastructure for future growth.

This success led to a decision to extend the duration and capacity of EFSI to EUR 500 bln by end-2020. Thanks to EFSI, Europe will see 1.4 million new jobs by the end of this decade and will add 1.3% to the EU’s GDP.

It’s great news for all of Europe where we all seek acceleration of economic convergence. For this strategy to succeed, the CEE region needs to enhance its economies’ competitiveness. Innovation and research must become a vital part of government mindset; this transition requires reforms and cooperation, on national and regional level.

We’re ready and equipped to encourage this evolution. Our key aim is to accelerate this change, to broaden the scope and boost the impact.

This evolution is not just about money, it involves a change of mind and we at the EIB will help all this to happen.

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