BR Interview | Christian Kettel Thomsen (EIB VP): EIB to focus on private sector growth and FDI in Romania

Mihai Cristea 11/06/2021 | 16:28

Christian Kettel Thomsen, European Investment Bank (EIB) Vice President responsible for Romania, talked to Business Review about the sectors the institution supports in Romania, its future plans for our country, and how it fosters sustainable investments with a lasting impact on the local market.

By Anda Sebesi

 

How do you think the Romanian economy has evolved since the EIB started operating in the country back in 1991?

Over the last thirty years, the Romanian society and economy have seen immense and impressive changes, with both new opportunities and ongoing challenges. During this period, Romanian business has opened up to new markets across Europe and the wider world, embraced the European Union membership, and welcomed foreign investments in all sectors.

Over the last three decades, the EIB, the world’s largest international public bank owned directly by the 27 EU member states, has worked with private and public Romanian partners to support transformational investments that were essential for the growth and competitiveness of Romanian business. Since 1991, the EIB has provided more than EUR 15 billion of financing that has helped transform economic opportunities, improve lives, and strengthen essential infrastructure in Romania. This has included improving road, rail, maritime, and air connections and enhancing energy supplies, all essential for the operation of small business and large companies.

We have helped ensure that private sector partners could invest in people and operations by providing credit lines with local banks and by working with Romanian universities to train skilled researchers, physicians, and engineers for the future. Continued support to private sector growth and Foreign Direct Investment are key objectives for the EIB’s engagement in Romania.

 

What are the main targets of the EIB’s intervention in Romania in terms of sectors?

The EIB’s broad engagement in Romania supports investment across a wide range of sectors. One third of our activity in Romania ensures that Romanian small business and larger companies can access financing to replace or upgrade their equipment with more energy-efficient one in order to cut bills and emissions, increase production capacity, and invest in people by expanding specialised training. Over the last five years, the EIB has provided nearly EUR 1.5 billion for private sector investments across the country.

Within the EIB Group, we are able to support targeted SMEs credit lines with commercial banks and, through the European Investment Fund (EIF), to support innovative equity and venture capital investments as well as provide guarantees to expand private sector lending and back inclusive financing and micro-finance in order to tackle specific investment gaps that are holding back Romanian business and local entrepreneurs. A recent analysis estimated that financing provided by the EIF has backed investments that have generated more than 281,000 jobs across Romania, as support went to more than 34,000 local companies.

Alongside the assistance provided to the private sector, the EIB also supports significant large scale infrastructure investment that boosts private sector development and improves lives, by upgrading transport infrastructure, strengthening agricultural production, improving water networks, expanding clean energy generation, energy efficiency and distribution, and accelerating urban development. More recently, the EIB has scaled up its support to tertiary healthcare and higher education infrastructure and will continue diversifying its portfolio towards these essential sectors, in addition to climate-friendly investments in the transport, energy, and urban regeneration sectors to contribute to building a more resilient and sustainable Romanian economy.

 

What are the EIB Group’s investment priorities in Romania?   

Last year the EIB and the EIF backed new investments to improve higher education, water distribution, and energy efficiency across Romania, as well as to strengthen targeted financing for entrepreneurs and companies in the country, following agreement of more than EUR 800 million of new financing with Romanian public and private partners.

Crucially, the EIB Group’s recent engagement has included streamlined and scaled up financing to ensure that Romanian companies can continue to make investments and that they are better prepared to face the business, health, and economic challenges posed by the pandemic. Reflecting the importance of encouraging private sector investments to continue despite the unprecedented issues caused by the pandemic last year, some EUR 600 million of new private sector support was agreed between the EIB, the EIF, and leading Romanian financial partners.

The EIB and EIF also backed the first ever synthetic securitisation deal in Romania, which will strengthen specialist leasing finance and enable Romanian companies to upgrade manufacturing equipment and transport fleets. This enhanced engagement to back investment by Romanian companies includes targeted business investment, specialist schemes to facilitate leasing by agriculture, manufacturing, and service companies, and more inclusive access to finance across Romania in remote regions and by vulnerable communities.

Enabling companies across Romania to continue their investments is essential for Romania to overcome the economic, employment, and social challenges caused by COVID-19. Hundreds of companies across Romania are taking advantage of the EUR 190 million of private sector financing provided by the EIB through CEC Bank, Intesa Sanpaolo Bank Romania, Unicredit, and Sogelease to support the sectors that were most affected during the pandemic. The crisis response financing schemes allow working capital expenses including payment of salaries, social security and tax, all without a minimum maturity requirement to help mitigate the economic impact of COVID-19.

 

How does the EIB support sustainable investment in Romania?

As the Climate Bank of the European Union, the EIB is uniquely focused on unlocking new investment that makes a lasting difference and supports long-term sustainable growth. A year ago, the EIB launched its first streamlined higher education financing scheme in Romania, which will facilitate and accelerate large-scale new investment to improve teaching, research, and innovation at institutions across the country over the coming years. The first two loans have been agreed with the Technical University of Cluj-Napoca and the “Carol Davila” University of Medicine and Pharmacy in Bucharest, following a first ground-breaking loan to the Bucharest Politehnica University in 2019.

The new EIB backed Artificial Intelligence Research Institute at the Technical University of Cluj-Napoca

The new investment will help accelerate strategic development, enhance research facilities, and strengthen education to benefit students and researchers in the coming years and make a significant contribution to improving skills which are essential to enhancing economic and social growth in Romania and slowing down the brain drain of young Romanians leaving the country and taking their skills with them.

The EIB is also in talks with other higher education institutions across Romania to support their investment plans and allow university investment to benefit from long-term financing and the EIB’s unique technical experience in education investment across Europe. Health services in Romania are also being strengthened following many years of technical engagement with the EIB’s specialist teams in Bucharest to ensure that new financing has a lasting impact. The EIB recently agreed support for the construction of a new Regional Emergency Hospital in Iasi – the first state hospital to be built in Romania in 30 years – and in the coming months the EIB expects to finalise support plans for new regional hospitals in Craiova and Cluj. In both education and health, the EIB advisory has been key in the upstream and project preparation phases. Our Financial Advisory team has helped universities prepare the necessary financial information in order to successfully finalise the lending due diligence. For the emergency hospitals, the EIB advisory has supported the Feasibility Studies and is now assisting the project team in the Health Ministry in implementing the procurement of design and construction works, as well as many other tasks linked to this complex landmark infrastructure.

 

Can you talk about the EIB Group‘s environmental actions?

As EU’s Climate Bank the EIB adopted a detailed Climate Bank Roadmap last year, which will ensure that all EIB-backed projects, not just energy investments, contribute to cutting carbon emissions and adapt to a changing climate. This will increase the EIB’s financing for climate action and environmental sustainability from 30 to 50 percent.

The Roadmap will enable the EIB to become the first Multilateral Development Bank to be fully aligned to the Paris Climate Agreement and will ensure more ambitious support for investment across Europe and around the world to accelerate climate action, cut carbon emissions, and create new jobs in the green economy. Since 1991, the EIB has provided more than EUR 1.2 billion for energy investment, including gas and power distribution, harnessing wind energy, and implementing large scale energy efficiency and energy rehabilitation schemes across Romania.

In Romania, this will mean that the EIB will aim to scale up energy efficiency investments by backing larger programmes with local banking partners and using both EIB and EU financing. The EIB has also submitted a number of policy recommendations to the Romanian central bank to boost investment in both renewable energy and energy efficiency and to support Romania’s National Energy and Climate Plan. In the coming years, the EIB will play a key role in implementing the new EU Modernisation Fund, both appraising projects and financing schemes with up to 75 percent of eligible project cost, compared to the usual 50 percent limit. And we’re looking forward to building on technical discussions with Romanian authorities on how to better leverage the new EU resources made available through the Just Transition Mechanism in order to help those regions in Romania which are more reliant on carbon-intensive industries to reconvert and plan out a fair transition to a low-carbon economy. Finally, the EIB and EIF, building on the success of the SME Initiative, are working with the Romanian government and commercial banks to set up financial instruments that leverage EU resources from the Resilience and Recovery Plan in order to boost green and digital investments by small, medium, and large enterprises in Romania. The financial instruments will also offer equity and solvency relief to the market. Developing good, bankable projects on the ground is essential though. EIB advisory services, provided under the Advisory Hub, such as ELENA or JASPERS, can help get projects off the ground.

Business support provided by EIF partner ROMCOM

The EIB’s advisory also supports Romanian authorities in improving the regulatory environment. The EIB has joined the Green Finance Working Group, led by the National Bank of Romania and includingvarious government bodies and commercial banks, and had made specific recommendations to unlock and boost green financing across the country. Furthermore, the EIB has advised on the improvement of Romania’s energy efficiency legislation.

 

As one of Romania’s long-term financial partners, what do you think the country should do to attract more investments and reduce the economic gaps between itself and more developed countries?

The EIB Group survey on investment in Romania highlights the impact of COVID-19, leading to a sharp drop in investment and subdued activity by both government and business. 60 percent of Romanian companies we contacted felt that they had invested enough over the last three years, compared to 80 percent across the EU. For one third of firms, replacing capacity was a key priority, followed by another third wanting to expand capacity. Only 37 percent of companies were investing in measures to cut energy use and reduce emissions. 72 percent stated that the shortage of skilled staff was holding back investment.

Based on these and earlier findings, the EIB is working with Romanian banking partners and universities to unlock new investment to expand industrial capacity, increased vocational and technical training, and provide targeted financing to help and encourage businesses to invest in energy efficiency. We are also helping to strengthen overall investment in innovation, research and development, and digitalization to strengthen the competitiveness of Romanian business. Reducing investment gaps is possible, but continued investment is key.

 

What should be Romania’s investment priorities?

Across Europe and around the world, the pandemic threatens to delay long-term economic and social development, creating a lost generation of young people who are missing out on key skills and jobs, and causing the private sector to delay crucial investments because of business uncertainty or challenges in accessing long-term financing.

Romania has boldly responded to the COVID-19 crisis, with fewer Romanian companies having delayed investments compared to the EU average. Upgrading healthcare infrastructure, investing in modern higher education, and committing to further green up the energy mix must be long-term goals for Romania, and hence for our own lending activities in the country, supported by the EIB’s technical experts in Bucharest, one of the EIB’s largest offices worldwide, as well as our Luxembourg headquarters.

The EIB Group’s business model remains demand-driven and we are grateful for the excellent close cooperation with key Romanian ministries and private sector partners to make sure that together, Romania and the EU Bank can harness the opportunities of the Just Transition Fund and Resilience and Recovery Facility to the fullest.

 

What are the EIB Group’s future plans in Romania?

The EIB and EIF have a strong and diverse pipeline of new investments in Romania, with a number of innovative and exciting projects in healthcare, education, microfinance, and private sector expected in the coming months. We also expect to confirm EIB support for new schemes to improve road safety across the country, long-term financing to expand and update regional water infrastructure, following support last year for water schemes in Cluj-Salaj, and new initiatives to support business financing and municipal investment. These investments will benefit citizens and businesses across Romania and strengthen skills and opportunities for many years to come.

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