Government proposes reform of legislation on financing investment projects in developing countries

The Government is proposing a new act on officially supported investment credits provided to developing countries. The aim is to strengthen opportunities for Finnish businesses to take part in public investment projects in developing countries and to improve the supervision and legal certainty of support. The proposal would also promote Finland’s participation in reconstruction efforts in Ukraine. Prepared by the Ministry for Foreign Affairs, the reform would update legislation enacted in 2000, clarify the rules governing the financing model and improve opportunities to arrange project financing.

Officially supported investment credits combine loans granted by an external lender with support provided from development cooperation funds. This model of financing reduces investment costs for developing countries, promotes sustainable development and makes use of Finnish expertise and technology.

“The proposal would improve opportunities for Finnish businesses to operate in developing countries and further strengthen their participation in development cooperation and development financing. This objective is set out in the Government Programme. Projects have already been launched in sectors such as healthcare, energy and meteorology,” says Minister for Foreign Trade and Development Ville Tavio.

Officially supported investment credits are provided in particular through the Finnish Public Sector Investment Facility (PIF) and the Finland–Ukraine Investment Facility (FUIF), which supports reconstruction efforts in Ukraine. These instruments are used to finance public investments that draw on Finnish business expertise and technology.

The new act would replace the current Act on Concessional Credits Granted to Developing Countries. Under the proposed act, officially supported investment credits could be provided by companies in the Finnvera Group, including Finnvera Plc and Finnish Export Credit Ltd, as well as by banks and other credit institutions. This would expand the range of options to arrange finance and could facilitate project financing, particularly for SMEs, where sufficient private financing is not available.

The act would introduce a requirement for Finnish national interest and detailed provisions on supervision

The current act on concessional credits does not fully reflect the present forms of cooperation. For example, the act contains no express provisions on a grant element provided alongside an interest subsidy, although grant elements have been used in financing arrangements since 2011. The new act would provide more precise provisions on the conditions for granting support, the grant element and other support as well as on the responsibilities of different public authorities and other stakeholders. In addition, the provisions on credit risk coverage, the supervision of financing arrangements, information exchange and clawback would be clarified. Support would only be granted to projects with Finnish national interest. This would be consistent with current practice, as Finnvera already uses national interest as a criterion when assessing a project’s eligibility for an export guarantee. The new Act would establish the criterion more clearly in legislation.

The Ministry for Foreign Affairs would continue to be responsible for the granting of support and the use of development cooperation funds. The proposal would clarify Finnvera’s role as a provider of export guarantees and other commitments, while improving the Ministry for Foreign Affairs’ access to information on the risks and terms of financing arrangements. Finnvera would be required to provide the Ministry for Foreign Affairs with information essential for the performance of its duties, notwithstanding the non-disclosure obligation.