Advising on the investment parameters for the fund strategy

THE BACKGROUND

The European Union pursues a comprehensive and integrated approach to investments, linking investment mobilization with investment climate improvements to increase the potential of the United Nations’ 2030 Agenda for Sustainable Development and achieving the Sustainable Development Goals (SDGs). In this context, the European Commission has proposed to establish a new integrated financial package: the European Fund for Sustainable Development Plus (EFSD+) covering the period 2021-2027.

THE PROJECT

The overall objective of this assignment was to provide an overview of key market failures and sub-optimal investment situations to which the Commission should respond when setting up investment windows under the EFSD+ Guarantee and updating investment priorities to be addressed by the EU’s respective blending platforms. In particular, digital technologies and services were seen as enablers of sustainable development and inclusive growth. They could be key to improving lives even in the poorest countries, in particular by empowering vulnerable populations (women and youth), enhancing democratic governance and transparency, and boosting productivity and job creation.

FINANCE FOR IMPACT’s Director, Thierry Senechal, carried out an assessment on market failures and sub-optimal investment situations, with a particular focus on the financing of digital transformation. Our analysis showed that connectivity and affordability remain a problem both across and within regions since there were large variations between high- and lower-income countries and between cities and rural areas. In order to ensure appropriate targeting of EU financial instruments, it was, therefore, important to assess remaining connectivity gaps and the respective roles of public and private investment in addressing them.

THE RESULTS

Our market assessments provided evidence on the key market drivers that would facilitate the use of financial instruments, including blending and more specific budgetary guarantees. In particular, our analysis determined ex-ante the added value of the EU financial instruments to be used for supporting EU ‘NEAR’ countries, and in complement to other forms of a public intervention addressing the same market failures. In particular, the team identified key (public and private) investment needs to support digitalization in NEAR regions, including as regards the development of an eco-system of digital economy companies. It also assessed how to use financial instruments to support digital transformation.