Jirki Katainen, the European Commission’s Vice President called on Cyprus to consider setting up an investment platform combining both public and private sector in a bid to tap risk-financing from the massive European Fund for Strategic Investments (EFSI) totalling €315 billion.
The EFSI, or the Juncker plan, named after the Commission`s President Jan Claude Juncker was launched 18 months ago, in a bid to promote investments, create jobs and stimulate the EU`s stagnant economy.
However one year after EFSI became operational, Cyprus along with Malta have not yet obtained any EFSI financing. Despite emerging from an almost four-year recession and an EU/IMF bailout, the Cypriot economy marked by high non-performing loans continues to pose risks which push the interests rates high rendering EFSI financing simply too costly. Instead Cyprus relies on European Investment Bank`s much cheaper funding schemes as the Cyprus government`s provide guarantees which offset the EIB`s risk.
In an interview with CNA, Katainen said the Cypriot authorities and private sector investors should consider setting up an investment platform copying the model by French regional authorities that would enable the island to obtain EFSI financing.
Katainen explained the platform could be an entity that receives equity investment by private investors, the public sector or regional authorities. This platform in turn would be able to receive EFSI funding, via the EIB that would enable it to provide cheap and longterm loans either to companies or an association of households, as in the case of France, for projects such as household energy renovations, which the commercial banks couldn`t fund given their risk-averse policies.
“This model could be used in Cyprus,” Katainen said, adding he has presented this model to the Cypriot authorities.
He explained this model could be used in the Cypriot tourism sector for projects such as hotel renovation.
“There could be thousands of little projects, equity capital could come from private investors, even from international investors, or from public investments, if that is possible, and EFSI could provide some capital and some cheap long maturity loans,” he went on to say.
Noting that this model is being studied and copied in other member-states, Katainen said “I really want to this to happen in Cyprus because I am 100 per cent sure, there is enough capital in the market which could be used in a PPP (public, private partnerships) platform, or pure private partnership.”
“This is a good tool that can be used,” he went on to say.
Moreover, the Commission Vice President noted that investment could rise significantly in case of a political solution in Cyprus, divided since the 1974 Turkish invasion.
“Let us hope that reunification happens and then there will be huge investments everywhere and EFSI and EIB can help but I am also sure that private money would come to the island,” he said
We need to raise awareness
Furthermore, Katainen pointed out that awareness should be raised on what EFSI can do and it has done so far and highlighted that EFSI does not finance big governmental projects.
EFSI, he said, provides risk-financing to private investments and to public private partnership (PPP) and the SMEs through the EFSI`s SME window.
He also underscored that the Fund is not bureaucratic as private companies could directly apply to the EIB with no governmental approval required.
Concerning the EFSI`s performance, the EU Vice President noted the Fund has functioned quite well as its main aim was to address the financing gap, given the bank`s more strict risk-taking profile.
“There is plenty of liquidity in the market but for instance because the banking regulation has changed and the banks` risk bearing capacity is somewhat lower than in the past and that`s why the liquidity is not going to productive investments.”
So far 65 investment projects received EFSI financing in industrial and infrastructure investments, whereas 185 banks have signed agreements with the Fund.
“There seems to be demand in this kind of financing, especially equity financing because the European market is not well developed even though we are working for the capital market union but it will take some time,” he said.
Noting that EFSI has assisted in mobilising money that were otherwise “were parked in banks,” Katainen noted that EFSI has used €12.8 billion for SME financing and investment projects estimated to provide total financing of around €100 billion”, he added.
Cyprus an example of economic turnaround
Asked on the performance of the Cypriot economy, few months after Cyprus exit from its 3-year economic adjustment programme, Katainen said he admires the work done by the Cypriot authorities and the Cypriot people.
“Cyprus and Ireland are very good examples on how to come out of the crisis”, he said.
“I very much admire what the country has done, in the sense that it implemented very difficult fiscal measures and structural reforms and everybody knew those were politically very difficult actions with social costs,” he added.
“This is why Cyprus is out of the programme, confidence has returned and now we can talk about investments and moderninsing the Cyprus economy,” Katainen said.
But he pointed out that there are still many things to be done, such as the macroeconomic imbalances recorded in the Commission`s country-specific reports.