Communication from the Commission to the Council Assessment of the Facility for Euro-Mediterranean Investment and Partnership (FEMIP) and Future Options {SEC(2006)1294}
Date: 2006-10-17
Institutions: European Commission
Subjects: Mediterranean third countries, Union for the Mediterranean, economic growth, economic support, investment

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 17.10.2006 
COM(2006) 592 final 

COMMUNICATION FROM THE COMMISSION TO THE COUNCIL 

Assessment of the Facility for Euro-Mediterranean Investment and Partnership 
(FEMIP) and Future Options 

{SEC(2006)1294} 

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INTRODUCTION 

In  line  with  the  European  Council  conclusions  of  December  20031,  the  European 
Commission in close cooperation with the European Investment Bank has conducted 
a  review  of  the  Facility  for  Euro-Mediterranean  Investment  and  Partnership 
(FEMIP).  This  Communication  summarizes  the  main  findings  of  the  review  and 
presents options for the future. More detailed and technical information is provided 
in the Commission services' working document attached to this communication.  

FEMIP  was  created  in  October  2002,  following  the  conclusions  of  the  Barcelona 
European  Council  in  March  2002  that  private  sector  development  in  the 
Mediterranean region2 should be stimulated, to facilitate a higher level of economic 
growth. FEMIP combined EIB loans with EU-budget resources to provide technical 
assistance,  risk  capital  and  interest  rate  subsidies  for  environmental  projects. 
Furthermore, a dialogue structure between EU- and Mediterranean Partner Countries 
was created.  

In  November  2003,  the  Council,  on  the  basis  of  a  Commission  assessment,  carried 
out a first review of FEMIP's activities and decided to reinforce the Facility with new 
features: creation of a Special FEMIP Envelope for loans with a higher risk profile, 
establishment  of  a  donor  Trust  Fund,  reinforcement  of  the  dialogue  structure  and 
further  extension  of  FEMIP's  local  presence  in  the  region.  It  agreed  as  well  to 
increase the amount of Community guarantees for loans to the region – an increase 
which was formalized  in  December 2004, in the context of the mid-term review of 
EIB external mandates. 

The European Council also invited the Ecofin Council to conduct another review in 
2006, after consulting the Mediterranean Partner Countries. The consultation process 
involved a direct exchange of views amongst Ministers, the Commission and the EIB 
in  the  FEMIP  Ministerial  meeting  in  June  2006,  bilateral  discussions  between  the 
EIB  and  authorities  in  Mediterranean  countries  in  the  first  half  of  2006  and 
consultations  with  FEMIP  stakeholders  through  both  targeted  and  internet-based 
questionnaires.  

The  results  of  the  consultation  process  were  used,  together  with  a  selection  of  EIB 
evaluations  and  economic  data,  to  assess  FEMIP's  performance  in  meeting  its 
primary objectives of fostering economic growth and private sector development. 

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Conclusions  of  the  Brussels  European  Council,  12-13  December  2003:  'The  European  Council 
welcomes  the  ECOFIN  Council  decision  to  develop  further  the  FEMIP  facility  by  reinforcing  the 
FEMIP within the European Investment Bank. In line with the Barcelona European Council remit, the 
decision was taken on the basis of the performance of the FEMIP, which was evaluated positively, and 
consultation with Mediterranean Partner Countries. The European Council invites the ECOFIN Council 
to assess the incorporation of an EIB majority- owned subsidiary dedicated to the Mediterranean partner 
countries  in  December  2006,  on  the  basis  of  an  evaluation  of  the  reinforced  Facility's  performance, 
taking into account the outcome of consultations with the Barcelona process' partners.'  
This  covers  the  Barcelona  process  countries:  Morocco,  Algeria,  Tunisia,  Egypt,  Gaza-West  Bank, 
Israel, Lebanon, Syria, Jordan and Turkey. 

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1. 

ASSESSING  FEMIP 
MEDITERRANEAN REGION  

IN  THE  LIGHT  OF  THE  ECONOMIC  NEEDS  OF  THE 

1.1. 

Fostering support to investment and economic growth in the region 

Recent  economic  growth  in  the  Mediterranean  region,  while  significant  (4.8%  in 
2005),  has  continued  to  lag  behind  the  average  of  comparable  middle  income 
countries. It has proved insufficient to reduce unemployment, with officially-reported 
rates  ranging  from  9%  to  23%.  In  addition,  the  percentage  of  people  living  below 
USD  3  a  day  remains  high,  with  rates  varying  from  20%  (Tunisia,  Jordan),  35% 
(Algeria) to 70% (Egypt). 

Investment patterns in the region remain subdued, notably outside the oil producing 
countries,  and  the  level  of  FDI  inflows  stands  relatively  low  compared  to  other 
regions;  only  3%  of  net  private  capital  flows  to  developing  regions  is  directed 
towards  the  Mediterranean  region.  This  is  basically  explained  by  a  weak  business 
environment associated with a high political and economic risk perception. This also 
translates  into  high  real  interest  rates,  which  indicate  deficiencies  in  financial 
markets and regulatory environment and a lack of integration of the region into world 
capital markets. 

Although  considerable  progress  has  been  made  in  improving  the  business  climate, 
the  region  still  scores  below  the  world  average  on  important  determinants  for  the 
ease  of  doing  business,  such  as  access  to  finance,  registering  property,  investor 
protection,  and  administrative  procedures  for  starting  a  business,  dealing  with 
licences, etc. Further reforms to improve the business climate are needed to facilitate 
the creation and development of new companies, job creation and economic growth. 

Access to finance in particular remains problematic for private enterprises, especially 
for  smaller  companies  (SMEs).  Although  on  average  Mediterranean  banks  seem  to 
have sufficient capital and liquidity, their behaviour is very risk averse. This is partly 
due  to  the  fact  that  the  percentage  of  non-performing  loans  is  already  high.  Banks 
therefore charge relatively high interest rates, provide loans with short maturities and 
require  high  collateral  from  their  borrowers.  Access  is  further  limited  by 
underdeveloped  delivery  channels  and  organisational  weaknesses  within  banks. 
Government ownership of banks is widespread, and in some countries a large part of 
the  loans  are  directed  towards  the  public  sector  and  allocated  on  non-commercial 
criteria. The result is that bank credit available for the private sector remains scarce 
and only covers between 4% and 20% of private sector investment needs.  

Small enterprises have even less access to credit than the private sector as a whole, 
even though in many Mediterranean countries they constitute more than 95% of all 
businesses  and  50-70%  of  employment.  The  main  reasons  why  SMEs  face  more 
difficulties than larger enterprises are that they tend to be undercapitalised, that they 
lack  collateral  and  are  not  sufficiently  transparent  in  the  information  they  provide. 
Furthermore,  the  costs  to  banks  of  providing  small  loans  are  relatively  higher  than 
for larger loans.  

Micro-finance  institutions  and  less  resource-intensive,  standardised  instruments 
could help solve the problem for the smallest companies. Although the availability of 

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micro-finance  is  growing  fast,  it  currently  covers  less  than  0.5%  of  the  population, 
leaving a large potential unfulfilled.  

1.2. 

FEMIP has significantly contributed to investment in the region 

In this context, FEMIP intervention is of particular importance since it finances high 
quality and productive infrastructure and private sector investments under attractive 
conditions.  

instrumental 

in  channelling  substantial 

FEMIP  has  been 
the 
Mediterranean region. The EIB is the largest provider of loans to the region and its 
activities  in  the  Mediterranean  have  grown  substantially  since  the  establishment  of 
FEMIP;  signatures  increased  from  EUR  1.6bn  in  2002  to  EUR  2.2bn  in  2005 
(including Turkey3). Around one third of the FEMIP projects were co-financed with 
other institutions.  

funding 

to 

In  the  period  October  2002-end  2005,  77  operations  were  signed  for  an  amount  of 
EUR 7.2bn, corresponding to a total project volume of more than EUR 25bn. With 
borrowers  from  Turkey,  Egypt,  Tunisia  and  Morocco  receiving  the  largest  share  of 
loans, it is foreseen that the Euro-Med II loan mandate will be fully exhausted before 
the end of 2006.  

loans)  and  private  companies.  Loans 

FEMIP  has  contributed  to  economic  growth  through  support  to  investment  in 
local 
infrastructure  (60%  of  all 
intermediaries, for on-lending to SMEs (global loans), have grown substantially over 
the  past  few  years,  reaching  more  than  20 %  of  total  loans  provided  in  2002-2005. 
Total financing of private operations by FEMIP almost has tripled in absolute terms, 
from  EUR  0.3bn  a  year  in  2000-2002  to  an average  of EUR 0.9bn a year in 2003-
2005.  

to 

In complement to these lending activities, EIB operations have included risk capital 
and technical assistance financed by EU budget resources4. Risk capital has mainly 
been used for participations in private equity funds, microfinance institutions and an 
SME loan guarantee scheme. With EUR 350m in commitments (of which more than 
EUR 200m of risk capital is disbursed and still outstanding (i.e. not yet reimbursed 
or written-off), the EIB has become the largest international provider of risk capital 
to  the  region.  The  use  of  this  instrument  has  been  mainly  concentrated  in  a  few 
countries  (Morocco,  Tunisia  and  Egypt),  which  reflects  market  developments 
(legislation, presence of qualified staff, etc) and the size of the economies.  

Technical  assistance  (TA)  proved  to  be  very  useful  for  project-identification, 
preparation,  implementation  and  evaluation.  The  technical  assistance  concept  and 
approach  is  positively  received  in  all  target  countries  and  supports  effectively  the 
transfer  of  know-how  to  beneficiary  countries.  So  far  less  than  30%  of  technical 

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Due  to  Turkey’s  recognition  as  a  candidate  for  accession  to  the  EU,  lending  in  this  country  (which 
previously  represented  on  average  over  one  third  of  FEMIP  activities),  has  been  transferred  to  a 
different loan mandate since 2005. Accordingly, in the future, operations in Turkey will no longer be 
accounted  for  under  FEMIP,  though  Turkey  will  continue  to  be  involved  in  institutional  aspects  of 
FEMIP (such as FEMIP meetings.) 
The current EIB statutes restrict the EIB's capacity to finance such operations from its own funds. 

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assistance  has  been  used  for  the  private  sector,  though  it  could  further  support  the 
development of local financial intermediaries and SMEs.  

A  FEMIP  donor  Trust  Fund  was  created  at  the  end  of  2004,  to  finance  technical 
assistance for sector and thematic studies and risk capital activities which could not 
be financed under existing EIB-managed EU-budgetary funds. This started operating 
at the beginning of 2005; twelve technical assistance operations and one risk capital 
operation had been approved by August 2006. 

1.3. 

But FEMIP could do more to foster private sector development and especially 
SMEs 

While  FEMIP  has  succeeded  in  providing  substantial  amounts  of  loans  suitable  to 
large  long-term  investments,  and  has  made efforts to cater for  the  needs of  smaller 
companies,  it  has  proved  difficult  to  reverse  the  public-private  sector  balance  in  a 
sustainable  way  and  bring  FEMIP's  support  to  private  companies  up  to  more  than 
50% of its activities.  

Global  loans  to  financial  institutions  for  on-lending  to  SMEs  are  mostly  used  by 
larger, export-oriented SMEs, as the local intermediary banks have to fully bear the 
SME risk and EIB loans to these intermediaries are made in foreign currency. These 
loans have therefore been less instrumental in targeting smaller enterprises within the 
private  sector.  The  EIB  has  made  a  considerable  effort  to  offer  loans  in  local 
currency, but these efforts have often been hampered by insufficient cooperation by 
Mediterranean authorities to allow the issuance of EIB local currency bonds in their 
markets. 

Two  EIB  evaluation  reports  on  EIB  activities  in  the  Mediterranean  region  and 
consultations  with  stakeholders  show  that  the  main  obstacles  are  the  business 
environment  and  particularly  financial  sector  reform,  insufficient  cooperation  from 
Mediterranean  governments  to  facilitate  EIB  private  sector  operations  in  their 
countries, and also the insufficient adaptability of FEMIP's instruments to the needs 
and  risk  profile  of  private  sector  projects  in  this  region.  The  strict  security  and 
guarantee requirements as well as the foreign exchange risk attached to the EIB loans 
have made it difficult to cater for smaller scale private sector needs. The evaluation 
reports  also  showed  that  some  opportunities  to  provide  value  added  have  been 
missed,  by  not  sufficiently  defining  EIB's  role  in  countries  and  sectors  and  by  not 
placing  enough  emphasis  on  institutional  issues  and  cooperation  with  the  local 
authorities, the Commission and other donors. 

The  introduction  of  the  Special  FEMIP  Envelope  (SFE)  somewhat  lowered  the 
security  requirements  in  some  cases.  As  of  end  2005,  the  SFE  had  been  used  only 
twice  (partly  due  to  the  fact  that  certain  Mediterranean  countries  have  started  to 
question the applicability of  the Framework  Agreements with EIB to private sector 
operations), but the list of projects in the SFE pipeline shows a promising take-up.  

Addressing  the  shortcomings  identified  in  FEMIP  financial  instruments  would 
require that the Facility as it stands be fine-tuned and diversified.  

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2. 

THE WAY FORWARD 

2.1  The future of the European Neighbourhood Policy (ENP) 

The introduction of the European Neighbourhood Policy in 2004 has created a new 
political environment that needs to be taken into account when assessing the future of 
FEMIP.  Starting  in  2007,  EC  cooperation  with  neighbouring  countries  will  be 
governed by the European Neighbourhood and Partnership Instrument (ENPI) which 
is a policy oriented instrument. This new instrument foresees specifically the need to 
ensure coherence with the EIB. 

In this context, the Commission has put forward a proposal for the  2007-2013 EIB 
external  mandate  that  would  substantially  increase  the  loan  resources  available  for 
ENP countries. Such proposal also contemplates that the consistency of EIB external 
actions  with  the  external  policies  and  objectives  of  the  European  Union  shall  be 
strengthened. 

With regard to the further development of ENP, it is expected that a comprehensive 
debate will take place within the EU in the course of next year. This could lead to a 
more ambitious and comprehensive approach in a wider ENP framework. 

2.2  The options 

Three  options,  representing  three  levels  of  ambition,  are  next  considered  for  the 
future of FEMIP5: 

A  first  baseline  option  consisting  of  no  changes  in  instruments,  an  increase  in  the 
volume of loans and stronger links with the European Neighbourhood Policy; 

A  second  option  including:  fine-tuning  and  diversification  of  FEMIP's  financial 
instruments,  while  reinforcing  partnership  and  local  presence,  so  as  to  further 
improve FEMIP's effectiveness and value added for private sector development; 

A  third  option  upgrading  FEMIP  into  a  fully  fledged  Euro-Mediterranean  EIB 
subsidiary. 

2.3  Option 1: Maintain the reinforced FEMIP and improve its linkages with 
the ENP 

Under  this  baseline  option,  the  volume  of  lending  to  help  meet  the  region's 
investment  needs would  increase, in line with the forthcoming Council decision on 
the EIB external mandates6. According to the Commission proposal, the increase in 
the regional ceiling would allow lending resources available to the region to grow by 
2% per year in real terms, hence helping to match the investment needs. 

A  more  detailed  presentation  of  these  options  can  be  found  in  the  Commission  services  working 
document.  
In the Commission's proposal for the 2007-2013 EIB external mandates, the loan resources available for 
Mediterranean countries would increase from EUR 6.5bn for 2000-2007 to EUR 10bn for 2007-2013 
(guaranteed by the EU budget). In addition, an envelope without EU-budget guarantee of EUR 2bn is 
foreseen. 

1. 

2. 

3. 

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The external mandate proposal also envisages strengthening the linkage between EIB 
priorities  and  EU  policies  under  the  European  Neighbourhood  Policy  (ENP)  to 
deepen  economic  integration  between  the  EU  and  its  neighbours  through  further 
trade 
regulatory 
approximation to open up markets and overcome barriers to trade and investment.  

transport  and  energy  networks  and 

liberalisation, 

joint 

A  better  integration  of  the  EIB  into  the  EU  country  strategies  and  ENP  framework 
(notably relevant sections of the Action Plans), together with enhanced coordination 
between  the  EIB  and  EU  activities,  would  reinforce  the  consistency  and  impact  of 
EIB lending in a broader sector and economic reform perspective. Such an approach 
would  be  achieved  by  further  association  of  the  EIB  in  the  Commission's 
programming  process  (e.g.  country  or  regional  strategy  papers, 
indicative 
programmes  and  action  programmes),  and  by  close  cooperation  in  the  upstream 
identification and implementation of FEMIP projects. In this context, FEMIP could 
finance a series of projects in a specific sector, linking the loan with a sector reform 
or  strategy,  in  cooperation  with  the  Commission  and  where  relevant  other 
multilateral/bilateral institutions. In particular, an increased EIB involvement in the 
extension of Trans-European Networks to the Mediterranean region will be sought. 

Risk  capital  and  technical  assistance  are  and  will  continue  to  be  financed  from  EU 
budget  resources.  Over  the  period  of  the  next  Financial  Perspectives,  the 
Commission  plans  to  propose  under  the  ENPI  regional  programme  for  the 
Mediterranean region an envelope of € 32m per year in grant contribution to FEMIP, 
subject to the coming into force of ENPI and the relevant comitology procedures. In 
addition,  the  Commission  foresees  a  revision  of  the  EIB-Commission  agreement 
governing the management of financial assistance to Mediterranean countries, and in 
particular  the  use  of  reflows  of  risk  capital  and  special  loans  from  past  operations 
under  MEDA  estimated  at  €  35m  per  year,  in  view  of  adding  these  resources  as  a 
contribution  to  FEMIP.  The  reflows,  both  from  past  Protocols  and  Mandates  and 
from  future  operations,  would  be  used  for  new  risk  capital  operations.  This  should 
enable  FEMIP  to  aim  for  a  volume  of  around  EUR  50m  a  year  in  new  risk  capital 
operations (corresponding to the 2005-2006 average) and commit around EUR 20m a 
year for technical assistance7. Furthermore, the amounts available in the donor Trust 
Fund at the end of 2006 could be carried over into the new programming period, to 
finance  additional  technical  assistance  and  risk  capital  operations.  Interest  rate 
subsidies  will  remain  available  for  selected  projects,  on  request  by  national 
authorities and financed by the ENPI country allocations. 

To handle the larger volume of loans and increased integration of EIB activities into 
the  ENP  and  EU  sector  and  country  strategies,  the  EIB  broadly  estimates  it  would 
need  to  reinforce  its  staff  to  around  110  operational  staff  by  2013,  from 
approximately 70 operational staff members as of end of 2005. The number of staff 
would  still  remain  small  compared  to  other  International  Financial  Institutions. 
Under this scenario, according to the EIB, administrative costs would still outweigh 

7 

Given the difficulty in forecasting the stream of reflows, the figures of EUR 50 and 20m are indicative. 
As  a  consequence,  some  flexibility  would  be  considered  in  the  relative  allocations  of  technical 
assistance and risk capital in a given year. 

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current revenues, although FEMIP cost coverage would progressively improve over 
time8. 

This  baseline  option  would  be  the  least  costly.  However,  it  would  not  address  the 
identified current pitfalls as regards private sector development.  

2.4  Option  2:  In  the  framework  of  the  ENP,  adjust  FEMIP  to  enhance 
support for SME development and increase partnership  

This  option  aims  to  improve  FEMIP's  ability  to  realise  more  of  its  potential  in 
targeting  private  sector  needs  and  overcome  its  shortcomings.  In  addition  to  the 
features  under  Option  1,  Option  2  proposes  to  fine-tune  and  broaden  the  range  of 
FEMIP  instruments  and  to  strengthen  the  EIB  presence  at  local  level.  This  would 
help  to  better  meet  private  sector  (and  notably  SME)  needs.  The  creation  of  an 
advisory committee is also proposed, to reinforce the partnership with Mediterranean 
countries and increase their ownership.  

Better matching private sector needs through a wider range of financial instruments 
and services with added focus on SMEs 

A  more  proactive  policy,  better  catering  for  SMEs'  needs,  could  include  better 
allocation  of  risk  between  FEMIP,  local  financial  intermediaries  and  local 
businesses,  as  well  as  actions  to  improve  the  risk-management  capabilities  of  all 
actors involved.  

Increasing  EIB  risk-taking  could  be  achieved  through  a  more  active  use  of  the 
Special FEMIP Envelope to alleviate the strict security requirements in some cases, 
both for direct loans to private companies and provision of guarantees, and to widen 
the range of global loans to financial intermediaries. In this respect, cooperation from 
Mediterranean  countries  is  needed  to  fully  implement  the  bilateral  framework 
agreements with EIB for private sector projects. 

The  currently  risk-averse  attitude  of  local  intermediaries  could  also  be  overcome 
through  more  competition  for  global  loans,  and  explicit  provisions  in  global  loan 
agreements  to  focus  on  smaller  SMEs.  Besides  these  improvements  in  lending 
activities,  technical  assistance  should  be  further  developed  to  help  financial 
institutions  develop  systems  to  assess  credit  risks  better,  to  streamline  procedures, 
and to introduce new products for SMEs. In this field, FEMIP could also support the 
development  of SME  loan guarantee schemes (lowering the SME risk for the local 
bank). This would be further supported if measures contemplated in the ENP country 
action  plans  aiming  at  progress  in  structural  reform  of  the  banking  sector  are 
implemented.  

Besides  the  use  of  risk  capital  resources,  alleviating  the  risks  borne  by  SMEs 
through  own  resources  could  be  achieved  first  by  providing  local  currency  loans, 
thus making them available also to companies and projects that generate less or no 
export income. This requires that regulatory authorities in beneficiary countries clear 

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As  a  reference  point,  over  the  last  few  years  FEMIP  cost  coverage  by  current  revenues  was  around 
80%. For more details please refer to the Commission services working document. 

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all  the  necessary  steps  for  EIB  to  issue  local  currency  bonds  in  local  markets  or 
develop other hedging instruments.  

Technical  assistance  could  also  be  provided  to  further  enhance  the  quality  of 
SMEs'  investment  projects  and  reduce  their  risk.  FEMIP  could  support  the 
development  of  business  services  to  smaller  SMEs  in  order  to  assist  them  with 
drafting  business  plans,  improving  reporting  skills  and  overall  transparency,  thus 
making them more 'bankable'. Trade finance instruments (by providing global loans 
or  guarantees  to  local  financial  institutions  for  this  purpose)  could  also  be  further 
developed, to enable Mediterranean companies to make better use of the 2010 Euro-
Mediterranean Free Trade Area. 

Furthermore, directing more risk capital resources to SMEs is seen as particularly 
important,  since  this  instrument  has  the  advantage  of  delivering  resources  in  local 
currency  without  large  collateral  requirements.  Further  developing  micro-finance 
activities  and  private  equity  funds  in  a  wider  range  of  countries  would  serve  this 
purpose.  If  FEMIP  were  to  undertake  more  and  larger  operations  (such  as 
participations in companies that are being privatised or joint equity investments with 
loans  for  large  private  sector  projects),  the  financing  requirements  for  risk  capital 
activities could certainly exceed the level of EUR 50m a year foreseen under Option 
1 (an EIB estimate points to a minimum of EUR 80m per year for 2007-2013). To fill 
the financing gap, either EU Member States and Mediterranean countries or the EIB 
itself  (through  its  reserves  or  alternative  financing  arrangements)  could  provide 
additional funds.  

Increasing partnership and local interaction  

To  increase  Mediterranean  partner  countries'  involvement  in,  and  ownership  of 
FEMIP,  and  thus  better  link  FEMIP  activities  to  the  ENP  process,  the  dialogue 
structure  could  also  be  improved.  In  the  FEMIP  Ministerial  meeting  in  June  2006, 
various countries showed interest in replacing the current bi-annual expert meetings 
by  an  advisory  committee,  which  would  meet  2-4  times  a  year.  This  committee 
would include representatives from Mediterranean countries, Member States and the 
European Commission, and possibly invite outside experts. Besides discussing sector 
topics, sector reforms and issues related to the overall business climate, as the experts 
meetings currently do, this committee could also discuss FEMIP strategy, priorities 
and results (for example a FEMIP business plan, the FEMIP annual report and use of 
various instruments) and hurdles encountered by the EIB in conducting operations in 
Mediterranean countries. In this way, FEMIP would also become more responsive to 
needs on the ground. The advisory committee would also prepare the ground for the 
yearly FEMIP Ministerial Meeting.  

EIB  local  presence  could  also  be  reinforced.  The  experience  of  the  EBRD  has 
shown how important this element is for a successful coverage of the private sector. 
So  far,  the  EIB  operates  3  local  offices,  employing  7  EIB  staff  members  in  total9. 
Due  to  their  small  size,  these  offices  mainly  function  as  representative  offices.  To 
further  improve  FEMIP's  visibility  and  proximity  to  its  beneficiaries  in  the 

9 

Excluding  local  staff,  currently  used  for  non-conceptual  administrative  tasks  only  (e.g.  reception, 
security, cleaning, maintenance, etc). 

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Mediterranean  countries,  the  existing  EIB  local  offices  could  be  slightly  expanded, 
not  only  to  facilitate  contacts  with  authorities  and  borrowers,  but  also  to  improve 
EIB's  integration  in  wider  strategies  and  donor  cooperation,  to  facilitate  the 
identification  of  new  projects,  to  improve  monitoring  of  existing  operations  and  to 
transfer more EIB knowledge and experience to the country.  

Consideration  should  also  be  given  to  expanding  the  number  of  local  offices,  if 
justified  by  operational  and  business  needs;  this  would  also  render  the  EIB  more 
visible  and  give  a  political  signal  of  long-term  commitment  to  the  host  country.  In 
establishing  new  offices,  synergies  with  the  EC  and/or  bilateral  development 
agencies should be favoured. 

Under  Option  2,  EIB  estimates  that  it  would  need  an  increase  in  operational  staff 
working  directly  on  Mediterranean  operations  to  a  total  of  approximately  130 staff 
by  the  end  of  2013,  to  cope  with  the  strengthening  of  staff-intensive  risk-capital 
operations, the broadening of the role of local offices and the creation of an Advisory 
Committee. This would translate into higher costs than those incurred under Option 
1.  According  to  the  EIB,  administrative  costs  would  outweigh  current  revenues, 
although FEMIP cost coverage would progressively improve between 2007-2013. 

Under Option 2, the private sector's needs would be better served, EIB would come 
closer to its customers and other stakeholders, and Mediterranean countries would 
become  more  involved  in  FEMIP's  strategy  and  results.  It  would  also  increase  the 
intensity of FEMIP's support to SME creation and development. 

2.5  Option 3: The establishment of a fully fledged Euro Mediterranean Bank  

The  more  ambitious  option  of  creating  a  fully  fledged  separate  institution  (Euro-
Mediterranean Bank) has been considered.  

A  Euro-Mediterranean  Bank  would  operate  in  the  Mediterranean  partner  countries 
(currently 9 countries)10. Shareholders could include other Mediterranean countries, 
notably candidate and potential candidate countries, in addition to EU member states, 
the EIB (majority) and the European Community.  

The subsidiary would use at least the same variety of instruments to provide flexible 
financing as considered under Option 2, including lending, equity, guarantees etc, but 
with  a  higher  focus  on  higher  risk  products.  Like  FEMIP  and  most  multilateral 
banks, the subsidiary would also be looking at attracting and catalysing funds from 
external  donors  (i.e.  the  EU,  Member  States,  and  other  shareholders)  for  grant-
funded activities, such as technical assistance and subsidies. 

It  is  expected  that  reaching  higher  business  volumes  would  be  facilitated  by  the 
greater  involvement  of  Mediterranean  countries  in  the  subsidiary's  governance  and 
extended local presence, which enable more private sector activities to be supported. 
According to EIB estimates, based on an assessment of current absorption capacity, 
lending  activities  could  go  beyond  the  levels  contemplated  for  FEMIP,  reaching 
EUR 1.8bn in 2009 and then a cruising speed of EUR 2.6bn by 2013.  

10 

Due to Turkey’s recognition as a candidate for accession to the EU, new operations in Turkey would 
remain within the EIB, though Turkey would be invited to become a shareholder of the new bank. 

EN 

10 

   EN 

 
 
                                                 
However,  the  range  of  instruments  expected  from  a  Euro-Mediterranean  subsidiary 
would also be more resource-intensive, even in the hypothesis of a subsidiary relying 
heavily on EIB-support services against payment of a fee. For illustrative purposes, 
the  EIB  estimates  that  the  'Euro-Mediterranean  Bank’  would  need  195-390  staff 
members  in  2009,  growing  to  270-540  by  end  of  2013,  depending  on  the  extent  to 
which  the  subsidiary  can  share  support  services  with  the  EIB.  This  would  imply 
either a strong increase in administrative mark-up levels for some or all products, or 
a high paid-in capital by shareholders to generate substantial treasury income.  

A Euro-Mediterranean bank could take a variety of forms, each of which would have 
different  operational  and  financial  requirements.  The  EIB  estimates11  that  the 
institution  would  need  around  EUR  22bn  in  capital  to  cover  the  period  until  2013 
(assuming that the EIB-portfolio in the Mediterranean region at the time of creation 
would be transferred to the new institution), to be put in by the shareholders.  

The  main  advantages  of  this  option  would  be  to  increase  ownership,  by  including 
Mediterranean  countries  in  the  decision  making  process  and  shareholding. 
Compared  with  Option  2  it  would  promote  a  more  risk-taking  attitude  and  greater 
flexibility in instruments.  

However,  this  option  would  entail  additional  costs  for  shareholders.  Unless  the 
subsidiary  continued  to  benefit  from  EU  budget  guarantees,  its  restricted  country 
basis compared with the EIB would call for a capital base at least as strong as other 
multilateral banks (gearing ratio of 100% as opposed to 250% for the EIB). A higher 
paid-in capital ratio (i.e. 20%) would also be necessary so as to generate sufficient 
treasury revenues to guarantee coverage of the higher costs linked to increased staff 
levels12.  

The  time  needed  to  establish  such  an  institution  has  to  be  considered.  To  create  a 
subsidiary, EIB statutes (article 30) would need to be amended; as these are part of 
the EC treaty an ad-hoc intergovernmental conference would be needed, followed by 
signature  and  ratification  by  each  Member  State.  International  negotiations  to 
determine the statutes, capital structure and working methods of the new institution 
are also likely to be lengthy.  

3. 

CONCLUSION  

The  analysis  suggests  that  FEMIP  has  been  successful  in  channelling  funds  for 
investment  to  the  Mediterranean  region,  but  that  its  ability  to  influence  economic 
reforms  and  private  sector  needs  can  be  improved  by:  1.  increasing  its  strategic 
focus, through better linking EIB operations to EU policies for economic reform, 2. 
broadening and fine-tuning the range of FEMIP instruments to better match private 

11 

12 

In the Staff working paper attached to this Communication, a scenario for such a Euro-Mediterranean 
bank is provided, based on various assumptions. 
Every  additional  EUR  billion  of  loans  provided  by  EIB  requires  EUR  0.4bn  of  capital,  of  which  5% 
needs to be paid-in by EIB shareholders. In the case of a Euro-Mediterranean subsidiary with its own 
capital base, full coverage of loans by capital would be needed (every additional billion of loans would 
require  1bn  of  capital),  on  which  a  higher  paid-in  ratio  (20%  under  the  assumptions  contemplated) 
would apply to fully cover administrative costs. 

EN 

11 

   EN 

 
                                                 
sector needs and 3. strengthening FEMIP's presence at local level, to better identify 
and respond to the needs of Mediterranean countries. 

Further  adapting  FEMIP  within  the  current  institutional  setting  (maintaining  it  as  a 
facility  within  the  EIB,  as  per  Option  2),  by  introducing  sizeable  improvements  in 
instruments,  local  interaction  and  strategic  focus,  appears  to  be  the  most  cost-  and 
time-efficient option. This adaptation will take place in the context of the adoption of 
ENPI and of the future development of the European Neighbourhood Policy. 

EN 

12 

   EN