Today, the European Commission and the German development bank KfW signed an agreement for the African Local Currency Bond guarantee programme that will enhance access to long-term financing in local currency for African local businesses. In the framework of the programme, the Commission provides €100 million to cover KfW’s guarantees for investors in the African Local Currency Bond Fund that will further mobilise €820 million in private investments by 2027. The guarantee programme is part of the European Fund for Sustainable Development plus (EFSD+), a financing tool of Global Gateway. Commissioner Urpilainen and KfW’s Executive Board Member Laibach signed the agreement at the Global Gateway Forum that takes place in Brussels.
European Commissioner for International Partnerships, Jutta Urpilainen, said: “In recent years, our partner countries have faced multiple crises with stark economic consequences. To overcome current and future crises, we want to support partners in becoming more resilient through the Global Gateway investment strategy. Developing local and regional capital markets is crucial, as they play key role in financing necessities like affordable housing, renewable energy, agriculture, health and education. The African Local Currency Bond guarantee programme signed today will increase economic resilience in Africa by enhancing access to long-term financing in local currency for African businesses.”
The African Local Currency Bond Fund activity promotes bonds and other long-term financing instruments in local currency in Africa. By guaranteeing investors lending into the Fund in local currency, the EFSD+ guarantee will catalyse local private funding towards long-term financial instruments for African companies and financial institutions. This catalyst will potentially drive down financing costs, support market transparency and foster the development of capital markets in partner countries.
Functioning capital markets are vital for balanced economic growth, offering the private sector a sustainable source of long-term domestic funding and offering investors transparent financial instruments to channel savings, pensions and other pools of capital into the real economy. In turn, the African Local Currency Bond guarantee programme will contribute to boosting sustainable economic growth, creating jobs and reducing poverty.
Background
The European Fund for Sustainable Development Plus (EFSD+)
EFSD+ is part of the EU's investment framework for external action and ensures worldwide coverage for blending, guarantees and other financial operations. It is included in the EU's long-term budget programme for external action – the NDICI-Global Europe. The EFSD+ Operational Board has been established under this budget programme.
EFSD+ is raising financial resources for sustainable and inclusive economic development from the private sector. It supports investment in partner countries to promote decent job creation, strengthen public and private infrastructure, foster renewable energy and sustainable agriculture, and support the digital economy.
The guarantees the instrument provides are used for de-risking activities and leveraging private investment, working together with the European Investment Bank (EIB) and other European financial institutions.
The EFSD+ guarantees are offered on favourable, highly competitive terms. They allow investors to finance projects in more challenging markets, by assuming the risks of more unstable environments while avoiding market distortions. Because the EFSD+ covers a share of the risks, the EU's development finance partners can match the EFSD+ guarantees with their own resources, which in turn will attract additional investors. The instrument has €40 billion in guarantee capacity.
The investment programmes are implemented through two main paths:
- In a partnership with the EIB, the EU is providing a €26.7 billion guarantee for financing to support investments in sectors such as clean energy, green infrastructure and health. The guarantee will have a maximum impact on Global Gateway investments in partner countries where sovereign and other public sector risks are still a major bottleneck.
- Under the EFSD+ open architecture, the EU is providing an up to €13 billion guarantee cover until 2027. This will be deployed by a range of implementing partners, i.e. International Financial Institutions (including the EIB) and European development finance institutions aiming to mobilise private investments in support of our partner countries achieving the SDGs. Today's €6.05 billion is the first allocation under EFSD+ Open Architecture programme.
In December 2022, the Operational Board of the European Fund for Sustainable Development plus (EFSD+) gave a positive opinion to €6.05 billion in financial guarantees to support 40 investment programmes in Sub-Saharan Africa, Latin American and Asia Pacific. The guarantees are expected to generate more than €50 billion in investments in key sectors of Global Gateway, such as renewable energy, digital infrastructure and climate resilience and health. The package also includes a new green bond programme.
The Global Gateway Forum
The Global Gateway Forum brings together an assembly of government representatives from the European Union and across the globe, alongside key stakeholders from the private sector, civil society, thought leaders, financial institutions, and international organisations to promote global investment in infrastructure.
During this landmark occasion, a series of strategic investment announcements and agreements with partner countries are being presented, marking a significant leap towards the implementation of the Global Gateway strategy. These announcements not only underscore the tangible worldwide impact of Global Gateway but also provide a platform for governments and businesses to engage in critical discussions surrounding its priorities.
The Global Gateway Forum highlights a collective commitment to fostering sustainable growth and resilience worldwide through a Team Europe approach.
Global Gateway
Global Gateway represents the European Union's effort reduce the worldwide investment disparity and boost smart, clean and secure connections in digital, energy and transport sectors, and to strengthen health, education and research systems. It provides sustainable investment opportunities to enhance the prosperity and security of our global partners and Europe alike.
The Global Gateway strategy embodies a collaborative approach that brings together the European Union, EU Member States, and European development finance institutions. Together, we aim to mobilize up to €300 billion in public and private investments from 2021 to 2027, creating essential links rather than dependencies, and closing the global investment gap.
Team Europe stands out with a compelling proposition for democratic partner nations, focusing on sustainability across social, environmental, and financial aspects, promoting long-term drivers of growth through a comprehensive 360-degree approach, encompassing both hard and soft infrastructure, and reinforcing the resilience of nations seeking strategic autonomy.
More Information
Details
- Publication date
- 26 October 2023
- Author
- Directorate-General for International Partnerships
- Location
- Brussels