Proposal for a Council Decision on the position to be adopted by the Community within the ACP-EC Council of Ministers on granting financial support to an investment financing scheme for industrial and business development in the ACP countries
Date: 2000-07-05
Institutions: European Commission
Subjects: ACP countries, European Development Fund, fourth Lomé Convention, investment aid

COMMISSION OF THE EUROPEAN COMMUNITIES

Brussels, 05.07.2000
COM(2000) 420 final

Proposal for a

COUNCIL DECISION

on the position to be adopted by the Community within the ACP-EC Council of
Ministers on granting financial support to an investment financing scheme for industrial
and business development in the ACP countries

(presented by the Commission)

EXPLANATORY MEMORANDUM

The Fourth Lomé Convention, as revised by the Agreement signed in Mauritius on
4 November 1995, assigns a key role to the private sector in helping to restructure the ACP
economies, especially by creating jobs, boosting earnings and integrating these economies
into the global economy.1 Hence, the Convention emphasises the need to provide adequate
support to assist in private sector development.

€

A substantial amount of funds has therefore been allocated to investment financing in both
public and private sectors, through a provision of
1Bn as risk capital operations from the
European Development Fund (EDF). These resources are managed by the European
Investment Bank (EIB). In addition, other resources from the EDF, in the form of grants
managed by the Commission, have been allocated to finance support
to private sector
development by means of macroeconomic reforms, technical and non-financial assistance via
national/regional indicative programmes or ad-hoc initiatives (such as the CDI) and activities
related to investment promotion.

€

€

As far as investment financing is concerned, the resources managed by the EIB under the two
Lomé IV financial Protocols amount to
825
650 million for
million under the first and
interest subsidies. In addition, the EU Member States have fixed a ceiling up to
2858 million
1200 Million under the first and
for operations to be financed from the EIB's own resources (
€
1658 Million under the second protocol). These sums account for 20% of the total financial
resources provided by the two financial protocols of the Convention2.

1000 million under the second protocol) and

1825 million for risk capital operations (

€

€

€

€

The commitment rate of both risk capital funds and EIB own resources has been high since
the entry into force of the financial protocols. On 29 February 2000, the total volume of risk
capital commitments, for the 1st and 2nd financial protocols, stands at
1405.62 million, which
is equivalent to 77.02% of the total EIB allocation provided for risk capital operations by the
Convention3. Further analysis shows that the commitment rate rose from an average of
€
271 million in 1998 (despite the delayed entry into
117 million in the period 1990-97 to

€

€

force of the 8th EDF).

liberalisation of their economies,

This rate of commitment can be explained in several ways. From an ACP point of view, it is
clear that the structural reforms implemented by the ACP States have led, thanks to the
to the development of a more competitive
gradual
productive sector. This has resulted in an increased demand for
financial resources.
Simultaneous efforts to rationalise and restructure the financial and banking sectors in many
ACP countries have contributed to ease - albeit only partially - the existing, severe financing
constraints. These favourable trends, together with the beneficial effect of the adoption of
more flexible criteria for the use of risk capital under the Lomé IVbis Convention have led to
a speeding up of the commitment rate of risk capital in all forms.

In addition to these endogenous reasons, support to the development of a strong, competitive
and sustainable private sector has become a major pillar of Community development policy.

1

2

3

See in particular: Main provisions: part two: Title V: Industrial development, manufacturing and
processing (Articles 77 to 98); Title VIII: Enterprise Development (Articles 110 to 113); Title IX:
Development of services; part Three: Title III, Chapter 3, Section 1 (Investment promotion); Section 3
(Investment financing) and Section 4 (Investment support).
See Table I for financial details.
Seen Table II for a full overview of the use of resources (situation 29.02.2000).

2

including the Community and its Member States,

All donors,
increasingly take into
consideration the need to provide adequate support to the private sector in their policies, since
it is an essential source of growth and employment in developing countries4.

The Community, in particular, has adopted a renewed strategy for private sector development
in developing countries, placing emphasis on support to macroeconomic reform policies, but
also on support at an intermediary and microeconomic level. As a result, for the ACP
countries, risk capital resources have been complemented with other initiatives funded by the
EDF, e.g., demand-driven/cost-sharing facilities aimed at increasing the competitiveness of
ACP enterprises and strengthening the capacity of private sector and non-financial
intermediaries.

integration and
A key element of such an approach is the need to ensure consistency,
complementarity among the various Community institutions involved in development
cooperation as well as with all other bi/multilateral donors. Hence, this implies a better
integration of the various instruments provided by the European Commission, the European
Investment Bank and the Centre for the Development of Industry (CDI). In the next
Convention, this coherence will be reinforced by increasing the resources available and
improving the implementation procedures of initiatives in all sectors.

To ensure such coherence, it is essential that the current instruments and initiatives funded by
the 8th EDF are not undermined by lack of resources, in particular for investment financing.
However, if the current rate of commitment is maintained, the amount of resources allocated
for risk capital operations under the Lomé IV Convention may be fully utilised before the
entry into force of the next Convention and resources under the new Investment Facility
become available.

the
In view of this situation, and based on the information received from the EIB,
Commission considers that the financial resources for the private sector should be reinforced,
in order to prevent exhaustion of resources from interrupting the flow of financing. The
300 million
Commission, after close consultation with the EIB, estimates that an additional
could be absorbed by investment operations in the ACP countries over the next three years, on
top of the

1 Bn already programmed by the EIB under the second protocol.

€

€

Accordingly, the Commission proposes that the ACP-EC Council decide on the possibility of
using, for risk capital operations in ACP countries, up to a maximum of
300 million from
unallocated programmable resources from the eighth EDF and earlier Funds as well as unused
funds for interest subsidies and risk capital operations from the sixth and seventh EDFs. The
Commission shall be required to take the appropriate measures to implement this decision.

€

The funds shall be made available by :

183 million from the non-allocated 8th EDF programmable

€

– allocating the equivalent to
resources to this programme;
€

– allocating the equivalent to

55 million from the non-allocated 6th EDF resources for risk

capital to this programme and

4

Resolution of the Council of Ministers on an EC strategy for the development of the private sector in
developing countries (EU Development Council meeting, Brussels, 21 May 1999).

3

– allocating the equivalent to

€

subsidies to this programme.

62 million from the non-utilised 7th EDF resources for interest

The risk-capital interventions under this Decision should be complemented by significant
private sector funding and contribute to the enhancement of local management skills; a part of
the funds earmarked for risk-capital operations under this Decision should be used to
underpin the development of local financial institutions.

The ACP-EC should also decide to entrust the EIB with managing such a programme and
with undertaking operations in accordance with the current procedures and financing criteria
laid down in the Convention for the use and allocation of “risk capital”5.

The joint ACP-EC Council will decide at a later stage how to use the funds that would return
to the programme, after investments have been repaid by the borrowers.

5

Title VIII (Articles 110 to 113): enterprise development.
Article 229: sectors of intervention.
Article 230 (2(a) to (d)): eligibility for financing, beneficiaries.
Article 233 (1, 3 and 4): terms and conditions of financing.
Article 234: risk capital.
Articles 258 and 259: investment promotion.
Articles 263 to 272: investment financing and support.

4

Table I

Breakdown of the resources managed by the EIB under Lomé IV

(Risk capital and EIB's own resources)

Lomé IV (1st and 2nd prot.)

€

(

Billion)

1st protocol

2nd protocol

Total

Ratio / total
Convention

Ratio / total
EDF funds

EIB's own resources

1.200

1.658

2.858

10.7%

-

0.825

0.280

1.105

2.305

1.000

0.370

1.370

3.028

1.825

0.650

2.475

5.333

6.9%

2.4%

7.7%

2.7%

9.3%

10.4%

20%

-

9.695

11.597

21.292

80%

89.6%

10.00

12.967

23.767

89.3%

100%

12.000

14.25

26.25

100%

-

Risk capital

Interest subsidies

Total EDF funds managed by EIB

Total Convention funds managed
by EIB

Total EDF funds managed by the
Commission

Total EDF funds
(EIB+Commission)

Total Convention
(EDF+EIB's own resources)

Table II

Risk capital and Interest subsidies : financial situation (situation on 29.02.2000)

Status

Lome III

Lome IVa

Lome IVb

Risk capital

Int. subs.

Risk capital

Int. subs.

Risk capital

Int. subs.

Available

Total
committed

Total available

600

545

55

86

86

0

825

825

0

286

224

62

1000

5268

474

370

53

317

5

Proposal for a

COUNCIL DECISION

on the position to be adopted by the Community within the ACP-EC Council of
Ministers on granting financial support to an investment financing scheme for industrial
and business development in the ACP countries

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European Community, and in particular Articles
310 and 300, paragraph 2, second subparagraph thereof,

Having regard to the proposal from the Commission6,

Whereas:

(1)

(2)

Article 30 of the Fourth ACP-EC Convention, as amended by the agreement signed in
Mauritius on 4 November 1995, and extended by decision 1/2000 of the ACP-EC
Committee of Ambassadors, establishes a Council of Ministers with powers to make
decisions in accordance with the Convention;

The Community's position within the ACP-EC Council of Ministers should be
established with a view to the adoption by the latter of a decision on granting financial
support to an investment financing scheme for industrial and business development in
the ACP countries,

HAS DECIDED AS FOLLOWS:

Article 1

The position adopted by the Community within the ACP-EC Council of Ministers on granting
financial support to an investment financing scheme for industrial and business development
in the ACP countries shall be based on the attached draft Council of Ministers Decision.

6

OJ C , , p. .

6

Article 2

Minor amendments to the draft Decision may be agreed without the need for a further Council
decision.

Done at Brussels,

For the Council
The President

7

ANNEX

Draft

DECISION OF THE ACP-EC COUNCIL OF MINISTERS

on granting financial support to an investment financing scheme for industrial and
business development in the ACP countries.

THE ACP-EC COUNCIL OF MINISTERS,

Having regard to the fourth ACP-EC Convention, as amended by the Agreement signed in
Mauritius on 4 November 1995, and extended by decision 1/2000 of the ACP-EC Committee
of Ambassadors, and in particular Article 282(5) thereof,

Whereas:

(1)

(2)

(3)

(4)

(5)

(6)

The Fourth Lomé Convention, as revised by the Agreement signed in Mauritius on
4 November 1995, and extended by decision 1/2000 of the ACP-EC Committee of
Ambassadors, assigns a key role to the private sector in helping to restructure the ACP
economies, especially by creating jobs, boosting earnings and integrating these
economies into the global economy.

A substantial amount of funds has been allocated to investment financing in both
public and private sectors, through a provision of
1.825Bn as risk capital operations
from the European Development Fund (EDF).

€

€

The total volume of risk capital commitments, for the 1st and 2nd financial protocol,
stands at
1405.62 million, which is equivalent to 77.02% of the total EIB allocation
provided for risk capital operations by the Convention.

The Community, in particular, has adopted a renewed strategy for private sector
development in developing countries, placing emphasis on support to macroeconomic
reform policies, but also on support to intermediary and microeconomic levels.

The ACP-EC Council of Ministers considers essential that the current instruments and
initiatives funded by the 8th EDF be not undermined by lack of resources, in particular
for investment financing. However, if the current rate of commitment is maintained,
the amount of resources allocated for risk capital operations under the Lomé IV
Convention may be fully utilised before the entry into force of the ACP-EC
Partnership Agreement and the availability of resources under the new Investment
Facility.

The Committee of Ambassadors shall take a decision on the transitional measures to
be adopted between the end of the current Convention (1st August 2000) and the entry
into force of the next Agreement, most probably early 2002. This decision will be
made taking into account the need to ensure continuity of development financial
cooperation.

8

(7)

(8)

(9)

(10)

The financial resources for the private sector should be reinforced, in order to prevent
exhaustion of resources from interrupting the flow of financing.

€

Some
300million could be absorbed by investment operations in the ACP countries
1.825 million already programmed by the
over the next three years, in addition to the
EIB. These resources may be mobilised to fund an investment finance programme in
support of the private sector for all ACP countries.

€

The EIB should manage this programme and undertake operations in accordance with
the current procedures and financing criteria laid down in the Convention for the use
and allocation of “risk capital”.

interventions under

this Decision should be complemented by
The risk-capital
significant private sector
local
management skills; a part of the funds earmarked for risk-capital operations under this
Decision should be used to underpin the development of local financial institutions.

funding and contribute to the enhancement of

(11)

The Council will decide at a later stage how to use the funds that would return to the
programme after investments have been repaid by the borrowers.

HAS DECIDED AS FOLLOWS:

Article 1

The following unallocated programmable resources from the eighth EDF and earlier Funds as
well as unused funds for interest subsidies and risk capital operations from the sixth and
seventh EDFs may be used, up to a maximum of
300 million, to provide risk capital
operations in ACP countries:

€

€

183 million from the non-allocated 8th EDF programmable resources for the

above-mentioned purpose;
€

55 million from the non-allocated 6th EDF resources for risk capital to this

programme;
€

62 million from the non-utilised 7th EDF resources for interest subsidies to this

–

–

–

programme;

These funds shall be additional to the resources allocated for risk capital operations under the
eighth EDF and shall be managed by the European Investment Bank.

Article 2

The EIB should manage this programme and undertake operations in accordance with the
current procedures and financing criteria laid down in the Convention for the use and
allocation of “risk capital”.

The Council will decide at a later stage how to use the funds that would return to the
programme after investments have been repaid by the borrowers.

9

The Commission is requested to take the measures necessary to give effect to this Decision,
which shall enter into force on the day it is adopted.

Article 3

Done at

For the ACP-EC Council of Ministers
The President

10