The €315 billion European Fund for Strategic Investments (EFSI) was the brainchild of the EU Commission President Junker back in 2014 to address the low levels of investments registered in the EU following the financial crisis. In a bid to help overcome the current investment gap, this initiative, launched jointly by the EIB Group and the European Commission, sought to mobilise private financing for strategic investments. Considering the significant shortfall in investment across Europe, this was a drop in the ocean. Whilst small in volume, the speed to market was commendable, considering the various EU legislators EFSI needed to pass through. As at September 2016, the European Fund for Strategic Investment triggered €138 billion in investments in 27 Member States. This is a considerable achievement for the European Investment Bank and the European Investment Fund, which are tasked to implement EFSI by the EU Commission.
The €315 billion fund is split into two windows; one focussed on investments in infrastructure projects (€240 billion), whist the other window targets SMEs (€75 billion). From the figures being presented by the EU Commission on a regular basis, the SME window budget is being absorbed by the market much faster than the infrastructure window. This rapid take-up is mainly due to the financial instruments to fund the SME window were already in place prior to EFSI being launched. Furthermore, an effective front-loading of funding by the European Investment Fund to the SME window helped accelerate take-up.
In Q4 2016 evaluations of EFSI were compiled by the EU Commission, the EIB, and the Court of Auditors. The speed to ramp up investments in the market, particularly under the SME window, was praised, however criticism was levied at the initiative since it was deemed that the allocation of funds was skewed in favour of the older Member States. The EU Court of Auditors’ evaluation was more critical particularly on the proposal by the EU Commission to double the funding of EFSI to at least €500 billion. In particular, the Court considered that there was “little evidence that the proposed increase is justified, except with respect to investment for SMEs where high budgetary consumption is observed”. The recommendations of these reports will contribute towards improving the EU Commissions proposal to extend EFSI to 2020.
Where does Malta stand on EFSI? Under the SME window, one local financial intermediary has contracted a portion of EFSI funding. From an SME financing perspective it is positive to see more than one local financial intermediary in the market providing EU guarantees to SMEs. However the bulk of EFSI funding is in the infrastructure window and a real market gap in financing resides in this sector. If Malta is to leverage the real benefits of EFSI, it would need to propose successful projects under the infrastructure window. Here are some recommendations on the manner in which this may be achieved:
Firstly, a stronger advisory role is to be provided on the ground via the European Advisory Hub to ensure that both public sector and private sector investment projects get the appropriate advice to prepare a strong investment project pipeline suitable for EFSI funding. Secondly, Government is to set up a central review body that vets and improves private and public infrastructure project pipeline prior to presenting them to the EIB. This can be taken on by the development bank once it becomes operational. Finally, from a legislative perspective, one should push for more stringent geographical concentration limits in the revised proposal extending EFSI beyond 2020.
Adopting the above recommendations under the Maltese Presidency of the European Council together with an active engagement of local financial intermediaries will ensure that Malta is placed on the EFSI map under the infrastructure window.
Mr. Mark Scicluna Bartoli is the Head of EU & Institutional Affairs at Bank of Valletta and is also responsible for Bank of Valletta’s Brussels EU Representative Office.