European Investment Bank (EIB) is the European Union’s long-term lending institution. Established in 1958 under the Treaty of Rome, EIB is a policy-driven bank whose shareholders are the member states of the EU. The EIB uses its financing operations to bring about European integration and social cohesion. As the largest multilateral borrower and lender by volume, EIB provides financial expertise for sound and sustainable investment projects which contribute to furthering EU policy objectives. More than 90% of the bank’s activities are focused on Europe, but it also supports the EU’s external and development policies. The European Investment Bank (EIB) advertises itself as ‘Europe’s bank’ but the Luxembourg-based bank is active elsewhere too, co-ordination projects and credit lines worth almost €2.5 billion in east Africa. Jointly owned and financed by the EU’s 28 countries, the bank has been active in east Africa since the 1960s and has had a bureau in the Kenyan capital Nairobi since 2005.
The EIB is expected to be the driving force behind European Commission President Jean-Claude Juncker’s plans to turn between €20 – €25 billion of seed money into a €315 billion infrastructure investment fund. There are many questions about how the Juncker plan will work in practice – the bank’s work in east Africa could serve as a good example. The sums involved in financing energy and transport programmers are too large for the EIB to fund alone. So it puts up a portion of the money in a loan with an attractive interest rate, while other development banks stump up the rest. Infrastructure projects are the main jewels in the EIB’s East African crown. The EIB likes to highlight its role in the Olkaria geothermal power stations in Nakuru, about 100 kilometers north of the Kenyan capital Nairobi in the Rift Valley, and with a wind farm in the country’s Turkana province to which the EIB is the largest single lender to the tune of €200 million.
Sorenson, the EIB’s bureau chief in Nairobi, co-ordinates its activities in the region. He tells EU observer that the latest tender for the fourth turbine at Olkaria was so competitive that not all of the EU’s available money was tapped. The bank will provide a €119 million loan to a programmed meant to increase the capacity of the Kenyan electricity grid by 15 percent. The EIB is also expected to stump up a €100 million loan as part of a highly ambitious project co-ordinate by the EU, World Bank and the Kenyan government to set up a €1 billion bus network in a bid to unblock an increasingly grid-locked Nairobi. Part of the rationale is that using EIB loans rather than grants can relieve the burden on cash-strapped governments in East Africa, but also on their counterparts in Europe, who are keen to reduce the amount of aid they offer to developing countries.
Another reason is that the projects reflect the EU’s priorities in the region and are a relatively cheap form of development financing. The EIB, with its triple-A credit rating, finds it very easy to borrow money on the markets, and only tends to invest in safe projects. They are also filling a gap in the market since commercial banks do not tend to invest in infrastructure projects where the pay back will be over the long term and the profitability steady rather than spectacular. In line with the Cotonou agreement signed between the EU and African countries in 2000, the EIB focuses its activities in the region on directly supporting the private sector and funding infrastructure projects that will help develop business opportunities. The EIB is not the only European player in town. The German and French national development banks both have more people on the ground in the region, and regularly contribute funds to the same projects.