EIB calls for new framework to boost public-private investment

29 Nov 16

Public-private partnerships across the European Union often fail due to weak political commitment, the absence of a strong legal framework, and a lack of public funding, according to the European Investment Bank.

Addressing these and other structural barriers to investment across the economic bloc could unleash the potential of the single market and support economic growth and employment, according to the EIB.

This was the conclusion of two new reports published today by the EU’s bank – Breaking Down Investment Barriers at Ground Level and Hurdles to PPP investments.

They found that market integration, better regulation, strengthened public sector capabilities, and improved access to finance would improve the investment environment in the EU.

The first report highlights the barriers to investment across the bloc and presents case studies showing how some of the hurdles have been overcome, drawing on the EIB’s “vast project experience and market knowledge”. The EIB offers long-term loans for infrastructure schemes.

However, it concludes investment in the European Union is hampered by insufficient functioning of the internal market as well as administrative burdens, regulatory fragmentation and public sector constraints on infrastructure projects. Also, difficulties for small firms in obtain finance is a key barrier.

The second focuses on the factors preventing the greater use of public-private partnerships, in particular for countries where PPPs are less common. The paper also specifies the structures needed to implement and manage PPPs.

As long-term contractual commitments PPPs often do not sit comfortably within the existing administrative framework of governments. Administrations therefore routinely underestimate the political capital resources required to see them through. Moreover, the current tightened budgetary landscape is a major hurdle to “the long term affordability of PPP projects.”

Presenting the reports in Brussels, EIB vice president Ambroise Fayolle said that incentivising investment through financial instruments could only so much.

“Red tape, weak project-planning capacities and fragmented markets often slow down projects that could improve Europe’s growth prospects. Therefore, working on how to remove obstacles to investment in a systematic way in all countries and regions as well as at EU level is so important.”

Breaking Down Investment Barriers outlines significant investment opportunities in, for instance, the area of energy efficiency in private residential buildings. It cites the example of France, which compelled each region to put forward an energy plan to support energy efficiency measures in buildings. It then built a framework for third-party financing by public companies, creating a “one-stop shop” for energy renovation to assist private individuals with information concerning finance and construction.

The outcome for this scheme was for a more coherent and conducive regulatory environment to support energy efficiency. Consequently, the EIB has been able to approve financing that aims to renovate 500,000 buildings annually by 2017.

According to the EIB, this shows “that political will can overcome investment barriers. Doing so will unleash the single market’s full potential and build sustained economic growth and employment.”

The reports are designed to build on the discussion around the Investment Plan for Europe, launched by the European Commission and EIB in November 2014. The plan is focused on strengthening European investment to create jobs and growth.

It has three pillars: make smarter use of financial investment resources through the European Fund for Strategic Investments; provide technical assistance to the investment projects; remove obstacles to investment.

Projects and agreements approved for financing under the EFSI so far are expected to mobilise €154bn in total investments across 27 member states and support around 380,000 small to medium enterprises.

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