Questions and answers about the Public Sector Investment Facility (PIF) for developing countries
How does the PIF differ from concessional credits?
The PIF was created for investment needs related to the achievement of sustainable development targets in developing countries.The new instrument will be used to finance investments in the least developed countries (LDC), while concessional credits were suited to the financing of slightly richer countries. The economic resilience required for financing to be granted will be ensured using Finnvera’s OECD credit rating, IMF’s debt sustainability assessments and the overall assessments of development policies carried out by Finnish embassies.
A round of comments will be arranged twice a year for concept papers regarding the new instrument. This means companies will know early on whether their project is suitable for PIF funding.
The maximum share of construction expenses has been set at 20 per cent in PIF projects. The minimum level of funding for boosting capacity and ensuring the overall sustainability of the investment has been raised to 10 per cent.
How will the new instrument ensure development impacts?
The development impacts of PIF projects will be thoroughly evaluated. They constitute the basic requirement for funding decisions. The impacts will be reinforced by the partnering countries’ strong ownership and the allocation of PIF credits to projects that help developing countries achieve sustainable development targets and the targets set out in their national development plans. Human rights, social and environmental impact assessments will be carried out for the projects. The assessments will involve both external experts and development cooperation resources of the foreign affairs administration.
The maximum level set for construction expenses will reduce the risk of corruption in local subcontracting, while the minimum funding for capacity strengthening will improve the long-term sustainability of investments.
What does the involvement of Finnish competence mean in connection with PIF projects?
The company implementing the project must be registered in Finland, and the Finnish project content must meet the level approved by Finnvera, a state-owned specialised financing company. The level is determined in Finnvera’s effective set of norms.
At present, it usually means that around one-third of the content must be of Finnish origin.
What size of projects can receive funding through the new instrument?
PIF projects will be funded with loans granted by commercial banks to the administrations of developing countries. Owing to transaction costs, banks do not grant loans under 5 million euros, which thus defines the minimum size of projects. The budget of the Ministry for Foreign Affairs, in turn, sets the maximum size at some 30 million euros.
What are typical examples of projects suitable for PIF funding?
PIF funding is available for projects that are profitable for the national economy but unprofitable from a business perspective. Projects whose implementation would most likely benefit from Finnish competence include rural electrification; the construction of solar, hydro and wind power plants, waste management plants and water supply in poor regions; equipment needed for education and health care; and ICT networks in rural areas. Special skills are also required for coastal surveillance radars to combat piracy, as well as for logistics devices, weather radars and dredging equipment for opening waterways and satisfying the needs of fishing.