Report from the Commission to the Council and the European Parliament - European Community Investment Partners (ECIP) - Progress Report 1998
Date: 2000-03-13
Institutions: European Commission
Subjects: EU financial instrument, activity report, developing countries, economic cooperation, joint venture

COMMISSION OF THE EUROPEAN COMMUNITIES

Brussels, 13.03.2000
COM(2000)135 final

REPORT FROM THE COMMISSION TO THE COUNCIL
AND THE EUROPEAN PARLIAMENT

European Community Investment Partners (ECIP)

Progress Report 1998

EXECUTIVE SUMMARY

ECIP - European Community Investment Partners - was the first EU economic
cooperation tool. It was conceived in 1988 at the initiative of the Commission with
the support of the European Parliament for the mutual interest and advantage of the
developing countries of Asia, Latin America and the Mediterranean, and of European
industry wishing to invest in them. Subsequently ECIP was extended to South Africa,
and it also inspired the creation of the JOP scheme for the Phare and Tacis countries.

ECIP aims to encourage joint ventures between European partners and local partners
in the developing countries. Joint ventures are:

–

–

highly favoured by the developing countries to whom they bring capital,
technology, know-how and integration into international networks of
production and trade;

very risky, since they combine two difficulties: those inherent in the creation
of a new enterprise, and those involved in an installation in a cultural,
economic and political environment less sure and less predictable than that in
Europe.

It is this double characteristic which justifies the financial intervention of the EU
which works in close cooperation in particular with the development banks of the EU
Member States who also work on the same task (EDFI).

The principal traits of the ECIP scheme are as follows:

–

–

it replies exclusively to initiatives coming from enterprises (demand-driven);

it is accessible to these enterprises - local or European - via a network of over
one hundred financial institutions - local and European of which about
twenty are very active. The scheme is highly decentralised at two levels. The
Commission provides advances to the ECIP financial institutions who in
turn, and after the green light from the Commission, attribute these funds in
the form of grants, financial participations (risk capital) or interest-free
advances which can be either reimbursed in cases of success or converted
into grants (see below) to the final beneficiaries;

–

ECIP covers all the phases of the putting into place of a joint-venture:

* partner search (grants);

* feasibility studies by the enterprise (interest-free advances reimbursable by
the enterprise in case of success, or converted into grant in the case of a non-
success);

* capital participation in the equity capital of the joint venture;

* grants for SMEs, and interest-free reimbursable advances for larger
enterprises, to finance training in the case of technology transfer.

2

From 1988 to end-1998 the Commission has received 3711 formal requests for ECIP
financing of which 2534 have been approved for MEURO 286,3 of ECIP financing.
In 1998 the number of requests for ECIP financings decreased by 39% to 396 and
their EURO value also declined by 25% to MEURO 53,9. In 1998 ECIP consumed
57% (MEURO 28,4) of the total MEURO 52,6 1998 budgetary credits available to it
having approved 264 actions for MEURO 29,8 finance in 1998. 1998 was the first
year that ECIP failed to consume the total available budgetary credits.

According to the final beneficiaries and financial institutions who have received funds
ECIP’s reported positive impact is impressive. On the basis of detailed analysis of
eight “on the ground” country inspections, and of 1.312 of the individual detailed
Final Reports received from the beneficiaries of ECIP actions, the Commission’s
services estimate that each EURO of ECIP financing is associated with over 16
EURO of investments in the developing countries. The MEURO 240 of ECIP actions
already executed are reported by the beneficiaries to be associated with about EURO
3,5 Billions (=3,561 millions) of private investment projects in the developing
countries of Asia, Latin America, the Mediterranean, and the Republic of South
Africa. The final beneficiaries also report that over 34.000 EU and local firms have
been involved as partners in these actions, that some 1.362 joint ventures are created,
and that over 42.000 jobs are reported to have been generated directly by these joint
ventures. According to the reports received from the final beneficiaries and the
financial institutions, since 1988 ECIP has proven to be an effective joint venture
creation, investment and development promotion instrument. And it enhanced the
Commission’s development policy and reputation both within and outside the EU.

The Commission still maintains a critical reserve on these reports and has,
in
December 1998, placed a contract with Deloitte and Touche (after open international
tender) for the third “Independent Appraisal of ECIP” foreseen in Article 10 para 2 of
the ECIP Regulation. This study’s purpose is to evaluate the results. The
“Independent Appraisal” report is due early in 2000 and will be sent to the Council
and Parliament then.

Initiated originally as a pilot project, ECIP has been the object of two successive
Council Regulations approved in cooperation procedure by the European Parliament
and the Council - after several independent evaluations of the instrument have been
established and published:

–

–

Regulations:

* Regulation (EEC) 319/92 of 3 February 1992;

* Regulation (EEC)213/96 of 29 January 1996.

Independent evaluations (sent to the Council and Parliament and available on
request):

* 1990

Touche Ross;

* 1994

SEMA Group;

* 1999/2000 Deloitte & Touche (in progress).

3

–

Financial audits:

a) Court of Auditors: 1993

b) Independent Financial Audits:

1996 Coopers & Lybrand

1997 Price Waterhouse Coopers

The management of ECIP was from the start intended to be as “business-friendly” as
possible: rapid decisions, transparency, flexibility, rapid payments. This approach,
specific to ECIP, gave the scheme a good reputation with the financial institutions and
prevailed until 1996. Since then the management of ECIP has become progressively
more bureaucratic and heavier due to three factors:

–

–

–

ECIP, because it is principally oriented towards small and medium-sized
enterprises is very “labour intensive”, and the rapid growth in the number of
projects came up against the limited personnel resources available to the
Commission to manage
staff were
progressively but only partly relieved by recourse to a Technical Assistance
Unit (1997) and then to a Financial Assistance Unit (1999);

insufficiencies of

them. These

the reinforcement of the Commission’s financial procedures following
observations by the Court of Auditors, led on the one hand to delays in
procedures (decision by full Commission Written Procedure instead of
habilitation), and, on the other hand to a separation of the technical functions
(DG IB) from the financial functions (Common Service Relex) in virtue
particularly of the SEM 2000 (1996), although qualified personnel was not
available in sufficient number, particularly in the financial sector.

when the period for a reimbursable (facility 2) advance, fixed at 5 years by
the ECIP Regulation, ends the financial institution is required, by its contract
with the Commission,
to recover the funds for the Commission. These
recoveries thus form a routine part of the financial operations of ECIP.
Nevertheless these financial closures and recoveries require a great deal of
precise, careful administrative work for which an insufficient number of staff
was available. Nevertheless by the end of 1999, 1398 individual action files
had been financially audited.

These difficulties had two consequences:

a)

the accumulation of a backlog of payments to which the Commission’s
services decided to give priority, and which should be largely addressed by
the end of the year 1999. In the meantime, despite the continued demand for
finance, ECIP has been put on hold as regards new activities in 1999. The
Commission services have decided that in 1999 the exclusive priority for the
financial services must be the financial completion and closure of the
existing ECIP contractual files and the recovery of unused and reimbursed
ECIP funds.

b)

increasing discontent among Financial Institutions and enterprises frustrated
by the delays in decisions, contracts and in payments has been evidenced.

4

The ECIP regulation expired on 31 December 1999. Until now the Commission has
left open the questions in the long term:

–

–

of the continuation, or not, of the instrument;

of its fundamental redesign including a possible eventual “outsourcing”.

The Commission services received at end-December 1999 the final draft by Deloitte
& Touche of their independent evaluation report on ECIP for which they were
selected after open international tender. The definitive version of this report will be
submitted to the Commission and thereafter will be communicated to the Parliament,
Council and the public in parallel to this report.

At this stage, the opinion of the services managing ECIP is that:

1.

2.

ECIP replies to a real need;

ECIP must be rendered:

* less costly in internal management;

* more rapid in its decision, payment and recovery procedures;

* better articulated with other complementary economic cooperation
programmes (such as Al-Invest, Asia-Invest, Meda and others);

* possibly enlarged to include operations of a larger scale;

* probably “outsourced” in a form which remains to be determined.

In the meantime during the year 2000, the absolute priority of the Commission’s
services is to solve the delays in contracts, payments and recoveries of the advances
resulting from the past financial operations of ECIP.

The Commission hereby presents its progress report on ECIP in respect of 1998. The
report comprises five detailed sections. Part One is an introduction that rehearses the
background to the instrument, how the instrument works and the general policies
adopted by the Commission in operating the programme. Part Two describes major
developments in ECIP that occurred in 1998 and analyses ECIP actions in 1998 (and
over the period 1988 – 1998) by sector, geographical region, facility and financial
institution. Part Three contains a set of estimates and analyses as regards the
economic impact of ECIP. Part Four provides a description of the ongoing measures
introduced by the Commission 1998 to reinforce financial management of ECIP.
Finally, Part Five provides detailed statistical annexes and other information.

5

ECIP PROGRESS REPORT 1998

CONTENTS

PART ONE: THE ROLE OF FOREIGN DIRECT INVESTMENT (FDI) AND

ECIP IN THE DEVELOPMENT PROCESS

1.1 Development finance and Foreign Direct Investment (FDI): the role of the

private sector in the development process.

1.2 ECIP - a European Union response to the needs of private sector investors.

1.3 Procedures and policies: how ECIP works:

1.3.1 Procedures

1.3.2 Policies

PART TWO: ECIP ACTIVITY REPORT FOR 1998

2.1 ECIP Regulation 213/96 approved on 29th January 1996

2.2 Financing requests, approvals and contracts

2.3 Geographical distribution

2.4 Breakdown by facility

2.5 Sectoral analysis

2.6 The network of ECIP Financial Institutions (FI) and their activities

2.7

Information, awareness and promotion

2.8 Facility 1B for privatisation and private infrastructure (PPI)

2.9 Relations with the EIB and coordination with other EC instruments

PART THREE: THE ECONOMIC IMPACTS OF ECIP FINANCINGS

3.1 Reporting the results of ECIP actions

3.2

Joint venture creation

3.3

Investment

3.4 Analysis of Facility 3 actions

3.5 Employment and training

3.6 Other development factors (environment, technology transfer)

6

3.7 Assessment and follow-up of ECIP actions

3.8 Eight ECIP country project inspection studies

3.9 The Independent Appraisal Study

PART FOUR: FINANCIAL MANAGEMENT

4.1

4.2

4.3

4.4

4.5

Sound and efficient financial management

Independent Financial Audit

Anti-fraud measures

Technical and Financial Assistance Units

Budgetary approprations

7

Part One

1.

1.1.

THE ROLE OF FOREIGN DIRECT INVESTMENT (FDI) AND ECIP
IN THE DEVELOPMENT PROCESS

Development finance and Foreign Direct Investment (FDI): the role of
the private sector in the development process.

The 1990’s have seen a huge increase in the net financial flows to the developing
countries from US$ 101 billions in 1990 to US$ 275 billions in 1998. All of this
major increase has been in the flows of private resources. While public Official
Development Assistance (ODA) from developed governments has declined from
– US$ 60 billions each year in 1990 to – US$50 billions in 1998, private flows have
increased more than five fold in that period to total over US$ 227 billions in 1998. Of
these US$ 227 billions of private flows in 1998 US$ 155 billions represented Foreign
Direct Investment and US$ 72 billions capital market flows. In 1990 total private
capital flows were less than public ODA flows, but by 1998 they represented nearly
five times ODA. (Source: World Bank. Global Development Finance 1999).

Net long-term resource flows to developing countries, 1990-98

(billions of U.S. Dollars)

Net long-term resource flows
Official flows
Private flows
From international capital
Markets

1990
100.8
56.9
43.9
19.4

1991
123.1
62.6
60.5
26.2

1992
152.3
54.0
98.3
52.2

1993
220.2
53.3
167.0
100.0

1994
223.6
45.5
178.1
89.6

1995
254.9
53.4
201.5
96.1

1996
308.1
32.2
275.9
149.5

1997
338.1
39.1
299.0
135.5

1998¹
275.0
47.9
227.1
72.1

Private debt flows

Commercial banks
Bonds
Others

58.0
25.1
30.2
2.7
14.1
Portfolio equity flows
155.0
Foreign direct investment
Note: Net long-term resource flows are defined as net liability transactions of original maturity greater than one year (see box
2.1).
1. Preliminary.
(Source: World Bank Debtor Reporting System. World Bank, Global Development Finance, 1999.)

60.0
32.4
26.6
1.0
36.1
105.4

100.3
43.7
53.5
3.0
49.2
126.4

105.3
60.1
42.6
2.6
30.2
163.4

54.4
13.9
36.7
3.7
35.2
88.5

18.6
4.8
10.8
3.0
7.6
34.4

49.0
3.3
37.0
8.6
51.0
67.0

38.1
16.3
11.1
10.7
14.1
46.1

15.7
3.2
1.2
11.4
3.7
24.5

In the same period there has also been a remarkable broadening in the composition of
private capital flows to developing countries. Whereas previously commercial bank
lending used to account for more than 65 percent of all private flows, Foreign Direct
Investment (FDI) has now emerged as the most important, and, in particular, the most
steady and least volatile component of private capital flows. Portfolio flows - both
bonds and equities - had increased sharply 1990-1997 when they accounted for more
than a third of total private capital flows, but are more volatile and declined severely
in 1998 in the context of the Asian and Brazilian crises.

A factor encouraging the increase and diversification of Foreign Direct Investment
(FDI) has been the sustained improvement in the domestic economic fundamentals in
many developing countries following their shift towards more free market and liberal
economic policies. The resulting growing capital requirements for privatisation,
private investment, and private infrastructure financing cannot be met from official
development finances sources, and private financial markets have attempted to meet

8

these demands. Private financial flows are at the leading edge of the trend towards
globalisation of trade and production.

Private capital flows and the FDI component of them are highly concentrated on a few
large developing countries. During the early nineties (1990-95) just a dozen countries
(China, Mexico, Brazil, Korea, Malaysia, Argentina, Thailand, Indonesia, Russia,
India, Turkey and Hungary) accounted for over three quarters of net private flows,
and the majority (140) of the 166 developing countries have accounted for less 5% of
private capital net flows to developing countries.

The destination for the private capital flowing to the developing economies has
shifted away from governments to the private sector. The bulk of capital flows to
developing countries is passing through market channels to private investments which
represent an increasingly dominant proportion of net investment in the developing
countries as the roles of both the state and of Official Development Assistance (ODA)
decline both in relative and in absolute real terms. It is in this context that the role of
ECIP is particularly important to improve the developmental quality of these private
Foreign Direct Investment flows.

1.2.

ECIP - A European Union response to the needs of private sector
investors.

ECIP provides co-financing to help develop mutually beneficial private investment
actions in which EU and local operators are cooperating through in particular the
establishment of joint ventures in developing countries. ECIP acts as a catalyst to
improve the quality and the volume of Foreign Direct
investment (FDI) in the
developing countries of Asia, Latin America, the Mediterranean and South Africa (the
ALAMEDSA countries).

ECIP has been designed to provide support to EU/ALAMEDSA joint ventures at all
stages of their development through five financing facilities each targeting a different
stage in the creation and the early life of a joint venture (see next section for details of
the facilities).

ECIP has two distinctive features which are particularly appropriate to private
investors. It is a decentralised instrument offered as a financial product through a
network of Financial Institutions (FIs). And it is a market demand-driven instrument
since no priority sectors or regions are “a priori” earmarked. Allocation of funds is on
the basis of the quality of applicants and the positive development impact of their
proposed investments. There are no programmed quotas by facility nor by country.

The Commission started implementing ECIP in 1988. The original ECIP scheme was
for a three year trial period (1988-1991). Then the geographical scope of the
instrument was limited to 28 countries in Asia, Latin America and the Mediterranean,
with a MEURO 30 budget for a three-year period. The success of ECIP during that
trial period led to the scheme being given a formal legal and budgetary basis by the
Council of Ministers in February 1992 with Regulation (EEC) No. 319/92. This
provided for a further three-year trial period (1992-94). Increased budgetary resources
were made available by the budgetary authority (MEURO 31,4 for 1992 and MEURO
39 for each of 1993 and 1994). This Regulation expired in December 1994. From
December 1994 until January 1996, ECIP continued to work on the basis of an

9

extension of the 1992 Regulation. The second ECIP Regulation was finally adopted
by the Council on 29 January 1996. This new ECIP regulation is valid for five years
and includes an indicative financial reference amount of MEURO 250 for the five
years (1995 to end-1999). 57 ALAMEDSA countries are presently beneficiaries of the
scheme being the countries of Asia, Latin America, and the Mediterranean which
presently “benefit from Community development cooperation measures.” (List in
annex). South Africa has been included in ECIP since 1994.

1.3.

Procedures and policies: How ECIP works.

1.3.1.

Procedures

ECIP support is provided by five financing facilities each targeting a different stage in
the creation and early life of a joint venture. The terms and conditions of the financing
available vary between facilities, as the table below shows as regards the ECIP
facilities available in 1998. Total financing under Facilities 2, 3 and 4 for any given
project is limited to EURO 1M.

Table of ECIP financing facilities

(see following page)

10

E C I P

EUROPEAN COMMUNITY INVESTMENT PARTNERS

Facility
1

Facility
2

Facility
3

Facility
4

Facility
1B

Type of operation

Identification of potential joint
venture projects and partners

Feasibility studies or pilot
projects

Joint Venture capital
requirements

Training, technical or
management assistance

Preparation of a privatisation or a
Build Operate Transfer (BOT) or a
Build Operate Own (BOO) scheme
in private infrastructure, utilities or
environmental services

Beneficiaries

Chambers of commerce,
professional associations and
ECIP Financial Institutions
representing a group of
companies

Individual companies may not
benefit from this facility

Companies wishing to
undertake a Joint Venture, a
privatisation or a private
infrastructure project

Joint Ventures established in the ALAMEDSA countries with locals by
EU partners, or local companies which operate under a licensing and
technical assistance agreement with an EU company

ALAMEDSA governments and
public agencies

Type of ECIP
finance

Grant of up to 50% of the eligible
costs

Interest-free advance of up to
50% of the eligible costs

Equity holding or equity loan of
up to 20% of the incremental
capital of the joint venture

Interest-free loan for large
companies, or a grant for small
and medium-sized companies, of
up to 50% of the eligible costs

Grant of up to 100% of the eligible
costs

€

250,000

The Financial Institution must cofinance the project

Maximum amount
available

€

100,000

(within this amount 50% of
pre-feasibility travel costs may

€

be financed up to

€

1,000,000

€

250,000

€

200,000

10,000)

The maximum total support per project is 1,000,000

€

Access

How to apply

€

1

= approx. $ 1.28, April 1996

The beneficiary may apply either
directly to the EC or through an
ECIP Financial Institution

Application must be made through an ECIP Financial Institution

The beneficiary may apply either
directly to the EC or through an
ECIP Financial Institution

1. Use of the ECIP application forms is required.
2. Obtain application form and latest list of Financial Institutions from EC (Brussels fax: 32-2-299.02.04) or an ECIP Financial Institution.
3. Complete the application form including all required annexes and explanations.
4. For facility 1 and 1B apply directly to the Commission or through an ECIP Financial Institution.
5. For facilities 2, 3 and 4 it is required that all applications are channelled through an ECIP Financial Institution. The European Commission will not deal with Fac. 2, 3 or 4
applications which are not channelled through an ECIP Financial Institution.

11

The Facilities are managed in a decentralised way through a network of financial institutions
and investment promotion bodies. Applications for financing under Facilities 2, 3 and 4 must
be made through one of the financial institutions (hereinafter referred to as “FIs”) in the ECIP
network (see annexes for the latest list). The FIs are commercial, merchant or development
banks. For example, all the EU member states’ development banks are in the ECIP network
and they play a key role in running the scheme, but membership of the network is open to any
bank, subject
to the opinion of the ECIP Committee in Brussels. The network of FIs
represents one of the distinctive features of the ECIP scheme: namely, its decentralised mode
of operation which emphasises subsidiarity. The FIs operate the scheme in accordance with
their usual procedures within overall controls set out in a Framework Agreement signed
between each FI and the Commission. The system enables the Commission to ensure a
consistency in delivery of the instrument while profiting from the FIs’ financial expertise and
local knowledge. In addition,
the local presence of FIs in the eligible (ALAMEDSA)
countries ensures that local businesses seeking to attract foreign investment can gain access to
ECIP through an institution close to their place of business.

Applications for financing under Facility 1 may be made either directly by the eligible
applicant organisation to the Commission, or through an FI the same way as for Facilities 2, 3
and 4.

for

Applications
the new Facility 1B for “Preparation of Privatisation of Private
Infrastructure” studies must come from the eligible country (ALAMEDSA) government or
public authority applying to the Commission.

The Commission retains the final decision on each action financed. All proposals received by
the Commission are discussed at the monthly ECIP Steering Committee in Brussels, an
the relevant
internal Commission working Committee which comprises members of
Commission services. So every month the Steering Committee delivers an opinion on the
basis of which the Commission takes a position on each financing request and informs the
beneficiaries.

The practice followed once funding has been approved depends on the type of case:

(i) Where an application has been made directly to the Commission by an eligible
body under Facility One such as a Chamber of Commerce of investment promotion
agency, or by an ALAMEDSA government or public agency in the case of Facility
1B,
the Commission concludes a financing agreement directly with them that
provides for the moneys to be disbursed by the Commission in instalments.

(ii) Where an application has come through an FI (i.e. in all other cases), a financing
agreement
is signed with the FI. This sets out the conditions under which the
Commission wishes the FI to disburse the funds to the final beneficiary (usually in
instalments). The total amount of the ECIP contribution is then transferred by the
Commission to the FI. The FI then enters into a "back to back agreement" with the
final beneficiary, and disburses the ECIP contribution to the final beneficiary
according to the agreed schedule and conditions.

Where the case is under Facility 3, the EC funds will be disbursed by the FI to the joint
venture beneficiary in exchange for share certificates or other documents evidencing the
participation taken in the capital of the joint venture in question. These certificates will
normally be in the name of the FI, and held by the FI on behalf of the EC (called "indirect
participation"). In certain cases, statutory consents may prevent such indirect participation via

12

the FI. The ECIP Committee approved guidelines in 1992 allowing the EC to take a direct
participation in the joint venture in such cases (see also below).

The Commission services have established ECIP as an ongoing continuous financial
instrument. From 1988 to end-1998, 3711 separate individual financing requests have been
received and processed in this way. The ECIP Steering Committee meets monthly and the
Commission approves them in monthly batches in order to give a continuous and relatively
rapid service (although delays built up in 1997-1998 - see section 2.2 below) to the FI and so
to the private investors who are the final beneficiaries.

1.3.2.

Policies

As provided for in the ECIP Regulation, the Commission has two essential conditions which
must be met before an action is approved. First,
the action should, given reasonable
expectations, have a chance to be financially viable. Secondly, the action should contribute to
local economic development. In meeting these conditions, the instrument is intended to be as
flexible and as market-driven as possible. Formal restrictions placed upon the instrument are
those in the ECIP Regulation (213/96) excluding large multinational firms from the benefit of
ECIP, giving some preference to SMEs (small and medium-sized enterprises) and the
condition that actions must relate to joint ventures with at least one European partner and one
partner from the eligible country. ECIP does not exclude large companies since their stronger
management and financial capacities mean that they can invest in more difficult situations
with a positive impact on the development of least developed regions. In addition, projects
approved by the Commission have to be compatible with overall Community policy and with
the developmental criteria set out in the Regulation.

The Commission has continued the approach noted in the previous reports of facilitating
implementation of the scheme by avoiding unnecessary constraints. For example, no priority
sectors are identified, there are no geographical quotas, nor are there quotas limiting the
number of actions per Facility. Each project is judged on its own merits in accordance with
the Regulation.

In 1998 the Commission implemented the following specific operational policies:

i) The Commission has not continued its previously active promotion programme for
the instrument since it has had doubts about its own capacity to manage increased
volumes of contractual and financial transactions. The Commission's services have
therefore limited their
the basic
information to all FI and companies which ask for it, but has not actively promoted
ECIP demand.

information programme to distribution of

ii) In addition, in accordance with the Council’s wishes, the Commission, while
preserving the essentially market driven nature of the instrument, tries to ensure a
wide and balanced geographical spread of active FIs in its network. This helps ensure
that firms' access to ECIP is not impeded by a lack of representation, or inadequate
in any given region. Therefore, while the Commission does not
representation,
require banks to join the network, it has given priority attention to applications from
new FIs in countries or regions, in both the member states and the eligible countries,
where representation has to date been limited. The Commission has also kept the
quality and performance of the existing FIs under continuous review, to ensure that
all FIs are effective in offering ECIP to their local business communities. 54 new FI

13

were admitted to the ECIP network and 24 inactive FI were asked to leave the
network in 1998.

iii) The Commission has reinforced the orientation of the scheme towards small and
medium-sized enterprises ("SMEs"). By their very nature all the Facility One actions
are oriented towards SMEs. And over 80% of all the Facility Two, Three and Four
actions approved since 1988 have concerned beneficiary SME firms. This reflects the
provisions of the Regulation, which provides for SME applications to have a priority
status but without excluding larger firms, most notably in cases concerning particular
development benefits such as technology transfer which larger firms are better
equipped to deliver. However,
large multinational undertakings are expressly
excluded by the Regulation.

Furthermore since January 1996 under the new Council regulation (213/96) SMEs
benefit from two additional specific financial advantages under ECIP. Firstly, under
Article 4, para 3 an increase of Facility 2 financing for feasibility studies and pilot
actions above 50% is provided for and limited to SMEs. And, secondly, under
Article 4 para 5 SMEs can obtain Facility 4 funds as a grant - while larger companies
can only obtain an interest-free advance.

iv) As in previous years, the Commission continued to focus ECIP activities on
Facility 1, 2 and 4 actions. This does not mean that Facility 3 was discarded in 1998.
Indeed the high success rate and high financial multiplier effect of the Facility 3
actions implemented 1988-98 suggest that the emphasis on Facility 3 should be
reinforced in future. A specific section on Facility Three actions is provided later in
this report. The Commission's main objective is to use ECIP funds in ways that best
encourage joint venture creation with a maximum multiplier effect where other
sources of financing are least available. The results achieved to date indicate that
more accent on Facility 3 in the future could reinforce the effectiveness of ECIP, and
in particular its development impact on the ground.

v) The new grant Facility 1B of ECIP has been introduced after 1996 to help
governments and public agencies in the developing economies of Asia, Latin
America, the Mediterranean and in South Africa to prepare privatisation and private
infrastructure (PPI) projects and to improve their local development effects. By
providing front-end grant finance at the preparation stage, the EC aims to improve
the changes for successful completion of the PPI project, reduce costly duplication of
preparatory steps and to expand the opportunities for European businesses to
participate in the PPI process.

During 1997 a MEURO 1 grant allocation had been approved for the Philippines to
in privatising local water supplies, and a set of actions (MEURO 1) for
assist
“Preparation of Privatisation and private Infrastructure” in Vietnam was also
committed in 1997 as well as 2 small studies for a possible privatisation in Brazil
were approved in principle for EURO 200.000. The Philippines and Vietnam actions
continued under negotiation in 1998, and the Brazil actions were cancelled.

The 1B facility has shown slow implementation for a variety of reasons: i) the large
multinational companies which execute most of these projects are excluded from
ECIP; ii) the amount EURO 200.000 is too small vis à vis the cash needs of most
major privatisation projects; and iii) the Commission has been particularly careful to
make sure that the local policy and institutional frameworks justify this 100% grant

14

financing and this policy analysis
and complicates
implementation. The Commission is studying these problems, and seeking solutions.
If they cannot be resolved the Commission may have to consider abandoning this
facility.

and dialogue delays

Overall ECIP remains a comprehensive and integral scheme and now also
encompasses privatisation and private infrastructure. It covers all stages in the
process of creating a joint venture, from identification of projects through feasibility
studies to equity funding and ongoing training. This is an important and unique
feature of ECIP which is maintained and indeed reinforced in the Council’s 1996
regulation for the continuation of the instrument until end-1999. But during 1998 the
Commission's services encountered serious procedural difficulties to maintain the
ECIP service (which are explained in the next section).

15

Part Two

2.

2.1.

ECIP ACTIVITY REPORT FOR 1998

ECIP Regulation 213/96 approved on 29th January 1996

The approval by the Council on 29th January 1996 of the ECIP Council Regulation (EC) N°
213/96 (O.J. L.28/2 of 6.2.1996, see annex) allowed the Commission to begin to implement
further improvements to ECIP during 1996 and to consolidate them in 1997 and 1998. The
new Regulation carried forward the main features of the previous ECIP Regulation and also
incorporated:

a) improvements to the detailed conditions of the existing financial facilities;

b) the new Facility 1B ECU 200.000 grant for preparation of privatisation and
private infrastructure projects;

c) provisions for significant measures to reinforce ECIP’s management (technical
assistance unit), financial audit (the independent financial audit), and reinforced anti-
fraud provisions; and

d) provisions for reinforced information, and for coordination with other EU
investment promotion actions such as the JOP, ALINVEST, MEDA, ASIA-
INVEST, the South Africa Business Council, the systems managed by DG XXIII
(BCNET, BRE, Euro-info Centres etc.) as well as with the European Investment
Bank’s risk capital activities.

Since the new ECIP Regulation was approved just at the beginning of 1996 (29.1.96) the new
financing conditions (and other changes) of Regulation 213/96 have been applied to all new
ECIP actions approved for finance in 1996 and thereafter in 1997 and 1998.

At the initiative of the Council, the ECIP Regulation 213 /96 includes a financial reference
amount of EURO 250 millions for the five-year period 1995-1999 inclusive.

The validity of the Regulation is for a four year period until end-1999 allowing the
Commission thoroughly to implement the reinforcements foreseen for financial management
which are described in later sections of this report (especially Part Four).

2.2.

Financing requests, approvals and contracts

The following sections provide a strategic commentary on the detailed statistical tables in the
annexes to this report (see Part Five).

Financing Requests

During 1998 the Commission did not actively promote demand for ECIP - it limited its
information efforts to replying to FI and potential beneficiary requests for information.

In 1998 the Commission’s services focused even more than in previous years on improving
management follow-up capacities to reinforce financial management, audit, reporting and

16

anti-fraud measures as regards ECIP funds. Following the consolidation by Technical
Assistance of the Commission’s capacity to manage the increased volumes, despite over 200
expressions of interest from new Financial Institutions (FIs) the Commission recruited only
54 new FIs to the ECIP network in 1998 and some 150 FIs outside the ECIP network who had
applied were not admitted. 24 inactive FIs were requested to leave the ECIP network. At the
end of 1998, 142 FIs were in the ECIP network.

The management of ECIP was from the start intended to be as “business-friendly” as possible:
rapid decisions, transparency, flexibility, rapid payments. This approach, specific to ECIP,
gave the scheme a good reputation with the financial institutions and prevailed until 1996.
Since then the management of ECIP has become progressively more bureaucratic and heavier
due to three factors:

–

–

–

ECIP, because it is principally oriented towards small and medium-sized enterprises
is very “labour intensive”, and the rapid growth in the number of projects came up
against the limited personnel resources available to the Commission to manage them.
These insufficiencies of staff were progressively but only partly relieved by recourse
to a Technical Assistance Unit (1997) and then to a Financial Assistance Unit (1999);

the reinforcement of the Commission’s financial procedures following observations
by the Court of Auditors, led on the one hand to delays in procedures (decision by
full Commission Written Procedure instead of habilitation), and, on the other hand to
a separation of the technical functions (DG IB) from the financial functions
(Common Service Relex) in virtue particularly of the SEM 2000 (1996), although
qualified personnel was not available in sufficient number, particularly in the
financial sector.

when the period for a reimbursable (facility 2) advance, fixed at 5 years by the ECIP
Regulation, ends the financial
institution is required, by its contract with the
Commission, to recover the funds for the Commission. These recoveries thus form a
routine part of the financial operations of ECIP. Nevertheless these financial closures
and recoveries require a great deal of precise, careful administrative work for which
an insufficient number of staff was available. Nevertheless by the end of 1999, 1398
individual action files had been financially audited.

These difficulties had two consequences:

a)

b)

the accumulation of a backlog of payments to which the Commission’s services
decided to give priority, and which should be largely addressed by the end of the
year 1999. In the meantime, despite the continued demand for finance, ECIP has
been put on hold as regards new activities in 1999. The Commission services have
decided that in 1999 the exclusive priority for the financial services must be the
financial completion and closure of the existing ECIP contractual files and the
recovery of unused and reimbursed ECIP funds.

increasing discontent among Financial Institutions and enterprises frustrated by the
delays in decisions, contracts and in payments has been evidenced.

From 1988 to end-1998 the Commission has received 3711 formal requests for ECIP
financing of which 2534 have been approved for MEURO 286,3 of ECIP financing. In the
year 1998 compared to 1997 the number of requests for ECIP financings decreased by 39% to
396, and their EURO value also declined by 25% to MEURO 53,9. In 1998 ECIP consumed

17

57% (MEURO 28,4) of the total MEURO 52,6 1998 budgetary credits available to it having
approved 264 actions for MEURO 29,8 finance in 1998 and committing the balance on
contracts for actions carried over from 1997. 1998 was the first year that ECIP failed to
consume its total available budgetary credits.

In 1998 in comparison to the previous year (1997) the number of Facility 1 requests declined
by 34 %, the number of Facility 2 requests by 45 %, the Facility 3 requests by 31 % and
requests for Facility 4 by 14 %.

Number of ECIP Financings requested

Year
Facility 1
Facility 2
Facility 3
Facility 4
Facility 1B
Total

Approvals

1997
153
403
26
63
4
649

1998
101
223
18
54
-
396

During 1998, 264 new ECIP financing actions were approved bringing the total cumulative
number of individual ECIP actions approved for financing 1988-98 to 2534. This represents a
significant decline in 1998 vis à vis 1997 being less 32 % by number of approvals, and less 20
% in MEURO volume of ECIP financing.

ECIP actions approved (All regions)

Facility N° of

Approvals

ANNUAL
All Regions
1998
Approved
amounts in
EURO

CUMULATIVE
All Regions
1988-1998

N° of
Approvals

Approved
amounts in EURO

1
2
3
4
1B
TOTALS

56
162
10
36
0
264

4.090.812
16.878.216
4.162.754
4.689.575
0
29.821.357

729
1502
157
142
4
2534

42.264.393
158.370.392
65.425.899
18.006.420
2.200.000
286.267.104

Facility One, probably because most of the requests do not benefit from the management filter
and the assistance of the FI, and because a grant is being requested, has had the lowest
approval rate of all four facilities at 55 %, also because the Commission is careful to avoid
overlapping ECIP finance with similar ALINVEST, ASIAINVEST and MEDA actions. The
Facility Two approval rate having declined from 74% in 1994 down to 68% in 1995, and to
63% in 1997, has gone up to 73 % in 1998. Facility Three still exhibits a low approval rate of
56 % for 1998, which reflects the Commission’s particularly careful policy as regards Fac 3

18

financings and the rigorous application of the principles of financial additionality, and of the
required matching financial contribution from the FI before approving any facility 3.

It is significant to note that demand for Facility Four quadrupled between 1995 and 1998 –
probably due to the introduction of grant financing conditions after 1995.

Contracts signed

All ECIP “approvals” issued by the Commission require the Financial Institution (FI) and the
Final Beneficiary (FB) to accept stringent financial, economic, technical and developmental
conditions and to sign specific contract agreements committing them to respect
these
conditions. That 20% by EURO volume and 11% by numbers of the final beneficiaries either
do not accept these conditions or, after signature of the contract, decide that they cannot fulfil
them and so renounce the financing is a reflection of
the “due diligence” during
implementation by all parties. In this context it should not be forgotten that in all cases the
Final Beneficiaries have to cofinance at least 50% (Fac 1,2 and 4) of the action costs, and in
the case of Facility 3 at least 60%. Furthermore for Facilities 3 and 4 the Financial Institution
must also provide funds to match the cofinance from the ECIP funding.

Given these factors, combined with practical difficulties for ECIP Final Beneficiaries to
execute ECIP actions and to invest in developing countries it is normal that the overall rate of
execution of ECIP contracts is not 100%.

87 % of the actions by the end of 1998 had been the subject of specific signed contracts. And
a large part of the 13 % "approved but not signed" represents the over 200 contracts which
were in the process of signature as at 31.12.98.

ECIP actions approved and contracted (1988-98)

Facility

Actions approved
up to 31.12.98

Contracts signed

Contracts as a %
of Approvals

1
2
3
4
1B
Totals

729 (100%)
1502 (100%)
157 (100%)
142 (100%)
4 (100%)
2534 (100%)

675
1310
85
123
0
2193

93 %
87 %
54 %
87 %
0
87 %

Facility 3 is quite different from the other facilities in that only about a half of the approved
actions eventually lead to a contracted disbursement. This one half rate of signature and
disbursement is normal for development risk capital actions. (More detailed information on
Facility 3 is provided in Section 3 below).

2.3.

Geographical distribution

Detailed information on ECIP actions broken down by region and country appears in full in
the Annexes (Part Five). Herewith please find some strategic comments on these trends.

19

1998
Approvals by region

Asia
Latin
America
Mediterranean
South Africa
Multiregional
Total

N° of Projects
approved
117
93

% of projects
approved
44 %
35 %

Amount in
EURO
12.563.707
9.552.316

% of amounts
approved
42 %
32 %

41
9
4
264

16 %
3 %
2 %
100 %

5.976.037
1.156.662
572.635
29.821.357

20 %
4 %
2 %
100 %

Asia, as in previous years, in 1998 remained the lead region for ECIP actions albeit with a
marginal decline. Asia accounted for 44 % of projects approved, and 42 % of amounts
approved. The 1998 results show an increase in the share for Asia compared to 1997, when
Asia accounted for 38 % of approved projects and 44 % of amounts committed. Asia accounts
for over three-quarters of the population of the ALAMEDSA countries and around two fifths
of the GNP.

1988 – 1998
Cumulative approvals by region

N° of Projects % of projects

Amount in % of amounts

Asia
Latin
America
Mediterranean
South Africa
Multiregional
Total

Approved
1.104
819

509
61
41
2.534

Approved

44 %
32 %

20 %
2 %
2 %
100 %

EURO
132.287.701
86.709.712

55.347.894
9.920.808
2.000.989
286.267.104

Approved

46 %
30 %

19 %
4 %
1 %
100 %

Latin America accounted in 1998 for 35 % of the number of projects approved and 32 % of
the ECU value of ECIP financing. On a cumulative basis 1988-98 it absorbed 32% of the
numbers approved and 30% of the value of ECIP financings. Latin America accounts for 12%
of the population and about one third of the GNP of the ALAMEDSA countries as a whole.

The Mediterranean countries by the end of 1998 accounted on a cumulative basis (1988-98)
for 20 % of the number of ECIP actions approved and 19% of the ECU volume of financings
although this region accounts for only 8% of the population and less than 20% of the GNP of
the ALAMEDSA countries as a whole. ECIP’s activity there is also complemented by that of
the European Investment Bank (EIB).

20

Although South Africa only became eligible for ECIP in mid-1994 already by 31.12.1998
EURO 10 Mio of ECIP financing had been committed for 61 specific actions approved, and
three major local banks integrated into the ECIP FI network.

Despite the tendency for Foreign Direct Investment (FDI) to focus mainly on a few large
developing countries (See Part One above) ECIP has itself contributed towards a more
widespread geographic distribution of FDI. The geographical distribution of ECIP financings
has been widespread with less concentration on the major countries. From 1988 to 1998 only
55% of the total ECIP budget went towards the 7 largest ALAMEDSA economies (Argentina,
Brazil, China, India, Indonesia, Mexico and Turkey) although these 7 countries took three
quarters of all the ALAMEDSA Foreign Direct Investment in the period 1988-1998. So ECIP
has encouraged a wider geographic spread of FDI towards smaller and less developed
countries.

2.4.

Breakdown by facility

1998
Approvals by facility

N° of
Approvals

% of N° of
Approvals

Facility 1
Facility 2
Facility 3
Facility 4
Facility 1B
Total

56
162
10
36
0
264

21
61
4
14
0
100

Approved
amounts in
EURO

% of
Approved
amounts in
EURO

4.090.812
16.878.216
4.162.754
4.689.575
0
29.821.357

14
57
14
15
0
100

Average
ECIP
financing
in EURO
73.050
104.187
416.275
130.266
0
112.960

The emphasis placed by the Commission on Facilities 1, 2 and 4 and not on Facility 3
(referred to in section 1.2 above) is confirmed in 1998, as in previous years, from the figures
shown above and in Annex (Part Five). Facilities 1, 2 and 4 accounted for 96 % of the number
of approvals in 1998. This increases on the situation in the previous year (1997) when
Facilities 1, 2 and 4 accounted for 95 % of approvals.

During 1998 the average EURO amounts of each Facility approved were as follows: -

Average ECIP financing per action in 1998

Facility One
Facility Two
Facility Three
Facility Four
Overall average

1998
EURO
73.050
104.187
416.275
130.266
112.960

21

The trend for higher use of Facility 4, noted in the 1996 and 1997 progress reports has
continued in 1998. Facility 4 approvals increased from under 3% of total numbers approved
in 1995, to 9% in 1997 and to 14 % in 1998. This increase in Facility 4 is probably due to the
changed financial conditions in the new Regulation, which since 1996 allow SMEs to obtain
grant finance under Facility 4 for human resource development. In EURO amounts this
increase in approvals for Facility 4 consumed 15 % of the ECIP budget for 1998 as opposed
to only 3.6% in 1995.

2.5.

Sectoral analysis

The breakdown of ECIP approvals by detailed Standard Industrial Classification sector is
provided in the annexes.

The summary breakdown by major sector is as follows : -

Sectoral breakdown of ECIP approvals 1988-98

SECTOR
Manufacturing
Agriculture and agri-food
Services
Multisector
Mining and energy
Transport and
communications
Construction and
Engineering
TOTAL

%
63
17
7
5
3
2

3

100

Manufacturing, with 63 % of approved funding from 1988 to 1998, has been lead sector for
ECIP financings. Machinery, electronics and chemicals are the most important manufacturing
sub-sectors. ECIP financings for Asia show a higher concentration on manufacturing with 71
% of all ECIP funding for Asia. On the other hand the Mediterranean countries had only an
average of 41% manufacturing-related actions from 1988 to 1998.

The agriculture and agri-food sector (including fishing) share of ECIP approvals from 1988 to
1998 has been overall 17 %. In the agricultural sector specific project content has, since 1996,
continued moving away from agricultural production towards food-processing and agri-food
related activities. Overall ECIP has been involved in less and less agricultural production
projects over the years.

The service industries (including financial services) share of ECIP has slowly decreased, from
an average 15 % from 1988 to 1994, 13 % in 1995, 9 % in 1997 to only 7 % in 1998.

Activities in the mining, energy, transport and construction sectors have only taken 8 % of
approved amounts up to the end of 1998.

22

2.6.

The network of ECIP financial institutions (FI) and their activities

One of the key features of the ECIP instrument is its decentralised management with much of
the implementation being undertaken by the FIs (Financial Institutions) in the network. All
the FIs sign a standard “Framework Agreement” contract with the EC which sets out the legal
relationship between them and the Commission, and the procedures to be followed. The
Commission has over the years provided for the FIs to take an increasing role in the
management of ECIP.

Given that all proposals submitted under Facilities 2,3 and 4 must come through an FI, it is
essential that the FI network should cover the EU member states and as many as possible of
the eligible countries. So, already in 1995 banks from Austria, Finland, and Sweden had been
incorporated into the network following the favourable opinion of the ECIP Committee, as a
result ECIP has active FIs in all member states of the EU. Similarly, the inclusion of three
banks from South Africa had been completed early in 1995, and the Austrian state
development bank FGG joined the network in 1996.

The ECIP Council Regulation (EC) n° 213/96 foresees that : quote art. 3, para 1 - “ The
Financial Institutions shall be selected by the Commission, further to the opinion of the
Committee, defined in art. 9, from among development banks, commercial banks and
investment promotion bodies” unquote, and quote art. 9, para 3, 1° - “ The following shall
be adopted …: - the choice of Financial Institutions in the light of their experience and
aptitude for making a preliminary selection of the projects in accordance with the criteria set
out in art. 6 “ unquote.

On 20 May 1998, the Commission has decided, by written procedure, to adopt a modification
to the ECIP network of Financial Institutions. The Commission decision furthermore specifies
that it is not possible to maintain in the ECIP network those Financial Institutions who were
inactive in the network or who were not able to generate ECIP actions over the last 2 years.
The ECIP network of Financial Institutions has thus been modified accordingly by including
54 new FI and inviting 24 to leave the network, and the distribution of FIs by type and region
is now as follows :

ECIP FI network end 1998

Development
Banks
Commercial/Mer-
chant Banks
Totals

Asia LA MED South
Africa
0

6

8

8

Multiregional
(Worldwide)
2

12

18

15

23

16

24

4

4

0

2

EC Total

15

56

71

39

103

142

LA = Latin America
MED = Mediterranean

Annex 9 in Part Five of this document lists these institutions.

During 1998, 86 % (EURO 25,7 Mio) of ECIP actions approved were channelled through EU
FI. Local ALAMEDSA FI accounted for EURO 2,8 Mio (9 %) of ECIP approvals. And
EURO 1,3 Mio (5 %) of the actions approved were directly (Facility 1) for chambers of
commerce and industry associations. Care should be taken in interpreting these figures. It
cannot be assumed, for instance, that the amounts approved for FIs of any one EU member

23

state represent the total ECIP support flowing to companies solely from that member state.
ECIP allows applications to be made by one of the several partners in the joint venture. ECIP
allows applicants to use any FI in the network, they are not restricted to FI only in their own
country. Approvals for an FI in one country may often therefore involve a beneficiary (or
several) from another country. The figures therefore do not represent ECIP financing
benefiting companies from a country. For example, most of the finance via Luxembourg FIs
is due to a German bank (EUROPA Bank – which is part of the Dresner Bank Group) based
there, the majority of whose clients are German.

Factors which affect distribution between FIs and between the various countries relate to the
willingness of FIs in a given country to become members of the ECIP network; the type of
bank; the way in which FIs promote the instrument once accepted into the network. Wider
factors for each country also include: the presence of strong industrial associations to diffuse
information about ECIP in the country in question; the availability of other local publicly
funded investment promotion programmes and the attractiveness of their terms and conditions
relative to ECIP; the division of FDI between large firms and SMEs; and historical and
commercial links with the ALAMEDSA eligible countries.

The Commission’s objective is that as many business operators as possible undertaking a
profitable and developmentally beneficial joint venture investment in an eligible country
should be aware of the support that ECIP can offer them and should be able to access the
scheme. To achieve this objective and to reduce the influence of the factors noted above, the
Commission undertakes information and promotional activities, and has introduced incentives
to encourage effective promotion of the instrument by all the FIs throughout the EU member
states and the eligible ALAMEDSA countries.

2.7.

Information, awareness and promotion

During 1998 the Commission did not actively promote demand for ECIP since it focused its
efforts on the management of the existing contracts and the ongoing flow of requests and
contracts. It limited its information efforts to replying to all FI and beneficiary's requests for
information.

2.8.

Facility 1B for privatisation and private infrastructure (PPI)

Privatisation and private participation in infrastructure (“PPI”) has increased rapidly in recent
years as some developing countries have opened up their infrastructure sectors to finance and
management by the private sector. PPI may be the only way for a developing country to meet
the often huge growth in infrastructure needed to keep pace with its development. PPI can
bring with it increased efficiency in construction and operation. PPI can also reduce financing
and management burdens on public sector institutions. PPI may also have other indirect
benefits for the host country. A successful PPI project can strengthen the local financial
sector, act as a valuable demonstration project for other PPI initiatives in the country or
region, and create domestic constituencies for further liberalisation.

The grant Facility 1B of ECIP introduced in the new ECIP Regulation has been designed to
help governments and public agencies in the developing economies of Asia, Latin America,
the Mediterranean and in South Africa to prepare PPI projects and to improve their local
development effects. Facility 1B has been developed in recognition of the fact that PPI
projects are complex, and that many public agencies have limited experience in this new and
fast developing technique. By providing front-end grant finance at the preparation stage, the
Facility 1B aims to improve the changes for successful completion of the PPI project, reduce

24

costly duplication of preparatory steps and expand the opportunities for European Businesses
to participate in the PPI process. ECIP Facility 1B can provide up to 100% grant support for
eligible expenditure with a maximum of ECU 200 000 per action. The Discussions by the
Commission with contractors, consultants, financial institutions and governments had allowed
the Commission during 1996 to develop the general guidelines for ECIP Facility 1B. (These
are provided in detail in Annex 11, Part Five.)

As a result of the complexity and political and economic importance of PPI actions, and
because the funding is as a 100% grant, the Commission has been particularly selective in
approving and managing ECIP Fac 1B actions. During 1996 one set of actions (MECU 1) for
“Preparation of Privatisation and Private Infrastructure” in Vietnam was approved in principle
but only committed in 1997 since the implementation of this action is to be assisted and
monitored by the putting into place of a full-time Build Operate and Own / Build Operate and
Transfer Technical Assistance in Vietnam (funded by the EU Budget Line for Economic
Cooperation with Asia EUROTAPVIET project). During 1997 a MECU 1 grant allocation
was approved for the Philippines to assist in privatising local water supplies. And 2 small
studies for a possible privatisation in Brazil were approved in principle for ECU 200.000 but
later abandoned.

None of these actions has yet led to contracts and payments. The 1B facility has shown slow
implementation for a variety of reasons: i) the large multinational companies which execute
most of these projects are excluded from ECIP; ii) the amount ECU 200.000 is too small vis à
vis the cash needs of most major privatisation projects; and iii) and the Commission has been
particularly careful to make sure that the local policy and institutional frameworks justify this
100% grant
financing and this policy analysis and dialogue delays and complicates
implementation.

2.9.

Relations with the EIB and coordination with other EC instruments

The Commission continued operational coordination of ECIP with other
investment
promotion instruments managed at EU level. The cooperation and coordination with the
European Investment Bank (EIB) as regards operations in the Mediterranean was facilitated
by the continued operation of the “Gentleman’s Agreement” concluded in 1992 between the
EIB and ECIP in 1992. The EIB has written to the Commission stating that “…there now
exists a satisfactory complementary and equilibrium between ECIP and EIB operations”.

In addition to the internal and operational coordination within the Commission’s services as
regards the respective individual actions to be financed under ECIP and other EC economic
cooperation programmes, the Commission is studying the setting up of specific arrangements
to diffuse and exploit the information, partner lists, and studies financed under Facilities 1 and
2 of ECIP through the networks and outlets and information systems in the AL-INVEST focal
points, the EU/Mediterranean Business Centres, the Asia/EC Business info Centres (EBICs)
and the networks and systems managed by DG XXIII and III within the EC and elsewhere
such as BCNET and BRE which will allow further to improve the effective access to the
benefits of ECIP, especially for SMEs.

A basic review of these various different instruments is necessary in order to reinforce their
coherence and complementarity. Most of the newer programmes provide “softer” grant
money with less rigorous eligibility criteria than ECIP’s strict and conservative banking
approach. Avoidance of overlaps and greater coordination could be achieved by a detailed
review and comparison of all these instruments. An encouraging development has been the
tendency of other donors and EU policy areas to copy the ECIP instrument, adapted to local

25

needs and circumstances. For example, an ACIP – Asian Community Investment Programme
– now exists with four financing facilities to encourage Asian investors to invest in India; and
a J.E.V. Joint European Venture programme has been introduced with EU funding to promote
cross-border SME joint ventures between EU member states.

26

Part Three

3.

THE ECONOMIC IMPACTS OF ECIP FINANCINGS

3.1.

Reporting of ECIP actions

In the context of total private capital flows of over EURO 227 billions to the developing
world in 1998 the annual available ECIP funding of EURO 39,75 millions (1998) remains
modest. But the focus of ECIP on match-making and project identification (Facility 1),
feasibility studies (Facility 2), and on training and management (Facility 4) enhances ECIP’s
financial multiplier effect and orients ECIP towards upgrading the developmental quality and
the economic impact of the flow of private investments to developing countries.

Because of the limited staff resources available to it the Commission is obliged to rely on the
FI and Final Beneficiary reports on the actions. The global estimates below are based on a
detailed economic impact reporting system which analyses the results of every ECIP action
on the basis of written reports from the beneficiaries. The economic impact of ECIP is
estimated by the Commission's services by assessing the detailed written Final Report on each
individual action. Up to the end of 1998, 2534 actions have been approved, resulting in 2193
contracted ECIP actions. 1353 Final reports had been received and 1312 of those had been
technically assessed and 1398 audited financially by the time of writing this report.

On the basis of detailed analysis of 1312 of these individual detailed Final Reports on 1312
individual ECIP actions the Commission estimates that each EURO of ECIP financing is
associated with over 16 EURO of investments in the developing countries. EURO 240
millions of ECIP actions executed are reported to be associated with about EURO 3,5 Billions
(=3.561 millions) of private investment projects. Over 34.000 EU and local firms have been
involved as partners in the 2193 actions contracted to 31.12.98. 1362 joint ventures are
reported to have been created, and over 42.000 jobs are reported to have been created in these
joint ventures.

ECIP actions approved, contracted, assessed (1988-98)

Facility

Approved

Contracts already
signed

Final Reports
assessed

1
2
3
4
1B
Totals

729
1502
157
142
4
(100%) 2534

675
1310
85
123
0
(87%) 2193

513
710
47
42
0
(51%) 1312

There is a substantial time lag between the approval of an action, contract signature,
execution, and then its written report. The facilities take between 18 months (Facility 1), 24-
36 months (Facility 4), 3 years (Facility 2), and up to 10 years (Facility 3) on average to be

27

completed and to present their Final Report. As a result, at the time of writing, 1181 of the
2534 actions approved until 31.12.98 were still in progress and their final reports awaited.

The Commission has been conservative in compiling the reported results of completed
actions. Only if the Final Report has been received and a joint venture has been reported to
have been created, are investment, resulting employment and other development factors taken
into the reported impact totals. All other actions, where the final outcomes of an action are not
available have not been included in the economic impact data analysed below.

Throughout this report the economic impact of ECIP is measured on the basis of the 1312
action reports analysed in detail and then calculated on the basis of success rates per facility.
The tables included in this chapter each have one column of actual results relating to the 1312
researched actions (1312 Reports Evaluated) and another column with the (Estimates for all
2193 contracted) results for the total 2193 actions contracted.

Annex 5.2 contains more details of the data for each facility and a detailed explanation of the
methodology and analysis used to arrive at the data.

3.2.

Joint venture creation

Based on the 1312 completed and reported actions ECIP has helped to create 893 reported
joint ventures. Based on the same rates of success the 2534 actions approved 1988-98 would
lead to the establishment of 1362 joint ventures. The breakdown of these figures by facility is
shown below:

Number of Joint Ventures created (1988-98)

Facility

1312 Reported and
Evaluated

Estimates for all 2193
actions contracted

1
2
3
4
Totals

624
183
44
42
893

821
338
80
123
1362

The nature and quality of the results of each facility differs as follows :

Facility One assists Chambers of Commerce, industry associations, and FIs with matching
activities. Based on the 513 Final Reports evaluated, around 624 joint ventures are reported to
follow from these 513 Facility One actions. On that basis it can be estimated that some 821
joint ventures might be expected to follow the total of 675 Facility One actions contracted to
end-1998. These Facility One numbers represent
the reported (rather than the realised)
intentions to create joint ventures. Many will take some years to be actually realised. For this
reason the Commission has not included their investment or employment creation projections
in its overall estimates for the economic (investment and jobs) impact of ECIP, and double-
counting does not occur of Facility One with other facilities.

28

Reported Facility 1 Results (1988-98)

Number of actions
Results

Firms involved
Resulting joint ventures
claimed to be created

Actions reported and
evaluated
513
For reported actions

17.400
624

Actions contracted

675
Estimated for all actions
contracted
22.900
821

513 Facility One Final Reports show an involvement of over 17.400 companies, so on the
same basis an estimated 22.900 companies should benefit from ECIP support under the 675
Facility One actions approved. On average 34 companies are involved in each Facility One,
so that it costs on average of EURO 1680 to ECIP for each company involved.

On the basis of 710 written Final Reports analysed Facility Two is reported to have a one in
four JV creation success rate since 183 out of the 710 actions are reported to have led to a
joint venture. On that basis the total 1310 actions contracted 1988-98 could lead potentially to
338 joint ventures.

Facility 2 Results (1988-98)

Number of actions
Results

Number of joint ventures
resulting

Actions reported and
evaluated
710
For reported actions

183

Actions contracted

1310
Estimated for all
actions contracted
338

Facility Three is very different from Facility Two measured at the contractual level since the
ECIP funding goes to the establishment of the joint venture itself which must be established
for the contract to be signed. As a result there is (and has to be) a nearly 100% success rate at
contractual level. 91% of these represent fully subscribed and disbursed equity and equity
loan participations and the remaining 9% represent those cases for which contracts are signed
and the Financial Institution is still in the process of completing the financial and legal “due
diligence” before subscribing the ECIP funds for equity or an equity loan.

Facility Three exhibits a low (54 %) rate of contracts signature following in principle
approval by the Commission. This is normal since the various partners in the joint venture and
the FI are obliged actually to agree complex legal contracts and to subscribe cash to the JV
before the ECIP Facility Three contract can be signed and disbursed. This 1 in 2 signature and
disbursement rate is to be expected in development risk capital financing and reflects the

29

Commission’s (and the FIs’) conservative and careful financial management as regards
Facility Three before disbursing ECIP funds.

Facility 3 Results (1988-98)

Number of actions
Results

Number of joint ventures
created

Actions reported
and evaluated
47
For reported
actions
44

Actions contracted

85
Estimated for all actions
contracted
80

Accordingly, of 157 Facility Three actions approved 1988-98, 85 have been the subject of full
contracts signature and 80 of those have actually been totally “executed” and ECIP funds
have been disbursed to the joint venture.

A particularly interesting statistic is that one third of Facility Three actions follow a Facility
Two preparation study and financing.

Facility Four finances training, management and technical assistance for joint ventures. As
such, since the JV must be created to apply for and to receive the ECIP funds it has a 100%
JV creation rate, since the contracts cannot be signed and disbursed until the JV exists.

Facility 4 Results (1988-98)

Actions reported and
evaluated
42
For reported actions

Number of actions
Results

Number of joint ventures

42

Actions contracted

123
Estimated for all actions
contracted
123

The real measure of Facility Four’s impact is the number of persons trained, its qualitative
support to the human resources, and to the management of each JV (see section 3.5 below).

3.3.

Investment

The 2193 ECIP actions contracted 1988-98 will, on the basis of the written reports and the
Commission's conservative analysis of them, be associated with EURO 3,5 Billions (=3.561
millions) of joint venture investments :

30

ECIP Investment Creation in Mio

€

(1988-98)

Facility

1312 Reports evaluated

1
2
3
4
Totals

*PM
1506
204
141
1851
* (Remark: The Commission has not taken intentions resulting from Facility One meetings
into these totals.)

Mio
Mio
Mio
Mio

Mio
Mio
Mio
Mio

€
€
€
€

€
€
€
€

Estimated for all 2193
contracts signed
*PM
2779
369
413
3561

Since Facility One results in terms of joint ventures created are always sometime after the
closure and Final Report of the action, so the Commission's files only contain reports on
intended future investment and the Commission is conservative in not quoting any
“investment creation” effect from Facility One. Nevertheless many of the 624 reported JVs
from Facility One should certainly have an important additional investment effect eventually
which would add to the above totals.

Only the investment effects of Facilities Two, Three and Four are discussed here. Of the 1312
action specific reports analysed 269 JVs created report EURO 1851 millions invested. For the
total 1518 actions contracted (Facs Two, Three and Four) EURO 3561 millions investment
total is estimated to be in the pipeline relating to 541 joint ventures.

The average total investment per successful ECIP joint venture is 6,5 million EURO. 95 % of
all ECIP’s successful JVs involve less than MEURO 27 total investment each and can hence
be considered SMEs according to the relevant SME definition:-

Total investment in ECIP-supported Joint Ventures

Less than MEURO 5
Investment

MEURO 5 to
27 investment

More than
MEURO 27
investment

% of JVs by
number

70 %

25 %

5 %

A reported ECIP funding-investment multiplier of 16 times has been calculated as a ratio of
all the ECIP funding approved and contracted for all facilities and the investments generated
including
through successful
reimbursements).

resulting from all

joint ventures

facilities

(not

the

Facility Two has a reported funding-investment multiplier of 19, the result of the one in four
actions success rate, an average ECIP cost of EURO 115.000 per action (1988-1998), and an
average of EURO 8,2 millions per successful Facility Two joint venture. This multiplier of 19
does not include repayments to the EC budget. If repayments of successful Facility 2 actions

31

are considered as reductions in the net funds provided by ECIP, the Facility Two funding
multiplier goes up from 19 to 27.

Facility Three with an average ECIP financing of EURO 330.000 (1988-1998) has a funding-
investment multiplier of 14. This facility generally requires a larger amount of ECIP funding
per action. The resulting multiplier is corrected upward because all Facility Threes which are
contracted succeed in the sense that the JV is created. However, a more representative
multiplier should take account also of reimbursements. The 13 actions closed and reimbursed
to date have led to a 101 % rate of reimbursement, leading in the long run to a potentially
significantly positive multiplier calculation (after repayments) since Facility 3 so far has led
to a small profit to the EU budget (see Section below).

The Facility Four has an average cost to ECIP per action of EURO 131.000 (1988-1998). And
Facility Four is associated with a lower average total investment per joint venture of MEURO
2,8 since it is particularly oriented towards SMEs by the conditions defined in the ECIP
Regulation.

3.4.

Analysis of facility 3 actions

The ECIP facility 3 equity and equity loans disbursed are particularly indicative of ECIP
results since each and every action disbursed concerns a joint venture realised on the ground.
Accordingly this section provides more detail on them.

The Commission's conservative financial management means that only about one third of
applications received lead eventually to a contract and a disbursement. 157 (68%) of the 230
applications received have been approved for financing and only 80 (about half) of these are
signed and disbursed. This attrition rate is normal for three important reasons: (i) the various
cofinanciers (EU partner, local partner, and FI) are all required actually to provide proof of
their cash commitment; (ii) the legal documentation is costly and often difficult to agree; and
(iii) the Commission and the FI are particularly diligent as regards fulfilment of all the
technical, economic, legal and financial conditions for Facility 3 actions. A low rate of
signature and disbursement is normal for development risk capital actions.

The majority (80 %) of ECIP Facility 3 financings are executed by the EU member state
development finance companies which are grouped in EDFI (European Development Finance
Institutions). 19 of the ECIP Financial Institutions have executed Facility 3 financings. 8 of
these FI are members of the EDFI (European Development Finance Institutions), 5 non-EU
development finance institutions, and 6 are European commercial banks.

The wide geographical spread of these actions is as below: -

32

Facility 3 projects carried out by country

Country
China
Mexico
South Africa
Argentina
Morocco
Thailand
Turkey
India
Brazil
Sri Lanka
Egypt
Indonesia
Tunisia
Uruguay
Bangladesh
Bolivia
Cambodia
Chile
El Salvador
Maldives
Malta
Peru
Venezuela
Algeria
Total:

Number of projects
13
11
10
7
6
5
5
4
3
3
2
2
2
2
1
1
1
1
1
1
1
1
1
1
85

For the actions already closed the average timelapse from the signature of the contracts and
disbursement until the closure and reimbursement is 7½ years. So by 31.12.98 only 13
Facility 3 financings had been completed, closed and reimbursed as follows:

Facility 3 reimbursed projects as at end-1998

Joint Venture project

in

Dairy production in Mexico
Plastics manufacturing in Bolivia
Hotel services in Thailand
Machine-tools manufacturing
Turkey
Hotel group in Egypt
Food production in Morocco
Wind energy park in Argentina
Goods handling and services in India
Meat production in Mexico
Eggs production in Turkey
Manufacturing of industrial goods in
Mexico
Manufacturing of
China
Toll highway in Argentina

food products in

Total

EURO
Amount
disbursed
350.000,00
215.000,00
254.983,00
500.000,00

562.052,00
144.000,00
120.000,00
316.700,00
1.000.000,00
264.831,00
156.152,00

EURO
Amount
reimbursed
420.000,00
211.678,00
258.725,00
500.000,00

1.082.187,00
4.350,00
156.617,00

282.912,00
101.759,00
184.459,00

Profit/Loss

+70.000,00
-3.322,00
+3.742,00
0,00

+520.135,00
-139.650,00
+36.617,00
-316.700,00
-717.088,00
-163.072,00
+28.307,00

%
reimbursed/
disbursed
120,00%
98,45%
101,47%
100,00%

192,54%
3,02%
130,51%
0,00%
28,29%
38,42%
118,13%

551.161,00

646.157,00

+94.996,00

117,24%

800.000,00
5.234.879,00

1.445.291,00
5.294.135,00

+645.291,00
59.256,00

180,66%
101,13%

33

This table show how these projects are very varied in their nature, location and their financial
results. Such a small sample does not have statistical validity leading to generalisations.
Nevertheless, the profile of their financial reimbursement is indicative of the wide variety of
financial outcomes ranging from 80 to 90% profits realised, to total losses.

The impact in terms of incremental investments is also very varied. Several of the actions
have been closed down at a loss, while others are highly successful with much larger
investments generated than originally expected. Overall (for the small group of 13) these
EURO 5,2 ECIP Facility 3 financings have been totally reimbursed with a 1% profit and are
associated with over EURO 150 millions of confirmed ongoing investment projects. While
this small sample should not be extrapolated to refer to the whole of ECIP - it is nevertheless
indicative and positive.

3.5.

Employment and training

Specific Final Reports already received for the 269 JVs reported to be created following
Facilities Two, Three and Four show 21.400 jobs created. On that basis the 541 JVs expected
to be created after all Facilities Two, Three and Four are all completed are estimated to
involve approximately 42.400 jobs.

Employment (1988-98) number of jobs created

Facility

1312 Reports

1
2
3
4
Totals

PM*
15.500
3.100
2.800
21.400

Estimated for 2193
contracted actions
PM*
28.600
5.600
8.200
42.400

* (no job creation estimate is made for Facility One).

The average joint venture created after ECIP support involves about 80 employees. 92% of
the JVs created employed less than 250 persons and can therefore be classified as SMEs on
that basis:

Number of employees per joint venture created

Less than
10
7 %

10-50

40 %

51-250

45 %

More than
250
8 %

% of JVs
created

Under Facility Four, in addition to the management and technical assistance provided, some
2200 employees are calculated to have, or still be receiving training funded by ECIP.

34

3.6.

Other development factors (environment, technology transfer)

The Commission assesses the environmental impact and risks of each ECIP action before
approving each action. 8% of the Facility Two approvals were required to include an
environmental assessment in their feasibility study in order to clarify, address and mitigate the
risks. 12% of the actions were considered to have a potentially significant positive impact on
the environment (such as cleaner diesel engines production unit, wind energy project, etc.).
80% of the actions were considered to have an acceptable impact and level of risks for the
environment.

95% of ECIP-supported actions which resulted in a joint venture show positive elements of
transfer of know-how, profitable to both partners in the enterprise. All ECIP actions involve
some sort of technology and know-how exchanges. 5% of the cases approved concern
projects with appropriate technologies, such as artisan or handicraft-type production units
using local resources.

3.7.

Assessment and follow-up of ECIP actions

ECIP is a decentralised programme without direct contractual contact between the final
beneficiaries and the Commission’s services, and with standardised written reporting
procedures on projects executed by the FI. For the impact assessment the Commission relies
on the end-of action written reports, the so-called Final Report, which each beneficiary has to
make available through its Financial Institution and which the Financial Institution assesses
and comments upon, before making the last disbursement to the beneficiary. As the ECIP
instrument matured and as more and more Final Reports were available in 1997 and 1998 the
Commission has executed a programme of eight on-the-ground inspections by independent
consultants (see Section 3.8 below). Furthermore the Independent Appraisal Study foreseen in
Article 10 para 2 of the ECIP Regulation provides for inspection and independent reporting of
all these results. And at the time of writing (September 1999) that report was still awaited
after the placement in February 1999 of the contract with Deloitte S.A. (see Section 3.9
below).

3.8.

Eight ECIP country project inspection studies

During 1998 the Commission completed its programme of rigorous on-the-ground inspections
of the ECIP projects realised in eight eligible countries. The eight countries were chosen in
order to give a representative sample from all four continents concerned and to represent a
wide range of types and levels of development. These countries: Chile, China, Indonesia,
India, Morocco, Mexico, Tunisia and South Africa account for more than half of all the ECIP
actions requested, approved and implemented and therefore already represent a substantial
and representative sample. The terms of reference of these 8 separate studies (see Annex 5.3)
were identical to ensure cross-country comparisons, and to enable aggregation of the results
found to compare them to the aims of the ECIP regulation.

In conformity with standard EC procurement procedures via the framework contract
procedure eight individual consultants have been contracted for the eight studies which cost a
total of EURO 355.100 (or EURO 44.875 on average for each contract/study). These
contracts were financed out of the ECIP Budget in accordance with Article 10 of the ECIP
Regulation. Considering that these consultants reviewed 1.132 individual approved actions
their work cost EURO 312 per action – a minimal cost. They also visited and interviewed
many ECIP beneficiaries, financial
institutions, government officials and chambers of
commerce. 93 of ECIP’s successful joint ventures investments have been visited by these

35

consultants and they have provided detailed individual reports on these 93 investments which
confirm the written Final Reports already held by the Commission. 20 of these project visits
were witnessed by Commission officials as a sample check on the work.

These eight country inspections have therefore served to verify and confirm the reality on-the-
ground as regards over half of the ECIP economic impact results which are quoted in this
report. All these detailed on-the-ground findings have been made available to the independent
appraisers whose recommendations for the future of ECIP are awaited before the end of 1999.
The country- and project-specific studies do not replace the formal “Independent Appraisal”
of ECIP foreseen in Article 10.2. of the Regulation which has been initiated in 1998 (see
below).

3.9.

The independent appraisal study

The ECIP Council Regulation 213/96 of 6.2.96 provides at Article 10 para 2 that the
Commission shall forward the results of an independent appraisal of the instrument to the
European Parliament and the Council and that this report must permit an assessment of the
implementation of the principles of good financial management, economy and a cost/benefit
analysis of the instrument.

Accordingly the Commission's services initiated in May 1998 the international
tender
procedure to procure this study. This tender was published in September 1998, adjudicated in
December and the contract was signed in February 1999 with Deloitte S.A.

The full terms of reference of this study contract are reproduced in Annex 5.4 to this report. In
summary it
is to describe and assess to what extent each ECIP facility as well as the
instrument as a whole since 1988 has achieved the objectives laid down in the ECIP
Regulation particularly as regards total investments promoted, the number of joint ventures
and jobs created, as well as the development contributions listed in Article 6 para 2 of the
ECIP Regulation as regards the ALAMEDSA countries.

The consultant must also:

–

–

–

–

–

Estimate quantitatively the financial multiplier effect of net ECIP fundings vis
à vis investments created and the average costs of these investments per joint
venture and per job created.

It is also foreseen that an assessment will be made of the operations of the
instrument particularly to analyse the criteria and the procedures for the ex ante
appraisal and eligibility of ECIP financing and for the follow-up, reporting and
evaluation of these actions ex post.

recommendations

including
improvement
Make
suggestions as regards the criteria and procedures including the periods
necessary for follow-up and reporting.

in these

systems

for

Describe and assess how the ECIP procedures, and the financial and
contractual procedures of the Commission's services fit the requirements of a
user-oriented investment promotion instrument for private sector operators.

Describe what
impact the Commission's Sound and Efficient Management
(SEM 2000) procedures introduced from 1996 onwards have had on the above.

36

–

–

Describe and assess the role and the coordination of ECIP vis à vis other EU
instruments with similar related purposes.

Make suggestions to address any problems identified.

Deloitte is expected to provide their report in early 2000 which will be sent to the Parliament
and Council after the Commission's Approval.

37

Part Four

4.

FINANCIAL MANAGEMENT

4.1.

Sound and efficient financial management

In the framework of the Commission’s Sound and Efficient Management Programme (SEM
2000) during 1998 the Commission continued to implement the major reinforcements to its
financial management and audit capabilities which had been proposed in 1994 to the Council
and Parliament and approved as a part of the new ECIP Regulation N° 213/96 Council of 29th
January 1996. These measures were:-

–

–

–

an Independent Financial Audit;

anti-fraud measures; and

a Technical Assistance Unit;

as provided for in Article 10 para 3 and 4 of the ECIP Regulation (See Annex 11).

The management of ECIP was from the start intended to be as “business-friendly” as possible:
rapid decisions, transparency, flexibility, rapid payments. This approach, specific to ECIP,
gave the scheme a good reputation with the financial institutions and prevailed until 1996.
Since then the management of ECIP has become progressively more bureaucratic and heavier
due to three factors:

–

–

–

ECIP, because it is principally oriented towards small and medium-sized enterprises
is very “labour intensive”, and the rapid growth in the number of projects came up
against the limited personnel resources available to the Commission to manage them.
These insufficiencies of staff were progressively but only partly relieved by recourse
to a Technical Assistance Unit (1997) and then to a Financial Assistance Unit (1999);

the reinforcement of the Commission’s financial procedures following observations
by the Court of Auditors, led on the one hand to delays in procedures (decision by
full Commission Written Procedure instead of habilitation), and, on the other hand to
a separation of the technical functions (DG IB) from the financial functions
(Common Service Relex) in virtue particularly of the SEM 2000 (1996), although
qualified personnel was not available in sufficient number, particularly in the
financial sector.

when the period for a reimbursable (facility 2) advance, fixed at 5 years by the ECIP
Regulation, ends the financial
institution is required, by its contract with the
Commission, to recover the funds for the Commission. These recoveries thus form a
routine part of the financial operations of ECIP. Nevertheless these financial closures
and recoveries require a great deal of precise, careful administrative work for which
an insufficient number of staff was available. Nevertheless by the end of 1999, 1398
individual action files had been financially audited.

These difficulties had two consequences:

38

a)

b)

the accumulation of a backlog of payments to which the Commission’s services
decided to give priority, and which should be largely addressed by the end of the
year 1999. In the meantime, despite the continued demand for finance, ECIP has
been put on hold as regards new activities in 1999. The Commission services have
decided that in 1999 the exclusive priority for the financial services must be the
financial completion and closure of the existing ECIP contractual files and the
recovery of unused and reimbursed ECIP funds.

increasing discontent among Financial Institutions and enterprises frustrated by the
delays in decisions, contracts and in payments has been evidenced.

4.2.

Independent financial audit

During 1998 “…the independent financial audit of the financial institutions and of the Facility
1 beneficiary organisations, as regards the ECIP funds they received.” unquote (Article 10
para 3 of ECIP Regulation 213/96) as at 31.12.96 had been completed by Coopers & Lybrand
Reviseurs d’Entreprises (Belgium). Then in 1998 into 1999 Price Waterhouse Coopers (the
successor of Coopers & Lybrand) produced the subsequent audit situation of ECIP accounts
as at 31.12.1997. The contract with Coopers & Lybrand (succeeded by Price Waterhouse
Coopers) had been placed after an open international tender in conformity with Council
Directive 92/50/EC of 18th June 1992 relating to the coordination for the award of public
service contracts. The contract includes the following elements: (i) visits and specific audit
reports of the ECIP accounts of ECIP financial institutions and Facility 1 beneficiaries located
in EU and ALAMEDSA states were executed and delivered; and (ii) an overall audit report
was produced. In this way two independent financial audits of the contractual and financial
records relating to ECIP transactions have been completed and 1398 individual action
accounts have been financially audited.

4.3.

Anti-fraud measures

As required by Article 10 para 3 of the new ECIP Regulation the Commission “…made
specific provision in the framework and the specific financing agreements for anti-fraud
measures, in particular a mechanism for the recovery of advances which are not justified after
audit” unquote by including strong contractual provisions in all ECIP contractual agreements
(see Annex 5.10 for full text thereof).

4.4.

Technical and Financial Assistance Units

As provided for in Article 10 para 4 of the ECIP Regulation (213/96) the Commission
launched open international tenders in 1996 (in accordance with Council Directive 92/50/EC)
and after a further invitation to tender (in accordance with Article 11.3. of the Council
Directive 92/50/EC) a contract was signed in July 1997 with GOPA-Consultants (D) for a
total amount of EURO 1.167.920 for 12 months' TAU service from 1st August 1997 to 1st
August 1998. In order to ensure the continuity of the offer of ECIP and after another open
international tender this contract was continued with GOPA (D) for a six month period from
1st August 1998 to 31st January 1999 for an amount of EURO 787.434. At the time of writing
that Technical Assistance Unit (TAU) run by GOPA (D) Consultants was still operating and
contributing significantly to the improved management of ECIP.

The role of this Technical Assistance Unit can be summarised, non-exhaustively, as follows:

–

To deal with all requests from the public for information on ECIP, primarily by
dispatch of ECIP information materials.

39

–

–

–

–

–

To evaluate and process requests for ECIP funding.

To follow-up and manage all dossiers on a continuing basis.

To maintain correct and up-to-date files on all ECIP transactions – past, present and
future.

To maintain a complete accounting record of all commitments, contracts, payments,
reimbursements and due dates, and on a six monthly basis produce a balance sheet
and revenue and expenditure account for ECIP reconciled with the Commission’s
SINCOM accounts or equivalent.

To maintain and update computerised records of ECIP transactions to ensure timely
availability of correct management information.

In January 1999 in order to respect the SEM 2000 (Sound and Efficient Management)
guidelines the Commission decided to divide these TAUnit tasks into a) a Technical Unit (still
run by GOPA under their original tender), and b) separately a Financial Assistance Unit run
by PB Auditores (ES) from 1 February 1999 also on the basis of an international tender.
Accordingly from 1 February 1999 PB Auditores took over the financial management tasks.
In accordance with the B7-872 1999 budgetary commentary the Commission’s decision of 29
January 1999 provided EURO 1.590.000 for these costs in 1999.

The two Assistance Units provide these services under the control of the Commission’s
services but the Commission retains control and signature as regards all decisions to finance,
contracts, commitments and payments.

4.5.

Budgetary appropriations

The 1998 budgetary appropriations for ECIP under budget line B7-8720 were as follows:-

Consumption of ECIP B7-8720
Budgetary credits 1998

available

MEURO
50,0

credits

Commitment
originally
+Credits from “reemploi”
Total
credits
commitment
Total commitments made
Payments credits available
Payments accounted for

available

for

+2,6
52,6

28,4
45,0
22,0

%
100,00%

+5,20%
105,20%

56,80%
100,00%
48,89%

During the last few days of 1998 actions for a total amount of MEURO 4,2 was approved in
principle by the Commission but their budgetary commitment was carried over to 1999 for
formal approval and commitment against the ECIP B7-8720 credits for 1999.

40