Innovation Europe > News > Innovation EU Vol2-1 > European Investment Bank - Funding the future

Eva Srejber

European Investment Bank (EIB) lending in support of public and private-sector innovation projects grew a record 46% in 2009 as part of the European Investment Bank wider response to Europe’s economic and financial crisis. The European Investment Bank is committed to maintain high-level support also in 2010 – and will contribute to the development of Europe’s 2020 strategy for smart, sustainable and inclusive growth. A special emphasis this year will be on research infrastructures.

As the long-term financing arm of the European Union, it was natural for the European Investment Bank to respond to the request in December 2008 from the 27 EU member states to lend more in support of the real economy in Europe. A large part of this extra lending concerned private-sector investments in research and development, which risked being cut as companies had to cope with the sudden change in business conditions caused by the credit crunch.

In its response to the economic and financial crisis, the European Investment Bank was able to use its strong expertise in supporting innovation projects in the European Union through the Risk Sharing Finance Facility instrument developed jointly with the European Commission in 2007. Overall, European Investment Bank was able to increase lending in 2009 to what we call broadly the “Knowledge Economy” to e18.2bn from e12.5bn in 2008.

The European Investment Bank has had a specific lending window for the Knowledge Economy since the European Council in Lisbon in 2000. This covers not only research and development, but also investments in information, communication and technology (ICT) and support for higher-education institutions, all of which are important and interactive ingredients in helping improve European competitiveness.

Between 2000 and 2009, out of total lending to support the Knowledge Economy of e87 bn, R&D projects accounted for some e46bn, split between the private sector and public-sector facilities, universities, and science and technology parks. Lending for education and training, usually infrastructure such as school buildings, amounted to e18bn, while e20bn went to projects in ICT, including advanced telecommunications networks and state-of-the-art ICT production facilities such as semiconductor production plants.

On average in 2007-09, the European Investment Bank provided e7.6bn annually in loans for research and development, accounting for around half its total Knowledge Economy lending, and corresponding to 3% of EU27 investments in R&D during the period.

Projects financed in 2009 by the European Investment Bank included a e250m loan to Danish wind turbine makers Vestas Wind Systems A/S for research and development into new turbine generators. This project should result in reduced costs for generating renewable energy – in line with the EU’s climate change policy goals.

The European Investment Bank also lent e56m for the construction of a new campus for Austria’s Institute of Science and Technology (ISTA). Once the institute is fully operational in 2016, it plans to open a graduate school for the training of PhD students and host post-doctoral fellows.

However, one of the biggest increases in activity concerned the automotive sector, following the launch of the “European Clean Transport Facility” as part of the European Economic Recovery Programme. To help meet new CO2 and other emissions targets and maintain R&D for greener cars throughout the downturn, the European Investment Bank launched a e8bn lending window covering 2009 and 2010. Apart from cars, ECTF addresses also the air, rail and maritime sectors. In 2009, European Investment Bank signed e3.1bn with car manufacturers under the ECTF window, out of total lending to the automotive sector of nearly e6bn. Projects varied from R&D to improve traditional combustion engine technologies to the development of new electric vehicles.

One of the examples of European Investment Bank support to the aircraft industry under ECTF, was a e300m loan to French engineering company Safran for the development of a new generation of aircraft engines. In addition to projects that qualified for support under ECTF, the European Investment Bank also helped support RDI for greener, safer buses and trucks, and safety technology.

2009 also showed a rapid increase in the number of projects approved under the Risk Sharing Finance Facility. This special window for more risky RDI loans was created in 2007 together with the European Commission. One billion euro from the 7th Research Framework Programme of the EU together with one billion euro from the EIB was set aside to create a capital cushion for possible losses on these loans. Sharing the risk of losses in this way enables the European Investment Bank to lend several billions over the years for the benefit of RDI.

In 2009, lending under RSFF grew rapidly to nearly e3bn, compared to e1bn in 2008. The current pipeline includes projects for around e2bn. Part of the increase was explained by higher demand from the automotive sector: signatures included a e60m loan to Spanish auto parts manufacturer CIE Automotive SA for R&D into weight-reducing designs and materials. However, the RSFF portfolio is well-diversified between the life science (23%), engineering (40%) and renewable energy (18%) sectors, with the balance made up by research infrastructures and small- and medium-sized companies (SMEs).

European Investment Bank provides support for research infrastructures in order to keep Europe at the forefront of science and technology. One of those projects includes Alphasat. It will be the first satellite to be launched using a next-generation satellite “bus” developed by the European Space Agency and the French agency CNES. It will extend high-speed data and voice communications to remote parts of Europe, Africa and the Middle East and will provide “open access” for research organisations playing the role of a research hub.

The European Investment Bank has also this year financed the construction of a fourth- generation free electron laser at the large electron-accelerating synchrotron facility in Trieste, completing the second phase of a project which was partly financed by the Bank in 2004. This project will facilitate the study of surfaces and new materials at the atomic and sub-atomic level.

The Bank is also closely following other projects identified by the European Strategy Forum on Research Infrastructures. The European Investment Bank aim is to support all areas of the Knowledge Triangle: innovation, research and education. All three components are important in improving the productivity of the EU. Research and innovation drive the knowledge frontier and create applications and enabling infrastructures, while education enhances the skills to innovate.

The European Investment Bank raises finance by issuing bonds on capital markets. Thanks to its owners – the EU’s 27 member states – and its own solid capital base it can raise this money on favourable terms. The European Investment Bank aims to pass on this financial benefit to project promoters, its customers, either directly, in the case of larger loans, or indirectly via partner banks and financial intermediaries.

Part of the indirect lending of the European Investment Bank is directed at SMEs and Mid-Caps, acknowledging their importance as early adopters of more innovative processes as well as innovators.

In early start-up operations in the field of Innovation, the high risk profile of the companies may demand an equity-type of financing rather than a loan. The European Investment Bank can accommodate this through the European Investment Fund (EIF), whose shareholders are the European Investment Bank (with 62% of the capital), the European Commission (30%) and several European banks (8%). The EIF operates in support of SMEs, not through direct investments, but through equity investments in venture capital funds that support in particular early-stage and technology-oriented SMEs. In 2009 its equity commitments amounted to some e733m, bringing net commitments to e3.9bn at year end.

For venture capital investments, EIF uses its own resources, as well as resources from the European Investment Bank and from the European Commission’s Competitiveness and Innovation Programme (CIP), from member states and regions through the Joint European Resources for Micro to Medium Enterprises (JEREMIE) initiative and other third parties.

With investments in over 300 funds, the EIF remains the leading player in European venture capital, as well as small to mid-cap funds and is constantly broadening its investment strategy. In 2009 it conducted a strategic review of technology transfer funds, paving the way for new activity in this area in 2010.

A key challenge for the EU going forward will be making best use of tight resources. As the European Commission says in its Europe 2020 Strategy for smart sustainable and inclusive growth, budget consolidation programmes should prioritise growth-enhancing items, such as education and skills, R&D and innovation and investment in networks. The European Investment Bank stands ready to help the EU to leverage its limited resources and make the 2020 Strategy a success.

Eva Srejber is EIB Vice President responsible for knowledge economy lending.

For more information, visit:
Website: www.eib.org 

 

CASE STUDY

The European Investment Bank Board of Directors approved in February an offer of up to e300m towards the construction of the best-performing telescope in the world. The European Southern Observatory’s planned 42-metre diameter European Extremely Large Telescope (E-ELT) is designed to provide new insight into objects in our solar system and the first-ever images of earth-like planets around other stars and distant objects created at the birth of our universe, helping scientists answer fundamental questions regarding planet formation and evolution, the planetary environment of other stars, and the study of black holes and other astronomical phenomena.

ESO is an intergovernmental organisation set up in 1962 that is based in Garching, near Munich, Germany, and which operates a world-leading suite of telescopes in Chile. The E-ELT is one of the flagship projects identified by the European Strategy Forum on Research Infrastructures in 2006 as being of pan- European interest for the continent’s scientists and researchers. The European Investment Bank finance would partly be provided via the Risk Sharing Finance Facility, set up with the European Commission in 2007. The European Investment Bank finance could cover up to 30% of the total project cost, estimated at around e1bn, and help ensure the full implementation of the project targeting the start of operations in 2018.