NIB President: Investment needs require innovative financial solutions
The Baltic Sea Region is part of a competitive world. We need high-quality infrastructure, a closely integrated energy sector, an intelligent transport system. The region’s green growth that depends on the wellbeing of the eco-technology sector faces the problem of capital constraints. This creates a need for innovative financial solutions.
Much analysis has been done on the factors that distinguish successful regions from unsuccessful ones. Good governance, efficient administration, a supportive business climate etc. are, as experience shows, determining criteria.
Furthermore, there is a need for high-quality infrastructure. This requires substantial investments. At the same time, public sector finances are increasingly tight in many countries. And the new regulatory framework for banks (Basel III) will make it more difficult for the financial sector to provide long-term capital.
This creates a need for innovative financial solutions. Different models will be needed, involving international and national financial institutions as well as public authorities. Well-structured public-private partnerships can provide an effective mechanism for mobilising private sector competence and funding capacity. Effective use of budgetary resources is another area in which partnering with international financial institutions can be useful due to the financial assessment and safeguard procedures they apply.
In the quest for green (or blue) growth we have to ask what the key drivers are for eco-innovation. On the one hand an enabling environment is needed. On the other hand the most effective economic agent, price, has to be set right. And it is essential to keep in mind that policy makers cannot pick winners! Their role should be confined to ensuring a playing field, which fosters innovation and rewards effective solutions. If there is no fertile ground for new business, it will fail, regardless of state intervention. Green growth has to be founded on genuine competitive advantages.
The eco-technology sector is composed of a few relatively large companies and a huge amount of SMEs. The latter can frequently provide innovative solutions but they face the same problem as all SMEs, capital constraints. Technological brilliance is no guarantee for commercial success.
One constraint for SMEs is the lack of references. This is aggravated by the limited size of the national markets. If the Baltic Sea Region could agree on common standards, a broader home-market would be created, giving companies from the region a stronger platform for reaching out internationally.
NIB provides financing to small and medium-sized enterprises in cooperation with local financial institutions acting as intermediaries. In addition, the Bank supports the demand side by financing projects that use modern technology.
Environmental issues are largely of a regional or global nature. As frequently stated, pollution recognises no political borders. In order to efficiently address such cross-border issues, regional and global cooperation is a must. The Baltic Sea Region has fostered some notable initiatives in this respect and NIB is actively involved in several of these.
NIB, for example, supports the work of HELCOM to implement the Baltic Sea Action Plan (BSAP). The aim of the plan is to restore the good ecological status of the Baltic marine environment. NIB has set aside EUR 500 million in a special Baltic Sea Environment Financing Facility (BASE) to provide loans for this purpose. Some EUR 330 million have so far been allocated under the facility.
In the energy sector security of supply and environmental sustainability are key challenges in the Baltic Sea Region. The investment needs are large in the coming decades. Enhanced integration of regional energy transmission in electricity and gas is a necessity and substantial long-term investments are needed in interconnectors and distribution systems. NIB is participating in a number of priority projects in this field as well as in renewable energy systems.
Energy investments frequently have long lead periods between decision and generation and the capital amounts large. Uncoordinated activity will cause suboptimal investments. What is needed is a predictable investment climate, including permitting and support schemes. And again, pricing has to be sound in order to support investments and encourage energy saving.
In the transport field volumes will continue to grow. This requires not only improvements of infrastructure. Environmental sustainability of transport solutions has to be ensured, and this requires more effective and intelligent transport systems, including better inter-modality. In addition the right choice of energy bearers and improved energy efficiency is essential.
And we must not forget that we are part of a competitive world. Good internal solutions for logistics and transport are important for competitiveness but we also need to ensure that transport flows to and from the region are effective. The efficiency of transport corridors is determined by the bottlenecks. A concerted effort to remove barriers is needed.
The Baltic Sea Region has many competitive advantages. What is needed is to harness these as instruments for joint regional action. NIB plays its part in providing financial means for this purpose.
See also:
NIB lending to SMEs to boost productivity and competitiveness
Nordic–Baltic grid needs significant investments
NIB President: Nordic Baltic region should use its strengths
Christian Ketels: Uncertainty fences off investments in the region