EIC Position. About EIC

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1 EUROPEAN INTERNATIONAL CONTRACTORS Kurfürstenstrasse 129 D Berlin Germany Tel +49 (30) Fax +49 (30) EIC Position on the Commission s Green Paper EU development policy in support of inclusive growth and sustainable development: Increasing the impact of EU development policy About EIC European International Contractors (EIC) has as its members construction industry trade associations from fifteen European countries and represents the interests of the European construction industry in all questions related to its international construction activities. The main objective of EIC is to improve the political, legal, economic and financial framework conditions for the international construction activities of European international contractors. In 2009, the European construction industry was active in all world regions and generated an international construction turnover of more than 73 bn. outside of Europe of which approximately 15 bn. were earned in the ACP countries. Infrastructure projects and services provided by European construction companies are key elements in the economic and social development of more than 100 countries on all continents. Hence, the European construction industry is transferring technology and know-how from Europe to countries all around the world. Internationalisation and globalisation have a long tradition in this industry which has won leading positions in foreign markets. Its services do not only contribute to income, employment and balance of payments but also to the enhancement of the European image in general. The co-operation with local contractors, subcontractors and suppliers as well as the training of the local workforce contributes to achieving the MDGs and helps creating a climate for cross-cultural understanding. Given that global poverty verifiably cannot be eradicated by official development assistance alone, EIC would argue that a modern and effective development policy is aligned first and foremost with the political objective of wealth creation rather than poverty reduction. The European development policy should, therefore, be geared towards attaining inclusive economic growth in partner countries as the basis for fighting inequality and improving social outcomes. This in turn requires partner countries to look beyond the trading of natural resources and instead to build up an adequate infrastructure stock as well as productive industrial capacities, which are a prerequisite for sustainable development. In this context, the European construction industry is prepared to share its expertise regarding the design, construction, operation and maintenance of infrastructure works with African partners within the EU s revised development policy. EIC appreciates that the European Commission has entered into a public consultation with stakeholders on this important issue and submits the following answers for review: EIC associated with FIEC represents infrastructure providers associations from Austria, Belgium, Denmark, Finland, France, Germany, Greece, Italy, Netherlands, Portugal,

2 HIGH IMPACT DEVELOPMENT POLICY Putting High Impact co-operation into practice Question 1: How could the EU and its Member States develop a set of Guidance Instructions on programming and expenditure requiring a certain number of conditions to be met (added value, coordination, impact) for all programmes/projects/support? Question 2: What are current good practises at EU and Member State level on which to build? Question 3: How could the diversity of aid flows (from public and private sources, from various policies' external action budgets) be adequately combined, tracked and reported on for maximum impact, accountability and visibility? EIC welcomes that the Green Paper considers directing the EU development funds towards higher leverage on reforms and sound policies (on the one hand) and on other (additional) sources of funding, including private sector and domestic fiscal resources (on the other hand). We propose that the EU and Member States study in more detail the option of providing EU funds to private sector participation in infrastructure development in ACP Countries. By doing so the EU would fulfil its role as a catalyst to trigger additional financing from other public and private sources to flow to partner countries and to foster local administrative reforms that are inherent to the concept of PPP infrastructure management. EIC observes, however, that ACP Countries, in particular in Sub-Sahara Africa, are somewhat lagging behind other world regions in the implementation of Public-Private Partnerships (PPP). Set against the impressive growth rates in many African economies in recent years and the corresponding level of potential demand for investment, low demand for infrastructure is unlikely to be the reason for the relatively low levels of PPP activity. If the growth of some infrastructure sectors, such as mobile telephony, across the continent is a guide, the ability and willingness of citizens to pay for quality infrastructure may not be the constraint. In other words, the work required is likely to be related to the factors relating to the supply side of PPP, including the obstacles to mobilising private sector resources. To address this bottleneck, EIC suggests that the European Commission and Member States remove their internal legislative and administrative barriers to substantially support Infrastructure PPPs in ACP Countries, beyond Technical Assistance, through a combination of grant financing, equity capital, soft loans and also guarantees. In the capital-intensive infrastructure sector, pooling EU development aid funds for the infrastructure sector could be instrumental to attract additional foreign and local private investment within the framework of Infrastructure PPPs. A more active role of the EU and Member States in funding Infrastructure PPPs in ACP Countries could be complemented by the European Investment Bank (EIB) as well as by European export credit agencies, in particular with a view to protect private investors against political risk in ACP Countries as well as against certain prohibitive financial and economic risks. 2/7

3 Through the support of Infrastructure PPPs in ACP Countries the EU would attain its objective to combine, track and report the diversity of aid flows and to increase the impact, accountability and visibility of European development aid. We would like to recall that the PPP approach offers substantial advantages over the conventional procurement process, such as up-front and full cost transparency and security in terms of capital investment for construction and operation & maintenance costs as well as a rigid and transparent performance measurement during all project phases. Whilst there is no universal approach to implement PPP schemes, it is today beyond debate that, if structured correctly for the right service and in the right competitive environment, the PPP concept does deliver globally Value for Money due to efficiency gains and enables governments to control their balance sheet. These are particular important policy goals in the ACP Countries. EIC therefore welcomes that the financial instruments for , the new EC budget financial regulation and the financial regulation of the 10 th EDF ( ) have opened the possibility for the European Commission to enter into delegated co-operation with EU Member States or their Implementing Agencies. This is a first operative step towards pooling EU funds for joint priorities, including infrastructure services. In this context, EIC calls the attention to the recommendations made by the 4 th EU-Africa Business Forum, which took place from the of November 2010 in Tripoli, on the eve of the 3 rd Africa-EU Summit of Heads of State and Government. Concerning Infrastructure PPPs, the Forum s Final Declaration calls on the policy-makers in the African and European Union and in the EIB to: Develop sound investment policies and create an Infrastructure Investment Fund that boosts local private sector participation in infrastructure delivery; Enhance EIB s and other European Development Finance Institutions role to act as lenders and investors for infrastructure projects in Africa; Provide technical assistance and financial support to African Governments to prepare the legal framework for PPPs and to select bankable projects; Participate in risk sharing with local banks to enable financing denominated in local currency and providing foreign exchange coverage; Provide separate Political Risk Guarantees (which should not be necessarily linked to a loan or grant) for infrastructure projects. Growth for human development Question 4: How can the EU and its Member States best ensure that aid on education and healthcare becomes more focused, and increases further its impact, effectiveness in terms of human development and growth? Question 5: How should the EU support skills development in partner countries in line with the features and needs of local labour markets, including in the informal sector? How could the EU's global approach to migration contribute in this regard? 3/7

4 Enhancing local contracting capacity in the construction industry is a key measure to educate and integrate a higher share of the local workforce including those which are unskilled or are working in the informal sector into the national division of labour. Yet, to date donor-financed infrastructure projects in ACP Countries, regrettably also those funded by the EU or its Member States, are all too often implemented without sufficient know-how transfer to local companies and/or workers. Donors should be aware that labourintensive implementation concepts in the infrastructure sector, whilst creating short-term employment for the local population, are not conducive in developing a large number of local SMEs nor are they a tool for systematic know-how transfer. Given that European contractors contrary to other international contractors are not exporting their workforce abroad (but limit the presence of their expats on construction sites in ACP Countries to a maximum of 10% of the entire workforce), the European construction industry is prepared to enter into a dialogue with EU donors to identify means to institutionalise the transfer know-how to the local construction industry, e.g. in the context of EU-financed infrastructure life-cycle projects (see below questions under Partnerships for inclusive growth ) or by adding certain local content requirements in conventional infrastructure tenders. In addition, European professional construction associations could support such know-how transfer for African managers, engineers and workers through their vocational training centres. With regard to optimising EU aid for healthcare, EIC would like to clarify that, whilst access to clean water and adequate sewerage systems directly relate to improving health systems, transport infrastructure projects can also make it easier for the poorer part of the population (frequently in remote parts of the country) to access education and health services. Promoting Governance Question 6: How can the EU adapt its approach, instruments and indicators in support of governance reforms in developing countries/regions? Question 7: How and to what extent should the EU integrate more incentives for reform into its aid allocation process, for both country and thematic programmes? Question 8: How should the EU promote sound frameworks to assess and monitor development results achieved by recipient countries? EIC takes the view that there is a strong correlation between Good Governance and Foreign Direct Investment (FDI) which in turn is necessary to eventually release recipient countries from aid dependency. Therefore, EIC urges the EU and Member States that, when deciding on the multi-annual national programmes, they should also take into consideration a partner government s progress with regard to Good Governance reforms. For instance, part of the EU s development aid could be closely linked to successful reform programmes. When it comes to defining the criteria for Good Governance, EIC would like to recommend resorting to universally accepted indicators including also private sector related aspects, such as the benchmarks of the World Bank Group. 4/7

5 The World Bank Group offers two sets of comprehensive indicators on Good Governance, namely the Worldwide Governance Indicators (WGI) and the Doing Business Project. The Worldwide Governance Indicators project reports aggregate and individual governance indicators for 213 economies for six dimensions of governance, namely Voice and Accountability, Political Stability and Absence of Violence, Government Effectiveness, Regulatory Quality, Rule of Law and Control of Corruption. The WGI draws on data from 31 different sources that provide information on various aspects of governance and the aggregate indicators combine the views of a large number of expert survey respondents in industrial and developing countries. The Doing Business Project published by the International Finance Corporation (IFC) provides objective measures of business regulations and their enforcement across 183 economies and looks at measures and regulations applying to domestic small and mediumsize companies, such as starting or closing a business and ease of doing business, dealing with construction permits and registering property, getting credit and protecting investors, paying taxes, trading across borders and enforcing contracts. By gathering and analysing comprehensive quantitative data to compare business regulation environments across economies and over time, the database offers measurable benchmarks for reform. EIC would like to add that the use of internationally recognised standard tender and contract documents, including those of the EU, are also part of Good Governance. Partnerships for inclusive growth Question 14: How and to what extent should EU aid support industrial investment projects in developing countries and how can the correct balance be made between developing extractive/energy interests and promoting post extractive and industrial sectors? Question 15: How can the EU ensure that support to economic development guarantees fair social inclusion of the benefits and provide better protection of social and economic rights, including implementation of core labour standards, and better corporate accountability? Question 16: Which measures should be taken and how should they be best differentiated to assist developing countries' efforts in establishing an economic environment that is apt to promote business, particularly SMEs? Question 17: Which measures or structures might be developed with partner countries, and European and international financial institutions to provide financial support and where necessary low cost finance and financial guarantees to support such growth? Question 18: Which instruments could the EU use to promote creativity, innovation and technology transfer and ensure their viable applications in developing countries? 5/7

6 EIC would like to recommend that the EU and Member States upgrade the concept of Performance-Based Maintenance Contracts (PBC), which is currently used for unpaved secondary and tertiary (rural) roads only, to Design-Build (or Rehabilitate)- Operate-Maintain (DBOM) contract models that can be applied in the context of national or trans-national highways as well as for certain water or energy facilities. Applying this innovative approach within EU-financed contracts to the entire life-cycle of infrastructure facilities would facilitate an effective co-operation between experienced European companies and their local partners (contractors, subcontractors, suppliers, workforce). Connecting the operation and maintenance phase which is often neglected with the design-build phase would guarantee maximum local content because such a contractual framework is conducive to the formation of long-term partnerships between European and ACP companies and would allow, in particular during the operation & maintenance phase, a significant know-how transfer to local SMEs. The DBOM model also overcomes a frequently found problem, not only in developing countries, namely that maintenance is frequently the first target for spending cuts under tightening public budgets, even if delaying preventive maintenance results in much higher eventual overall costs over the project s life-cycle. It thus leads to more accountability and transparency, as it ensures that adequate funding is available for both the handing-over period and potentially through EU Budget Support also for operation & maintenance so that the infrastructure asset, once constructed or rehabilitated, will be properly maintained over the facility s life-cycle. Last but not least, EU and Member States could easily prescribe in the tender conditions of such long-term contracts the obligatory implementation of the core labour standards for the entire duration of the project. EIC calls the specific attention of the EU and Member States to the recommendations made by the 4 th EU-Africa Business Forum which took place from the of November 2010 in Tripoli, Libya, on the eve of the 3 rd Africa-EU Summit of Heads of State and Government. In the area of Infrastructure PPPs, the Forum s Final Declaration calls on the policy-makers in the African and European Union and in the EIB to: Develop human capacity training programmes and include in tender documents requirements for know-how transfer to local contractors; Promote long-term construction contract partnerships between African and European companies with a high level of local participation (Joint Ventures, subcontractors and workforce). Energy and development Question 23: How can the EU best act to support developing countries efforts to secure sustainable energy for all their citizens? What role might, for example, an EU-Africa Joint Programme to progressively provide sustainable electricity to every citizen, combining development and climate change funding and leveraged loans from Development Financial Institutions? 6/7

7 Agriculture and food security Question 24: How can the EU s development policy best contribute to enhanced food security while safeguarding environmental qualities? Which policies and programmes are most conducive for smallholder and private sector investment in agriculture and fisheries? Question 25: Which strategic areas should the EU engage in, particularly with respect to Africa? How can the EU stimulate agro-ecological approaches in farming and sustainable intensification of agriculture, sustainable fishing and aquaculture? EIC believes that these two issues are closely interlinked since major infrastructure facilities also promote the policy objectives of sustainable energy and enhanced food security. Large dams in particular are a strategic choice in many ACP Countries, as many are characterised by good internal rates of economic return and relevant studies suggest that they would improve water, energy and food availability for poor or even very poor regions. Therefore, several large dam projects could easily be implemented as so-called fast win projects since they have been carefully evaluated and passed relevant screening criteria. EIC asks the EU and Member States to consider promoting the construction of dams in ACP Countries by: Identifying potential dam projects which deserve specific attention as far as the relevant safeguard criteria can be assured; Defining for each of them a suitable database (social, technical, economical, environmental, etc.); Preparing within a period of six months a specific report identifying suitable criteria to develop the most interesting dam projects constituting a real leverage toward inclusive growth. Berlin, 14 January /7