Out-Law / Your Daily Need-To-Know

EU launches major infrastructure investment strategy to underpin global recovery

Out-Law News | 08 Dec 2021 | 3:29 pm | 3 min. read

The European Commission has unveiled a major infrastructure investment strategy aimed at mobilising up to €300 billion of investments in global development by 2027.

The Global Gateway strategy will seek to develop physical infrastructure around the world in five key sectors: digital; climate and energy; transport; health; and education and research.

Global Gateway draws on the new financial tools in the EU multi-annual financial framework 2021-2027. These tools allow the EU to leverage public and private investment in priority areas.

The European Commission said the European Fund for Sustainable Development+ will make up to €135bn available for guaranteed investments for infrastructure projects between 2021 and 2027. Up to €18bn will be made available in grant funding from the EU budget, and European financial and development finance institutions have up to €145bn in planned investment.

The EU said it was also exploring the possibility of establishing a European Export Credit Facility to complement the existing export credit arrangements at member state level. It said such a facility would ensure a greater level playing field for EU businesses in ‘third country’ markets, where they increasingly have to compete with foreign competitors that receive large support from their governments.

Laing Ian

Ian Laing

Partner, Head of Infrastructure, Head of Asia

Developing effective, well-structured and ethical projects takes time, so the EU’s stated goal of deploying $50bn per annum is certainly going to be a challenge

The strategy is values-driven, meaning projects that are invested in will have to meet rule of law, human rights and international norms. They will also need to be environmentally friendly, demonstrate good governance and transparency, and be security focused.

The EU said projects would meet the needs of partners as well as the EU’s strategic interests, as well as catalyse private sector investment.

Infrastructure experts from Pinsent Masons said the announcement was significant, as it could offer an alternative source of infrastructure investment to China’s ‘One Belt, One Road’ (OBOR) strategy. The EU plan would see an annual spend of around $50 billion, while China’s international financial commitments under OBOR to middle and lower income countries are estimated at $85bn a year.

Pinsent Masons’ Ian Laing said there were several issues that would determine the success of Global Gateway.

“The ‘values based’ conditions that are attached to any EU money will be a big factor. Applying Western values systems to the developing world can be challenging and will almost certainly make for slower progress,” Laing said.

Laing said the EU plan to use innovative financial instruments to crowd-in private capital, including guarantees to de-risk projects for the private sector, would be a “huge win” if achieved. However, he said past attempts at similar funding models had struggled to make headway.

“The reality is that there is now a huge pool of capital aimed at infrastructure and too few projects. Developing effective, well-structured and ethical projects takes time, so the EU’s stated goal of deploying $50bn per annum is certainly going to be a challenge,” Laing said.

Infrastructure expert Greg Jones of Pinsent Masons said the values-based aspect of Global Gateway could appeal to some governments in third countries, but not others, and therefore could slow project delivery down.

“It will be interesting to see if the projects taken forward will fit into ‘routes’ or ‘hubs’ which leverage the connections between infrastructure across certain regions as under OBOR, and which regions are prioritised. Africa is mentioned as a focus but it will clearly not be the only show in town,” Jones said.

Rob Morson

Partner

Africa’s infrastructure need is urgent, and the competitive success of Global Gateway will depend on how quickly it can translate promise into delivery

Johannesburg-based construction law expert Rob Morson said: “Africa’s deep infrastructure deficit is self-evident and the prospect of accessing an alternative funding stream from Europe can only be good news”.

“The infrastructure need is, however, urgent, and the competitive success of Global Gateway will depend on how quickly it can translate promise into delivery. This is dependent on the efficiency of EU deployment, and the effectiveness of government-to-government engagement to enable that deployment,” he said.

Jones said it was notable that the strategy was prioritising health and education, particularly in the wake of the Covid-19 pandemic, as well as sectors such as energy or transport that have been the major focus of investment to date, including under OBOR.  Pinsent Masons projects expert John Woolley said the challenge for investors would remain finding bankable projects to put money into.

“There is often a fundamental problem in the developing world that the traffic flows, the power utilisation capacity or the grid capacity is just not there to enable the project on a bankable basis. For one piece of infrastructure to be developed, other parallel pieces need to be successfully delivered at the same time,” Woolley said.

The EU said projects could include fibre optic cables, transport corridors and clean power transmission lines. Woolley said if the installation of this infrastructure could be enabled it would help to provide a significant boost to the deliverability of related projects including generation facilities in countries such as Kenya and Nigeria, with plenty of capital available for this.

Global Gateway will adopt a ‘team Europe’ approach, bringing together the EU, member states, and financial and development institutions such as the European Investment Bank and the European Bank for Reconstruction and Development. EU delegations and ‘team Europe’ will help identify and coordinate Global Gateway projects in partner countries.