COMMISSION STAFF WORKING DOCUMENT Technical Regional Operational Guidelines for EIB operations under Decision 1080/2011/EU Accompanying the document REPORT FROM THE COMMISSION TO THE COUNCIL AND THE EUROPEAN PARLIAMENT ON 2011 ACTIVITY UNDER THE EIB EXTERNAL MANDATE
Date: 2012-11-07
Institutions: European Commission
Subjects: Asia, Central Asia, EIB loan, Eastern Bloc countries, Latin America, Mediterranean third countries, Russia, South Africa, Türkiye, Western Balkans, interinstitutional cooperation (EU), pre-accession aid

EUROPEAN 
COMMISSION 

Brussels, 7.11.2012  
SWD(2012) 357 final 

COMMISSION STAFF WORKING DOCUMENT 

Technical Regional Operational Guidelines for EIB operations under Decision 
1080/2011/EU 

Accompanying the document 

REPORT FROM THE COMMISSION TO THE COUNCIL AND THE EUROPEAN 
PARLIAMENT 

ON 2011 ACTIVITY UNDER THE EIB EXTERNAL MANDATE 

{COM(2012) 637 final} 
{SWD(2012) 358 final} 

EN 

   EN 

 
 
 
 
  
 
Technical Regional Operational Guidelines for EIB operations under Decision 
1080/2011/EU 

Table of Contents 

List of Acronyms ..................................................................................................................................... IV 
1. Introduction and Objectives ................................................................................................................ 1 
2. EIB Financing in Pre-Accession region ............................................................................................. 4 
2.1 General context ................................................................................................................................... 4 
2.2 Regional macroeconomic situation / business climate situation................................................................ 4 
2.3 Brief overview of EIB activity to-date................................................................................................... 5 
1) EIB activity in Turkey ....................................................................................................................... 6 
2) EIB activity in the Western Balkans.................................................................................................... 7 

2.4 EIB contribution to EU regional policy framework, including cooperation with the COM, the EEAS and 
with other IFIs .......................................................................................................................................... 9 
1) EIB Contribution in Turkey ............................................................................................................... 9 
2) EIB Contribution in the Western Balkans............................................................................................ 9 
2.5 Operational focus for the remainder of the mandate period.................................................................... 10 
1) Operational focus in Turkey ............................................................................................................ 10 
2) Operational focus in the Western Balkans......................................................................................... 12 
3. EIB Financing in EU Neighbourhood and Russia ........................................................................... 14 
3.1 General context ................................................................................................................................. 14 
3.2 Regional macroeconomic situation / business climate situation.............................................................. 17 
1) Macroeconomic situation/ business climate in Southern Neighbourhood ............................................. 17 
2) Macroeconomic situation/ business climate in Eastern Neighbourhood and Russia .............................. 18 
3.3 Brief overview of EIB activity to-date................................................................................................. 19 
1) EIB activity in Southern Neighbourhood........................................................................................... 20 
2) EIB activity in Eastern Neighbourhood and Russia............................................................................ 21 

3.4 EIB contribution to EU regional policy framework, including cooperation with the COM, the EEAS and 
with other IFIs ........................................................................................................................................ 22 
3.5 Operational focus for the remainder of the mandate period.................................................................... 25 
1) Operational focus in the Southern Neighbourhood ............................................................................ 25 
2) Operational focus in the Eastern Neighbourhood .............................................................................. 27 
3) Operational focus in Russia............................................................................................................. 31 
4. EIB Financing in Asia and Latin America ........................................................................................ 32 
4.1 General context ................................................................................................................................. 32 
1) General context in Asia ................................................................................................................... 32 
2) General context in Central Asia ....................................................................................................... 32 
3) General context in Latin America..................................................................................................... 32 
4.2 Regional macroeconomic situation / business climate situation.............................................................. 33 
1) Macroeconomic situation/ business climate in Asia ........................................................................... 33 
2) Macroeconomic situation/ business climate in Central Asia ............................................................... 34 
3) Macroeconomic situation/ business climate in Latin America ............................................................. 34 
4.3 Brief overview of EIB activity to-date................................................................................................. 35 
1) EIB activity in Asia ......................................................................................................................... 36 
2) EIB activity in Central Asia ............................................................................................................. 37 

4.4 EIB contribution to EU regional policy framework, including cooperation with the COM, the EEAS and 
with other IFIs ........................................................................................................................................ 39 
4.5 Operational focus for the remainder of the mandate period.................................................................... 40 
1) Operational focus in Asia ................................................................................................................ 40 
2) Operational focus in Central Asia .................................................................................................... 41 
3) Operational focus in Latin America for the remainder of the mandate period ...................................... 43 
5. EIB Financing in South Africa ........................................................................................................... 44 
5.1 General context ................................................................................................................................. 44 
5.2 Regional macroeconomic situation / business climate situation.............................................................. 44 
5.3 Brief overview of EIB activity to-date................................................................................................. 45 
5.4 EIB contribution to EU regional policy framework, including cooperation with the COM, the EEAS and 
with other IFIs ........................................................................................................................................ 46 

II

 
 
 
5.5 Operational focus for the remainder of the mandate period.................................................................... 46 

III

 
 
 
List of Acronyms  

African, Caribbean and Pacific 
Agence Française de Développement 
Asian Investment Facility 
Asia and Latin America 
ASEAN Regional Forum 
Association of South-East Asia Nations 
Asia-Europe Meeting 
Central Bank of Russia 
Climate Change Mandate 
Council of Europe Development Bank 
Country Strategic Paper 
Danube and Black Sea Initiative 
Deep and Comprehensive Free Trade Area 
Eastern Partnership 
Eastern Partnership Integration and Cooperation 
European Bank for Reconstruction and Development 
European Commission 
Economic and Financial Affairs Council 
Energy Community Secretariat 
Enterprise Development and Innovation Facility 
European External Action Service 
Environmental Project Preparation Facility 
European Investment Bank 
European Investment Fund 
Eastern Neighbourhood  
Eastern Neighbouring Countries 
European Neighbourhood Policy 
European Neighbourhood Policy Instrument 
Energy Stability and Security of Supply Facility 
European Union 
European Western Balkans Joint Fund 
Facility for Euro-Mediterranean Investment and Partnership 
Framework Agreement 
Gross Domestic Product 
Green Financing Mechanism 
Green House Gas 

ACP 
AFD 
AIF 
ALA 
ARF 
ASEAN 
ASEM 
CBR 
CCM 
CEB 
CSP 
DABLAS 
DCFTA 
EaP 
EaPIC 
EBRD 
EC 
ECOFIN 
ECS 
EDIF 
EEAS 
EPPF 
EIB 
EIF 
EN 
ENC 
ENP 
ENPI 
ESF 
EU 
EWBJF 
FEMIP 
FWA 
GDP 
GFM 
GHG 
HELCOM  Helsinki / Baltic Marine Environment Protection Commission 
ICJ 
ICT 
IFC 
IFCA 
IFI 
IMF 
IMO 
IPA 
IPP 
JASPERS 
KfW 

International Court of Justice 
Information and Communication Technology 
International Finance Corporation 
Investment Facility for Central Asia 
International Financial Institution 
International Monetary Fund 
International Maritime Organisation 
Instrument for Pre-Accession 
Independent Power Producers 
Joint Assistance to Support Projects in European Regions 
Kreditanstalt für Wiederaufbau 

IV

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Latin America Investment Facility 
Mediterranean Climate Change Initiative 
Mediterranean Hot Spot Investment Programme 
Middle East and North Africa 
Multiannual Financial Framework 
Multi-Annual Indicative Planning Document 
Memorandum of Understanding 
Mutual Reliance Initiative 
Micro, Small and Medium-sized Enterprise 
Mediterranean Solar Plan 
Non-Governmental Organisation 
Neighbourhood Investment Facility 
Official Development Assistance 
Organisation for Economic Co-operation and Development   
Public-Private Partnership 
Risk Capital Facility 
South Asian Association for Regional Cooperation 
South African Reserve Bank 
South African Renewables Initiative 
South-East Europe Transport Observatory 
Small and Medium-sized Enterprise 
Support to Partnership, Reform and Inclusive Growth 
Strategy for Water in the Mediterranean 
Trans-European Transport Network 
Treaty on European Union 
Union for Mediterranean 
Secretariat of UfM 

LAIF 
MCCI 
MEHSIP 
MENA 
MFF 
MIPD 
MoU 
MRI 
MSME 
MSP 
NGO 
NIF 
ODA 
OECD 
PPP 
RCF 
SAARC 
SARB 
SARi 
SEETO 
SME 
SPRING 
SWM 
TEN-T 
TEU 
UfM 
UfMS 
UNEP-MAP  UN Environment Programme-Mediterranean Action Plan 
United Nations Security Council Resolution 
UNSCR 
Urban Development Platform Financial Initiative 
UDPFI 
Vnesheconombank 
VEB 
World Bank 
WB 
Western Balkans Investment Framework 
WBIF 
World Trade Organisation 
WTO 

V

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1. Introduction and Objectives  

The  mid-term  review  of  the  External  Mandate  of  the  European  Investment  Bank  (EIB) 
resulted in a revised Decision1 granting an EU budgetary guarantee for EIB's activity outside 
the  Union  (“the  Decision”).  This  Decision  introduced  harmonised  high-level  objectives  for 
financing across the regions and pushes for a stronger alignment of EIB external activity and 
EU  external  policies  and  actions.  To  ensure  that  these  rather  broad  definitions  provide 
sufficient  guidance  regarding  the  scope  of  the  EIB’s  interventions  in  different  regions,  they 
are  complemented  by  Technical  Regional  Operational  Guidelines.  These  guidelines  aim  at 
strategic  prioritisation  of  the  objectives,  broken  down  on  a  regional  level,  and  the 
establishment  of  practical  measures  for  ensuring  that  EIB  financing  under  this  Decision  is 
complementary to corresponding EU assistance policies, programmes and instruments. These 
guidelines are being drawn for the first time and should be valid until the expiry of the current 
mandate.  

The  EIB  undertakes  operations  outside  the  EU  in  support  of  EU  external  relations  policies, 
including development and cooperation, either based on a mandate from the EU with an EU 
guarantee, referred to as the “external mandate”2, or at its own risk under dedicated facilities, 
referred to as “facilities”. Both taken together have traditionally made up around 10% of the 
Banks total lending activities. 

Following a mid-term review, the Decision established a revised mandate for the remainder of 
the 2007-2013 Multiannual Financial Framework (MFF), ensuring the continuation of the EU 
guarantee for EIB external financing, whilst introducing a number of new elements with the 
view  in  particular  to  better  align  EIB  external  activity  with  the  Union  external  policy's 
objectives. The Decision replaces Decision 633/2009/EC and defines the basic principles and 
goals for the EU mandate under the remaining of this period. 

In particular, Decision 1080/2011/EU establishes a general mandate with an overall ceiling of 
EUR  27.484bn  for  all  EU  guaranteed  loans  and  loans  guarantees  in  favour  of  eligible 
countries as listed in Annex III of the Decision for the period 2007-2013. This overall ceiling 
is  broken  down  into  regional  ceilings  and  sub-ceilings  as  laid  down  in  Annex  I  of  the 
Decision. According to Article 2 of the Decision, within the ceilings for individual regions, 
the EIB shall progressively ensure a balanced country distribution3. In addition to this general 
mandate,  the  Decision  also  foresees  the  release  of  an  optional  mandate  of  EUR  2bn  for 
climate change operations.   

In order to enhance the coherence of the mandate and strengthen the focus of the EIB external 
financing activity on supporting Union policies, and for the maximum benefit of beneficiaries, 
the  Decision  replaces  the  previous  system  of  regional  objectives  for  operations  under  EU 
guarantee  with  horizontal  high-level  objectives  applicable  to  all  regions  covered  by  the 
external  mandate,  building  on  the  comparative  strengths  of  the  EIB  in  areas  where  it  has  a 
well-proven track record. These high-level objectives are defined in Article 3 of the Decision 
and are the following: 

1 Decision 1080/2011/EU of 25 October 2011 granting an EU guarantee against losses under loans and loans 
guarantees for project outside the Union. 
2 This activity is complemented by activities carried out in ACP countries under the Cotonou Agreement with 
European Development Fund resources or with a guarantee of Member States. 
3 It should be noted here that the Decision also introduces the possibility for 10%-flexibility between the regional 
ceilings (previously, it was only within them). 

1

 
 
 
                                                 
i.  Local  private  sector  development,  in  particular  support  to  Small  and  Medium-sized 

Enterprises (SMEs); 

ii.  Development  of  social  and  economic  infrastructure,  including  transport,  energy, 

environmental infrastructure4 and information and communication technology; and 

iii.  Climate  change  mitigation  and  adaptation 5 ,  in  particular  avoiding  or  reducing 
greenhouse  gas  emissions  in  the  areas  of  renewable  energy,  energy  efficiency  and 
sustainable transport, or increasing resilience to the adverse impacts of climate change. 

Besides this, the EIB shall consider increasing its activity in support of health and education 
infrastructure, when there is clear added value in doing so. 

Regional integration among partner countries, including economic integration between pre-
accession countries, neighbourhood countries and the Union, shall be an underlying objective 
for EIB financing operations within areas covered by the general objectives.  

Moreover,  the  EIB  should  be  able  to  support  Union  presence  in  partner  countries  through 
foreign  direct  investment  that  contributes  to  promoting  technology  and  knowledge  transfer 
either under the EU guarantee for investments within the aforementioned areas or at its own 
risk. 

Furthermore, Article 6 of Decision 1080/2011/EU requires EIB financing activities to comply 
with  the  general  guiding  principles  of  Union  external  action,  and  to  contribute  to  the 
achievement  of  its  objectives  and  policies.  This  includes  general  principles  guiding  Union 
external action, as referred to in Article 21 Treaty of the European Union (TEU), as well as 
the implementation of international environmental agreements to which the Union is a party. 
In case of EIB financing in developing countries, as defined in the list of official development 
assistance (ODA) recipients established by the OECD, these include development objectives 
such  as  reducing  poverty  through  inclusive  growth  and  sustainable  economic  and  social 
development. 

The  Commission,  together  with  the  EIB,  is  required  to  develop  regional  technical 
operational  guidelines for EIB financing under the Decision. In particular, these guidelines 
should set out the practical measures linking the Mandate objectives and their implementation. 
Moreover, they shall be consistent with the wider Union regional policy framework set out in 
Annex  IV  of  Decision  1080/2011/EU  and  ensure  that  EIB  financing  under  this  Decision  is 
complementary  to  corresponding  Union  assistance  policies,  programmes  and  instruments  in 
the different regions.  

The  present  document  sets  out  these  regional  technical  operational  guidelines  for  EIB 
financing  under  the  Decision.  It  has  been  drafted  by  the  Commission  and  the  EIB,  in 
consultation  with  the  EEAS.  In  this  context,  it  should  be  noted  that  in  that  Decision 
1080/2011/EU also requires the Commission and the EIB to amend the existing Memorandum 
of  Understanding  (MoU)  on  cooperation  and  coordination  in  the  regions  covered  by  the 
mandate, and, as appropriate, to extend it to the European External Action Service (EEAS), in 
particular  as  regards  the  regular  and  systematic  dialogue  between  the  Commission  and  the 
EIB  at  the  strategic  level,  which  should  include  the  EEAS,  and  other  aspects  within  the 
latter’s competence. 

4 Including water and sanitation 
5 Note that the first two objectives may also contain climate projects. For instance, energy efficiency loans to 
SMEs or development of a wind park or adaptation measures in infrastructure.  

2

 
 
 
                                                 
The guidelines are structured according to four regional fiches as follow: 

I. 

II. 

III. 

IV. 

Pre-Accession 

EU Neighbourhood and Russia 

Asia and Latin America 

South Africa 

The  regional  chapters  follow  a  uniform  structure.  They  start  with  the  description  of  the 
general  context,  followed  by  the  regional  macroeconomic  situation  and  the  current  business 
climate.  This  is  followed  by  an  overview  of  the  EIB  activity  to-date,  which  amongst  others 
gives  a  sectoral  split  of  signatures  for  EU  guaranteed  and  own-risk  operations  covering  the 
period  of  2007-2011.  The  figures  refer  to  the  actual  implementation  period  of  the  current 
mandate which started on 01/08/2007 (implementation of the former mandate continued until 
31/07/2007,  which  makes  a  significant  difference  with  full  year  2007,  especially  in  Pre-
Accession).  Since  many  climate  action  activities  serve  more  than  one  objective,  these 
activities were reported under the respective sectors (e.g. energy, transport). Detailed separate 
recording  of  Climate  Action  lending  was  formally  carried  out  only  from  2010  onwards;  the 
share  of  Climate  Action  lending  (mitigation  and  adaptation)  in  the  total  lending  during  the 
period 2010-2011 gives a good indication about the actual situation. The next section focusses 
on  the  EIB’s  contribution  to  EU  regional  policy  framework,  including  the  cooperation  with 
the EC, the EEAS and other IFIs. The last section sets the operational focus for the remaining 
period of the mandate, along the three high-level objectives. Although the choice of financial 
products  is  closely  interlinked  with  the  operational  focus,  the  guidelines  do  not  aim  at 
addressing  the  adequacy  of  the  financial  products  for  achieving  the  high  level  objectives  in 
general and in specific sectors or regions. The extent to which the Bank will be able to deploy 
blended  products  will  depend,  at  least  in  part,  on  the  availability  of  grant  finance  from  EU 
budget  and  other  donors,  and  on  the  flexibility  in  using  such  grant  finance  to  develop  new 
financial products. 

Decision 1080/2011/EU also calls the EIB i) in coordination with the Commission, to present 
a strategy on how to gradually and steadily increase under its external mandate the percentage 
of  projects  promoting  the  reduction  of  CO2  emissions  and  phase  out  financing  projects  
detrimental  to  the  achievement  of  Union  climate  objectives  (Article  6(4))  and  ii)  in 
consultation  with  the  Commission,  to  develop  a  clear  and  transparent  allocation  policy  for 
deciding upon the source of financing of operations which are eligible both for coverage by 
the  EU  guarantee  and  for  EIB  own-risk  financing  (Article  10(4)).  Both  documents  will 
complement and be additional to the aspects included in these regional technical operational 
guidelines. 

3

 
 
 
2. EIB Financing in Pre-Accession region 

2.1 General context 

Currently,  the  EIB  operates  in  6  EU  candidate  countries  and  3  potential  candidates.  By  the 
end of the current mandate, one candidate country (Croatia) should become a Member State. 
The  countries  in  the  Western  Balkans  are  still  relatively  young  states  formed  after  the 
disintegration  of  the  former  Yugoslavia.  Political  stability,  the  full  establishment  of  the 
principles  of  democracy  and  the  respect  of  human  rights  and  good  governance  –  all 
fundamental values of the EU – still need to be strengthened. 

These countries cannot sustain alone all the efforts and cost of meeting the criteria for joining 
the  EU.  There  are  encouraging  signs  of  their  ability  to  reduce  debt  and  attract  foreign 
investment,  but  nevertheless  most  of  them  lack  the  capacity  to  finance  alone  the  public 
investments  and  reforms  necessary  to  stabilize  their  societies  and  economies  and  put  them 
onto  a  sustainable  development  path,  including  climate  change  mitigation  and  adaptation 
measures.  Like  in  the  previous  enlargement  rounds,  the  EU  should  continue  to  offer  them 
technical  and  financial  assistance  to  overcome  their  difficult  situation  and  develop 
sustainably, gradually aligning on EU rules and standards. EIB financing should be critical in 
supporting  this  process.  The  key  challenge  will  be  how  best  to  focus  the  limited  funds  in 
relation  to  the  new  challenges  faced  by  the  EU  and  the  future  members  and  the  political 
response to these challenges taking into account also the Europe 2020 Strategy. 
The cooperation with Kosovo6  

Article  10  of  the  revised  external  mandate  stipulates  that  “Kosovo  is  represented  by  the 
United  Nations  Mission  in  Kosovo  or  by  an  administration  designated  in  the  regional 
technical  operational  guidelines  referred  to  in Article 6”.  Such  administration  should  be  the 
Government of Kosovo. The resuming of EIB financing operations would be facilitated by the 
establishment  of  a  new  Framework  Agreement  (FWA)  directly  with  the  Government  of 
Kosovo following legal due diligence and the approval of the signature of such new FWA by 
the governing bodies of the EIB.  

The cooperation with Iceland 

Iceland  was  granted  the  status  of  candidate  country  by  the  European  Council  in  June  2010. 
The Framework Agreement with Iceland, which is a pre-requisite for the financing of future 
eligible projects, is currently in negotiation and is expected to be signed in 2012. The Bank’s 
operational  focus  will  be  on  lending  to  the  energy  sector,  to  infrastructure  projects  and 
programmes  (e.g.  hospitals,  transport),  as  well  as  to  SMEs  in  the  coming  years.  Providing 
financing to larger municipalities is also envisaged. 

2.2 Regional macroeconomic situation / business climate situation 

In general, the accession and pre-accession countries are affected by the deterioration in the 
external  environment  in  2012,  which  however  is  expected  to  improve  during  2012  and  in 
2013.  The  main  factors  are  decelerating  external  demand,  partly  due  to  a  slowdown  of  the 
growth dynamics in particular in Asia, high oil prices, but also more difficult access to finance, 
reflecting the need of many international and national banks to improve their capital adequacy 

6 This designation is without prejudice to positions on status, and is in line with UNSCR 1244/99 and the ICJ 
Opinion on the Kosovo declaration of independence. 

4

 
 
                                                 
  
ratios and the quality of their credit portfolio. Furthermore, the still high uncertainty related to 
the global but also the European economy impedes foreign and domestic investment but also 
private  consumption.  With  the  exception  of  Croatia  and  Serbia,  the  other  pre-accession 
countries  so  far  weathered  the  global  financial  crisis  relatively  well,  partly  benefitting  from 
rather small (and underdeveloped) financial sectors, low debt ratios and the stabilising effect 
of resilient workers remittances. 

However,  following  a  better-than-expected  economic  performance  in  2011,  all  candidate 
countries are expected to face a slowdown in 2012. Overall, economic growth of the group as 
a  whole  is  set  to  decelerate  significantly  from  nearly  8%  in  2011  to  2¾  in  2012,  and  to 
rebound  to  some  4¼  in  2013.  The  aggregated  figure  masks  diverse  growth  dynamics  at  a 
country level. For Turkey, the largest economy in this group, the current economic outlook is 
for a sharp slowdown from 8½% in 2011 to 3¼% in 2012 on the back of a more restrictive 
monetary  and  fiscal  policy  mix  and  decelerating  external  demand.  In  2013,  GDP  growth  is 
expected to accelerate to 4½%. For most other candidate countries, the expected slowdown is 
more  moderate.  In  the  acceding  country  Croatia,  where  annual  GDP  growth  was  close  to 
stagnation  in  2011,  a  moderate  contraction  is  expected  in  2012,  mainly  on  the  account  of 
weak domestic demand, in particular investment activity. In 2013, the economy is anticipated 
to enter a subdued recovery process. 

2.3 Brief overview of EIB activity to-date 
The EIB currently lends in Pre-Accession region on the basis of an EU budget guarantee (the 
“mandate”) and at its own risk, via its Pre-Accession Facility.  

The  mandate  for  the  Pre-Accession  countries  had  an  initial  volume  of  EUR  8.7bn  over  the 
period  2007-13.  Decision  1080/2011/EU  increased  the  current  mandate  ceiling  to  EUR  9bn 
and  released  an  additional  Climate  Change  Mandate  providing  an  extra  envelope  of  up  to 
maximum of EUR 800 mn for climate change operations in the Pre-Accession region.  

Regarding the EIB own risk activity, the Pre-Accession Facility has been established in 1998. 
It  has  been  renewed  in  2000  and  subsequently  extended  in  2003,  2004,  2007  and  2011. 
Following  the  latest  extension,  the  amount  authorized  for  2000-2013  is  EUR  25.2bn  in  the 
current Pre-Accession countries.  

5

 
 
1) EIB activity in Turkey  

Sector (2007-11 in EUR mn) 

Mandate 

% 

Facility 

Others 

Energy 

Global, Midcap, SME 

Services 

Transports 

Grand Total 

500 

725 

800 

785 

1,963 

4,773 

10% 

15% 

17% 

16% 

41% 

722 

985 

3,413 

10 

100 

% 

14% 

19% 

65% 

0% 

2% 

Total 

1,222  

1,710  

4,213  

795  

2,063  

% 

12% 

17% 

42% 

8% 

21% 

100% 

5,230 

100% 

10,003  

100% 

The EIB has been involved in lending operations in Turkey since the mid-1960s. During more 
than 40 years of experience in Turkey, the Bank has invested throughout all key sectors of the 
country’s economy, in both the public and private sector, to support the country’s economic 
development and assist Turkey during its pre-accession phase. 

Over the last 5 years (2007 – 2011), the EIB has achieved total signatures of some EUR 10bn 
in  Turkey.  Lending  volumes  increased  significantly  as  from  2005  onwards,  reflecting  the 
opening of the accession negotiations at the end of 2004 and the increasing efforts of the Bank 
to  step  up  its  support  to  the  country  in  a  widening  range  of  sectors,  thus  underpinning  the 
status of Turkey as a Candidate Country.  

In this context, and in line with the requirement of the Mandate and the recommendation of 
the Mid-Term Review, the Bank has significantly stepped up its lending on its own risk under 
the Pre-Accession Facility for private sector lending as a complement to the implementation 
of the Pre-Accession Mandate mainly in support of the public sector. Whilst the remainder of 
this section on Turkey will focus on the Mandate operations, it should be noted that certain 
Mandate priorities such as support to private sector development, in particular SMEs, are not 
captured as these are largely implemented under the Bank’s Pre-Accession Facility, i.e. at the 
Bank's own risk.  

Infrastructure, and in volume terms more particularly the railway sector, has historically been 
a  key  sector  for  EIB’s  intervention  in  the  country,    to  underpin  its  growing  economy  and  a 
more sustainable transport system. 

6

 
 
 
 
 
The EIB has also stepped up its lending in favour of SMEs, especially since 2008. The focus 
on  SME  lending  for  EIB’s  activity  in  Turkey  was  endorsed  by  the  EU  and  the  Turkish 
authorities  and  highlighted  in  the  framework  of  the  Joint  IFI  Action  Plan  to  support  the 
banking sector in the Central and Eastern Europe region hit by the global economic crisis. 

One  of  the  main  challenges  of  the  Turkish  economy  is  its  low  average  productivity, 
underpinning the need for high import levels and the significant current account deficit. One 
important tool to address this weakness is the strengthening of the knowledge economy. In this 
context, EIB has financed several R&D programmes by leading public research institutes in 
the  country,  particularly  in  the  field  of  scientific  research,  tertiary  education,  and  private 
sector  innovation.  These  investments  are  orientated  towards  concrete  applications  with  the 
potential to strengthen the productivity and competitiveness of the economy. 

Over the last years, the energy sector is confronted with strong demand growth coupled with 
limited and declining production capacity. The Bank supports investments in this sector with 
a focus on the strengthening of the electricity grid and investments in renewable energy under 
the Mandate (complemented by support to high energy efficient power generation capacity to 
the private sector under the Pre-Accession Facility). 

Other  projects  supported  include  the  first  operation  under  the  Climate  Action  Mandate  in 
favour  of  Afforestation  and  Erosion  control.  For  the  period  2010-2011,  Climate  Action 
operations (mitigation and adaptation) accounted for 31 % of EIB financing in Turkey. 

2) EIB activity in the Western Balkans 

Sector (2007-11 in EUR mn) 

Mandate 

% 

Facility 

Others 

Energy 

Global, Midcap, SME 

Industry 

Services 

Transports 

Water, sewerage 

Grand Total 

295 

67 

1,120 

- 

215 

1,101 

264 

10% 

2% 

37% 

0% 

7% 

36% 

9% 

257 

240 

1,135 

534 

78 

294 

82 

% 

10% 

9% 

43% 

20% 

3% 

11% 

3% 

Total 

552  

307  

2,255  

534  

293  

1,395  

345  

% 

10% 

5% 

40% 

9% 

5% 

25% 

6% 

3,062 

100% 

2,619 

100% 

5,681  

100% 

Mandate 

54% 

Facility 

46% 

7

 
 
 
  
  
  
  
  
  
  
 
 
The EIB has been involved in lending operations in the Western Balkans since the mid-1970s. 
During this period, the Bank has supported all key sectors of the economy, in both the public 
and  private  sectors.  Following  intervention  in  support  of  urgent  rehabilitation  and 
reconstruction of war damaged infrastructure at the beginning of the 2000s, the EIB focussed 
in  supporting  the  region  economic  development  and  assisting  individual  countries  on  their 
path to EU accession. 

Over the last 5 years (2007 – 2011), the EIB has achieved total signatures of some EUR 5.7bn 
in  the  Western  Balkans.  Lending  volumes  increased  significantly  as  from  2009  onwards, 
reflecting  the  use  of  EIB  financing  as  a  tool  to  fight  the  impact  of  the  global  financial  and 
economic crisis.  

In  this  context,  in  line  with  the  mandate  decision,  the  Bank  has  significantly  stepped  up  its 
lending on its own risk under the Pre-Accession Facility for private sector lending and, where 
possible,  in  line  with  its  credit  policy,  in  support  of  the  public  sector  in  credit-worthier 
countries (e.g. in Croatia). As a complement, the Pre-Accession Mandate was mainly oriented 
to the support of the public sector in weaker countries.  

Transport infrastructure has historically been a key sector for EIB’s intervention in the region, 
which  includes  several  Pan-European  Transport  Corridors,  whose  completion  will  support 
regional integration, integration of the individual countries with the EU and support economic 
development. 

Especially since 2008, the EIB stepped up its lending in favour of SMEs, highlighted in the 
framework of the Joint IFI Action Plan to support the banking sector in the region hit by the 
global economic crisis. This support has taken place either directly by supporting commercial 
banks in all countries of the region (including Kosovo), or through public sector development 
banks (Croatia, Former Yugoslav Republic of Macedonia, Bosnia and Herzegovina) operating 
in  turn  through  local  commercial  banks,  government  guarantees  for  EIB  loans  in  favour  of 
local  commercial  banks  (Montenegro)  or  loan  to  government  then  on-lent  through  local 
commercial banks (Serbia). 

As for Turkey, one of the main challenges of the economies of the region is its low average 
productivity, which calls for a strengthening of the knowledge economy. In this context, EIB 

8

 
 
 
 
has financed several education projects (Albania and Serbia) and an ambitious Public sector 
R&D programme in Serbia.  

For the period 2010-2011, Climate Action lending (mitigation and adaptation) was 1 % of EIB 
lending in Western Balkans. 

2.4 EIB contribution to EU regional policy framework, including cooperation with the 
COM, the EEAS and with other IFIs 

1) EIB Contribution in Turkey 

The  Commission  has  spelled  out  its  priorities  in  the  Multi-Annual  Indicative  Planning 
Document  (MIPD)  for  Turkey  in  line  with  the  provisions  set  out  in  the  Instrument  for  Pre-
accession (IPA). In this context, the enhanced strategic nature of the MIPD 2011-2013 and its 
clearer sector-based prioritisation as compared to the previous planning documents are helpful 
in better identifying the key priority sectors. Given the nature of EIB’s lending support to the 
real economy, the Private Sector Development, Environment and Climate Change, Transport 
and  the  Energy  sector  are  considered  the  most  relevant  for  EIB’s  activity.  Regarding 
component 3 of the MIPD (Regional Development), operational programmes for Environment, 
Transport and Regional Competitiveness are among the most important areas for contribution 
by EIB.  

According  to  the  Multi-Annual  Indicative  Financial  Framework,  Turkey  will  receive  some 
EUR 2.6bn in pre-accession funds over the years 2011-2013. Whilst the amount of IPA funds 
is  considerable  and  increasing,  it  remains  relatively  modest  as  compared  to  the  size  of  the 
Turkish economy. A close EC-EIB co-ordination will enable to leverage the impact of the EU 
in Turkey. Several initiatives have been taken over the last years to bundle IPA and EIB funds 
through  closer  co-ordination  and  blending  in  co-operation  with  the  Commission,  the  EU 
Delegation and the Turkish Authorities, the latter given also the increasing importance of the 
decentralised  management  of  IPA  funds.  The  EC-EIB  co-operation  has  been  particularly 
successful  in  the  areas  of  railway  financing,  SME  support  as  well  as  in  the  sector  of 
Renewable Energy and Energy Efficiency.  

Co-operation  with  IFIs  and  co-financing  has  increased  significantly  over  the  last  years, 
following the co-ordinated anti-crisis efforts of the IFIs (2008-2010) and as EBRD has started 
operations in the country. The co-operation with EBRD is based on the new Tripartite MoU 
between the EC, the EIB / EIF, and the EBRD signed in early 2011. Excluding SME credit 
lines for partner banks (where co-funding with other IFIs is not meaningful), some 60% of the 
EIB  transactions  in  2011  included  co-financing  arrangements  with  other  IFIs.  In  particular, 
co-financing  with  EBRD  in  the  field  of  renewable  and  energy  efficiency  has  developed 
significantly over 2010 and 2011. Also in terms of the development of local capital markets, 
other IFIs (and bilaterals) have teamed up with EIB/EIF to support innovative operations. The 
strong  co-operation  with  IFIs  /  bilaterals  is  however  mainly  in  the  field  of  private  sector 
operations, which EIB finances on its own risk and not under the Mandate.  

2) EIB Contribution in the Western Balkans 

Building  on  the  experience  of  collaboration  with  European  Agency  for  Reconstruction  and 
several  EC  funded  programmes  (EPPF,  DABLAS,  etc.),  as  well  as  co-financing  with  other 
IFIs (EBRD, World Bank and CEB) and bilateral agencies (in particular KfW), the EIB has 
played  a  major  role  in  the  establishment  of  the  Western  Balkans  Investment  Framework 

9

 
 
(WBIF),  a  major  blending  initiative  designed  to  coordinate  investment  for  the  region7.  The 
priorities  of  the  WBIF  are  in  line  with  those  highlighted  in  the  Multi-Annual  Indicative 
Planning Document (MIPD) 2011-20138 (Private Sector Development, Transport and Energy 
Infrastructure, Environment and Climate Change, and Social Development). 

The WBIF blends EU grants with contributions of the 3 Partner IFIs (EIB, EBRD and CEB), 
as  well  as  grants  from  some  18  bilateral  donors  gathered  in  the  European  Western  Balkans 
Joint  Fund  (EWBJF),  co-managed  by  the  EIB  and  the  EBRD.  The  WBIF  grants  support 
mainly preparation activities for priority projects to be financed by all participating donors but 
also capital investment.  

Started  in  December  2009,  the  WBIF  has  so  far  supported  123  activities,  with  grants  of 
220mn. Of these EUR 167mn came from the EU budget, EUR 20mn from IFI contributions 
and  EUR  33mn  from  bilateral  grant  sources  of  the  EWBJF.  .  To  date  the  123  activities 
approved by the WBIF cover projects of a cost of EUR 10.6bn, for which EIB, EBRD, CEB 
and  KfW  have  committed  some  EUR  6.2bn  of  loans.  These  projects  represent  already  a 
significant  share  of  the  total  EIB  pipeline  activity  for  2012  (at  the  exclusion  of  loans  for 
SMEs), and should represent a growing share in 2013 and 2014. 

In the context of the WBIF, the EIB Group promoted the establishment of the Western Balkan 
Enterprise Development and Innovation Facility – EDIF – an innovative platform designed to 
enhance  access  to  finance  of  SME  in  the  Western  Balkans.  Through  four  different 
components  of  EDIF  (two  equity/quasi  equity  funds,  a  guarantee  facility  and  a  technical 
assistance  facility),  it  will  support  the  expansion  of  innovative  and  high  growth  SMEs  in 
particular. EDFI is supported also by EBRD, who focuses on the high growth SME segment. 
The European Commission is the main donor of the Facility. The EU budget is expected to 
commit through the WBIF more than EUR 60 m of EU grants to the EDIF, or some 50% of 
the resources dedicated to the platform, which will be complemented by IFIs funding, other 
public donors (local) and private resources. 

2.5 Operational focus for the remainder of the mandate period 

1) Operational focus in Turkey 

Local private sector development, in particular support to SMEs 

Turkey  has  a  strong  entrepreneurial  culture  and  SMEs  are  the  backbone  of  the  Turkish 
economy in terms of total number of enterprises and employment. These companies provide 
employment to approximately 64% of the workforce and represent some 36% of GDP. 

Because of their lean organizational structure, SMEs can respond to changes faster than larger 
corporations.  However,  Turkish  SMEs  are  faced  with  a  number  of  structurally  weaknesses, 
including  lack  of  technology,  R&D,  innovation,  and  marketing  techniques;  lack  of 
harmonisation to global standards, lack of quality and trademark concepts; and more generally 
an  insufficient  level  of  education.  Notwithstanding  the  significant  growth  in  the  country’s 
banking activity and the increasing interest in SME financing, the lack of equity, as well as 
insufficient access to finance and credit guarantee systems remains a significant hindrance to 
their  development.  Whilst  these  weaknesses  are  faced  by  SMEs  in  many  countries,  the  low 
development of the domestic financial markets exacerbates the problem of the lack of longer-

7 Cf. http://www.wbif.eu  
8 http://ec.europa.eu/enlargement/pdf/mipd_multibeneficiary_2011_2013_en.pdf 

10

 
 
                                                 
dated debt. The longer duration of the EIB funded SME loans provides a much better match 
between  the  investment  assets  and  liabilities  for  project  promoters,  thus  reinforcing  the 
economics and the financial sustainability of their investments. 

The  financing  of  mid-sized  companies  (mid-caps)  should  also  be  considered  as  part  of  the 
local  private  sector  development.  Mid-caps  are  typically  more  productive  than  SMEs  and 
contribute  significantly  to  employment,  increases  in  competitiveness  of  the  economy  and 
exports.  Mid-Caps  have  also  a  more  developed  corporate  structure  and  as  such  are  more 
capable of upholding environmental concerns. 

SME and private  sector  lending  should remain a  high priority  of the Bank in Turkey in  the 
years  to  come,  both  in  corporation  with  the  public  and  private  sector  banking  partners.  The 
Bank,  in  close  co-operation  with  the  EIF  should  continue  to  seek  opportunities  for  co-
financing  and  blending  in  co-operation  with  EU  Regional  Programmes  and  the  Turkish 
Ministry  of  Science,  Industry  and  Technology  Ministry  to  maximise  the  efficiency,  impact 
and visibility of common action in favour of SMEs. Operations enhancing the development of 
local capital markets should also be considered in this context.  

Investments in research and development orientated towards the strengthening of productivity 
and  competitiveness  of  the  economy  is  another  critical  tool  in  combating  the  low  average 
productivity of the Turkish economy. In this context, EIB should consider further support to 
R&D programmes by leading public research institutes or private sector entities to underpin 
the country’s growth potential.  

Development of social and economic infrastructure  

Notwithstanding  the  significant  increase  over  the  last  decade,  Turkey  requires  massive 
additional investments in social and economic infrastructure to underpin its economic growth 
and to meet the EU Acquis.  

In the transport sector, the priorities will remain focused on the railway sector, including the 
priority  transport  corridor  between  Ankara  to  Istanbul,  and  on  urban  infrastructure  schemes 
(e.g. Eurasia Tunnel, light rail). Further priorities will be projects that support the extension of 
TEN-T networks and promotion of safety.  

The environmental infrastructure especially at local authority level requires huge investments 
in the areas of water, water treatment and waste management to meet the EU acquis. Whilst 
the Bank has financed a number of investments by the largest metropolitan centres, it should 
pursue  its  discussions  with  the  Turkish  Treasury  and  domestic  partners  to  further  widen  its 
reach to include medium-sized municipalities in this respect.  

The  energy  sector  requires  significant  investments  also  in  terms  of  storage,  distribution  and 
transmission  capacity,  the  latter  more  in  particular  given  the  central  role  of  Turkey  in  the 
context of the EU Energy Policy. Renewable Energy and Energy Efficiency should remain a 
priority  sector  for  further  Bank's  support,  also  through  a  widening  network  of  financial 
intermediaries to strengthen the Bank’s support in favour of medium-sized investments.   

Turkey  is  fundamentally  vulnerable  to  earthquakes  because  of  its  geographical  location 
between the tectonic plates of Eurasia and Africa/Arabia. The eastern provinces of the country 
along the East Anatolian Fault have been recently hit by major quakes, but also the Istanbul 
area  stretching  to  Izmit  and  Duzce  on  the  North  Anatolian  Fault  are  significantly  at  risk. 
Given Istanbul’s predominant role in the country’s economic fabric, any devastation from a 
major  earthquake  would  have  far  reaching  repercussions  on  the  country’s  economy.  Turkey 
has  set  up  a  dedicated  investment  programme  with  the  aim  of  strengthening  Istanbul’s 

11

 
 
resilience  to  a  major  earthquake.  The  Bank  developed  a  first  earthquake  risk  mitigation 
facility  in  close  co-operation  with  the  World  Bank  in  2008  to  support  these  investments.  A 
widening of the investment programme should be considered for the years ahead. 

In order to reinforce the country’s human capital potential, the Bank should consider projects 
in support of the health and educational sector. Turkey is setting-up a significant investment 
programme  in  the  health  sector  to  strengthen  the  quality  and  efficiency  of  the  healthcare 
system and enhance access to healthcare facilities. In this context, Turkey is undertaking an 
ambitious  construction  programme  on  a  PPP  basis  of  integrated  health  campuses  across  a 
wide range of cities. Given its extensive experience in the field of PPP financing, the Bank 
should consider making a significant contribution, thereby attracting other funding sources to 
this capital intensive sector. 

Climate change mitigation and adaptation 

Turkey is one of the most erosion-prone countries in the world, due to its topography, climate, 
vulnerability of soil type and the tendency towards overexploitation of rangelands and forests. 
Turkey’s  National  Climate  Change  Strategy  2010-2020  identifies  areas  of  key  importance 
such as protection and improvement of natural forests, afforestation and measures to prevent 
forest fires and to reduce flooding risks as part of climate change mitigation and adaptation. In 
2011,  the  Bank  has  provided  a  first  dedicated  Climate  Change  Facility  to  Turkey  under  the 
Climate  Change  Mandate  in  favour  of  the  afforestation,  erosion  control,  rangeland 
rehabilitation and forest fire fighting investments carried out by the Ministry of Environment 
and  Forestry.  More  funding  should  be  considered  in  the  years  ahead  in  support  of  the 
country’s efforts in this respect.  

In  Turkey,  floods  rank  the  second  among  the  natural  disasters  after  earthquakes  in  terms  of 
economic  and  human  losses.  The  Bank  should  pursue  its  discussions  with  the  relevant 
national agency to support its investments in the field of flood prevention. The project would 
aim at financing defined and prioritised flood prevention investments in areas of Turkey that 
have been exposed or expected to be exposed to substantial flood damage due to insufficient 
protection. 

Turkey is in the initial stages of setting-up an ambitious investment programme to upgrade the 
energy efficiency standards of its public buildings, including schools, hospitals, etc. Currently, 
a study is being prepared to take a stock of the public buildings standards. Given the current 
state  of  the  public  sector  buildings,  a  significant  investment  programme  will  be  required  to 
improve  energy  standards.  The  Bank  should  seek  to  support  the  investments  in  energy 
efficiency  following  the  required  decisions  and  prioritisation  at  the  level  of  the  Turkish 
authorities. 

2) Operational focus in the Western Balkans  

Local private sector development, in particular support to SMEs 

The  Bank  should  continue  to  support  SME  investments  in  the  region  through  its  lending 
operations,  which  remains  a  priority,  both  via  public  sector  development  banks  and 
commercial banks.   

In  the  context  of  the  WBIF,  the  EIB  Group  will  support  the  implementation  of  EDIF  to 
enhance  access  to  finance  for  innovative  SMEs,  start-ups  and  other  high  growth  SMEs 
difficult to reach with ordinary SME loans. The instrument will offer equity and quasi-equity, 
as well as guarantee instruments, which will complement ordinary SME loan financing from 

12

 
 
EIB  and  EBRD.  In  addition,  a  reform-oriented  technical  assistance  package  completes  the 
offer of this innovative platform. 

Development of social and economic infrastructure  

The  Bank  should  continue  its  support  to  the  development  of  social  and  economic 
infrastructure in line with the priorities agreed between each country and the European Union 
as  well  as  at  the  level  of  regional  organisations  (such  as  SEETO,  ECS,  etc.).  This  support 
should concentrate first and foremost on projects in transport and environmental infrastructure, 
however,  health  and  education  will  also  continue  to  be  supported  by  the  Bank.  Where 
appropriate,  these  projects  could  benefit  from  technical  assistance  and  grant  financing  from 
the  WBIF.  Priority  should  be  given  to  the  most  mature  projects  (approved  and  signed 
projects) to improve the link between signatures and disbursements.  

In light of the accession perspective of countries in the Western Balkans, it will be important 
to promote synergies between the WBIF and the support provided by the EU Commission and 
the IFIs through JASPERS, which prepares EU structural and cohesions funds projects post 
enlargement. 

Climate change mitigation and adaptation 

With climate change financing only representing 1% of EIB financing under the mandate in 
the Western Balkans in 2010-2011, the Bank is expected to gradually step-up its activity in 
this  sector.  This  should  be  facilitated  by  the  materialisation  of  climate  change  projects  for 
which EIB is lead IFI under the WBIF. 

In  the  Western  Balkans,  recent  floods  resulted  in  major  human  and  economic  losses  and 
required urgent remedial action. The Bank will pursue its discussions with the authorities to 
support its investments in the field of flood prevention with the support of WBIF resources, 
based on its long standing experience in the sector, notably in the Czech Republic and other 
New Member States, and in line with what it is doing in Turkey. 

Upgrading  the  energy  efficiency  standards  of  public  buildings,  including  schools,  hospitals, 
etc. will make a key contribution towards reduction of CO2 emissions in each country of the 
Western Balkans. The Bank is expecting to continue to promote its energy efficiency products 
in  the  region,  focusing  in  particular  on  the  public  sector.  The  Bank  will  identify  with  the 
relevant national authorities in close cooperation with other financing institutions (including 
Green  for  Growth  Fund)  specific  investment  programmes.  Project  preparation  and 
implementation could be supported where necessary by WBIF resources. 

Many climate action investments will cover more than one objective; for example sustainable 
transport  (both  climate  mitigation  and  infrastructure)  improved  coastal  protection  against 
rising sea levels and floods (both climate adaptation and infrastructure) and energy efficiency 
in industrial context (both climate mitigation and private sector). The added aspect of climate 
action  will  support  the  sustainability  of  the  other  underlying  objectives,  reducing  running 
costs and maintenance costs as well as greenhouse gas emissions. 

13

 
 
3. EIB Financing in EU Neighbourhood and Russia 

3.1 General context 

The  European  Neighbourhood  Policy  (ENP),  launched  in  2004,  was  subject  to  a  substantial 
revision in 2011 to adapt its goals and tools to recent political and social evolutions occurred 
in the EU’s partner countries. Towards the Southern Mediterranean countries, the EU sent a 
clear  message  of  solidarity  and  support  to  the  peoples  struggling  for  democracy,  dignity, 
prosperity  and  security.  Building  on  the  achievements  of  the  Eastern  Partnership,  the  new 
policy  was  also  a  response  to  the  call  of  the  EU's  Eastern  European  partners  for  closer 
political association and deeper economic integration with the EU. 

The progress in the delivery of the new European Neighbourhood Policy was presented in the 
joint  Communication  of  the  Commission  and  the  HRVP  of  15  May  20129.  The  reviewed 
European  Neighbourhood  Policy  is  based  on  new  features,  including  a  "more  for  more" 
approach. Only those partners willing to embark on political reforms and to respect the shared 
universal values of human rights, democracy and the rule of law have been offered the most 
rewarding aspects of the EU policy, notably economic integration (based on the establishment 
of  Deep  and  Comprehensive  Free  Trade  Areas  -  DCFTAs),  mobility  of  people  (mobility 
partnerships), as well as greater EU financial assistance.  

It  highlights  the  importance  of  mutual  accountability  between  the  EU  and  its  partners,  the 
need  for  partnerships  not  only  with  governments  but  also  with  civil  society  (e.g.  NGOs, 
businesses, academia, media, unions, and religious groups) and recognition of the special role 
of women in reshaping both politics and society. 

The new ENP approach also recognises the importance of differentiation and tailors relations 
to  the  level  of  ambitions  of  partners.  It  is  therefore  based  on  the  respect  for  every  partner's 
specificities and their own reform path. The new policy has enshrined greater flexibility and 
set  out  a  framework  for  tailored  responses,  matching  the  specific  requirements  of  the 
countries, their progress in undertaking reforms, and the nature  of  the  partnership they  seek 
with the EU. 
The Commission has put forward "umbrella" financial programmes (SPRING10 for the South 
and EaPIC11 for the East) to make available more rapidly the additional funds announced in 
2011, in order to support democratic transformation, institutional-building and further growth 
in the partner countries. 

In  light  of  the  challenging  economic  outlook  in  Europe,  the  High  Representative  and  the 
Commission  have  taken  bold  steps  to  mobilise  financial  assistance  for  transition  in  the 
Neighbourhood from outside the traditional community budget. This has included an increase 
in the lending ceilings of EUR 1.15bn to partner countries from the EIB, and an extension of 
the mandate of the EBRD to cover the countries of the Southern and Eastern Mediterranean.  

A Civil Society Facility covering the entire neighbourhood was launched in September with 
an initial budget of EUR 26m for 2011 and similar amounts planned for 2012. 

The Southern Mediterranean region is of strategic importance to the EU, in both economic 
(trade, energy, migration) and political (security, stability) terms. The events which took place 
in  early  2011  (Arab  Spring)  are  of  historic  proportion  and  they  reflect  a  profound 

9 Delivering on a new European Neighbourhood Policy, JOIN(2012)14, 15 May 2012. 
10 Support to Partnership, Reform and Inclusive Growth. 
11 Eastern Partnership Integration and Cooperation. 

14

 
 
                                                 
transformation process with lasting consequences not only for the people and countries of the 
region but also for the rest of the world and the EU in particular. Regional problems call for 
regional solutions, and the Arab Spring reactivated desires to increase links with neighbours, 
which already had concrete consequences, e.g. in the Maghreb. This is a unique opportunity, 
and the EIB  should support such revitalization through projects aiming at increasing South-
South links. 

The radically changed political landscape in the Southern Mediterranean determined a change 
in the EU's approach to the region. The EU response to the changes in the region was outlined 
in the two documents issued in March and April 2011: the Communication on a Partnership 
for  Democracy  and  Shared  Prosperity 
in 
the 
Communication A  new  response  to  a  changing  Neighbourhood13. The three main  directions 
along  which  the  EU  intends  to  further  develop  its  relations  with  its  Mediterranean  partners 
are:  democratic  transformation  and  institution  building;  a  stronger  partnership  with  the 
people; and sustainable and inclusive economic development. 

the  Southern  Mediterranean 12  and 

The EU’s Eastern neighbourhood is a region which is strategically important for the EU, for 
example in terms of security of gas, oil supplies from and through some of the countries as 
well as trade, but also in political terms. After deep changes following the fall of the Soviet 
Union, most countries of the region are undergoing transition towards democracy and market-
based  economy.  On  one  side  of  the  spectrum  are  countries  (such  as  Ukraine,  Republic  of 
Moldova and Georgia) with clear European ambitions. On the other side is Belarus, with little 
prospect  of  change  in  the  near  future.  Diverging  foreign  policy  orientations,  protracted 
conflicts,  and  a  growing  but  still  low  level  of  inter-state  cooperation  further  fragment  and 
polarise  the  region.  Russian  claims  for  a  dominant  position  in  the  post-Soviet  area  hamper 
EU's  capacity  to  respond  adequately  to  the  challenges  emanating  from  the  Eastern 
neighbourhood. In 2009 the EU and Eastern Partners14 launched the Eastern Partnership (EaP) 
as a specific dimension of the ENP to support partner countries’ sustainable reform processes 
with a view to accelerating their political association and deep economic integration with the 
EU.  The  EaP  Warsaw  Summit  (29-30  September  2011)  decided  to  further  strengthen  the 
implementation  of  the  EaP  and  called  on  the  High  Representative  and  the  Commission  to 
develop a Roadmap of the EaP15.  

The pace of reforms varies from country to country. In order to accelerate reform process, the 
EU will apply more regularly the principle of conditionality as proposed in the framework of 
the ENP Review and agreed at the EaP Summit in Warsaw. 

Decision 1080/2011/EU has (temporarily and exceptionally) increased the regional ceiling for 
lending  under  the  Mandate  by  EUR  148mn  for  the  EU  Eastern  Neighbourhood  and  Russia 
and  by  EUR  1bn  for  the  EU  Southern  Neighbourhood.  The  Decision  specifies  that  EIB 
financing  operations  ensuing  from  this  increase  should  respond  to  the  political  reforms 
undertaken  by  individual  partner  countries  as  assessed  by  the  Commission  with  the 
involvement of the European External Action Service (EEAS) taking into account European 
Parliament resolutions and Council decisions and conclusions. The review of the ENP and the 
renewed emphasis on differentiation should also be reflected in that assessment.  

Russia is the EU’s third biggest trade partner, with Russian supplies of oil and gas making up 
a large percentage of Russia’s exports to Europe. The EU-Russia strategic partnership’s on-

12 COM (2011)200 
13 COM (2011)303  
14 Armenia, Azerbaijan, Georgia, Republic of Moldova, Ukraine, and Belarus. 
15 Eastern Partnership: A Roadmap to the autumn 2013 Summit, JOIN(2012)13, 15 May 2012. 

15

 
 
                                                 
going  cooperation  is  based  on  4  specific  policy  areas  or  “common  spaces”:  common 
economic space; common space for freedom, security, and justice; common space for external 
security;  and  common  space  for  education,  research  and  culture.  The  Partnership  for 
Modernisation  launched  in  2010  reinforces  mutually  beneficial  cooperation  in  the  common 
spaces  and  provides  a  framework  for  joint  activities  for  societal,  judicial  and  economic 
modernisation. Russia was not interested in being part of the ENP but wanted a relationship 
between equals with the EU, reflecting its size and importance. 

The EU and Russia cooperate on dealing with a number of challenges, both at international 
level,  as  well  as  in  our  common  neighbourhood.  These  include  climate  change,  sustainable 
energy, drug and human trafficking, organised crime, crisis management cooperation, North 
Africa  and  the  Middle  East  Peace  Process,  and  Iran.  Russia  can  no  longer  be  considered  a 
receiver  of  development-oriented  EU  assistance.  Consequently,  programme  implementation 
such  as  for  example  in  the  case  of  Cross-Border-Cooperation  is  based  on  equality  and 
partnership.  Equality  means  an  approach  whereby  programmes  are  jointly  designed  and 
managed. 

A  series  of  trade  related  questions  prevented  the  European  Commission  from  providing  a 
favourable  opinion  to  EIB  support  to  projects  in  a  number  of  sectors  in  Russia.  The 
acceptance  of  Russia  to  the  WTO  was  agreed  in  the  WTO  Ministerial  meeting  on  16 
December 2011. Russia will be legally bound to the commitments undertaken in their WTO 
agreement  once  it  has  ratified  the  Accession  treaty.  Russia’s  observance  of  WTO  rules  and 
commitments  related  to  WTO  membership  will  be  closely  followed.  The  European 
Commission  will  continue  to  look  at  projects  on  a  case-by-case  basis  while  the  EIB  should 
focus its activity on sectors without problematic trade issues, particularly on priorities of the 
Partnership for Modernisation (P4M).  

The cooperation with Libya  

Following  the  conflict  in  Libya  and  the  establishment  of  an  Interim  Authority,  Libya  now 
faces  major  challenges  stabilising  the  country  and  taking  forward  a  process  of  democratic 
transition.  Although  rich  in  resources,  Libya  which  has  been  made  eligible  by  Decision 
1080/2011/EU,  could  benefit  from  financing  in  particular  as  regards  efforts  to  diversify  the 
economy  and  to  restore  infrastructure  in  priority  areas  for  the  EU.  Following  the  recent 
elections  on  7  July,  the  EIB  is  waiting  for  the  newly  elected  General  National  Congress  to 
replace the National Transitional Council and to appoint a prime minister which will form a 
new  Government.  Once  the  new  Government  is  in  place,  the  EIB  will  be  able  to  start 
discussing the framework arrangement with the country. 

The cooperation with Syria 

The  Council  and  the  European  Parliament  have  already  explicitly  invited  the  EIB  not  to 
approve  new  financing  operations  in  Syria  for  the  time  being  respectively  in  the  Council 
Conclusions  of  23  May  2011  and  in  the  European  Parliament  Resolution  of  7  July  2011. 
Thereafter,  the  Council  adopted  a  further  series  of  restrictive  measures  against  Syria, 
including  the  prohibition  of  disbursements  by  the  EIB  in  connection  with  existing  loan 
agreements between Syria and the EIB. In this context, the Commission, in accordance with 
Article  4(2)  of  Decision  1080/2011/EU,  has  issued  a  delegated  act16 to  remove  Syria  from 
Annex III of Decision 1080/2011/EU for the time being. 

16 COM(2012)615 

16

 
 
 
                                                 
The cooperation with Belarus  

For the time being, Belarus is not eligible to EIB financing under Decision 1080/2011/EU. 

3.2 Regional macroeconomic situation / business climate situation 

1) Macroeconomic situation/ business climate in Southern Neighbourhood 
Although  the  South  Mediterranean  countries  weathered  the  global  financial  crisis  relatively 
well,  partly  on  account  of  the  economies’  low  financial  and  trade  integration  and  in  some 
cases (e.g. Morocco and Tunisia) reflecting their room for counter-cyclical fiscal policies, the 
social  and  political  turmoil  of  2011  has  damaged  growth  prospects  throughout  much  of  the 
region  and  has  taken  some  of  the  momentum  out  of  the  recovery  which  started  in  2010. 
Exports  have  been  hit,  particularly  tourism;  remittances  have  been  affected,  notably  in  the 
Maghreb  region  due  to  the  conflict  in  Libya;  and  the  gradual  revival  in  foreign  investment, 
which was already at low levels due to the global economic crisis, is set to be more drawn out. 
On  the  domestic  side,  strikes  and  demonstrations  have  disrupted  activity,  unemployment 
pressures have intensified  and  consumer confidence has been shaken.  Libya  and  Syria have 
been most severely affected due to the long-lasting civil conflict and neighbouring economies, 
notably  Tunisia,  Egypt,  Lebanon  and,  to  a  lower  extent,  Jordan  have  suffered  a  significant 
slowdown. In sharp contrast, growth has held up in countries where social tensions have not 
boiled over, such as in Morocco and Israel. Excluding Libya, real GDP growth in the region is 
estimated  to  have  grown  by  nearly  2%  on  average  in  2011.  Regional  instability  has  also 
weighed on financial market conditions, raising the cost of external financing. Stock indices 
have overall fallen since the outbreak of the Arab Spring, including in countries less affected 
by the social unrest, such as Jordan and Morocco. On the other hand, exchange rate pressures 
have been in most cases moderate and banking sectors, which dominate the region's financial 
system,  have  on  the  whole  remained  stable,  although  the  rate  of  non-performing  loans  has 
started to increase, notably in Egypt. Public finances have also been under strain due to higher 
borrowing costs, reduced revenues and the adoption of fiscal measures (including increases in 
outlays for food and energy subsidies and in public sector wages) aimed at assuaging social 
tensions.  In  light  of  these  developments,  the  IMF  has  estimated  that  MENA  oil-importing 
countries  will  face  external  and  fiscal  financing  needs  of  more  than  USD  200  bn  in  total 
during 2012-2013 and, with capital markets providing only a small part of these funds and at 
a higher cost, official financial support would be essential. 

Despite the direct economic impact of the political unrest, the investment climate has overall 
improved  throughout  the  region  according  to  the  World  Bank’s  Doing  Business  Report  and 
even the most severely affected countries, such as Egypt and Tunisia, have managed to retain 
their  previous  rankings.  This  improvement  has  been  the  outcome  of  reforms,  including 
strengthening investor protection, simplifying paying taxes, and facilitating business start-up 
and access to credit. At the same time, persisting political instability in some countries raises 
concerns about their business environment.  

The outlook for 2012 and 2013 is equally challenging with downside risks mainly related to 
domestic  political  uncertainty,  the  global  economic  dynamics,  the  trend  in  international 
commodity prices and the potential impact of the euro zone sovereign debt crisis. Within this 
context, economic recovery will be slow with average GDP growth broadly remaining at the 
2% level in 2012, before picking up to around 3.5% in 2013 (again excluding Libya), while 
employment  will  at  best  stabilize  at  high  levels.  To  deal  with  these  challenges,  South 
Mediterranean  countries  need  to  advance  with  structural  reforms  aimed  at  promoting 
sustainable and inclusive growth and at fighting unemployment. Replacing generalised energy 

17

 
 
and  food  subsidy  systems  with  targeted  social  transfers;  reforming  energy  labour  markets; 
strengthening  educational  systems;  fostering  the  role  of  the  private  sector;  improving 
economic  governance;  and  deepening  international  and  regional  trade  integration  are  key 
policy challenges of the region.   

2) Macroeconomic situation/ business climate in Eastern Neighbourhood and Russia 

The EU's Eastern neighbours have embarked on a recovery that gradually solidified during 
2010  and  2011,  after  having  been  hit  hard  by  the  crisis  (with  the  exception  of  Azerbaijan). 
Macroeconomic, financial and balance-of-payments vulnerabilities have been reduced, often 
supported  by  external  assistance  from  institutions  such  as  the  IMF  and  the  EU.  Crucially, 
private capital flows to the region started to recover in tandem with a general improvement in 
investor attitudes towards emerging markets. Real GDP advanced by about 4.8% on average 
in the region in 2011. Growth was supported by strong commodity prices and the economic 
recovery of Russia, a main destination for the region's exports and migrant worker flows.  Top 
economic  performer  in  2011  was  Georgia  with  real  growth  of  7%,  followed  by  Moldova  at 
about  6.4%.  In  Armenia  and  Ukraine,  the  economic  recovery  accelerated  with  annual  real 
GDP growth of 4.6% and 5.2% respectively. An exception to this trend is Azerbaijan which 
originally managed to avoid a recession during the global crisis, cushioned by the buffer oil 
fund built up in previous years. However, growth in Azerbaijan almost stagnated in 2011 as 
production in the oil and gas sector was halted due to maintenance works. Belarus is clearly 
out of step with the economic cycle in the rest of the Eastern neighbourhood and is expected 
to  experience  a  sharp  slowdown  from  the  second  half  of  2011  as  it  underwent  a  currency 
crisis  and  serious  macroeconomic  instability.  For  2012,  however,  downside  risks  to  growth 
have  increased  for  the  entire  Eastern  neighbourhood  region,  due  to  the  global  economic 
slowdown and the potential impact of the euro zone sovereign debt crisis. However, the still 
robust economic performance of Russia is expected to cushion the deceleration in 2012. 

As  access  to  external  financing  may  become  again  more  difficult  given  the  renewed 
international  financial  turmoil,  the  still  prevalent  pre-crisis  growth  model  of  the  region, 
characterised  by  an  over-reliance  on  external  financing  and  insufficient  channelling  of  this 
financing  into  productive  capital  formation  raises  some  concerns.  There  is  a  potential  for 
macroeconomic  imbalances  and  vulnerabilities  to  re-emerge,  unless  the  EU's  Eastern 
neighbours implement policy measures to diversify and re-balance their growth model.  The 
current  account  deficits  of  the  oil  importers  declined  during  the  crisis  and  its  aftermath,   
showing less reliance on foreign savings. But they remain high at about 10% of GDP (with 
the exception of Ukraine, where the current account deficit is at around 6% of GDP) and have 
recently widened again in some countries. A major contributor to the external adjustment was 
the  ambitious  fiscal  consolidation  process  taking  place  in  Armenia,  Georgia,  and  Moldova. 
Exports  have  also  rebounded  strongly  in  most  of  the  economies  in  the  region  but  they  are 
facing  a  more  challenging  global  environment  now.  Finally,  the  financial  sectors  remain 
fragile due to high shares of non-performing loans and are still vulnerable to spillovers from 
the  rest  of  the  world  and  capital  outflows,  as  it  happened  during  the  global  financial  crisis. 
Average  inflation  has  remained  in  2011  at  a  level  below  but  close  to  10%  in  most  of  the 
Eastern  neighbours  and  exceeded  50%  in  Belarus.  A  number  of  countries  responded  by 
tightening  their  monetary  policy,  but  this  stance  may  be  challenged  by  the  fallout  from  the 
worsening external environment.  

The investment climate has gradually improved in 2011 and most Eastern neighbours (except 
for Ukraine) advanced in the World Bank's Doing Business Report and now rank in the first 
half of the country ranking. Main reforms were related to strengthening investor protection, 
simplifying  paying  taxes,  improving  the  legislation  for  enforcing  contracts  and  resolving 

18

 
 
insolvency and facilitating starting a business and getting credit. At the same time, the overall 
global  competitiveness  of  these  economies  is  less  favourable  due  to  factors  that  only 
indirectly  affect  the  ease  of  doing  business,  such  as  political  instability,  inefficient  public 
sectors  and  relatively  high  levels  of  corruption.    Key  policy  challenges  for  the  Eastern 
neighbours relate to improving public and corporate governance; strengthen financial systems, 
including through improved banking regulation and supervision; reforming the energy sectors, 
via privatisation, unbundling of large state-owned monopolies and aligning domestic energy 
prices to costs; and pursuing trade liberalisation, including by negotiating DCFTAs with the 
EU.  

Russia's growth outlook is still strongly dependent on international commodity prices, and a 
considerable  amount  of  non-performing  loans  continues  to  inhibit  credit  growth.  Economic 
growth is expected to decelerate slightly from 3.9% in 2011 to 3.8% in 2012 and to edge up to 
4.0% in 2013. With expected GDP growth of around 4% a year, growth will remain below the 
rates achieved before the crisis. Exports accelerated in 2010, but the sluggish expansion in the 
oil  and  gas  sector  (where  some  existing  fields  are  almost  depleted),  combined  with  the 
negative  demand  effects  of  the  euro-area  sovereign  debt  crisis,  are  likely  to  limit  export 
volume growth in 2011 and 2012. In the second half of 2011 higher agricultural output could 
partially  boost  exports.  Imports  increased  strongly  in  2011  due  to  the  strengthening  of 
domestic demand. Growth in consumer spending and investment activity increased in 2011. 
Overall,  the  current-account  surplus  is  expected  to  decrease  to  4%  of  GDP  in  2012  and  to 
3.8% of GDP in 2013, mainly due to assumed lower oil prices. Inflation picked up to almost 
10% by January 2011 mostly due to higher food prices following widespread damage to crops 
caused by forest fires in August 2010. CPI moderated to 7.4% on average in the second half 
of 2011, slowing down from 9.5% on average in H1 2011. CPI continued moderating in the 
first  months  of  2012,  amounting  to  4.2%  in  January,  3.7%  in  February  and  March.  This 
downward  trend  was  largely  driven  by  lower  food  prices,  following  a  very  good  harvest  in 
summer 2011. 

The Central Bank of Russia (CBR) increased the refinancing rate to 8.25% on 3 May 2011, 
while  cutting  it  to  8%  on  26  December  2011.  The  CBR  manages  the  rouble  against  a 
USD/EUR  basket  made  up  of  55  cents  of  a  USD  and  45  cents  of  a  EUR.  The  rouble 
appreciated in the first half of 2011 as a result of surging oil prices. Starting in August 2011, 
Russia experienced a significant weakening of its currency in reaction to the uncertain global 
outlook. However, in the first quarter of 2012 the rouble appreciated again by 7.2% versus the 
dual-currency basket.  

3.3 Brief overview of EIB activity to-date 

The EIB lends in the EU Neighbouring region primarily on the basis of the External Mandate, 
which has a ceiling of EUR 13.548bn over the period 2007-13, broken down into indicative 
sub-ceilings  of  EUR  9.7bn  for  the  southern  and  3.848bn  for  the  Eastern  neighbours  and 
Russia.  The  Climate  Change  Mandate  is  providing  an  extra  envelope  of  up  to  maximum  of 
EUR 1bn for climate change operations in this region.  

Secondly,  the  EIB  carries  out  own  risk  operations  under  the  Mediterranean  Partnership 
Facility  II  (authorized  amount  EUR  2bn  for  2007-2013)  and  the  Eastern  Partners  Facility 
(authorized amount 1.5bn for 2010-13).  

In  the  Mediterranean  region,  the  EIB  also  manages  EU  budgetary  resources  for  technical 
assistance  and  risk  capital  activities  as  well  as  the  FEMIP  (Facility  for  Euro-Mediterranean 
Investment and Partnership) trust fund. The figures for these activities are not covered in the 

19

 
 
tables  below,  however,  the  FEMIP  risk  capital  envelopes  totalled  around  EUR  120mn 
between 2007-11 (‘08: EUR 62mn; ‘09: EUR 27mn; ‘10: EUR 21.5mn; ‘11: EUR 10mn). 

1) EIB activity in Southern Neighbourhood 

Sector (2007-11 in EUR mn) 

Mandate 

Others 

Energy 

Global, Midcap, SME 

Industry 

Transports 

Water, sewerage 

Grand Total 

355 

2,160 

707 

1,157 

1,673 

793 

% 

5% 

32% 

10% 

17% 

24% 

12% 

Facility 

55 

685 

- 

89 

- 

- 

% 

7% 

83% 

0% 

11% 

0% 

0% 

Total 

410  

2,845  

707  

1,247  

1,673  

793  

% 

5% 

37% 

9% 

16% 

22% 

10% 

6,845 

100% 

829 

100% 

7,674  

100% 

Mandate 

89% 

Facility 

11% 

EIB has been providing finance in the Mediterranean region for 33 years as part of the long-
term  partnership  between  the  EU  and  its  Mediterranean  neighbours.  It  has  built  up  this 
activity over time and now operates within the framework of the FEMIP, which has become 
the leading source of external financing for modernising and opening-up of these countries’ 
economies, through infrastructure and private sector investments. 

Since its inception in October 2002, the FEMIP combines EIB loans and loan guarantees with 
EU  and  Member  States  budgetary  resources,  which  are  used  by  the  EIB  for  technical 
assistance and risk capital. The Facility was reviewed in 2006 by the ECOFIN Council, which 
decided to further reinforce it. 

Over the period 2002 – 2011, FEMIP deepened its activity year by year, reaching EUR 13bn 
of investments since 2002 and mobilising roughly EUR 35bn of additional capital..  In 2011, 
the  EIB  invested  around  EUR  1bn  in  the  region  under  FEMIP:  51.6%  of  FEMIP  financing 
was  implemented  in  the  Maghreb,  43.4%  in  the  Near  East  and  the  remaining  on  a  regional 
basis.  The  bulk  of  the  investments  were  realised  in  the  energy  (mainly  gas  power,  gas  and 

20

 
 
  
  
  
  
  
  
  
 
 
 
 
 
 
power  transmission  lines  and  renewables),  transport  (mainly  motorways,  roads,  urban 
railways and seaports), industry (mainly fertilizers and refined petroleum products, and some 
chemicals, cement, motor vehicles) and water sectors. The main recipients of loans under the 
current Mandate are Morocco, Tunisia and Egypt (together 64%).  

Sustainable  employment  creation  always  remained  a  top  priority  for  the  EIB  in  the 
Mediterranean.  Since  its  creation  in  2002,  FEMIP  has  provided  its  support  to  over  2,400 
SMEs  creating  an  estimated  30,000  new  jobs.  In  addition,  through  its  direct  lending 
operations, over the period 2007 – 2011, the EIB created nearly 13,000 permanent jobs and 
some 28,000 temporary ones in the partner countries.  

For  the  period  2010-2011,  Climate  Action  lending  (mitigation  and  adaptation)  was  18  %  of 
EIB lending for Southern Neighbourhood. 

2) EIB activity in Eastern Neighbourhood and Russia 

Sector (2007-11 in EUR mn) 

Mandate 

Others 

Energy 

Global, Midcap, SME 

Industry 

Telecommunications 

Transports 

Grand Total 

% 

5% 

40% 

12% 

4% 

7% 

32% 

Facility 

10 

26 

- 

65 

- 

- 

% 

10% 

26% 

0% 

64% 

0% 

0% 

Total 

93  

701  

205  

140  

115  

555  

% 

5% 

39% 

11% 

8% 

6% 

31% 

83 

675 

205 

75 

115 

555 

1,708 

100% 

101 

100% 

1,809  

100% 

Mandate 

94% 

Facility 

6% 

The  mandate  governing  EIB  activity  in  Eastern  Neighbourhood  countries  has  broadened  in 
size  and  scope  since  2001,  when  the  first  EUR  100mn  mandate  for  Russia  alone  was 
introduced. A further EUR 500mn was made available for the period 2005 - 2007 and covered 
Russia, Moldova and Ukraine.  

21

 
 
  
  
  
  
  
  
  
 
 
 
 
 
 
The  current  mandate  runs  from  2007  -  2013  and  covers  Ukraine,  Moldova,  Armenia, 
Azerbaijan, Georgia and Russia. To date, the Bank has extended financing in the four Eastern 
Partnership  (EaP)  countries  that  signed  a  Framework  Agreement  for  Financial  Cooperation 
with  the  Bank  (Armenia,  Georgia,  Moldova  and  Ukraine)  and  in  Russia;  Azerbaijan  is 
expected to sign its Framework Agreement with the Bank in 2012.   

As of mid-2009, as a follow up to the priorities established under the Eastern Partnership, the 
EIB started providing loans for SMEs via banks in Eastern Partnership countries. The scope 
of the mandate in the region was significantly broadened by Decision N° 1080/2011/EU of 25 
October 2011. Understandably, the operational implications of this sectoral broadening have 
not yet materialised in loan signatures.   

Since  2007,  EIB  financing  in  the  Eastern  Neighbourhood  and  Russia  under  the  Mandate 
totalled  EUR  1.7bn,  supporting  23  projects  in  all  five  countries  which  signed  a  Framework 
Agreement with the Bank (with Ukraine having a share of over 50%, followed by Russia with 
22%). EIB financing in this region increased significantly in 2010-2011, totalling EUR 1.4bn.   

The overall sectorial distribution at end-2011 still reflects the former focus of the Mandate in 
the region, i.e. projects of significant interest to the EU in transport and energy (accounting 
for 72% of the Bank lending in Eastern Neighbourhood and Russia), telecommunications and 
environmental  infrastructure.  However,  from  2010  onwards  a  sectoral  diversification  has 
started  to  take  place,  a  trend  which  is  likely  to  become  more  eminent,  also  due  to  the 
broadening of the sectoral remit resulting from the revision of the mandate. The strengthened 
Bank’s  activity  in  Eastern  Neighbourhood  countries  and  Russia  represents  a  visible 
contribution to the EIB’s enhanced support to the EU Neighbourhood policy. For the period 
2010-2011, Climate Action lending (mitigation and adaptation) was 11 % of EIB lending for 
Eastern Neighbourhood and Russia. 

3.4 EIB contribution to EU regional policy framework, including cooperation with the 
COM, the EEAS and with other IFIs 

Cooperation with the Commission 

Cooperation with the European Commission is instrumental for the Bank's activities with the 
EU’s  Southern  and  Eastern  neighbours.  Synergies  and  complementarities  between  EIB 
financing and EU funds from the European Neighbourhood Policy Instrument (ENPI), both at 
regional and country  level,  to  support EU policies have been exploited via several avenues. 
Some of them have been institutionalised, as in the case of the FEMIP Committee, where the 
Commission is represented, or the Neighbourhood Investment Facility (NIF), in which the 
EIB is an active player. 

NIF  is  an  innovative  financial  mechanism  –  complementary  to  FEMIP  in  the  Southern 
Neighbourhood - aimed at mobilising additional funding to cover the investment needs of the 
Neighbouring  region.  The  NIF  has  been  designed  to  finance  capital-intensive  energy  and 
transport  infrastructure,  address  common  environmental  challenges  and  to  support  smart, 
sustainable  and  inclusive  growth,  in  particular  through  support  for  SMEs,  in  neighbouring 
partner countries. The Facility brings together grants from the European Commission and the 
EU  Member  States  with  loans  from  European  public  Finance  Institutions,  in  particular  the 
EIB.  By  pooling  different  resources,  the  NIF  plays  a  key  role  in  donor  coordination  and 
increasing aid effectiveness in accordance with the Paris Declaration and the Accra Agenda 
for Action. EIB is a key active player in the Facility and at the same time administers the NIF 
Trust Fund, which complements the Commission’s NIF resources. 

22

 
 
The EIB manages in the context of FEMIP and on behalf of the EU a budgetary envelope for 
risk capital and technical assistance (EUR 32mn per annum for 2007-13) in order to support 
the  private  sector  and  create  an  investment-friendly  environment  in  the  EU  Southern 
Neighbourhood. 

Another avenue of cooperation is the "Charter for Enterprise", an initiative supported by the 
EC  and  adopted  by  the  Euro-Mediterranean  Industry  Ministers  in  2004.  This  represents  a 
platform  for  Euro-Mediterranean  cooperation,  to  which  the  EIB  is  contributing  through  its 
“access to finance” thematic area, which covers the credit environment and financial facilities 
for enterprises.  

Synergies with EC have also been created in many areas related to horizontal activities such 
as  Horizon  2020,  the  Maritime  and  Land  Highways  and  the  Mediterranean  Solar  Plan,  all 
priority  areas  of  the  Union  for  the  Mediterranean  (UfM).  In  the  maritime  field,  the  EC,  the 
International  Maritime  Organisation  (IMO)  and  FEMIP  are  cooperating  through  the 
elaboration of a study which builds upon the experience of the three institutions. The EIB also 
plays a crucial role in depollution of the Mediterranean, inter alia through direct contribution 
to  the  MeHSIP17 programme.  As  regards  to  the  Mediterranean  Solar  Plan  (MSP),  the  Bank 
and the EC support the elaboration of the MSP Master Plan led by the Secretariat of the UfM 
and  will  actively  participate  in  the  working  group  on  the  MSP  financial  implementation, 
paving  the  way  for  the  financing  of  concrete  renewable  energy  projects  through  different 
financial mechanisms.  

In  line  with  the  Memorandum  of  Understanding  signed  in  January  2011,  the  EIB  and  the 
Secretariat  of  Union  for  the  Mediterranean  (UfMS) cooperate with a view to implement 
UfM priority projects, notably: the Depollution of the Mediterranean Sea, the Mediterranean 
Solar  Plan,  the  Land  and  Sea  motorways,  and  the  Mediterranean  Business  Development 
Initiative and the urban dimension (Urban Development Platform Financial Initiative UDPFI). 
This  collaboration  in  association  with  the  EC  and  other  financial  institutions  aims  at 
facilitating the set-up of specific financial and non-financial instruments that would accelerate 
the development of bankable project in the UfM priority areas.  

Regarding Russia, the EIB has maintained a continuous dialogue with the EC and EEAS with 
a view to identifying how the EIB could support the Strategic Partnership between the EU and 
Russia,  in  particular  the  Partnership  for  Modernisation  between  the  EU  and  Russia.  This 
dialogue  will  be  pursued,  taking  into  account  the  recent  accession  of  Russia  to  the  WTO, 
which is likely to help to address some of the sectoral issues that have prevented the EC from 
supporting EIB financing in Russia  in certain sectors. To lay the basis for such cooperation 
over  the  medium  term,  the  EIB  signed  a  MoU  with  the  Russian  VEB  in  June  2011,  in  the 
context of the Summit between the EU and Russia.   

Cooperation with other IFIs 

EIB  closely  cooperates  with  the  other  International  Financial  Institutions  (IFIs)  and  is 
taking new steps towards more solid and sustainable partnerships: with EU neighbours, which 
share common values; the EBRD who expanded its geographical scope to the Mediterranean; 
the  UfMS,  which  complements  the  Euro-Mediterranean  institutional  architecture;  and 
European  financial  institutions  to  ensure  complementarity,  coherence  and  effectiveness.  On 
top of informal coordination already on-going within the Luxembourg Group (WB/IFC, IMF, 
EIB, EBRD, EC/EEAS), the EIB will seek systematic cooperation for co-financing with other 
International Financial Institutions (especially under the G8 Deauville Partnership). 

17 Mediterranean Hot Spot Investment Programme 

23

 
 
                                                 
In  the  Southern  Neighbourhood,  cooperation  with  other  IFIs,  Governmental  organisations 
and NGOs is considered important. EIB already co-financed 63% of its activities in 2011 with 
other  public  financial  institutions,  in  particular  KfW  and  AFD.  In  this  context,  the  Mutual 
Reliance Initiative (MRI) between the EIB, AFD and KfW should be mentioned. Its aim is to 
promote  efficient  project  co-financing  by  various  financing  institutions  through  the  mutual 
recognition  of  procedures.  The  objectives  are  to  simplify  project  appraisal  and  monitoring, 
reduce transaction costs and develop “best practice” for the division of labour, which could be 
extended  to  other  partners  and  donors.  In  2010,  the  cooperation  with  AFD  and  KfW  was 
reinforced  through  the  signature  of  the  Tripartite  Agreement  on  Mutual  Reliance.  To  date, 
nine pilot projects have been selected for the FEMIP region, all of them stemming from the 
commonly  established  NIF  project  pipeline.  In  2011,  seven  projects  were  co-financed  with 
AFD and/or KfW. Moreover, the Bank is actively exploring the potential for cooperation with 
KfW and AFD where relevant in Eastern Neighbourhood countries. In addition, coordination 
meetings have been and will continue to be held on a regular basis, both at operational and 
senior management levels between the Bank and its peers. 

In  addition,  in  the  spirit  of  the  Deauville  Partnership  that  calls  on  international  financing 
institutions to deliver coordinated support to the EU Southern Neighbourhood, the European 
Commission,  the  EBRD  and  the  EIB  Group  are  working  on  an  extension  of  the  existing 
tripartite  MoU  to  the  southern  Mediterranean  region  and  are  coordinating  in  Technical 
Assistance initiatives in the fields of Energy and PPPs.  

In  the  Eastern  Neighbourhood,  the  EIB  and  EBRD  have  a  long  tradition  of  cooperation 
since the 1990s, as demonstrated by the high percentage of Bank operations structured as co-
financing with EBRD: 83% of the EIB lending activities in Eastern Neighbourhood Countries 
and Russia to date are co-financed with the EBRD (17 operations out of 27).    

Following the signature of the new Tripartite MoU on 1st March 2011 between the EC, the 
EIB  Group  and  the  EBRD,  a  new  framework  for  cooperation  in  particular  in  the  Eastern 
neighbourhood18 has been established in order to better organise the co-operation between the 
EIB  and  the  EBRD,  focusing  on  complementarity,  additionally,  and  efficient  use  of  their 
respective  resources  with  the  view  to  enhance  the  combined  impact  of  the  two  Banks’ 
respective  operations,  in  the  interest  of  beneficiary  countries  and  of  the  respective  Banks’ 
shareholders.  The  new  framework  of  cooperation  is  based  on  distinct  and  complementary 
mandates and business model of each Bank, and areas of cooperation were clearly identified 
on that basis.  

Mutual reliance based on mutual recognition of procedures and standards and – to the extent 
possible,  in  particular  for  Pre-accession  and  Neighbourhood  countries  –  harmonisation  of 
standards  (including  on  procurement  and  environment)  will  be  pursued  and  developed  to 
provide  the  building  blocks  for  intensified  cooperation,  which  both  Banks  recognise  as  an 
important  element  to  enhance  the  efficiency  and  impact  of  joint  operations.  The  two  Banks 
will  also  investigate  further  the  possibilities  for  cooperation  in  lending  in  local  currency  in 
cooperation with the beneficiary countries. 

The  EIB  also  aims  at  deepening  its  cooperation  with  the  other  IFIs  active  in  the  Eastern 
Neighbourhood  Countries  and  Russia,  in  particular  the  World  Bank  group,  the  Asian 
Development Bank (in Southern Caucasus countries) and the Nordic Investment Bank.    

18 As mentioned, the new MoU has also been extended to cover Pre-Accession region. 

24

 
 
 
                                                 
3.5 Operational focus for the remainder of the mandate period 

1) Operational focus in the Southern Neighbourhood 

Local private sector development, in particular support to SMEs 

The  Mediterranean  economies  are  characterised  by  high  levels  of  unemployment  and  an 
unequal  distribution  of  wealth.  Supporting  inclusive  sustainable  economic  and  social 
development is one of the objectives of the renewed approach of the ENP as outlined in the 
recent  Communications.  It  should  be  instrumental  in  supporting  the  democratisation  of  the 
economy, in a context where SMEs constitute the key driver for economic and social progress 
and  have  a  critical  role  to  play  in  job  creation.  The  combination  of  this  with  the  envisaged 
strengthening  of  trade  ties  with  willing  and  able  partners  should  provide  a  powerful 
stimulation  of  economic  growth  and  competitiveness  and  hence  a  significant  support  to 
economic recovery.  

In the current context in the region, the EIB should continue supporting the SMEs and private 
sector employment growth companies and creating an enabling environment for them in the 
Mediterranean region as one of the main priorities for the future. In particular, as stated in the 
Decision  1080/2011/EU,  EIB  should  continue  to  actively  cooperate  with  local  financial 
intermediary  institutions  in  the  Mediterranean  countries,  in  order  to  ensure  an  effective 
transmission of the financial benefits to their clients and to provide value added compared to 
other sources of finance. In this context, the financial intermediaries' activities in support of 
SMEs  should  be  fully  transparent  and  be  reported  regularly  to  the  EIB.  Moreover,  where 
appropriate, through its cooperation agreements with those intermediary institutions, the EIB 
should  request  that  clients'  projects  are  checked  against  agreed  criteria  in  line  with  its 
development  indicators  so  as  to  provide  added  value.  Finally,  EIB  should  facilitate  the 
creation  of  new  financial  products  (e.g.  to  facilitate  local  currency  lending),  a  step  that  is 
necessary to unlock the potential of the smallest SMEs to grow. 

These  operations  should  complement  FEMIP  private  equity  operations  carried  out  with 
budgetary  and  FEMIP  Trust  Fund  roles  which  aim  both  at  financing  Micro,  Small  and 
Medium-sized  Enterprises  (MSMEs)  and  improving  the  financial  practices  implemented  in 
the  Mediterranean  partner  countries.    Risk  capital  resources  should  be  deployed  through  a 
combination of direct investments, co-investments with pre-selected local intermediaries and 
investments  in  microfinance  institutions,  in  order  to  target  small  operations  with  high  value 
added.  Microfinance  operations  are  expected  to  lead  to  the  creation  of  new,  well-governed 
microfinance  institutions  or  help  existing  ones  to  grow  responsibly  and  fully  integrate  into 
their local financial sector.  

Development of social and economic infrastructure  

Energy and transport, together with environmental (mainly water) infrastructure remain a high 
priority  of  the  operations  in  the  region,  complemented  by  investments  promoting  the 
communication, health and education sector. 

A necessary condition for the sustainable economic development of the Mediterranean region 
is setting up of integrated, safe and efficient transport networks between the two shores of the 
Mediterranean.  As  part  of  its  goal  to  improve  the  economic  environment  of  the  partner 
countries, EIB should help to set up an integrated and effective Euro-Mediterranean transport 
system, with specific focus on the improvement of the extension of trans-European transport 
networks (TEN-T)  interconnections, including at sub-regional level (e.g. in Maghreb). This 

25

 
 
would  also  be  part  of  the  ''Maritime  and  Land  Highways''  initiative,  identified  as  an  UfM 
priority project in the Joint Declaration of the Paris Summit in July 2008. The Bank should 
also further support rails and road interconnection development in the region which are key 
elements of further regional integration.  

As  regards  urban  development  projects,  the  creation  of  new  towns  to  address  problems  of 
housing  stress,  seen  as  a  solution  by  many  governments  in  the  region,  has  important 
environmental and social implications that need to be given adequate attention. In this context, 
EIB  should  ensure  that  the  supported  projects  comply  with  international  standards  and 
regulations and that the promoter display adequate technical capacity or governance skills in 
order to ensure both proper project implementation and good quality in monitoring/reporting 
tasks. Moreover, these projects should be in line with the UfM rehabilitation of historic urban 
centres programme (“Medinas 2030”), supported by EIB. Urban transport projects should be 
supported to address growing mobility and congestion problems. 

With regards to the energy sector, the security of energy supplies, renewable energy, energy 
efficiency  as  well  as  coordinating  the  financing  of  the  MSP  –  one  of  the  UfM's  priority  -
projects should remain a priority for EIB. As energy demand is expanding fast in most of the 
Mediterranean  countries,  there  is  a  need  to  invest  substantially  to  develop  energy 
infrastructure,  including  the  development  of  gas  and  electricity  distribution  infrastructure. 
Southern Mediterranean is strategically important for the EU in terms of security of gas and 
oil  supplies  from  some  of  the  countries  but  also  more  broadly  in  terms  of  transit  from  the 
region  and  beyond.  The  EU  intends  to  build  an  EU-Mediterranean  partnership  in  the 
production and management of renewables, in particular solar and wind energy, and to have a 
joined-up approach to ensuring energy security notably in support of the MSP. In the mid to 
long  term,  this  process  would  contribute  to  establishing  a  form  of 
'EU-Southern 
Mediterranean Energy Community'.  

Decision  1080/2011/EU  specifically  mentions  water  and  sanitation  as  an  important  area  of 
environmental infrastructure in which EIB should operate. This is all the more valid for the 
Mediterranean region, where, on its Southern and Eastern shores, 60% of urban areas with a 
population of more than 100 000 still discharge their wastewater into the sea. Moreover, one 
of the leading projects supported by the UfM is the ''de-pollution of the Mediterranean Sea''.  

In the water and solid waste sectors, the Bank should follow three main strategic axes: (i) the 
de-pollution  of  the  Mediterranean,  (ii)  improved  water  security  and  resources  management, 
including treated effluent reuse and climate action adaptation through the implementation of 
the Union for the Mediterranean's Strategy for Water in the Mediterranean (''SWM'') and (iii) 
climate  action  (with  a  special  focus  on  adaptation  to  water-related  climate  impacts  and 
reduction  of  greenhouse  gas  emissions  from  landfills).  In  addition  to  these  three  main 
strategic  axes  and  building  on  the  UNEP-MAP  EIB  joint  Horizon  2020  Initiative  and 
cooperation with Blue Plan, the Bank should follow the implementation of priority projects in 
the water and solid waste sectors.. In the solid waste sector efforts should aim at reducing the 
adverse  environmental  and  health  impact  from  improper  disposal  of  waste  through 
construction  of  new  regional  sanitary  landfills  and  improving  efficiency  in  waste  transports 
through  transfer  stations.  Efforts  to  increase  the  level  of  material  and  energy  recovery  from 
the waste stream should be considered where feasible and appropriate. 

the  Mediterranean  countries.  Any  further  development 

The use of electronic communications technologies was at the heart of the wave of upheavals 
in 
the  Information  and 
Communications Technology area will imply additional regulatory reforms to exploit the full 
growth  and  productivity  potentialities  of  the  sector.    Mediterranean  partner  countries,  with 
few  exceptions,  can  be  characterised  as  having  moderate  mobile  and  low  fixed  line 

in 

26

 
 
penetration,  very  low  broadband  availability,  unclear  telecommunications  regulation  and 
limited  competition,  as  well  as  low  diffusion  of  e-government  services.  To  address  the 
shortcomings of the current ICT infrastructure, EIB should mainly focus on: (i) bridging the 
digital  divide  by  supporting  network  expansion  in  rural  and  poorly  served  areas;  and  (ii) 
promoting open competition between mobile and fixed line services operators to increase the 
efficiency of markets and bring down the end-consumer prices.  

Tackling  high  levels  of  illiteracy  is  key  to  promoting  democracy  and  ensuring  a  qualified 
workforce  to  help  modernise  the  Southern  Mediterranean  economies  through  adequate 
education  infrastructure.  Demographic  trends  indicate  a  rapidly  growing  youth  that  needs 
appropriate education and training facilities for achieving employment goals. Improving  the 
health  systems  in  the  region  should  also  be  a  crucial  factor  in  social  cohesion  and  in  the 
improvement  of  the  citizens'  quality  of  life.  The  Bank  should  therefore  continue  to  finance, 
through  direct  loans,  projects  in  the  field  of  education  and  health  in  the  Mediterranean 
countries.  In  the  education  sector,  the  Bank  should  support  national  school-building 
programmes, with the emphasis on rural areas.  In the health sector in particular, the primary 
objective  should  be  to  optimise  the  allocation  and  use  of  scarce  healthcare  resources  to 
improve the health of the population of a particular region or country, whilst ensuring access 
to safe, appropriate and effective healthcare interventions.  

In order to develop appropriate instruments to address challenges faced when financing larger 
infrastructure projects, the Investment Security in the Mediterranean (ISMED) initiative was 
created, where the EIB is actively participating in the Working Group set up under ISMED. 
The EIB has proposed two projects under NIF (for guarantees and PPPs in the Southern and 
Eastern Mediterranean) which could support ISMED priorities. 

Climate change mitigation and adaptation 

The Mediterranean region, in particular its Southern and Eastern rims, is expected to be one 
of the regions most affected by climate change. A recent FEMIP study evaluated the costs of 
on  human  development  of  not  taking  action  on  climate  change,  specifically  in  relation  to 
agriculture, tourism, infrastructure, and urbanised coastal areas, where 80% of the population 
will  be  concentrated  by  2030.  Considering  the  high  costs  of  not  taking  action,  the  study 
showed that investing today in this field could generate economic benefits of about EUR 22bn 
by 2015.  

As  far  as  EIB  financing  climate  action  in  the  region  is  concerned,  key  focus  areas  should 
include:  renewable  energy  (including  efforts  for  the  implementation  of  the  MSP);  energy 
efficiency;  research  and  innovation;  sustainable  transport;  urban  infrastructure;  water; 
agriculture;  forestry  (including  national  parks,  but  also  afforestation),  water  basin 
management  coupled  with  erosion  control  and  biodiversity,  adaptation  and  carbon  markets. 
EIB  will  systematically  screen  projects  in  these  areas  for  their  climate  action  potential,  and 
implement project including through the Mediterranean Climate Change Initiative (MCCI).  

2) Operational focus in the Eastern Neighbourhood  

Local private sector development, in particular SMEs 

Most  Eastern  Neighbourhood  countries  have  weak  and  poorly  diversified  economies  that 
remain vulnerable to external shocks. They are characterised by high levels of unemployment 
and  an  unequal  distribution  of  wealth.  SMEs  are  relatively  under-developed  and  have  been 
confronted by a lack of funding due to under-developed capital markets and a financial sector 

27

 
 
still  in  transition.  As  highlighted  in  the  above  section  on  the  MED  region,  supporting 
inclusive sustainable economic and social development, including through support to SMEs, 
is one of the objectives of the renewed approach of the ENP.  

The EIB should extend its support to the SMEs sector in the Eastern Neighbourhood region as 
one of the main priorities for the future. Operations might also be dedicated to specific areas 
like the promotion of a green economy, e.g. by encouraging investments in more sustainable 
and  resource  efficient  production  processes  in  industry,  constructions,  agriculture  and  food 
processing.  To  effectively  reach  out  to  SMEs,  the  EIB  intends  to  cooperate  with  local 
financial intermediaries, including subsidiaries of foreign banks and locally-owned financial 
institutions, both public and private. The EIB should ensure an effective transmission of the 
financial  benefits  to  their  clients  and  provide  value  added  compared  to  other  sources  of 
finance.  In this context, the financial intermediaries' activities in support of SMEs should be 
fully transparent and be reported regularly to the EIB. Moreover, where appropriate, through 
its  cooperation  agreements  with  those  intermediary  institutions,  the  EIB  should  request  that 
clients' projects are checked against agreed criteria in line with EU development goals so as to 
provide added value. 

In addition to intermediated financing support, the EIB could also support, on a case by case 
basis,  investment  projects  carried  out  by  the  local  private  sector  in  Eastern  Neighbourhood 
countries (including local subsidiaries of EU companies, locally-owned companies as well as 
local  Midcaps)  through  direct  loans  and  loan  guarantees.  This  would  include  projects  that 
contribute  to  economic  integration  among  between  EaP  countries  and  the  Union,  as  well  as 
projects that have a strong potential to achieve sustainable economic growth and job creation.   

Development of social and economic infrastructure 

Faster, cheaper and more efficient transport connections between the EU and the EN region is 
a  necessary  condition  for  its  effective  integration  with  EU  markets  and  the  sustainable 
economic  development  of  the  region.  Such  integration  requires  the  ENCs  to  move  closer 
towards  the  EU  standards  in  such  areas  as  safety,  security  and  environmental  protection.  In 
this context, EIB should focus its activities in the following areas: 

i)  The Bank should support major transport connection projects which are key elements of 
further  regional  integration  and  trade  facilitation.  This  should  take  place  notably  in  the 
context of the envisaged extension of the trans-European transport networks (TEN-T) to 
neighbouring partner countries.   

ii)  The Bank should support investments linked to the upgrade of infrastructure connections 
or  transport  equipment  in  a  view  to  making  transport  more  effective  and  sustainable, 
notably to support environmentally and climate friendly modes of transport and equipment. 

iii) The  Bank  should  promote  port  modernisation,  the  motorways  of  the  Sea  and  the 

development of inland waterway transport. 

iv)  The  development  and  the  rehabilitation  of  local  or  regional  transport  networks  with 

important socio-economic impact. 

v)  Particular attention should also be paid to cooperation in the field of safety and security 

for maritime, air and land transport modes. 

The  EN  region  is  strategically  important  for  the  EU  in  terms  of  security  of  gas  and  oil 
supplies  from  some  of  the  EN  countries  but  also  more  broadly  in  terms  of  transit  from  the 
region and beyond. It is relevant for the EIB to support the development of a pan-European 
Energy Community, providing for a better integration of the energy markets, including those 

28

 
 
of  neighbouring  countries,  and  the  development  of  new  energy  import  and  source  routes  to 
the EU.  

Another  important  objective  is  to  support  the  development  of  low  carbon  energy  projects 
(notably  energy  efficiency  and  renewable  energy  projects).  And  a  priority  objective  of  the 
Bank’s  activities  outside  the  EU  remains  to  contribute  to  their  economic  and  social 
development, for which energy sector is a key area. 

In this context, EIB should focus its activities in the following areas: 

i)  Rehabilitation and development of energy infrastructure, in order to diversify and secure 
energy supplies to the EU, to promote the regional integration of energy markets between 
themselves  and  with  the  EU  and  to  support  the  increase  of  efficient  and  reliable 
production and transportation of energy. 

ii)  Development of a low carbon economy, notably through development and grid integration 
of  renewable  production  and  by  promoting  energy  efficiency  projects,  as  well  as  Joint 
Implementation and Clean Development mechanism projects. 

iii) Support  to  projects  improving  the  performance,  safety  and  security  of  energy 

infrastructure. 

iv)  Improved  and  reliable  access  to  energy  sources,  including  the  development  and  the 

rehabilitation of the gas and electricity distribution infrastructure. 

Decision N° 1080/2011/EU specifically mentions water and sanitation as an important area of 
environmental infrastructure in which EIB should operate.  

Within  the  framework  of  the  EIB  mandate,  the  focus  should  be  on  environmental 
infrastructure projects that fall within the scope of either the European Neighbourhood Policy 
documents19 or  documents  that  set  out  sectoral  priorities  bearing  an  impact  on  the  ENPI 
Eastern Region20.  

In this context, EIB should focus its activities in the following areas: 

i)  Public  sector  wastewater  and  waste  management  projects,  including  development  of 
integrated  solid  waste  management  systems  and  upgrades  of  solid  waste  treatment  and 
disposal facilities, and the cleaning up of legacy pollution and other hazardous waste, in 
particular - but not exclusively - those having an impact on the coastal waters of the Baltic 
Sea, the Barents Sea, the Black Sea and the Caspian Sea, including projects located on the 
coast  itself  or  on  river  basins  flowing  into  the  coastal  waters,  taking  into  account  the 
strategies of HELCOM and the Baltic Sea Strategy. 

ii)  Water management projects, to improve water quality, supply and sanitation, taking into 

consideration EU projects on environmental monitoring.  

iii) Environmental 

infrastructure  projects  supporting  nature  protection,  biodiversity 

conservation and land degradation, as well as the forestry sector. 

iv)  Infrastructure projects reducing air and noise pollution.  

v)  Other  environmental  infrastructure  projects  under  the  Northern  Dimension  and  in  the 

Black sea region or more generally benefiting from EU grant assistance. 

19 These Neighbourhood Policy documents, such as Strategies, Action Plans or Road Maps, provide a framework 
for the relations with partner countries in the ENPI Eastern Region. 
20 The EU is also interested in industrial projects, e.g. aiming at the reduction of air pollution or industrial waste, 
which falls within the usual remit of EBRD financing in the regions covered by the Commission-EIB-EBRD 
MoU. 

29

 
 
                                                 
Development of modern information and communication technologies and infrastructure is a 
particular  importance  for  the  development  of  democratic  societies  and  market  economies. 
Several  countries  in  the  Eastern  Neighbourhood  region  are  characterised  by  a  moderate 
mobile  and  fixed  line  penetration  and  low  broadband  internet  availability.  However,  the 
telecom  sector  has  proven  a  very  challenging  sector  in  the  Eastern  Neighbourhood  region 
considering the market structure and players and a deficient regulatory framework. 

The EIB should primarily focus its activities in the following areas: 

i) 

ii) 

iii) 

iv) 

Projects of investments in broadband infrastructure for fixed and mobile (3G and 4G) 
telecommunications. 

Investments  in  telecommunications  infrastructure  linked  to  stimulation  of  market 
liberalisation and competitiveness. 

Investments  in  transmission  networks  (notably,  cable  ducts  alongside  railroads  or 
pipelines or satellite links). 

Projects  favouring  investments  to  further  strengthen  global  partnerships  (notably,  to 
support science, technology and education networks). 

Reform and modernisation of the education sector is key to combating poverty, to promoting 
convergence  with  EU  standards  and  practice,  and  supporting  ENC’s  sustainable  economic 
growth  potential.  The  EIB  is  exploring  the  potential  to  support  investments  related  to  the 
education  infrastructure  (including  in  the  context  of  regional  initiatives)  under  the  general 
mandate,  provided  that  EIB  financing  of  such  projects  has  a  clear  added  value,  and  if  such 
projects meet the EIB’s requirements. A similar approach is applied for the health sector. 

Climate change mitigation and adaptation 

With climate change financing only representing 11% of EIB financing under the mandate in 
the Eastern Neighbourhood and Russia in 2010-2011, the Bank is expected to gradually step-
up its activity in this sector for the remaining of the mandate period. 

As far as EIB financing climate action in the region is concerned, it should actively support 
national climate change strategies (mitigation and adaptation) of the respective countries, and 
should seek cooperation with other international organisations active in this field, such as the 
EC  and  the  EBRD.  Key  focus  areas  should  include:  energy  efficiency;  renewable  energy; 
research  and  innovation;  sustainable  transport;  urban  infrastructure;  water;  landfill  upgrade 
projects with landfill gas capture; protection and improvement of natural forests;  adaptation 
measures and carbon markets. Among those, energy efficiency; renewable energy; sustainable 
transport; urban infrastructure, and water are viewed as high priorities by the ENCs. 

Activities should also aim at supporting the establishment of the enabling conditions to invest 
in  more  sustainable  and  resource  efficient  production  processes  in  industry,  constructions, 
agriculture  and  food  processing,  which  is  often  involving  the  private  sector.  Companies  are 
aware  of  the  necessity  of  improving  the  environmental  performance  of  their  operations  and 
production processes but many of them cite the lack of financial resources for environmental 
investments  and  overall  regulatory  and  policy  uncertainty  as  a  primary  constraints  for 
adopting  more  sustainable  production  methods.  Access  to  affordable  financing  and 
appropriate technology and management systems are then needed to start a virtuous cycle of 
sustainable  production  investments,  while  overall  policy  and  fiscal  frameworks  can  provide 
the enabling conditions to encourage green private investment. 

30

 
 
At  the  same  time,  afforestation,  prevention  of  forest  fires  and  water  basin  management 
coupled with erosion control and biodiversity will gain in importance also within the climate 
change debate.  EIB should support projects implemented in these areas.  

3) Operational focus in Russia 

The  Bank's  operational  remit  in  Russia  is  the  same  as  in  the  EN  countries.  The  operational 
focus in Russia will therefore be largely aligned to the areas presented above for the Eastern 
Neighbourhood, but also supporting the priorities of EU Strategic Partnership with Russia. To 
that effect, priority should  be given to areas defined under the EU-Russia P4M, comprising 
energy  security,  sustainability,  research  and  innovation  and  technology  co-operation,  cross 
border  cooperation,  as  well as  to  projects  developed  in  the  context  of  the  relevant  Northern 
Dimension initiatives (NDEP and NDPTL) and to climate action projects. 

The Bank should pay a particular attention to avoid engaging in projects that are not in line 
with Russia's WTO obligations or the bilateral agreements signed between EU and Russia at 
the occasion of Russia's closure of WTO negotiations or where Russia continues protectionist 
and trade-distorting measures. 

31

 
 
4. EIB Financing in Asia and Latin America 

4.1 General context 

1) General context in Asia 

Asia comprises high-income industrialised partners and dynamic emerging economies but is 
also home to two thirds of the world's poor. Development cooperation therefore remains high 
on the EU's agenda with Asia, and more than EUR 5bn have been allocated to Asia for the 
period 2007-2013 as reflected in the EU Regional Strategy 2007-2013 (reviewed in 2010)21. 
Policies are being put in place jointly to address common challenges, such as climate change, 
sustainable development, water resource management, security and stability, governance and 
human rights, as well as the prevention of, and response to natural and human disasters. 

The  EU  is  stepping  up  its  support  to  regional  integration  through  the  Asia-Europe  Meeting 
(ASEM),  and  intensifying  cooperation  with  the  Association  of  South-East  Asia  Nations 
(ASEAN), the ASEAN Regional Forum (ARF) and the South Asian Association for Regional 
Cooperation (SAARC). 

2) General context in Central Asia  

The political system in Central Asia stays stable in spite of political events in the Middle East. 
The EU has strengthened its relationship with the Central Asian countries since the adoption 
of “The EU and Central Asia: Strategy for a New Partnership”22 by the European Council in 
June 2007 (Central Asian countries: Kazakhstan, Kyrgyz Republic, Tajikistan, Turkmenistan, 
Uzbekistan). The strategy strengthens relations in all areas of cooperation, including through 
the  reinforcement  of  EU-Central  Asia  political  dialogue  with  regular  meetings  of  EU  and 
Central Asian Foreign Ministers, reinforcement of dialogue on human rights, cooperation in 
the  areas  of  education,  rule  of  law,  energy and  transport,  environment  and  water,  common 
threats  and  challenges  (including  border  management  and  combating  drug  trafficking),  and 
trade  and  economic  relations.  The  strategy  is  supported  by  a  significant  increase  in  EU 
assistance. 

The EU and Central Asian countries have since confirmed their commitment to the strategy, 
and it is well under way. The EU most recently reviewed the state of implementation of the 
Central Asia Strategy in a Progress Report in June 201223. The Delegations of the European 
Commission 
three  official 
to  Kazakhstan,  Kyrgyz  Republic and  Tajikistan  are 
representative offices of the European Commission to these three central Asian states. 

the 

3) General context in Latin America 

The European Union and Latin America have enjoyed a Strategic Partnership since the first 
bi-regional Summit in Rio de Janeiro (Brazil) in 1999. They are natural allies linked by strong 
historical,  cultural  and  economic  ties.  They  co-operate  closely  at  international  level  and 
maintain an intensive political dialogue at all levels - regional, sub regional (Central America, 
Andean Community and Mercosur) and also more and more at bilateral level. 

21 http://eeas.europa.eu/asia/rsp/07_13_mtr_annex_en.pdf 
22 http://eeas.europa.eu/central_asia/docs/2010_strategy_eu_centralasia_en.pdf 
23 Council conclusions on Central Asia. Foreign Affairs Council meeting of 25 June 2012 

32

 
 
                                                 
EU  policy  priorities  towards  Latin  America  are  defined  in  the  Communication  "EU-Latin 
America:  Global  players  in  Partnership"24 that  updates  the  Communication  on  a  "Stronger 
the  European  Union  and  Latin  America" 25 .  Issues  such  as 
Partnership  between 
macroeconomic  and  financial  matters;  environment,  climate  change  and  energy;  science, 
research  and  technology;  migration;  and,  finally,  employment  and  social  affairs;  figure 
prominently in bi-regional dialogues. 

The  regional  strategy  paper  2007-2013  defines  the  specific  areas  for  regional  development 
cooperation programmes while country and sub-regional strategy papers identify the areas for 
bilateral  and  sub-regional  cooperation.  For  the  2007-2013  period,  overall  EU  assistance 
amounts to around EUR 3bn, while for  the  same period the EIB is authorised to lend up to 
EUR 2.8bn. 

The EU is the leading investor in the region and the second trading partner of Latin America.  

4.2 Regional macroeconomic situation / business climate situation 

1) Macroeconomic situation/ business climate in Asia 

Global uncertainty has cast a shadow over Asian economies with deterioration in business and 
consumer sentiments and a negative reaction in the financial market. Growth in Asia has been 
revised down in 2011to 5.9% mainly due to weaker external demand and it is projected at 6% 
in 2012 before gradually recovering to 6.5%  in 2013. Domestic demand has been generally 
resilient and overheating pressures have remained elevated in certain economies, with credit 
growth  still  robust  and  inflation  rates  relatively  high.  Risks  for  Asia  are  tilted  to  a  further 
downturn  in  Europe.  Asia  is  one  of  the  world’s  most  trade-dependent  regions  and  it  is 
expected  only  a  relatively  soft  demand  for  its  exports.  Besides,  recent  stresses  in  several 
regional financial markets have suggested that financial channels of contagion also pose a risk. 
Events  in  the  euro  zone  in  late  2011  have  created  a  global  aversion  to  risk  and  a 
corresponding sharp decline in Asian stock markets. Further financial turmoil in the euro zone 
would  likely  have  an  impact  on  Asia  by  reducing  access  to  credit.  Eurozone  banks  are  an 
important  source  of  funding  for  many  Asian  banking  systems  and  play  a  crucial  role  in 
providing trade credit. But Asian banks are generally in good financial health and many large 
Asian banks have sufficient capacity to step in as Eurozone banks deleverage.  

The downside risks to growth amid persistent overheating pressures confront Asian 
policymakers with a difficult dilemma, as they need to guard against risks to growth but also 
limit the adverse impact of continued easy financial conditions on inflation and balance sheet 
in certain economies.  
There is room for manoeuvre but less than at the outset of the global financial crisis in some 
countries. Some economies have already started monetary easing. Fiscal policy consolidation 
could  be  appropriately  delayed  if  external  demand  were  to  collapse,  especially  where  low 
levels  of  public  debt  afford  space  for  measures.  Asian  economies  can  also  use  a  set  of 
additional  measures,  as  many  did  in  response  to  the  global  crisis  in  2008.  For  example,  in 
order  to  maintain  critical  flows  of  credit,  liquidity  guarantees  may  be  needed  for  certain 
banking  systems.  Moreover,  the  region  has  large  accumulated  foreign  exchange  reserves, 
which  could  be  drawn  down  to  smooth  the  impact  on  economic  activity.  Structural  reforms 
are needed to sustain Asia's economic dynamism and reduce vulnerabilities to external shocks. 
The  challenges  vary  widely  across  countries.  In  China,  further  actions  are  needed  for  a 

24 COM(2009) 495/3 
25 Com (2005) 636 final 

33

 
 
                                                 
sustained  rebalancing  of  growth  away  from  investment  and  exports  toward  private 
consumption. These include reform and liberalization of the financial system, fiscal support to 
household  consumption,  and  a  further  expansion  of  the  social  safety  net.  In  Korea, 
productivity  gains  in  the  service  sector  should  be  targeted,  and  many  countries  within  the 
Association  of  Southeast  Asian  Nations  should  focus  on  infrastructure  investment  to  boost 
potential growth. Besides, structural reforms are also needed to make growth more inclusive. 
Despite notable progress in reducing poverty, income inequality has increased in most of Asia 
over the last two decades.  

2) Macroeconomic situation/ business climate in Central Asia 
The  recovery  continued  across  the  Central  Asian  region  in  2011  supported  by  robust 
commodity exports and remittance inflows. The growth outlook is largely positive but subject 
to  downside  risks.  For  the  oil  and  gas  exporters  (Kazakhstan,  Turkmenistan,  Uzbekistan), 
IMF forecasts growth of 6-7% for 2012-13, supported by high oil and gas prices. For the oil 
and gas importers (Kyrgyz Republic, Tajikistan), the IMF estimation for 2012 growth is at 5-
6%, supported by a continued growth in Russia. A downside risk to this forecast relates to the 
uncertainties over the global environment. The growth prospects of Central Asia oil and gas 
importers  are  particularly  vulnerable  to  growth  deterioration  in  Russia  which  would  be 
adversely impact on their economies through reduced trade and remittance flows.  

With  the  uncertain  global  environment,  Central  Asian  oil  and  gas  importers  should  aim  at 
restoring  fiscal  buffers  and  strengthening  fiscal  sustainability  against  future  shocks.  Oil 
exporters could use a positive momentum for improving the quality and efficiency of public 
spending.  Preserving  flexible  exchange  rates  and  continuing  with  structural  reforms  would 
improve  the  competitiveness  and  limit  external  vulnerabilities  of  Central  Asian  economies. 
Uzbekistan needs to follow prudent monetary policy as double-digit inflation rates constitute 
a threat to its macroeconomic stability. Kazakhstan,  Kyrgyz Republic and Tajikistan should 
address the issues of nonperforming loans which impair bank lending and limit the growth of 
domestic demand.  

Job  creation  and  achieving  of  inclusive  and  sustainable  growth  are  the  main  challenges  for 
Central Asia over the medium term. The reform agenda should support policies that improve 
the  business  environment  and  transparency;  guarantee  equal  access  to  public  services; 
enhance  governance  and  institutional  quality;  support  regional  trade  integration;  and  tackle 
skill  mismatches.  Business  environment  varies  across  the  region  with  the  Kyrgyz  Republic 
and Kazakhstan being more advanced while the other three countries, notably Turkmenistan, 
rank  at  the  bottom  in  terms  of  the  World  Bank  Doing  Business  indicator.  The  common 
problems relate to the state dominance in the economy, dependency on several commodities 
and  remittances,  underdeveloped  banking  system  and  low  level  of  financial  intermediation. 
Further  reform-efforts  are  needed  to  modernise  public  infrastructure,  notably  energy  sector, 
reinvigorate  trade  and  private  investment  which  would  contribute  to  the  diversification  of 
their sources of growth. 

3) Macroeconomic situation/ business climate in Latin America 

Latin America has surpassed expectations after the crisis and GDP is projected to have grown 
by  4.4%  in  2011.  Market  expectations  are  for  relatively  solid  economic  growth  of  3.6%  in 
2012.  The  growth  performance  has  been  supported  by  strong  domestic  demand,  capital 
inflows and prices of raw material remaining at elevated levels. In 2012, economic growth is 
expected  to  moderate  on  slower  global  growth  and  spill-overs  from  advanced  economies. 
Latin  America  is  expected  to  grow  by  3½  %  in  2012.  Still,  the  on-going  integration  in  the 

34

 
 
world  economy  by  itself  and  the  domestic  structural  changes  are  supportive  of  economic 
growth.  Softening  exports  to  advanced  economies  are  expected  to  be  partly  offset  by 
continued  demand  for  commodities  from  emerging  economies,  a  more  accommodative 
domestic  policy  stance  and  domestic  demand.  Local  financial  conditions  are  likely  to  be 
supported  by  a  generally  improving  assessment  of  creditworthiness  as  evidenced  in  the 
improving  credit  ratings.  Still,  the  economic  woes  of  advanced  economies  weigh  on  the 
economic outlook mainly through increasing global risk aversion.  

The more positive data from the US and dissipating fears of another recession bode well for 
the whole region in particular for Mexico and Central America, which are more closely linked 
to the US business cycle. Domestic demand is expected to wane from the surprisingly good 
performance in 2011. The limited growth of consumer credit in Mexico and the inching down 
of  consumer  confidence  are  part  of  the  reason  for  this  relatively  timid  development  of 
domestic demand in comparison to other Latin American economies. 

Policy  tightening  in  the  first  half  of  2011  combined  with  a  weakening  global  momentum 
slowed  down  the  Brazilian  economy  in  the  second  half  of  2011.  However,  the  drivers  of 
growth  over  the  past  two  years  -  foreign  demand  for  its  commodities  as  well  as  robust 
domestic  private  demand  -  are  expected  to  ensure  the  GDP  expansion  of  just  above  3%  in 
2012.  Going  further  into  2012  and  2013,  growth  will  receive  additional  stimulus  from 
renewed  expansionary  fiscal  policy  (presidential  elections,  world  soccer  championship)  and 
investment  (development  of  new  oil  fields).  Import  growth  is  expected  to  exceed  export 
growth as a consequence of relatively strong domestic demand developments. 

The growth of the Argentine economy in 2011 has been revised upwards to 7.5%, backed by 
expansionary fiscal and monetary policies especially in the third quarter of the year. Growth 
is  estimated  to  decelerate  to  around  4%  in  2012  and  2013  due  to  higher  interest  rates,  a 
deterioration  of  the  global  environment,  a  slowdown  of  the  Brazilian  economy  and  less 
expansionary  fiscal  and  monetary  policies.  Official  figures  set  consumer  price  inflation  at 
9.8%  while  private  estimates  record  figures  above  24%.  The  growth  in  imports  outpaces 
growth  in  exports.  The  reserve  coverage  will  be  weakened  by  the  Government's  use  of 
reserves to shield the peso and to repay external debt. 

4.3 Brief overview of EIB activity to-date 

The  ceilings  of  the  general  mandate,  the  Climate  Change  Mandate  and  the  Energy 
Sustainability and Security of Supply Facility (ESF) are outlined in the following table. 

ALA envelopes and commitments as at the end of 2011 (in EUR mn)  

Committed 

Ceiling  and Utilisation 

General 
Mandate 

ESF* 

CCM 

Latin 
America 

Asia (incl. 
Central 
Asia) 

China 

1,991 

879* 

779 

200* 

59 

1,309* 

Total ALA 

2,829 

2,388* 

0 

0 

0 

0 

General 
Mandate 
(Decision 
1080/2011/EU) 

% 

ESF and 
CCM (as 
per EIB 
Board 
decision) 

% 

2,912 

68% 

2,050 

43% 

1,040 

75% 

(ex-China) 

10% 

- 

- 

1,500* 

3,952 

72% 

3,550 

87% 

67% 

35

 
 
  
  
* At EIB own risk.  

1) EIB activity in Asia  

Sector (2007-11 in EUR mn) 

Mandate 

% 

Facility 

Others 

Agriculture, fisheries, forestry 

Energy 

Industry 

Transports 

Grand Total 

130 

59 

268 

100 

223 

779 

17% 

8% 

34% 

13% 

29% 

29 

109 

986 

135 

- 

% 

2% 

9% 

78% 

11% 

0% 

Total 

159  

169  

1,254  

235  

223  

% 

8% 

8% 

61% 

12% 

11% 

100% 

1,259 

100% 

2,039  

100% 

Mandate 

38% 

Facility 

62% 

The revised General Mandate for the period 2007-2013 has an envelope of EUR 1,040mn for 
Asia. In addition, it is estimated that up to 30% of the additional EUR 2bn for global climate 
action could be allocated to Asia and Latin America. Thirdly, it should be recalled that Asia 
can benefit from part of the EUR 4.5bn available under the Energy Sustainability and Security 
of Supply Facility (ESF) 26.  

For the period of 2007-11 and in line with the EU high-level objectives and regional priorities, 
the sector focus of the Bank financing under EU guarantee in Asia has been mainly on energy 
and  transport,  and  besides  this,  on  industry,  forestry  and  global  loans.  The  energy  sector 
accounted  for  the  largest  share  of  activities  by  investment  value,  also  reflecting  the  strong 
demand  for  renewable  energy  projects.  A  large  portion  of  the  activities  also  supported  EU 
presence  through  financing  of  Foreign  Direct  Investment,  transfer  of  technology  and 
knowhow  from  Europe.  In  the  last  years,  there  has  been  a  drive  to  focus  even  stronger  on 
projects which contribute to climate change mitigation and adaptation. For the period 2010-

26 EIB internal regulations set lending ceilings of EUR 2,05bn under the Climate Change Mandate and ESF 
combined for the whole of the Asia and Latin America region (excluding China), plus EUR 1,5bn to China under 
the ESF. 

36

 
 
  
  
  
  
  
  
  
 
 
 
 
 
 
                                                 
2011,  almost  all  of  EIB  lending  in  Asia  was  classified  as  Climate  Action  (mitigation  and 
adaptation). 

As required by Decision 1080/2011/EU, the Bank seeks to prioritize the use of resources so as 
gradually to increase the number of countries where investments are carried out. To achieve 
this,  the  Bank  focuses  the  use  of  the  EU  guarantee  on  less  prosperous  countries  where  it  is 
needed  to  make  projects  financially  viable.  Own  risk  operations  have  been  carried  out  in 
investment-grade countries and/or private sector structures where the financial value added of 
the Political Risk Guarantee is low, in order to focus the EU guarantee on operations where its 
value added is higher . In terms of country distribution over the period 2007-2011, as regards 
EIB  overall  lending  (including  mandate  and  own  risk  operations),  China  accounts  for  the 
largest  share  of  loans  in  Asia  (45%)27 followed  by  India  (12%),  Viet  Nam  (11%)  and  other 
countries  (between  5%-10%:Indonesia,  Philippines,  Pakistan;  less  than  5%:  Sri  Lanka, 
Thailand,  Bangladesh,  Laos,  Maldives).    Good  prospects  exist  for  signing  framework 
agreements  with  Iraq  and,  especially,  Cambodia  in  the  foreseeable  future.  As  at  the  end  of 
2011, 30% of lending in Asia had benefitted the private sector and 70% the public sector.  

2) EIB activity in Central Asia 

Central  Asia  became  eligible  for  EIB  operations  with  an  EU  guarantee  pursuant  to  Council 
Decision  of  4  November  2008  (2008/847/EC)  “on  the  eligibility  of  central  Asian  countries 
under Decision 2006/1016/EC granting a Community guarantee to the European Investment 
Bank against losses under loans and loan guarantees for projects outside the Community”. 

The 2008 Council Decision was confirmed by the European Parliament and the Council in the 
decision  633/2009/EC  of  13  July  2009  which  stated  as  follows:  “In  Central  Asia,  the  EIB 
should  focus  on  major  energy  supply  and  energy  transport  projects  which  also  serve 
Community  energy  interests  and  are  consistent  with  and  support  the  Community  policy 
objectives  of  diversification  of  energy  sources  and  the  Kyoto  requirements,  and  of 
enhancement of environmental protection.”  

At  present  the  EIB  activity  in  Central  Asian  countries  has  been  launched  in  Tajikistan  and 
Kazakhstan, with the respective Framework Agreements signed in February 2009 (ratified in 
October 2009) and April 2010 (ratified in November 2010). The EIB has pursued its efforts 
towards setting up the institutional framework of its potential activities (i.e., the signing of the 
respective FWAs) in Kyrgyzstan, Turkmenistan and Uzbekistan, but the eventual outcome of 
these  efforts  will  depend  on  the  political  situation  and  the  willingness  of  these  countries  to 
sign. 

The potential EIB lending activity in the region under the Mandate is currently limited under 
EIB internal rules to EUR 100mn for Central Asia out of the total EUR 1bn available for Asia 
under the general mandate. Central Asian countries are also eligible for EIB lending under the 
EUR  2bn  Climate  Change  Mandate  and  the  EIB’s  EUR  4.5bn  own  risk  Facility  for  Energy 
Sustainability  and  Security  of  Supply  (ESF).  As  at  the  end  of  2011,  two  operations  were 
signed in Tajikistan. 

27 96% of lending in China has been carried out at the Bank’s own risk. 

37

 
 
                                                 
3) EIB activity in Latin America 

Sector (2007-11 in EUR mn) 

Mandate 

Others 

Energy 

Industry 

Telecommunications 

Transports 

Grand Total 

% 

4% 

18% 

23% 

36% 

19% 

Facility 

3 

875 

2 

- 

- 

% 

0% 

Total 

80  

99% 

1,234  

0% 

0% 

0% 

451  

719  

387  

% 

3% 

43% 

16% 

25% 

13% 

77 

359 

449 

719 

387 

1,991 

100% 

879 

100% 

2,870  

100% 

Mandate 

69% 

Facility 

31% 

The revised General Mandate for the period 2007-2013 has an envelope of EUR 2,912mn for 
Latin  America.  In  addition,  it  is  estimated  that  up  to  30%  of  the  additional  EUR  2bn  for 
global  climate  action  could  be  allocated  to  Asia  and  Latin  America.  Thirdly,  it  should  be 
recalled that Latin America can benefit from the Energy Sustainability and Security of Supply 
Facility (ESF) 28.   

For the period of 2007-11, the sector focus of the Bank financing under EU guarantee in Latin 
America  has  been  mainly  on  telecommunications  (predominantly  in  Brazil),  industry, 
transport  and  energy.  A  large  portion  of  the  activities  also  supported  EU  presence  through 
financing of Foreign Direct Investment, transfer of technology and knowhow from Europe. Of 
late there has been a drive to focus primarily on projects which contribute to climate change 
mitigation  and  adaptation,  mainly  in  the  transport  and  energy  sectors.  For  the  period  2010-
2011, Climate Action lending (mitigation and adaptation) represented 57 % of EIB lending in 
Latin America.  

28 EIB internal regulations set lending ceilings of EUR 2,05bn under the Climate Change Mandate and ESF 
combined for the whole of the Asia and Latin America region (excluding China).  

38

 
 
  
  
  
  
  
  
  
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                 
In Latin America, the Bank seeks to prioritize the use of resources so as to gradually increase 
the number of countries where investments are carried out. To achieve this, the Bank focuses 
the use of the EU guarantee on less prosperous countries where it is needed to make projects 
financially  viable.  Own  risk  operations  have  been  carried  out  in  investment-grade  countries 
and/or  private  sector  structures  where  the  financial  value  added  of  the  Political  Risk 
Guarantee is low, in order to focus the EU guarantee on operations where its value added is 
higher.  

In  terms  of  country  distribution  over  the  period  2007-2011,  as  regards  EIB  overall  lending 
(including  mandate  and  own  risk  operations),  Brazil  accounts  for  the  largest  share  of  loans 
(48%)29 in  their  respective  regions,  followed  by  Argentina  (13%),  Panama  (12%),  Mexico 
(7%)  and  the  other  countries  (all  less  than  5%).  As  at  end  2011,  89%  of  lending  in  Latin 
America had benefitted the private sector and 11% the public sector.  

4.4 EIB contribution to EU regional policy framework, including cooperation with the 
COM, the EEAS and with other IFIs 

Cooperation with the Commission 

Cooperation with the European Commission is instrumental for the Bank's activities in Asia, 
Central Asia, and Latin America. Key countries in the region have a great relevance for the 
EU  both  from  policy  and  economic  standpoint.  The  EU  has  Association  or  Strategic 
Partnership  Agreements  in  place  with  Mexico,  Chile,  Brazil,  China  and  India;  others  are 
under negotiation. For Assistance to Central Asia, the EU’s Regional Strategy Paper for the 
period  2007-2013  sets  up  the  framework  of  the  cooperation  between  the  EU  and  the  five 
Central Asian countries, which is complemented by the EU and Central Asia: Strategy for a 
New  Partnership”  by  the  European  Council  in  June  2007  and  the  Progress  Report  of  June 
2012. All of the mentioned agreements and strategies are generally in line with the focus of 
the EIB operations as outlined in the previous section. With its drive towards an even stronger 
focus  on  climate  action  operations,  the  EIB  intends  to  concentrate  on  the  area  with  a 
particularly  high  relevance  in  the  regional  EU  policy  frameworks,  given  the  fact  that  the 
region includes some of the world’s largest green-house gas emitters.  

Also relevant in the context of EU policy frameworks are the regional investment facilities by 
the  EC,  which  provide  financial  contributions  to  support  loans  from  EIB,  EBRD  and  other 
European multilateral and national development finance institutions. The EIB is participating 
in  the  regional  blending  mechanisms  (Investment  Facility  for  Central  Asia  (IFCA),  Latin 
America Investment Facility (LAIF) and Asia Investment Facility (AIF)).  

The IFCA's main purpose is to promote additional investments and key infrastructures with a 
priority  focus  on  energy,  environment  and  climate  change,  transport,  SMEs  and  social 
infrastructure sectors. The EC allocations for IFCA amount to EUR 20mn in 2011 and EUR 
25mn  in  2012.  The  LAIF  and  AIF  have  similar  sectoral  priorities  as  IFCA,  which  shows  a 
great synergy to the focus sectors of EIB operations.  

In addition, the EIB has established an excellent cooperation with EU Delegations in many of 
the countries covered by the mandate. This cooperation offers valuable local insights for the 
planning  and  execution  of  EIB  lending  operation  in  a  number  of  countries.  Close 
collaboration with the EC and the local EEAS delegations is a vital ingredient of the Bank's 
working  arrangements.  In  addition  to  providing  substantive  and  logistical  support  to  EIB 

29 In Brazil, 34% of lending has been carried at the Bank’s own risk. 

39

 
 
                                                 
missions, this promotes synergy, shared know-how, and ultimately allows the EIB to support 
EU objectives and achieving lending targets in a more efficient way.  

Cooperation with other IFIs and BFIs 

Overall,  since  1993,  well  over  a  quarter  of  the  projects  approved  by  the  EIB  has  seen  the 
participation of one or more of the IFIs and EU bilateral FIs. EIB closely cooperates with the 
other IFIs operating in the countries covered by the mandate, in particular with EBRD in line 
with  the  Memorandum  of  Understanding  signed  between  the  EIB,  EBRD  and  the 
Commission  on  1  March  2011.  It  is  noted  that  the  first  EIB  operation  in  Tajikistan  is  co-
financed with EBRD. The EIB has traditionally worked very closely with other IFIs such as 
the World Bank Group, the Asian Development Bank and the Inter-American Development 
Bank,  with  which  it  shares  very  similar  project  due  diligence  procedures  and  performance 
standards.  

The  EIB  also  works  closely  with  EU  bilaterals  such  as  KfW  and  AFD  with  which  it  has 
recently signed a framework on mutual reliance. Mutual reliance is expected gradually to lead 
to additional investments by promoting a more efficient allocation of workload and resources 
among co-financiers.  

4.5 Operational focus for the remainder of the mandate period 

1) Operational focus in Asia 

Local private sector development, in particular support to SMEs 

The EIB will give priority to projects to local private sector projects (notably SMEs) which 
have  a  high  relevance  with  regards  to  EU  objectives,  strategies  and  national  priorities. 
Additional value would be derived from a ‘pro poor’ focus, increased efficiencies through the 
cooperation with other IFIs/Bilateral FIs, the use of blending as an innovative way of using 
public funds30, or the provision of guarantees to leverage private capital.   

Development of social and economic infrastructure  

The EIB’s financing of social and economic infrastructure will focus primarily on energy and 
associated  infrastructure  as  well  as  environmental  infrastructure,  including  water  and 
sanitation. Other sectors such as sustainable transport may be considered but must have direct 
climate mitigation, adaptation or environmental benefits or a particularly high relevance with 
regards  to  EU  objectives,  strategies  and  national  priorities.  Despite  the  region’s  vast  needs 
and the EU interests, volumes for economic infrastructure, especially beyond climate action 
operations, will be limited due to resource constraints.  

Climate change mitigation and adaptation 

With Asia being accountable for more than 40% of the world’s CO2 emissions, climate action 
constitutes the overwhelming operational focus of the Bank in the region. The region’s Green 
House  Gas  (GHG)  emissions  are  dominated  by  energy  use  in  China  (the  world’s  largest 
carbon  emitter),  changes  in  land  use  in  Indonesia  (the  world’s  fifth  largest  emitter  due  to 
massive deforestation), and the rapid industrialization of the Indian sub-continent (India is the 
world  3rd  largest  emitter  of  CO2  in  absolute  terms).  Across  Asia,  low  per-capita  emissions 

30 E.g. to facilitate local currency financing 

40

 
 
                                                 
reflect a reality of millions still with no access to electricity. A significant number of people 
and areas are highly vulnerable to the impacts of climate change because of their geographic 
exposure, low incomes, and greater reliance on climate sensitive sectors such as agriculture, 
forests and fisheries.   

In order to successfully pursue EU objectives in the region, the Bank intends to rely on two 
main product lines, as follows: 

•  Scaled-up  debt  financing  for  the  development  and  diffusion  of  low-carbon  technologies 

with significant potential for long-term, transformational GHG emission savings.   

This product would focus on: i) renewable energy installations, fuel switch to less carbon 
intensive  technologies,  and  single  to  combined-cycle  projects  in  the  power  sector,  and 
associated  infrastructure;  ii)  energy  efficiency  in  industry  and  buildings;  iii)  carbon 
sequestration through afforestation and reforestation; iv) urban transport projects, as well 
as environmentally sustainable railway infrastructure.  

The volume of operations in this segment will be conditioned not only by the availability 
of own EIB resources but also by the attractiveness of the terms at which the EIB will be 
able to lend to borrowers going forward.  

•  Blended products with a higher concessionality element suitable for smaller-scale projects 
that promote low-carbon climate-resilient growth in lower income countries or regions.   

Projects examples would include off-grid solar or biogas home systems for the rural poor; 
small  hydro  and  biomass  mini-grids;  flood  control,  drainage,  sanitation,  and  watershed 
management; small-scale afforestation and reforestation, etc. 

2) Operational focus in Central Asia 

The EIB’s sectorial guidelines and priorities in the region are aligned with the EU objectives. 
However, given the amounts available under the various Mandates and facilities for Central 
Asia,  EIB  lending  potential  is  quite  material  for  projects  that  contribute  to  climate  change 
mitigation  and  adaptation  under  the  Climate  Change  Mandate  and  the  ESF  (subject  to 
compliance  with  creditworthiness  requirements).  For  the  other  projects,  the  relatively  small 
amount available for Central  Asia under the general  mandate requires  strict prioritisation of 
EIB financing to the projects with the highest EU interest. 

Local private sector development, in particular SMEs 

This  is  a  new  general  objective  for  the  EIB’s  activities  in  the  Central  Asian  countries.  The 
access  to  credit  for  SMEs  remains  a  major  hurdle  for  the  further  development  of  the  SME 
sector, which would contribute to the inclusive sustainable economic and social development 
of the Central Asian countries. 

Therefore in the current context in the region, the EIB will aim at extending its support to the 
SME sector as one of the main priorities for the future. The EIB intends to actively cooperate 
with  local  financial  intermediary  institutions  (including  subsidiaries  of  EU  banks)  in  the 
Central Asian countries, and would ensure an effective transmission of the financial benefits 
of  Bank  lending  to  their  clients  and  to  provide  value  added  compared  to  other  sources  of 
finance. In this context, the financial intermediaries' activities in support of SMEs would be 
fully transparent and reported regularly to the EIB. Moreover, where appropriate, through its 
cooperation  agreements  with  those  intermediary  institutions,  the  EIB  would  request  that 

41

 
 
clients' projects are checked against agreed criteria in line with EU development goals so as to 
provide added value.  

It  is  expected  that  Kazakhstan,  with  its  relatively  developed  banking  sector  (including 
subsidiary banks of EU banks and an institution dedicated to supporting the development of 
SMEs  and  the  diversification  of  the  Kazakh  economy)  will  offer  good  potential  for  SME 
lending through intermediary banks. 

Development of social and economic infrastructure 

In  the  energy  sector,  where  Central  Asia  is  strategically  important  for  the  EU,  the  EIB  will 
continue to explore the potential for supporting the development of new oil, gas and hydro-
power  resources,  the  upgrading  of  the  existing  energy  infrastructure  as  well  as  the 
development of additional pipeline routes and energy transportation networks, under both the 
external  mandate  (including  Climate  Change  Mandate)  and  the  ESF.  Another  important 
objective  is  to  support  the  development  of  low  carbon  energy  projects  (notably  energy 
efficiency and renewable energy projects) which would be eligible under the Climate Change 
Mandate and the ESF. 

In  the  area  of  environmental  infrastructure,  the  EIB  will  aim  at  enhancing  its  cooperation 
with the EC to develop appropriate frameworks for facilitating the financing of water related 
infrastructure  projects  through  attracting  EIB’s,  other  IFIs’  and  public-private  partnership 
funds.  

In  the  transport  sector,  EIB  intends  to  focus  its  activities  in  the  following  areas  in  order  to 
support  progressive  integration  of  the  transport  markets  of  Central  Asian  and  ENPI  eastern 
countries,  the  gradual  approximation  with  the  EU’s  legal  framework  and  standards  and 
effective implementation of international agreements in the transport sector, including safety 
improvement  of  air 
and  security; 
communications,  aviation  safety  and  air  traffic  management,  and  of  maritime  and  aviation 
security  to  international  standards;  the  improvement  of  inland  waterway  transport;  and  the 
introduction of EU inter-modal concepts. 

improvement  of  rail  and  road  safety; 

the 

the 

Climate change mitigation and adaptation 

As  far  as  EIB  financing  climate  action  in  the  region  is  concerned,  key  focus  areas  include: 
renewable  energy;  energy  efficiency;  research  and  innovation;  sustainable  transport;  urban 
infrastructure;  water;  landfill  upgrade  projects  with  landfill  gas  capture,  adaptation 
investments  and  forestry.  Among  those,  energy  efficiency  investments  related  to  existing 
transport  (railway 
energy  networks  (electricity  and  gas  networks)  and  sustainable 
infrastructure  and  urban  transport)  are  viewed  as  high  priorities,  also  by  the  Central  Asian 
countries. Also, afforestation and water basin management coupled with erosion control and 
biodiversity gain in importance, also within the climate change debate, and can be targeted for 
EIB financing.   

42

 
 
3) Operational focus in Latin America for the remainder of the mandate period 

Local private sector development, in particular support to SMEs 

The EIB will give priority to local private sector projects (notably SMEs) which have a high 
relevance with regards to EU objectives, strategies and  national priorities.  Additional value 
would be derived from a ‘pro poor’ focus, increased efficiencies through the cooperation with 
other IFIs/Bilateral FIs, the use of blending as an innovative way of using public funds31, or 
the provision of guarantees to leverage private capital.  

Development of social and economic infrastructure  

The EIB intends to focus its activities in social and economic infrastructure as outlined in the 
following  section  with  strong  focus  on  energy  and  associated  infrastructure  as  well  as 
environmental  infrastructure.  Other  projects  need  to  have  direct  climate  mitigation  or 
environmental  benefits  or  a  particularly  high  relevance  with  regards  to  EU  objectives, 
strategies and national priorities. Projects responding to development objectives, for example 
in the area of social infrastructure, could also be considered. The EIB will also endeavour to 
strike  a  better  balance  regarding  countries'  participation  as  well  as  address  increasingly  the 
public sector. 

Although infrastructure is one of the main areas of expertise of EIB, current organisational 
setup in terms of restrained resources and limited lending volumes assigned to the region will 
likely imply modest results in this area, especially beyond climate action operations.  

Climate change mitigation and adaptation 

Strong growth rate over the last years have led to increased CO2 emissions and environmental 
problems  and  led  to  an  increased  importance  of  climate  change  mitigation  measures  to 
support  the  development  of  a  low  carbon  economy.  At  the  same  time,  a  huge  number  of 
people  and  areas  are  highly  vulnerable  to  the  impacts  of  climate  change  because  of  their 
geographic exposure, low incomes,  and greater reliance on climate sensitive sectors such as 
agriculture, forests and fisheries.   

In  order  to  successfully  pursue  EU  objectives  in  the  region,  the  Bank  intends  to  focus  in 
particular on operations in the following areas: 

•  Renewable  energy:  development,  grid  connection  and  back-up  of  renewable  energy 

sources, both large and small-scale, 

•  Energy efficiency (e.g. in industry, demand-side), 

•  Sustainable urban transport, as well as environmentally sustainable railway infrastructure, 

•  Environment: water, waste-water, solid waste and forestry (including carbon sequestration 

through afforestation and reforestation), 

•  Adaptation measures. 

31 E.g. to facilitate local currency financing 

43

 
 
 
 
                                                 
5. EIB Financing in South Africa 

5.1 General context 

Although  the  largest  African  economy  (accounting  for  one  third  of  Sub-Saharan  Africa's 
GDP),  South  Africa  still  faces  many  development  challenges,  not  least  in  fighting  AIDS, 
poverty and high unemployment. South Africa is the EU's 13th largest trade partner, while the 
EU  accounts  for  a  third  of  South  Africa's  trade  balance.  Two-way  trade  amounted  to  EUR 
39bn in 2010. 

EU-South African relations have flourished since 1994, and both sides entered in May 2007 
into  a  Strategic  Partnership,  the  sole  concluded  by  the  EU  with  an  African  country.  The 
Strategic  Partnership  has  two  strands:  enhanced  political  dialogue  and  cooperation  on 
regional, African and world issues, and stronger cooperation in a number of economic, social 
and other areas. The EU-South Africa political dialogue, which includes annual Summits and 
ministerial  level  meetings,  has  recently  been  focusing  on  issues  of  mutual  interest  such  as 
peace and security in Africa, global governance or Climate Change. The Strategic Partnership 
has  also  given  new  impetus to  cooperation  and  dialogue  in  a  broad  range  of  areas  from the 
environment, energy, space, transport or migration to education and research. 

South  Africa,  the  EU and  its  Member  States  have  drawn  up  a  joint  country  strategy  paper 
(CSP) guiding their development cooperation over the period 2007-13. Its main objective is to 
reduce  poverty  and  inequality,  while  promoting  social  stability  and  environmental 
sustainability  in  South  Africa.  Programs focus  on  employment  creation  and  capacity 
development  for  service  delivery  and  social  cohesion,  with  a total  indicative  budget  for  the 
seven-year  period  of  EUR  980m.  The  objectives  of  European  Union-South  Africa 
development  cooperation  remain,  as  in  the  past,  firmly  anchored  in  the  view  that  the  real 
value  added  of  ODA  is  not  the  finance  itself,  but  what  comes  with  it,  namely  value  added 
activities involving innovation, pilot programmes, capacity development, the sharing of skills 
and knowledge, and risk taking.  This value added approach to development cooperation lays 
emphasis  not  on  the  "heavy  lifting"  that  might  be  expected  of  ODA  in  other  countries,  but 
rather on a more focused approach which gives space to Government to identify value added 
activities, provides technical assistance in areas where this form of assistance is most valued, 
and complements these activities with support to civil society organisations. 

5.2 Regional macroeconomic situation / business climate situation 

Following a contraction of GDP by 1.5% in 2009, the South African economy recovered in 
2010 at rate of 2.9%. Growth in the fourth quarter of 2011 was 2.9% year-on-year, down from 
3.1% in the previous quarter and from 3.2% in the second quarter of 2011. The government 
forecasts a 3.1% growth in 2011, and 2.7% in 2012. Although economic growth is not strong 
enough  to  make  an  impact  on  the  high  unemployment  rate  (estimated  to  be  above  24%  in 
2011), higher salaries will support consumers' domestic demand.  

Inflation increased from 5.7% in September 2011 to 6.1% in December 2011, driven by the 
rise  in  food  prices  observed  globally,  fuel  and  electricity  prices,  and  wage  growth.  Annual 
average inflation was 5.0% in 2011. 

Monetary  policy  will  remain  focused  on  keeping  annual  inflation,  as  measured  by  the  CPI, 
within  the  official  target  range  of  3%-6%.  The  SARB  (South  African  Reserve  Bank's)'s 
monetary policy committee cut rates aggressively in 2009-10 and since then has kept an easy 
stance. The current repo rate is 5.5%, the lowest level for 40 years.  

44

 
 
According to the new budget plans, the government deficit is expected to be 4.6% of GDP in 
2012. The public debt burden will however remain below 50% of GDP.  

The current account deficit reached 2.9% of GDP in 2010 and is expected to widen to 3.3% of 
GDP in 2011 as imports grew faster than exports. The saving ratio is one of the lowest among 
Emerging  Market  Economies  (16.5%).  Higher  savings,  channelled  to  investments  and  the 
creation of better business environment (in order to attract more foreign direct investments) 
would greatly benefit the entire economy.  

5.3 Brief overview of EIB activity to-date 

Sector (2007-11 in EUR mn) 

Mandate 

Others 

Energy 

Global, Midcap, SME 

Industry 

Transports 

Urban infrastructure 

Water, sewerage 

Grand Total 

3 

40 

120 

50 

120 

150 

165 

648 

% 

0% 

6% 

19% 

8% 

19% 

23% 

25% 

Facility 

- 

50 

- 

- 

- 

- 

- 

% 

0% 

100% 

0% 

0% 

0% 

0% 

0% 

100% 

50 

100% 

Total 

3  

90  

120  

50  

120  

150  

165  

698  

% 

0% 

13% 

17% 

7% 

17% 

22% 

24% 

100% 

Mandate 

93% 

Facility 

7% 

The  EIB  has  been  active  in  the  South  Africa  since  the  country’s  transition  to  a  democratic 
government  in  1994.  Following  the  conclusion  of  the  EU-South  Africa  Trade,  Cooperation 
and Development Agreement, the EIB has been entrusted with four successive Mandates for a 
total lending volume of EUR 2.4bn (2.5bn including the additional climate action envelope). 
The current Mandate covers the period 2007 – 2013 and has a lending ceiling of EUR 936mn 
(up to EUR 1,090mn including the additional climate action envelope).  

EIB’s  lending  priorities  are  aligned  with  the  overriding  objectives  identified  in  the  CSP 
between  the  EU  and  South  Africa.  Implementation  of  the  mandate  in  South  Africa  is 

45

 
 
 
  
  
  
  
  
  
 
 
 
 
 
proceeding in line with these objectives. Private Sector support plays an important role, while 
in the infrastructure area, the main sectors receiving support were water, urban development 
and transport. Energy sector projects were mainly carried out under own-risk facilities (being 
the  only  sector  supported  by  these  facilities).  For  the  period  2010-2011,  Climate  Action 
lending (mitigation and adaptation) was 23 % of EIB lending in South Africa. 

In addition to the activity under the mandate in South Africa, a EUR 50mn loan was recently 
approved  outside  the  mandate  envelope  under  EIB’s  Facility  for  Energy  Sustainability  and 
Security of Supply.  

5.4 EIB contribution to EU regional policy framework, including cooperation with the 
COM, the EEAS and with other IFIs 

With  GDP  per  capita  of  around  USD  7,300  (10,500  at  PPP), South Africa is classified as a 
middle-income  economy.  However,  apartheid  gave  rise  to  one  of  the  most  unequal  and 
racially segregated societies in the world. In addition, 43% of the population lives on less than 
two  dollars  a  day  and  5.7  million  people  out  of  a  49-million  population  are  infected  with 
HIV/AIDS. Social and development challenges remain daunting, with unemployment at 25% 
of  the  labour  force,  acute  income  disparities  and  limited  access  to  basic  services  for  the 
poorest segments of the population.  

In  this  context  and  in  line  with  the  CSP,  priority  shall  be  given  to  projects  that  have  a 
significant development and social impact while contributing to increase the growth potential 
of  the  country  and  the  region.  Special  regard  should  continue  to  be  given  to  the  historical 
disparities  between  different  segments  of  the  population  and  the  need  to  improve  the  living 
conditions and economic empowerment of historically disadvantaged persons. 

The  EIB  cooperates  closely  with  the  European  Commission  in  South  Africa.  Regular 
coordination  meetings  on  country  strategy  and  operational  issues  are  held  between  the  EU 
Delegation in South Africa and EIB’s Regional Representation  

The  EIB  has  also  cooperated  very  successfully  with  the  Commission  on  the  design  and 
implementation of  the two Risk Capital Facilities for South African SMEs in the context of 
South Africa’s Black Empowerment Strategy (RCF I and II). The EIB is currently involved in 
the consultations regarding the design of the envisaged blending mechanism for South Africa 
(Investment Programme for South Africa). 

In South Africa, the EIB also works very closely with EU bilaterals such as AFD and KfW, 
including  under  the  MRI.    Joint  documentation  for  the  funding  of  a  major  water  supply 
project in South Africa, a MRI pilot project under EIB lead, was signed in 2011.  

Regular  contacts  are  kept  with  other  IFIs  on  the  ground,  like  the  World  Bank  and  African 
Development  Bank  both  for  co-financing  specific  projects  (i.e.  Eskom  Renewable  projects) 
and for sectoral or strategic discussions.  

5.5 Operational focus for the remainder of the mandate period 

The Bank’s South African rand (ZAR) funding programme has been very successful and the 
possibility of ZAR disbursements for long maturities and at currently still attractive rates adds 
significant  value  to  the  Bank’s  financing  in  South  Africa.  It  is  therefore  expected  that  an 
important share of EIB lending in the below sectors will continue to be in ZAR. 

46

 
 
 
 
Local private sector development, in particular support to SMEs 

EIB should continue to support the local private sector in South Africa, either directly or in 
cooperation  with  local  financial  intermediaries  (commercial  banks  or  development  finance 
institutions).  In  line  with  the  specific  lending  objectives  for  South  Africa  mentioned  in  the 
Decision  and  the  renewable  energy  investment  programme  of  the  Government  of  South 
Africa  –  which  aims  at  increasing  the  share  of  renewable  energy  to  15%  of  electric  power 
generation by 2020 and at the same time stimulating the local economy - the focus of EIB’s 
activity in this area shall be support to renewable energy and energy efficiency projects (see 
also point 3 below).  

Development of social and economic infrastructure 

Particular  attention  should  be  paid  to  support  for  improved  municipal  infrastructure  and 
delivery of basic services.  

Furthermore  the  EIB  should  continue  to  focus  on  economic  infrastructure  projects  in  areas 
with a positive contribution towards climate action, like renewable energy, energy efficiency 
and urban infrastructure investments (see next section). 

Following  the  successful  implementation  of  EIB’s  first  affordable  and  social  housing 
programme  in  South  Africa,  further  support  to  this  key  sector  could  be  envisaged. 
Consideration should also be given to the possibility of contributing to improved health and 
education infrastructure.  

Climate change mitigation and adaptation 

As mentioned above, a significant share of EIB financing in South Africa for the period 2012-
2013 should be provided for projects that support climate change mitigation and adaptation.   

Respective  initiatives  of  the  South  African  Government  include  the  renewable  energy 
investment programme (IPP Procurement Programme), the SARi (South African Renewables 
Initiative  and  the  GFM  (Green  Financing  Mechanism).  EIB’s  activity  in  the  country  should 
thus  focus  on  renewable  energy,  energy  and  water  efficiency  and  urban  infrastructure 
investments carried out by both public and private sector developers. In addition, since South 
Africa is expected to experience more extreme weather impacts due to climate change in the 
future, adaptation measures will become increasingly important as part of the climate action 
portfolio. 

47