One of Europe’s flagship projects to address the low levels of investments following the financial crisis was the European Fund for Strategic Investments (EFSI). This fund was launched in mid-2015 and is due to mobilise the targeted €315 billion investment target by mid-2018. About 30 per cent of the total amount invested has been allocated to SMEs for financing innovative projects, making it the most represented sector within the fund. The success of EFSI and the need for further investment in Europe has prompted EU legislators to extend EFSI up to December 31, 2020, raising the investment target to €500 billion.
Besides increasing the fund’s firepower, there have been a number of changes in the implementation of the fund. These changes originated from the lessons learnt in implementing the first phase of EFSI. The funds allocated under the first phase had a large percentage of funds in volume being allocated to old Member States. To address this bias, the regulations governing the top-up funding of EFSI under phase two needs to ensure that the funds have an “enhanced geographical coverage”. This does not mean that funds are specifically earmarked for specific Member States; however recognition of this fact at a European level is a step in the right direction for small Member States, such as Malta.
The setting up of the Malta Development Bank is another positive initiative
While enhanced geographical coverage is positive, it will not necessarily increase the flow of EFSI funds to Malta. One of the bottlenecks identified when local projects are presented to the European Investment Bank (EIB) is a limited pipeline of sizeable, technically and financially feasible infrastructure projects that are in line with EFSI funding rules. The EFSI 2.0 regulation recognises this and commits that the EIB will provide more targeted support to Member States with difficulties in developing projects. This is another step in the right direction which takes into account Malta’s peculiarities.
These two positive developments at a European level place Malta in a stronger position to present projects under EFSI 2.0. So how can Malta leverage more funding under EFSI 2.0?
Firstly, one needs to prioritise which EFSI funding window provides most potential in addressing Malta’s funding gaps. EFSI funding is grouped under two envelopes; one is focused on small SME projects, whereas the other targets large infrastructure projects. Funding small SME projects via EU guarantees is well addressed by a number of banks in the local market using both EFSI and structural funds. It is under the infrastructure window that the funding gap in Malta is more acute.
To address this gap, Malta would need to develop a pipeline of technically and financially sound infrastructure projects. Other Member States have set up of a dedicated team of financing specialists within government who are tasked with developing an investment project pipeline for the country. The team would scout private, public and/or PPP infrastructure projects in line with the countries’ priorities and hand-hold these projects through the technical and feasibility stages of the project to build a funding case for private investors. This would complement the functions of the European Investment Advisory Hub, which is tasked with delivering more targeted support to Member States developing their pipeline projects.
The setting up of the Malta Development Bank is another positive initiative at a national level which could facilitate leveraging more EFSI funding. The blending of Malta government guarantees via the Malta Development Bank together with EFSI guarantees would lower the credit risk of long-term infrastructure projects, making them more palatable to private investors.
At a national level, these two initiatives would create the right framework to leverage more funding from EFSI 2.0 under the infrastructure window, while at the same time crowd-in private investment in the country’s much needed infrastructure investment upgrades.
An event specifically dedicated to discussing the new EFSI 2.0 financing package and how Malta can leverage more funding is being organised in Gozo and Malta on May 31 and June 1 respectively. This joint event is being organised by Bank of Valletta, the European Commission Representation in Malta, the Malta Development Bank and the Hungarian Development Bank in collaboration with the Gozo Business Chamber and the Malta Chamber of Commerce and Enterprise.
More information on these events and registration can be accessed via https://www.bov.com/Events/Events.aspx
Mark Scicluna Bartoli is executive – EU & Institutional Affairs at Bank of Valletta and is also responsible for Bank of Valletta’s EU Representative Office in Brussels.