Mikaela Gavas: Welcome, everybody. Welcome to CGD and to this, to what will be a very interesting conversation on the EU's role in global development. I'm absolutely delighted to have the European Commissioner for International Partnerships, Jozef Síkela, join me for this conversation. The commissioner leads the EU's efforts in building sustainable development and strengthening partnerships worldwide.
He is also at the forefront of scaling up the Global Gateway, the EU's global infrastructure and connectivity plan. The commissioner has had an illustrious career as the Czech Minister of Industry and Trade from 2021 to 2024, and prior to that, in the European banking sector. Commissioner, welcome, and thank you for joining me.
Jozef Síkela: Thank you very much for having me here. Hello. Hi.
Mikaela Gavas: Super. I'm going to kick off the conversation with the Commissioner, and then I'll make sure to leave some time towards the end for questions from both the audience here in the room and online. Commissioner, let's talk about the context, the difficult context that we find ourselves in, and what the EU can do about it. In Europe, we are faced with fiscal constraints, multiple threats along our borders, a rising tide of anti-establishment sentiment. Then, across the Atlantic, a US administration which has essentially dismantled its development apparatus and its budget.
We are seeing, in real time, the serious effects this is having on international development, on people's lives. We are now faced with a situation in which international assistance is being cut across the board. It's not just the US, it's not just the UK, but it's also the EU and its member states. They have made cuts to their budgets across the board. These are substantial cuts to their aid budgets, and more are foreseen in the future. Commissioner, you have suggested that recent US actions are strengthening the EU's position and legitimacy as an international cooperation actor. Can you tell us in what way this is happening?
Jozef Síkela: I would not say that this is strengthening European's position, but I have to say that, of course, if you leave the space, you create new possibilities for the newcomers. I will be very frank that we see increased demand for more Europe, more European presence, for more European reliability and predictability. Of course, we deeply regret the decision of the US administration to cut up to 82% of the development assistance because the gap which was created is huge, and you are very right that the situation is very difficult. We see huge volatility on financial markets.
Of course, after the Lehman financial crisis in '80s, we were waiting when the next crisis will come, and nobody was expecting that it will be a multiple crisis. COVID-19 crisis, then basically the Russian war of aggression, the fully fledged war on European continent, energy crisis. Basically, the traditional rule-based order, the traditional values, the traditional alliances are questioned as well as our core values. We have to react somehow. We know and we understand that if we leave the space to Russian ambitious or the Chinese ones coming with very, very alternative governance models in some territories, that, basically, our understanding of the world order, it is not good.
We have to come with an alternate solution, and we believe that, rather than to build the walls and barriers, it is better to build bridges and gateways. The Global Gateway is one of the solutions with a value proposition of partnership of equals, which should contribute to sustainable development of the partner countries of creation of jobs, of creation of the new value chains, of allowing the countries the access to the world markets through transport corridors, but also investments in not only in hard assets, but in health care, education, because this is one of the ways how to tackle the root causes of the migration.
We know that, basically, there is a fast-growing, very young population in Africa, in Asia, in Latin America. As I already mentioned today, Aristotle has once said that the poverty is the parent of revolution. If I would translate his words in today's wording, then less economic development or missing economic development means more instability and more potential crisis in the future.
This is where we come from, and we simply came with the Global Gateway project in order to ensure sustainable development with the partner countries. Combining the public or institutional investments coming from the member states, from the member states institutions, or from the European Commission or the European Investment Bank as a team Europe with the private capital investments, because only if we will be able to attract more private investments will help us to close the gap.
Mikaela Gavas: Commissioner, we'll come on to talk about the Global Gateway and delve into it. Let's talk a little bit about the money first. The EU is currently looking at ways to ramp up its defense spending, and it's also getting ready to negotiate its future budget. This is its next seven-year long-term budget. Here we have reduced fiscal space in the 27 member states and a focus on ramping up defense spending.
There will inevitably be increased competition for finite resources. As you said yourself, development cooperation, it's a strategic necessity for long-term stability, for security and prosperity. How will you make the case for the need to balance the ambitions for European economic and military security with the EU's commitment to development?
Jozef Síkela: Let's talk in figure terms. Europe has been and will remain, by far, the biggest supporter of the development assistance and the humanitarian aid worldwide. With 90 billion yearly plus, the member states of European Union and the European Commission represents 42% of the worldwide development assistance and around 26% of humanitarian aid with not more than 16.6% share on the worldwide GDP. This is a over-proportional contribution to basically support the achievement of the sustainable development targets.
Of course, the gap, 50 billion so far provided by United States, is huge and can never, ever be covered purely, that the Europe will replace it. You are right. We have our fiscal constraints. The debt-to-GDP in Europe is, in average, 80%. We have very fiscal responsible states like Estonia with 26% debt to GDP, my home country, Czechia, with 40% plus. We have also very heavily indebted countries. You are also right that we will invest much more when it comes to defense spending.
Basically, the forecast of the economist's growth due to different factors is not extremely promising. Therefore, we also have to strive and we have to prevent measures which might basically negatively impact the forecasted economy growths, because more growths simply means more money for everything. Therefore, we still strive to find a win-win solution and to prevent things which might negatively impact the growth of the world business. As I said, the solution is to attract more private investments because we can create, with proper financial instrument, huge multipliers.
The public money invested based on the grants provided by European Commission turn to 10 times higher amount of guarantees provided with it by European Investment Bank, which might be multiplied up to 15 times when it comes to private capital investments. We can really create a big space by de-risking on one side, basically the market entry for the private investments on the other side, by helping with our counterparts in the partner countries to create more investment-friendly, more tax-friendly environment.
This is what I'm doing during all the trips I have. I've so far visited-- I think US is my 16th country. When I'm talking to represent, I'm saying “business decides”. They are asking when the investments will come, and I'm saying business decides where and when to come, but we can help to make the way easier and less risky. This is basically our approach, the combination of the public money, of the financial instruments coming from the development banks, not only from Europe, but across the globe, with basically private money, because only private investments can help to close the gap.
Mikaela Gavas: Let's talk about the Global Gateway. That's a very good segue to it. The Global Gateway is the EEAS's flagship initiative for international infrastructure investment, aiming to mobilize €300 billion between 2021 and 2027. Now, it is billed as the way for the EU to realize its ambitions of becoming a geopolitical heavyweight. It's by offering an alternative, if you like, to the Chinese Belt and Road Initiative.
Now, the Global Gateway is supposed to set itself apart from Chinese finance by emphasizing the delivery of infrastructure to the highest standards of sustainability, governance, and transparency. There are, of course, other players, not least China, which means that the EU is an important, but not necessarily the only or the most preferred partner. What is it, commissioner, about the Global Gateway? What is the offer to developing countries, and what makes it compelling in contrast to other infrastructure initiatives?
Jozef Síkela: The offer is the partnership of equals, is basically a partnership which is based on the mutual benefits. These are the investments not only in the hard assets in the hard infrastructure, but investments in the future of the population, in the future of the countries' investments in the healthcare, investments in the education. Know-how transfer, investments in the digitalization as a necessary breach for access to the information as a base for high-quality education, but also as an entry ticket for the foreign direct investments, if you, in the same time, ensure the appropriate data protection. This is about the value proposition.
What we see is that a lot of things were promised from our competitors, or if you want, rivals, and not everything was delivered. We rely on the delivery. We want to be a trusted, and we do not hide, also a preferred partner, because we believe that our value proposition, when it comes to sustainable development, is simply better. I am more than pleased to see that, in many countries, we are subsequently becoming a preferred partner. Our issue is not to have troubles to seek for a new project, but simply to be able to attract enough investments to fund the current ones and to open the new ones. Also, in light of the situation that in some of the projects, we teamed up with institutions.
Mikaela Gavas: As you said, the Global Gateway, I mean, it has European interests at its core, but the interests of of your partner countries are absolutely crucial to making it a success. How are you aligning your investments with local development needs and priorities?
Jozef Síkela: I think this is one of the preconditions. To be successful in this area, you have to have a clear alignment with the local authorities. Of course, in the fragile context, we do not collaborate with juntas or with basically non-democratic regimes. In the normal world, we simply sit together with the local authorities, and we discuss because the part of the investments are definitely also the investments in the small businesses, in the small and midsize businesses, of having a very high investment multiplicator. We need to understand the needs of the countries, and if the needs are respecting, basically our principles, means that the investment should be sustainable.
Means we prefer to invest in clean energy production. We want to have environment-friendly extraction of the minerals and raw materials based on the most modern methods, simply protecting the nature. We want to have sustainable transport and sustainable transit. This is also very much about our climate targets, because if we will help to create value chains in the partner countries, if we will be able to limit basically the maritime cargo in the area of non-processed, not refined raw materials like iron ore. If you ship a purely iron ore, it makes a big difference if you are able to produce ingots, for example, on the spot.
Cocoa beans. There is plenty leading producers of cocoa beans in Africa, but they are not able to produce any single bar of chocolate. You ship the cocoa beans, and if you want to have a chocolate in Africa, you send it to Shanghai, and you import it. This is about the creation of the sustainable production in the countries of origin. We can be successful only if we allow them access to the world markets. This is about the ports, about the transport corridors.
For example, the green transport corridor in Democratic Republic of Congo, very unique project, connecting the three natural parks, protecting the biggest rainforest in the world. Where we see that basically our investments in the green energy, so small hydro power plants are helping to establish a sustainable agriculture production. This agriculture production should go to the markets in Kinshasa because it is not an easy issue, this is a 2,800 kilometer. Then the capital of DRC is now mainly supplied from Brazil.
Basically, these investments can help to achieve a lot, can contribute to more free and move the business across the continents, can basically solve the issue of the very young population in this continent, which will seek for the jobs. We know that there will be 1.2 billion people looking for the future, for the jobs, and we have currently only 400 million jobs for them.
It creates a huge crisis potential for the future. We can help with emerging process, with sustainable development on spot. Of course, we do not hide that our interest is also to ensure strategic raw materials, which we want to buy on a very fairly base with our partners in order to ensure the needs for the green and the digital transition in Europe, where we see simply the future.
Mikaela Gavas: With regards to the private sector, which has been somewhat elusive in this endeavor, how are you planning on scaling up the Global Gateway, incentivizing the private sector? You talked about your risk-sharing instruments, and yet still, there has been very little participation or engagement of the private sector. What needs to change?
Jozef Síkela: I tend to disagree. Of course, some of the grants provided by the European Commission, that they are helping to invest, although in things where the monetary result is less important because this is simply the right thing to do. Of course, the private investors are looking for maybe a decent, but definitely a long-term sustainable yield. For example, my experience from Tajikistan from the huge project of the Rogun hydropower station, which it'll be the highest natural dam in the world, 380 meters. This is a project where the World Bank is involved, or the World Bank Group, and where basically now the European Investment Bank will come with a loan with assistance of the European Commission. There is a huge interest of companies.
When I was basically visiting the spot and talking to them and basically discussing with them other similar projects in the region of Central Asia or in other continents, they said, "We need more. We are interested. These other things we want to do." They also see the potential of the new markets of the diversification and other things which are, in this fragmented world, very important when it comes to future business development.
Mikaela Gavas: What do you do in those markets which are less established or even fragile countries?
Jozef Síkela: Well, despite the fact that the convection engines are slowly less popular and they are known for the gearbox. I like to use the gearbox example that, of course, in the most fragile context, we have the gear one, where we provide very basic humanitarian assistance, usually with help of the local NGOs. Of course, I would say the biggest issue is solved, then you come with a gear two, and you add a basic economic services.
Subsequently in the more mature markets, you go up to the gear five, where you then have a fully fledged projects with involvement of the development banks and the private institutions where you also discuss with the local authorities what is to do on their side when it comes to legislation, which agreements we need to sign. Of course, we have this like a step-up approach because we understood that we cannot come with a very universal product and we have to simply have a tailormade solutions for different markets.
Mikaela Gavas: You mentioned the banks. Let's talk a little bit about how you collaborate with the multilateral development banks. We know that many low and middle-income countries are facing mounting debt burdens. It's limiting their ability to invest in critical infrastructure and sustainable development. As you said, the need for more concessional finance, debt relief, blended finance, guarantees, all these instruments, the need has never been greater. Given the growing investment gap in developing countries, how do you work with the World Bank, for example, to fill that gap?
Jozef Síkela: I think that the collaboration with the majority of the development financing institutions, it's very good. I think the World Bank has a very good established risk management structures. Usually, the World Bank is very welcomed partner because basically the World Bank structures are also guaranteeing that basically the money which will be invested will be also repaid. As I know, the defaults or the write-offs, are very limited, and they have, in particular cases, completely different reasons than economic background.
What I want to say is that loan is a very important and the financial instruments very important product, and should be used in very appropriate way because it is like a fire. It is a very good servant, but might be a very bad Lord. We saw in the past loans where it was obvious granted by our competitors, it was obvious that basically there will not be possibility to repay the loan by normal economic terms. The loan might be then misused. For a next period, to negotiate, make much harder conditions for the borrower.
This is not the way how we want to collaborate. Basically, to use on our side institutions like European Investment Bank, is allowing us not to maximize the profit, but simply provide the financing for, I would say, reasonable conditions which are available for our partner countries. Because our aim is not the profit from the interest, but the success of the project and the economic effects and the economic benefits from the jobs which will be created from the tax contributions to the social systems in the countries, from the profits of the companies which are collaborating here and not on the level of the ringfenced financing instrument.
When I see the equity equipment of the major financial institutions, and I'm talking about, for example, the European Investment Bank, I believe that we are well equipped for this competition in the south countries.
Mikaela Gavas: Excellent. Commissioner, just one final question from me before I open up to the audience. Here we are at the World Bank, IMF spring meetings. What are you hoping to get out of these meetings?
Jozef Síkela: Of course, we are meeting on the regular base, so I am also coming with my contribution. I am coming with a clear statement that we will stick to our obligations. As I said, I would be pleased if we can basically use this already established base for a much broader collaboration in the future. Coming from the private sector and from banking, I know that there is always a need to change the things to review to be more efficient. This is everything where we are completely fine. I will be more than pleased to contribute to this effortto be more streamlined, more focused, more effective.
On the other side, design institutions where basically plenty of countries, 109, are represented with their shareholder rights and with their interests. I think all the governance changes must undergo a deep strategic discussion in which direction we want to move. I strongly believe that the right direction is more investments, of course, based on feasibilities and based on impact studies, less ideological one, which will contribute to the main target, to sustainable economic development across the globe.
Mikaela Gavas: Brilliant. Thank you, Commissioner. Any questions? I see one at the front and over the back. Please do introduce yourself before you ask your question.
Audience Member 1: Thank you, Commissioner. Tim Wainwright, chief executive of WaterAid, an NGO, working across the world on water sanitation hygiene. I'm worried about water. There was already billions without access. Climate change is manifesting itself in different and chaotic ways around the world. Europe's getting drier, South Asia is getting wetter, and you see East Africa whiplash, going from dry to wet to dry to wet and creating major risks including, I think, beyond the obvious risks to health and economic growth, also may be national security even.
I just wondered, given the member states' vast experience in water management, a lot of value to add, where is water sitting in your thinking around the Global Gateway? That was my question.
Jozef Síkela: Very top, very high ranked when it comes to priorities. I was talking about Central Asia. Central Asia is known for water management problems. Basically, some of the major projects where we are involved should help, basically, to a better water management and the better water distribution across the Central Asian countries. This is not the only thing I think. We have the same issues in big parts of Africa, in Latin America as well. Basically, all investments in the environment protection and water management are very high in our agenda, and we will continue with the support.
Mikaela Gavas: Great. Thank you. We'll take a couple and then come back to you, Commissioner. There was one over there, and then over there, and then we'll go online as well.
Jozef Síkela: Maybe just to add, the MENA area, the Middle East and North Africa, if you look how the population is increasing, we will very soon reach above one billion population in the area. The desalination need, the need for drinking water, will be huge. This is also about electricity because for desalination, you need electricity, preferably the sustainable electricity production. As I said, water is very important. Sorry.
Mikaela Gavas: Great. Thank you.
Audience Member 2: Thank you for your comments this morning. My name's John Myers. I work in blended finance. I'd like to just mention or hear your response to the topic of remittance flows. Remittances, there's about 110 billion coming out of the EU globally. How are those being leveraged, encouraged, or somehow captured-- not captured so much, but leveraged to support more direct finance in other countries?
Mikaela Gavas: Thank you. Commissioner, we'll just take a couple and then I'll come back to you. Yes.
Audience Member 3: Hi. Thank you, My name is Samantha Attridge
Jozef Síkela: Hi, hello
Audience Member 3: -from ODI, a global think tank. I'm just curious with the Global Gateway and the idea about mobilizing private capital, but actually, have you got any observations on the development of sustainable finance regulation and EU green taxonomy? There are a number of European institutions. EIB has mentioned how this actually constraining the agenda and working in the opposite direction, as well as EDFI, the European Association of Development Finance Institutions.
There seems to be a tension. Europe is pushing, but then there's another dimension which is actually potentially working against this. How do you see this? Have you had any thoughts on this? Is there any intention to look at this potential negative spillover of regulation being developed in the EU on this agenda?
Mikaela Gavas: Last one, and then we'll come back to the commissioner.
Audience Member 4: Thanks very much, Commissioner. Holly from the Africa Arab Foundation. You mentioned about the global Gateway, 150 billion are actually dedicated to Africa, so wanted to hear a little bit your thoughts about how do you see the Africa partnership evolving forward? What's next, as well, for the next cycle of Global Gateway, and what will be your expectations for the next summit, EUB? Thank you.
Mikaela Gavas: Great. Commissioner, we've got remittances, regulation in the EU, green taxonomy, and Africa-EU part.
Jozef Síkela: To be very honest, I did not get basically the background of your question. You were talking about 110 billion of remittances.
Audience Member 2: There are efforts to leverage, encourage, or support. I asked for finance and largest-- because 110 billion a year is a lot more than what the EU does on a bilateral level.
Jozef Síkela: I think remittances has become, since the beginning of the millennium, basically, the major foreign money flow worldwide. Basically, the sum is higher than the all foreign direct investments worldwide, I think, since 2008, leded by India, followed by China. The major issue is basically how to ensure that this money, which is, of course, warmly welcome in receiving countries and families, will be delivered to a maximum possible extent because the cuts on the way are huge. We are here talking about 20%, 30%, even more, which is very profitable business for someone, but very bad message for basically, the owners of the money and the final beneficiary.
One of the possibilities is basically to help to build the financial services systems in the countries where there will be a possibility to deliver this money cheaper. I am aware about the problem, and in some of the countries, it is a major problem. In some of the countries, which are very strong when it comes to fintechs, they are trying to solve the problem by themself, by very innovative like a mobile phone applications, and, and then. Because, surprisingly, we are not able to deliver the money, but we are able to deliver the mobile phone signal. Your question was about?
Audience Member 4: Regulation and attention.
Jozef Síkela: Regulation and attention. I saw that you were asking the distribution. Regulation and attention?
Audience Member 4: The EU has developed sustainable finance regulation, and this may include EU [crosstalk], which may work in the opposite direction to the intention of the Global Gateway.
Jozef Síkela: Of course, there is a big discussion currently, and I was on the beginning saying that we stick to our decarbonization targets and to Paris Agreement because, simply, I think the climate change is like a disease. If you do not talk about it, it does not disappear.
We will, anyway, have to tackle this issue probably with much higher cost in the future. The issue is that, in Europe, we are partially reaching to the marginal costs so that each and every safe ton of CO2 is getting extremely expensive. We can basically achieve the same proper by investments in sustainable electricity production or transport in other continents. I do not see a contradiction there. I said that we have to become more pragmatic, and we have to work with more feasibilities and impact studies because we should invest in the things which are achievable, and we should do it on a cost-efficient way.
Maybe not to invest in the most advanced products there, where it is not appropriate, but in very simple solutions. Sometimes when you change the color of the buildings, when it comes to basically temperature inside, you can achieve a lot. In some of the countries, we really have to move step by step. Of course, the investments in the green and energy production, like solar, water, and wind, mainly based on the local grids, is the priority for us.
Audience Member 4: Commissioner, very similar to [crosstalk]--
Mikaela Gavas: Sorry, sorry, sorry. We need to move on because, actually, we have one minute left. Commissioner, there was one final question on the Africa-EU partnership. A few words on that.
Jozef Síkela: The plan of the Global Gateway is to mobilize investments up to €300 billion, and half of the amount, up to 150 billion, should go to Africa. When I see basically the current development, we have committed already 170 billion, and when I see projects like the Port Cotonou, Nachtigal in Cameroon, like the Lobito Corridor or the Green Corridor in DRC, these are game changers.
These are basically projects which will, in the future, positively impact the lives of millions of people. Of course, these projects are also provided with projects when it comes to education, know-how transfer and, and then. I don't know if it's satisfying you, but Africa and the investments in Africa, they have the top priority when it comes to Global Gateway agenda.
Mikaela Gavas: Brilliant. Were there any questions online, Sara?
Sara Casadevall Belles (CGD): Yes.
Mikaela Gavas: If we could just hear one of the online questions.
Sara Casadevall Belles (CGD): Thank you. There were plenty of questions online, but I picked up on one. They were asking, how is the commission and impact planning or thinking to improve strategic coordination among European shareholders in the FIs, such as the World Bank Group?
Jozef Síkela: The concept of the team Europe is based on the strong national teams. Therefore, when I was talking about the 16 visit countries, of course it includes the member states countries where I'm basically visiting the governments, the prime ministers, the responsible ministers, where I'm trying to align team Czechia, team Germany, team Italy activities with my DG INTPA activities, because the concept is based really on team Europe.
What we are doing parallelly is simply the information flow because there is a national agenda, and the national interests where basically the countries are acting by themself, and we are providing a certain coordination role. They also see additional opportunities where they want to involve the European Commission and the European Investment Bank in order to basically increase the scale. On the other side, of course, we are trying in the projects we are involved, to onboard the member states and their institutions where we see that they have their strengths, and they have the necessary know-how for the project we need.
Because sometimes it starts with the discussion about 200 electro buses for the capital in Latin America, and then ends with the discussion about electro buses for the whole country, with the fleet management, with the e-ticketing system, with the driving schools for female drivers. Basically, this is then the role where you have to collect the best offers from the national teams in order to be competitive. This is basically the strengths and the know-how we have rather than to compete on the single product or single service level.
Sara Casadevall Belles (CGD): Thank you.
Mikaela Gavas: Super. Thank you very much, Commissioner, for-
Jozef Síkela: Thank you.
Mikaela Gavas: -this conversation.
Jozef Síkela: It was very interesting discussion.
Mikaela Gavas: Likewise. Very interesting for us. We hope to continue the conversation with you going forward. Thank you all for coming.
Jozef Síkela: Thank you.
