The EIB's role in Africa

 

The European Investment Bank (EIB) was created in 1958 as the house bank of the European Union. Its shareholders are the Member States of the European Union. It was founded with the purpose of financing worthy projects inside the European Union. It was created as an independent financial body with its own legal personality and administrative structure, in order to able to function effectively as a financial institution. Although it started financing projects in Africa in the 1960s until recently its engagement outside the EU was very limited.[1]

 

However, in recent years an ever increasing percentage of the EIB's operations has taken place outside the EU, where the absence of binding operation standards is compounded by the non-applicability of EU legislation which guides the EIB inside the EU. In 2008 the EIB loaned about 6.1 billion Euro outside the EU which represents about 10% of its overall loans. The EIB lends from its own resources and, in addition, increasingly manages the EU budget resources of the European Development Fund (EDF) composed of EU member state funds, normally managed by the European Commission.

 

A controversial engagement

 

For lending in the Africa Caribbean Pacific (ACP) region, the EIB's mandate falls under the Cotonou Agreement which has as an objective to work towards "reducing and eventually eradicating poverty consistent with the objective of sustainable development and the gradual integration of ACP countries into the world economy"[2].

 

Nonetheless the external lending objectives of the EIB are focused mainly on private sector support of EU presence. The EIB finances controversial projects in the infrastructure and mining sectors. In the period between 2000 and 2006, the EIB approved loans for up to 364 million Euro for investments in mining in ACP countries, but not a single project for education or for health was financed. In 2007 only an additional 300 million Euro in loans to the mining sector were authorized.[3]

 

The choices the EIB makes for its landing are partly explained by the fact that a basic requirement for lending is that projects are financially sound and able to generate revenues which cover the investments. This excludes many socially relevant but not economically profitable projects from being supported by the EIB. It shows clearly that the EIB is not a development bank and is currently ill-equipped to carry out development tasks. It also shows a conflict in mandate between the necessary financial profitability and the objectives foreseen in the Cotonou Agreement.

 

The EIB's lending activities in developing countries have come under increasing attack from members of the European Parliament and civil society organizations due to its lack of sufficiently clear and binding social, environmental and development standards and procedures and because of its continued failure to support sustainable development in the regions in which it operates. EIB-financed activities in developing countries are not as well documented as those of other international financial institutions like the World Bank[4]. In particular, the financial contracts where the responsibilities of the project promoter are laid down are kept confidential, preventing informed public scrutiny of its projects and evaluation of their contribution to poverty eradication and sustainable development.

 

The EIB has a staff of only about 1 300 people compared to the over 10 000 of the World Bank and therefore lacks the capacity and expertise to examine all the aspects of the projects thoroughly. The EIB has only three offices in Africa to oversee the projects on the whole of the continent. Furthermore, a large proportion of the staff is made up of economists and engineers and there is only a very small development unit. It is concerning that the EIB has a very low capacity to scrutinize its projects in-depth and even less capacity to ensure monitoring during their implementation.[5]   

 

Even more worrisome is that the EIB has no binding formal environmental and social standards to follow for the projects it finances outside the EU. Just to give one example, in 2007 the EIB financed the Bujagali dam project in Uganda with a 92 million Euro loan. This was despite the protest from civil society concerned by the lack of protection for tourism and endangered fisheries in the area, the potential harm to Lake Victoria, the endemic corruption which characterized the project and because the project would not bring affordable power the majority of Uganda's population.[6]

 

The EIB's love for mining

As mentioned before, the EIB approved loans for up to 364 million Euro for investments in mining in ACP countries between 2000 and 2006 and an additional 300 million Euro in 2007. The EIB claims that "projects in the mining sector are usually prime projects for bringing value to indigenous natural resources, increasing export revenues and generating fiscal income for the country through royalties and corporate taxes. Moreover these projects create permanent - direct and indirect - jobs and provide training that contributes to local skills."[7] As the following few examples show, in reality this is hardly ever the case.

 

In 2002 the EIB granted a 14 million Euro loan for the Bwana Mkubwa mine in Zambia, without carrying out an environmental impact study beforehand. The impact of the project on the environment was disastrous. The extraction techniques employed and acid substances caused pollution of water and air. The Munkulungwe river was polluted and this caused a collapse of the harvests for the farmers in Munkulungwe and Mutalula.[8] In the case of the Mopani copper mine again in Zambia, for which the EIB loaned 50 million Euro the terms of the contract foresee that the Zambian government is able to collect only 0.6% of royalties, belying the EIB's claim that its lending activities in the mining sector support the income generation of governments.[9]

 

In 2007 the EIB approved a 100 million Euro loan for the Tenke Fungurume mining project in the Democratic Republic of Congo (DRC), which is one of the largest copper-cobalt deposits of the world. The legal basis of the project is a contract between the government and the mining consortium. It is one of the many contracts signed during the war in DRC, which are now suspected of irregularities such as lack of transparency, undeclared conflicts of interest, questionable payments and the inclusion of terms, which are highly unfavorable to the Congolese government.

 

Furthermore the financing of large scale mining projects does not correspond to any of the priorities defined by the EU for cooperation with DRC. Large scale mining causes displacement of local population. In the case of the Tenke Fungurume project, inhabitants of the village of Mulumbu were moved before the building of their new homes had even begun. Mining creates unqualified often precarious jobs for men, whilst putting an end to traditional activities in the area such as agriculture or small scale mining, which was totally banned. Moreover, at the Tenke Fungurume mine basic labour rights are not respected and the company often relies on an illegal workforce without any contract. The project totally fails to contribute to the achievement of the goals set out in the Cotonou Agreement, as the extraction of minerals is by definition not sustainable in the long term.[10] In conclusion, Transnational Corporations tend to get all the benefits of the EIB's support of the mining sector, whereas local populations are left with the damage.

 

Chances to improve the situation

 

However, there is hope regarding the possibility to change the way the EIB acts. In 2007 the EIB had announced its decision to loan 50 million Euro for the building of the Gilgel Gibe III dam on the Omo river in south-east Ethiopia. The project would have threatened the fragile ecological system of the region, flooded hundreds of hectares of agricultural land and forced hundreds of families to leave their homes and their livelihoods. After intense pressure from civil society organizations the EIB eventually announced in June 2009 that it would not finance the project.[11]

 

In November 2008 the European Court of Justice (ECJ) ruled that the European Parliament must be granted a co-decision role in the formulation of the EIB's external mandate. The current mandate was temporarily extended until November 2011, and the first proposal for a new mandate is expected to be presented to the Parliament by the Commission in spring 2010. In 2010 also the review of the EIB's lending to ACP countries under the Cotonou Agreement is set to begin. The greater role given to the European Parliament is an excellent opportunity for civil society to try change the way the EIB acts in Africa and to force greater transparency upon the Bank

 

Conclusions

 

Essentially, with its engagement in Africa, the EIB has started to act like a major development body without having any of the expertise, capacity or operating principles that such a body must have. Currently the EIB works largely outside the aid effectiveness frameworks and does little to adhere to the principles involved. If the EIB cannot do better in Africa it should rather do less or nothing at all. The EIB should first put in place a series of mechanisms which ensure that its activities in Africa really foster development, adopt the necessary guidelines for it, employ the personnel necessary to guarantee a proper evaluation and supervision of the projects it finances, drop the emphasis on the profitability of its projects in favor of development and start acting in a more transparent way to allow public scrutiny. Only once all this is done the EIB should go back to financing projects in Africa.

 

 

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[1] Counterbalance, 2008, Citizens' Guide to the European Investment Bank.

[2] Cotonou Agreement, Art. 1.

[3] Les Amis de la Terre, Banque européenne d'investissement - L'Europe mine l'Afrique.

[4] This goes in no way to say that there is no problem with the way the World Bank operates.

[5] Counterbalance, 2008, Citizens' Guide to the European Investment Bank.

[6] Counterbalance, 2009, The European Investment Bank's role in development.

[7] http://www.eib.org/projects/news/eib-financing-for-mining-projects.htm

[8] Les Amis de la Terre, Banque européenne d'investissement - L'Europe mine l'Afrique.

[9] Friends of the Earth International, 2006, The European Investment Bank in the South - In Whose Interest?

[10] Counterbalance, 2008, Soul mining: The EIB's role in the Tenke Fungurume Mine, DRC

[11] http://www.amisdelaterre.org/Succes-la-BEI-renonce-a-financer.html