Neighbourhood Investment Facility (NIF)

Neighbourhood Investment Facility (NIF)

The European Union has created a “European Neighbourhood and Partnership Instrument” in the framework of the so-called “neighbourhood” policy, which covers both Mediterranean countries (excluding Turkey and the Balkans) and Eastern European countries. This instrument pools the budget financial resources earmarked for cooperation between the EU and these countries. Under this policy, the European Commission has proposed the creation of an instrument – the Neighbourhood Investment Facility (NIF) – which aims to scale up the available volume of resources for cooperation between the EU and its neighbours. The creation of the NIF was approved by the European Union Committee of Permanent Representatives (COREPER) on 19th March 2008.
This new instrument is in line with the “Paris Declaration” and arrives at a timely moment as available grant amounts are becoming increasingly scarce at the national level.

Objectives and content of NIF

The NIF is financed by resources from the ENPI (community budget credits), as well as voluntary contributions from member or partner States. These grant resources will be combined with loan resources provided by European finance institutions, both multilateral (EIB, EBRD, Council of Europe Development Bank) and bilateral (AFD, KfW, Nordic Investment Bank, OeEB). This will create considerable leverage by mobilizing sizeable volumes of resources. NIF financing targets the sectors of transport, energy, environment, as well as social sectors.

Intervenors and operating method

The NIF comprises:

  • a strategic committee where EU member States, the European Commission and partner States hold a seat (i.e. neighbouring States that have signed an action plan with the Commission); European finance institutions also hold a seat as observers;
  • an operations committee where EU member States, the Commission and financial institutions hold a seat; Partner States that contribute to the NIF are also allowed to hold a seat;
  • a financial institutions group (FIG) composed of financial institutions (FIs).

The Commission chairs all three entities. The strategic committee defines the main orientations of the NIF; the operations committee approves the project portfolio under preparation and makes the financing decision for each project. The financial institutions group analyzes the projects, constitutes the project portfolio and prepares the decisions of the operations committee.
Each project is presented by a leader financial institution (FI). The FIs are the only ones to present projects. Decisions are taken by consensus. In case of a vote, the voting rights are calculated on a basis proportional to the amount of contributions. As the resources are provided by the ENPI, the Commission has a right of veto.

Cost and financing

The Commission wishes to allocate €700m to the NIF for the period 2007-2013. The 2007-2008 envelope was equally allocated between Eastern Neighbouring countries and Mediterranean countries (€50m for each country group). The portfolios constituted in each region are more or less equivalent. The 2009 envelope is more or less in line with the original principle of allocating 2/3 to Mediterranean countries: €45m to the South and €25m to the East.
In addition, 15 EU Member States have announced contributions to the Trust Fund associated with the NIF for an amount totaling €37m. The two main contributors are Germany (€10m in 2008, not earmarked for a specific geographical area) and France (€10m for 2008 and 2009, provided by AFD and earmarked for Mediterranean countries). France’s contribution is implemented by AFD (Board of 26th June 2008).
The Constituent Act of the NIF Trust Fund was signed in Brussels on 26th January 2009. The Fund is managed by EIB.

Main expected outcomes

The NIF aims to use leverage by making an optimal combination of grants and loans. It allows financial institutions and bilateral agencies to have access to community grants (which was previously not the case for the latter in this geographical area) in exchange for an “entry price” which is low in view of the expected spillover effects. The NIF also promotes coordination among donors in so far as priority is de facto given to projects cofinanced by several European institutions.
However, there may be a greater capacity to put forward projects in the Eastern Neighbourhood due to the higher number of operators there (EBRD, EIB, Council of Europe Development Bank, KfW, OeEB). This explains why it was important to rapidly put together a sizeable project portfolio for European cofinancing in Mediterranean countries. This was achieved by relying on the long-standing partnerships between AFD, EIB and KfW.

Enhanced coordination between AFD, EIB and KfW

The launch of the NIF consequently led AFD, EIB and KfW to reinforce their already close partnership back at the end of 2007. The common portfolio for 2008-2010 resulting from this partnership includes some forty candidate projects for the NIF, representing a total investment in the region of €15bn.
Eleven of these projects were approved in the South during the 5th NIF operations committee meeting of 21st April 2009, representing an investment amount of some €4.5bn, including €1.5bn of loans and €92.3m of NIF (i.e. an average of 6.3% of the loan amounts). AFD is the leader for 4 projects: Rabat tramway and Education in Morocco (AFD financing allocated), National Sanitation Program (PNA) in Morocco and Rapid Rail Network (RFR) in Tunis (projects currently under appraisal).
On 4th November 2010, AFD’s Board of Directors approved a €5m grant to the European Investment Bank (EIB), the manager of the Neighbourhood Investment Facility (NIF) Trust Fund, in order to contribute to the operations of this Fund.