The European Union (EU) is engaging with key stakeholders in Africa to ascertain the development pipeline and to identify the constraints to delivery of and investment in successful infrastructural projects across the continent, EU Directorate General for International Cooperation and Development director for sustainable growth and development Roberto Ridolfi has said.

In September 2016, the European Commission proposed an ambitious external investment plan (EIP) to encourage investment in partner countries in Africa as well as “the EU neighbourhood” in an attempt to not only strengthen partnerships but also address the root causes of migration.

A key part of the EIP that was put up for discussion at the Africa Investor Projects Developers Summit, in Durban, last week, is the new European Fund for Sustainable Development (EFSD), which is intended to support investments by public and financial institutions and the private sector.

Ridolfi told summit attendees that, through the EIP, the EU would not only provide targeted guarantees but also contribute towards improving the investment climate and the overall policy environment in partner countries.

One of the key elements of this strategy is to address foreign direct investment (FDI) into “fragile” African countries. Only 65% of FDI to developing countries – which is in itself on the decline – is going to fragile countries.

The cost of setting up a business in these so-called fragile African countries is apparently three times higher than in their nonfragile counterparts.

Ridolfi said the EIP was based on three pillars.

The first was the EFSD, which would comprise two regional investment platforms – Africa and the EU neighbourhood – that would combine existing financial instruments with a budget of €2.6-billion and the new EFSD guarantee instrument valued at €1.5-billion.

These would operate as a one-stop shop to receive proposals from public development finance institutions and other interested investors.

The new EFSD guarantee would comprise partial guarantees for portfolios of investment projects to intermediary finance institutions, which will, in turn, provide support through loans, guarantees, equity or similar products to final beneficiaries. The objective is to leverage additional financing from the private sector in particular as the EFSD guarantee would reduce the risk for private investment and absorb potential losses incurred by these financiers and investors, he explained.

He emphasised that “no one could do it alone” when investing in infrastructure development in Africa and said various stakeholders could support and reinforce various initiatives and projects.

Pillar 2 focused on technical assistance which was needed to develop financially attractive and mature projects and, in turn, to mobilise still further investment, according to Ridolfi.

He said the commission had made significant resources available for technical assistance to help partner countries attract investment by developing a higher number of bankable projects and making them known to the international investor community.

Technical assistance would also be available to improve the regulatory and policy environment and enhance the capacities of privatesector representatives.

The third pillar would provide a multilevel approach to improving the investment climate and business environment in partner countries through policy and political dialogue to highlight constraints to investments and promote good governance, structured dialogue with business, the provision of intelligence at country level (including sector and value chains analysis) and ensuring coherence with other aid organisations and member State initiatives.

Potential challenges highlighted by a variety of speakers at the summit included the continent’s often unstable political landscape, policy uncertainty and frequent policy changes following elections or regime changes, investor unfriendly regulatory frameworks, potential cultural miscommunications, currency risks and a lack of market integration across Africa.

These all resulted in significant setbacks and protracted project delays, it was agreed.

Ridolfi also suggested that grants should no longer be “donations”. Instead, projects should be restructured so that these could be paid back to ensure the circulation of funding across different projects.