Banking on development? The rise of the EIB as a development bank
On 1 January a new development branch of the European Investment Bank (EIB) went into operation. This was approved by the bank’s Board of Directors in September 2021, following relatively limited conversations on how to improve the European architecture for development. This branch aims to reorganise the EIB’s activities outside the European Union and enhance engagement with external partners through the provision of targeted strategies and services.
While information in the public domain on the new branch is still very limited, this week EIB President Werner Hoyer participated in a session at the European Parliament, intended to analyse this crucial move for EU development policies. However, there remain several key questions regarding the expansion and diversification of EIB's role - from a multilateral investment bank to one that has added an explicitly developmental agenda to its financing model.
Doing development without new resources
The launch of a new development branch is the result of several deliberations by the EIB, which are indicative of attempts at strengthening the bank’s existing external strategy without ultimately putting much effort towards a transformative new initiative. For example, the decision to form a new development branch, forgoing the previous proposal of establishing a subsidiary as a separate legal body, hints at a careful and risk-averse approach towards external engagement. A major shortcoming of the new branch is that no new resources have been allocated for its developmental role. Although it will include some changes such as the establishment of regional hubs starting with Kenya - and a new governance body - a lack of commitment towards targeted resources jeopardises the EIB’s new mandate from the start.
The rationale behind the EIB’s developmental diversification seems to focus on a clear demarcation between existing internal operations within the EU and external operations in other countries. Markus Berndt, the director of EIB's strategy group recently noted the need for a different and separate external business model for the EIB through the development branch: ‘..to make sure that whatever we do outside the European Union (EU) is not causing problems for what we do inside the EU’.
Despite this assertion, it is hard to determine what will change for EIB's external financing because of the new development branch. In fact, the EIB has been engaging in external development financing for many years, for instance, through its 2014-2020 External Lending Mandate (ELM) and regional funds such as the Economic Resilience Initiative. In the coming years these activities will be carried through new initiatives such as the Neighbourhood, Development and International Cooperation Instrument, recently renamed Global Europe.
Today, at least 10 per cent of EIB total funding is directed towards countries outside the EU. According to the EIB, in 2020 the institution achieved record lending levels in Africa, signing EUR 5 billion in financing, half of it with the private sector. Despite the EIB being subject to the broad guidelines of the European Consensus on Development, which aims to promote the achievement of the Sustainable Development Goals (SDGs) in all projects, including by ensuring policy coherence for development, it is hard to discern the development additionality of its new lending branch.
What is ‘Development’ for the EIB?
A major question for the bank is how it defines its new development approach. It is not enough to state that the new branch will invest in ‘development’ projects without first discerning how the new branch conceptualises its development mandate. This is even more problematic considering the bank’s dismal record on issues of human rights, transparency and environmental due diligence.
The EIB’s activities outside the EU, including investment in socio-economic infrastructure, private sector development, climate change and mitigation, have been accompanied by episodic contravention of indigenous rights and transparency concerns. According to a joint report by Counterbalance and CEE Bankwatch Network, fewer than 40 per cent of the EIB’s operations outside Europe are not covered by any mandate and don’t benefit from guarantees or assistance from the EU budget. As a public bank, the EIB therefore needs to justify its new development trajectory with more accountability and detail.
In short, the new branch is an ambiguous attempt at doing development without explaining what development means. While public development banks have a critical role to play in the recovery from the covid pandemic, this move from the EIB leaves more questions than answers. To become a truly development bank, three key considerations should be on the table of the EIB and its shareholders:
- A concrete and strong development mandate of the new branch, explaining how a project is assessed to be ‘developmental’, and what processes will be in place to ensure compliance.
- Explain how the business model of the new branch will contribute towards socio-economic growth and structural transformation in developing countries. The business model needs to clearly demonstrate how taking on greater risks results in the benefit of the public interest, whilst also enhancing accountability of EIB’s financial intermediaries.
- The governance structure of the new branch needs to be fully transparent and designed to enable meaningful representation from recipient countries as well as with civil society. To transform the previous lack of engagement with civil society, the bank should facilitate extensive dialogue with Civil Society Organisations (CSOs).
The new branch is a critical turning point for the EIB in its external engagements with developing countries, and for the EU in its process of strengthening its global role. It could hold the potential for supporting long term socio-economic growth in regions which are in extreme need of concessional finance. However, if the bank continues to prioritise a private sector model first, which operates at the expense of public interest, it could further reinforce problematic trends of privatisation and financialisation, which exacerbate inequality. The bank needs to do more to take on a truly developmental role and civil society is keen to engage with the bank on facilitating this process. Next week’s annual seminar between the EIB Board of Directors and civil society on 1 February will be a key opportunity to engage on these issues in depth.