Market integration, better regulation, strengthened public sector capacities and improved access to finance all help counter low investment and secure a brighter economic future. “Breaking Down Investment Barriers at Ground Level”, a new report from the European Investment Bank (EIB), finds that investment in the European Union is hampered by the insufficient functioning of the internal market, as well as administrative burdens, regulatory fragmentation, constraints of public-sector promoters to procure and implement large infrastructure projects and, not least, the difficulties small and mid-sized companies encounter in obtaining financial services.
A second report on “Hurdles to PPP investments” responds to a call from public and private investors in countries where public-private partnerships (PPP) are less common. The paper specifies the structures needed to implement and manage PPPs.
In November 2014 the European Commission and the EIB launched the Investment Plan for Europe. Its three pillars promise to (1) make smarter use of financial resources via the European Fund for Strategic Investments, (2) provide technical assistance to investment projects, and (3) remove obstacles to investment. The European Investment Bank Group is particularly involved in the first two pillars of the Plan. “Today’s reports clearly show that incentivising investment with the help of financial instruments can only do so much,” said EIB Vice-President Ambroise Fayolle, presenting the reports in Brussels. “Red tape, weak project-planning capacities and fragmented markets often slow down projects that could improve Europe’s growth prospects. Therefore, working on how to remove obstacles to investment in a systematic way in all countries and regions as well as at EU level is so important.”
The EIB report identifies the factors that may act as barriers to investment but it also presents specific case studies showing how some of the hurdles have been overcome. One example concerns energy efficiency in buildings: evidence shows that there is a potentially large pool of energy efficiency investments with a relatively short payback period, meaning that the savings in energy bills exceed the cost of the investment relatively quickly. Still, many of these investments are not made – partly because of the market itself. Investments are typically small and often only considered as part of periodic renovation projects. In rental markets, incentives are limited since it is the building owners who pay for the investment, whereas the tenants benefit from lower energy bills.
However, the largest opportunities are found in private residential buildings. France managed to stimulate investment in this market by improving its regulatory framework. In 2010, the country adopted La Loi Grenelle 2, by which each region needed to put forward a plan to support energy efficiency measures in buildings. In a second step, France agreed on an operational framework for third-party financing by public companies and created a “one-stop shop’’ for energy renovation to assist private individuals with information concerning finance and construction. The two measures led to a more coherent and conducive regulatory environment to support energy efficiency. Consequently, the Bank has been able to approve financing that aims to renovate 500 000 buildings annually by 2017.
This and other case studies in the report show that political will can overcome investment barriers. Doing so will unleash the single market’s full potential and build sustained economic growth and employment.
Compliments of the European Investment Bank