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“We need to support a shift from aid to investment”

“We need to support a shift from aid to investment”

Werner Hoyer

The European Investment Bank president, Werner Hoyer, has been an advocate for Ethiopia’s reforms of late. The former German politician has been in Ethiopia, most recently during the gathering of the African Union. Here, he reflects with Samuel Getachew of The Reporter on his meeting with Prime Minister Abiy Ahmed (PhD), how the bank is planning to invest its resources here and on supporting the thousands of refugees that are found within the country. Excerpts:

The Reporter: Upon your visit to Ethiopia late last year, you held an audience with Ethiopia’s Prime Minister, Abiy Ahmed. What were the highlights of the discussion and how do you envision the relationship between Ethiopia and the bank to be moving forward? 

Werner Hoyer: Prime Minister Abiy shared with me his ambitious vision for the future of your beautiful country and its capital Addis Ababa. We agreed to work even more closely together in the future, with an increased presence of the European Investment Bank in the country. He was happy and complimentary about the high quality of the projects and infrastructure financed by the EIB, and in general very keen on support from the EU. I really felt the willingness of your Prime Minister to build an even stronger long-term relationship with the EU. I also invited Prime Minister Abiy to visit our headquarters in Luxembourg during his next trip to Europe.

I underlined our strategy in Africa where we have provided more than EUR 20 billion of financing over the last 10 years for around 1300 projects. We also talked about concrete projects and priorities for cooperation—for example the financing of some industrial parks. One of these parks would focus on the leather industry and three of them employ refugees based in the country. That’s a very important benefit. We also explored opportunities in sanitation and irrigation, cattle ranching, electrification, and an exciting project for the assembling and testing of satellites.

I confirmed our interest in renewable energy projects currently being set up by the Ethiopian government through Public Private Partnerships. We also discussed the possibility that the EIB might finance infrastructure, such as roads, linked to the development of commercial activities with Eritrea following the recent peace agreement. Many things are moving in Ethiopia, and we are keen to be part of this momentum.

During the same trip, you announced funds worth EUR 30 million for the Women Entrepreneurship Development Project to help aspiring women entrepreneurs start businesses. Why are such initiatives important from the perspective of the bank?

We put financial inclusion, the promotion of female entrepreneurship, and women’s economic empowerment at the center of our investment strategy.  Supporting gender equality is not only essential to social cohesion, justice and fairness, but it is crucial for economic growth.

The Women Entrepreneurship Development Project has obtained outstanding results so far and will go from strength to strength. The EIB funded this project through the Investment Facility of the Cotonou Agreement between the EU and African, Caribbean and Pacific countries, as both the project and the investment facility are pursuing the same goals: to support private sector development and to improve women’s access to all resources required for the full exercise of their fundamental rights and their full recognition as dynamic economic agents in their societies.

By strengthening the business environment and supporting women’s economic empowerment, the Women Entrepreneurship Development Project has a positive impact on the performance of micro and small enterprises in the country.   This is fully in line with what the Ethiopian government and the European Commission agreed to do together for economic growth and gender equality.

Through its Strategy for Gender Equality and Women’s Economic Empowerment and related Gender Action Plan, the EIB applies a gender lens to its activities and values women as agents of change to eradicate poverty and tackle challenges such as climate change. The Women Entrepreneurship Development Project is an important achievement under the EIB’s Gender Strategy as it increases women’s roles and participation, on equal terms, in the Ethiopian economy and labour market.

The local country office for the bank was inaugurated in 2015, what has been the focus of the office?

The first objective of the office in Addis was to substantially expand and diversify our investments in the country. Before being present on the ground, we used to finance one project every three years on average, almost exclusively in the public sector. Our decision to open an office in Addis was clearly the right one, as since 2015 we have signed three public sector and two private sector projects totalling more than EUR 170 million, each with significant impact.

The first public project, which includes capacity building, will provide access to water for more than one million Ethiopians living in small towns. The second is providing much-needed credit to thousands of SMEs, mostly in the manufacturing sector, through the development of “leasing” as a financial instrument. This instrument requires much less collateral than a typical loan. The third project will provide training and financing to thousands of women to expand their businesses.

One of the private sector projects that we financed is an equity investment in the start-up M-birr. The company offers a secured mobile payment technology that allows people in remote villages to benefit from a complete set of financial services and to receive social payments just by using their mobile phones. The second project is an investment in a private equity fund, which will provide much-needed equity financing to SMEs, mostly in export sectors.

Our pipeline of projects for the coming years is very solid and diversified. It ranges from industrialisation, electrification and agri-business, to sanitation and renewable energy. We will continue developing this pipeline in the coming years, exploring new sectors such as health and education.

You have been noted for highlighting the need to help Ethiopia support refugees coming from neighbouring nations, in particular helping them get jobs in industrial parks. Could you tell me about that?

The government plans to build 30 parks by 2025 and a number of them are already up and running in various parts of the country. For Ethiopia, where agriculture accounts for 80 percent of employment and 40 percent of GDP, economic diversification as fostered by the government is very important and the industrial parks are a cornerstone to this long-term strategy. Industrial parks create jobs not only for Ethiopians but also for refugees; in particular when located close to borders like, for example, that with South Sudan.

The EIB fully supports the development of industrial parks in Ethiopia. We are currently working on the financing of up to three parks and we are in discussions with the Ethiopian Investment Commission to identify the best-suited locations. Once the government, through the Investment Commission, has decided which parks should get priority, we will work hard to appraise these projects and put the financing in place as quickly as possible. Of course, we will ensure that EIB standards apply, which is ultimately to the benefit of the people with, for example, adequate housing for people working there, proper sanitation etc.

It is very important to us that the parks we are financing have a sustainable impact. Unfortunately, we see many infrastructure projects not delivering the expected results, being too expensive or underperforming, often because they have not been set up properly.

In your speech in Addis Ababa, you highlighted how “Africa needs more investment in human capital to thrive” as part of a new approach, with engagement based on trade, not just aid. Why do you think this new approach will have a real, practical result on the ground?

Africa is rich in potential. It has an abundance of both human and natural resources.

Africa’s population is set to double by 2050. Nearly 60 percent of Africans are under the age of 25, compared to 27 percent of Europeans. The growth in the young, working age population in Africa will be at an unprecedented level in the coming years. We need to invest in Africa’s youth. The current pace of economic growth and job creation is insufficient to meet the pressing needs on the continent and allow it to turn a corner on extreme poverty. Africa’s youth dividend represents a great opportunity.

It is on the African continent, that investment needs are the greatest. And it is on the African Continent that we must step up our efforts the most, in order to attain the UN Sustainable Development Goals. Indeed, to achieve the Sustainable Development Goals, up to USD 2.5 trillion annually of additional investment is needed in developing countries alone. No amount of public funds and grants can bridge this gap.  We need to have the right structures in place to facilitate private sector development and ‘crowd-in’ private sector finance for public goals.

We need to support a shift from aid to investment and partnership, from poverty to prosperity!

As the EU Bank, and as the investment arm of EU external action, we are deeply committed to this. We must recognize that the ambition of young Africans has grown in recent years. Today, increasingly more want to become entrepreneurs and use their creativity to improve the lives of those around them. I strongly believe that empowering African women and men to develop their own businesses and increase their expertise is the best way to accompany the continent on its path to sustainable growth. Together we can achieve the UN Sustainable Development Goals and create opportunities for everyone.

The EIB is committed to Africa. We have been investing in Africa for over 55 years. In the last four, we have provided around EUR 10 billion of financing to the continent, mobilizing investment of EUR 30 billion. We are making a difference on private sector development and the lives of millions, and we are now concentrating increasingly on investments that will bring jobs and growth, sustainable urbanisation, digital connectivity and gender equality. In addition to financial investment, we provide technical assistance and advisory services to make sure that our expertise and knowledge is shared.