In this week’s episode of ‘A Dictionary of Finance’ podcast by the European Investment Bank we talk about the intersection of the private and the public sector in development finance. Specifically, we talk about how the public investment and development banks make projects bankable for the private sector.
And make themselves obsolete in the process!
As Aglaé Touchard-Le Drian, investment officer with EIB’s Global Energy Efficiency and Renewable Energy Fund (GEEREF), puts it rather more eloquently: “Ultimately, our goal would be to disappear and projects would be financed locally by local investors.”
“But,” Aglaé adds, “that is not the case today.”
This is why public finance institutions put effort into de-risking projects, taking on the bulk of the risk, blending the loans and investments with some grant money to make sure it takes off, as well as providing advice and technical assistance, and so much more.
Just so that the private sector can step in and reap the rewards, right? Why would we do that?
Gunter Fischer, also an investment officer with GEEREF, reminds us that the public banks do this only in situations where otherwise there wouldn’t have been private investment at all—and consequently the project would simply not have been realized.
Another benefit for the public sector is that capital can be preserved and the financing can be recycled for other projects, unlike when grants and subsidies are made, Touchard-Le Drian reminds us.
In the end, the private sector does take over. Many investors who initially invested with the EIB are now willing to invest in similar geographies and sectors on their own, having had a positive experience, Fischer says.
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