Technical Assistance II
Indonesia's sustainable development initiatives could tap into de-risking products from the European Union through the European Fund for Sustainable Development Plus (EFSD+). The program operates using a guarantee mechanism in association with financial institutions. For the first batch of the Asia Pacific region, including Indonesia, a guarantee fund of EUR 1.3 billion is earmarked, aiming to mobilise a substantial EUR 14 billion in investment funds. Potential sectors eligible to apply for this funding include renewable energy, sustainable cities, and natural capital encompassing forestry, agriculture, and WASH.
The EFSD+ program is an evolution of the EFSD pilot initiative rolled out in 2019. This pilot had a guarantee capacity of EUR 1.5 billion and only targeted Sub-Saharan Africa and the European Union's neighbouring regions, such as North Africa, the Middle East, and Eastern Europe. Launched in 2021, the EFSD+ now boasts a EUR 40 billion guarantee capacity, aiming to generate EUR 220 billion in investments on a global scale. The program is further enriched with technical assistance, capacity-building, and economic policy dialogues to enhance the quality of investments and implementation. The EFSD+ is a pivotal financial tool of the Global Gateway Initiative, established to address urgent global issues, including combating climate change, advancing health systems, and strengthening the security and competitiveness of global supply chains.
The EFSD+ not only offers advantages to project owners but also benefits Indonesian financial institutions through its guarantee system designed to mitigate financing risks. Shanaz Patel, the Programme Manager for Sustainable Finance and Investments from the EU Delegation to Indonesia and Brunei Darussalam, highlighted these benefits during a training event on the Global Gateway Initiative and EFSD+ Guarantee Mechanism. Co-hosted by the Ministry of Investment BKPM and ARISE+ Indonesia, this session convened various key stakeholders, including coordinating ministries, the Ministry of National Development Planning/Bappenas, and financial institutions at the BKPM office on 29 August 2023. The discussion was moderated by ARISE+ Indonesia's TA II Team Leader, Alessandro Martinatto.
According to Ms Patel, the guarantee scheme emerges as a solution to bridge the massive funding gap required to achieve the Sustainable Development Goals (SDGs). An estimated $3.9 trillion is required annually to meet the SDGs (pre-COVID estimates). In contrast, Official Development Aid funds stand at a mere $150 billion annually. This substantial discrepancy underscores that relying solely on governmental and ODA funds is insufficient. With assets under management globally in the amount of $130 trillion, it is essential to harness these resources. Hence, the guarantee program aims to tap into the private sector's potential contributions towards SDGs.
Ms Patel pointed out that since the EFSD+ instrument offers global coverage, in most cases each country has no specific allocation. As a result, only projects that are mature and well-prepared for implementation will make it into the portfolio of development financial institutions.
"So, it's crucial for us, both the EU and Indonesia, to collaborate closely. We need these projects to be ready and mature if they are to receive support from the EFSD+, especially as this will put us in an advantageous position," Ms Patel emphasised.
BKPM's Director of Services and Regional Planning, Noor Fuad Fitrianto, mentioned that this initiative was the result of discussions with the Directorate General of International Partnerships (DG INTPA) of the European Commission and various European financial institutions during the Study Mission to Europe facilitated by ARISE+ Indonesia last May 2023. According to Mr Fuad, the DG INTPA and European financial institutions showed considerable interest in sustainable projects and increasing the green investment portfolio in Indonesia as a strategic partner of the EU in the Asia Pacific. DG INTPA will visit Indonesia from 7 to 9 September 2023 to further the dialogue with ministries, including BKPM, and with financial institutions in Indonesia.
Mr Fuad stated, "Today's session aims to deepen our understanding of the EFSD+ and Global Gateway mechanisms, setting the stage for next week's meeting. Our goal is to quickly pinpoint opportunities to fast-track the partnership between the European Union and Indonesia."
Hafiz from the Coordinating Ministry for the Economy conveyed appreciation for the event, underscoring its value, especially for private institutions in Indonesia. Furthermore, a representative from an international commercial bank at the meeting highlighted the allure of the EFSD+ program, noting its ability to minimise risks while maximising development outcomes. This offers a significant opportunity for Indonesian financial institutions to enhance investments in sectors driving the nation's push for net-zero emissions.
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