Public Sector Investment Facility
The Public Sector Investment Facility (PIF) is one of Finland’s development policy instruments for funding investments in developing countries.
Next round of appraisals of the concept papers for the PIF will take place in spring 2023.
Some changes have been made to the PIF Guidance Notes. A supporting letter from the ministry (previously from the project owner) that is developing the project must be appended to the PIF concept paper to ensure the target country’s ownership and preparedness for PIF borrowing starting from the project’s preparative phase.
If necessary, the Ministry for Foreign Affairs may use its discretion and help in the preparation of the environmental and social impact assessments, human rights assessments and development impact indicators in respect of projects selected for further preparation.
The objective of the instrument is to support such public sector investments in developing countries that are in agreement with the UN’s Sustainable Development Goals and make use of Finnish expertise and technology.
Investment projects must be based on the target country’s own national development needs, and the target country bears the main responsibility for the total costs of the project. Development cooperation funds are transferred through the instrument to supporting the investment project’s purchase price and the interest on the export credit granted for its financing, whereby the costs of the investment for the developing country will be significantly reduced.
The Ministry for Foreign Affairs is responsible for granting financial assistance from the PIF instrument. Finnvera, which is Finland’s official export credit institution, takes responsibility for granting buyer credit guarantees to the investment credit. Finland’s support requires clear development impacts.
The PIF is also one of the Team Finland instruments administered by the Ministry for Foreign Affairs, and it is used in close cooperation with other Team Finland operators.
According to the UN World Investment Report from 2014, developing countries should invest approximately USD 3.3 to 4.5 trillion per year to achieve the Sustainable Development Goals by 2030. The PIF instrument is one of the tools through which Finland responds to developing countries’ investment needs.
Principles of support
The Public Sector Investment Facility is regulated by the Act (1114/2000) and Government Decree (1253/2000) on concessional credits granted to developing countries, the Act on the State's Export Credit Guarantees (422/2001) and OECD guidelines on export credit.
It allows funding for public sector projects in countries listed by Finnvera as eligible for export credit guarantees in the least developed (LDC), low income (LIC) and lower middle income (LMIC) categories.
PIF investment credits are listed internationally among the so-called mixed credits which combine development cooperation funding and export credits. PIF funding requires that the project implementer is a company registered in Finland and that the project has sufficient Finnish content approved by Finnvera.
The developing country takes a loan guaranteed by Finnvera from a commercial bank to fund the investment. The Ministry for Foreign Affairs pays the interest on the loan and part of the transaction to satisfy the 35–50 per cent grant element required by the OECD for publicly funded export credit.
PIF projects must be economically, socially and ecologically sustainable and compatible with the target country's national development programmes. The instrument is used to fund investments that support the target countries' efforts to achieve the UN Sustainable Development Goals (Agenda 2030).
Support can be given for investments focusing on, for example, the social, water supply, energy, cleantech or other sectors suitable for development cooperation. The projects must be in line with Finland’s development policy guidelines (including guidelines on human rights-based and results-based approaches).
How to proceed?
In the preliminary stage, the project idea and basic information can be presented to the Ministry for Foreign Affairs on a so-called concept paper. Concept papers can be submitted by Finnish businesses interested in implementing of a project, public sector actors in the target country, financial institutions interested in funding a project, or businesses operating in the target country or a third country.
Preliminary project ideas are processed and commented on certain dates, announced annually on the Ministry’s website.
The exporter or credit institution submits an application for buyer credit guarantee to Finnvera. The application form and information on buyer credit guarantees are available on Finnvera’s website(layout.types.url.description).
The Ministry for Foreign Affairs evaluates the project's viability, supervises the procurement procedure and makes the decision on granting PIF funding. Credit risks are guaranteed by Finnvera.
The creditors may be Finnish credit institutions or other credit institutions licensed in the European Economic Area that meet the conditions set for them by Finnvera. Credits are granted in compliance with the principles of the OECD Arrangement on Officially Supported Export Credits (the so-called OECD Consensus). According to these principles, credit may be granted for projects that are commercially non-viable but economically profitable.
In commercially non-viable projects, the credit recipient does not receive enough income through the project to be able to pay the costs of commercial credits. In some cases, non-viability may also mean that commercial funding is not available for financing the project.
Questions and answers on the Public Sector Investment Facility (PIF) for developing countries
How does PIF differ from concessional credits?
The PIF was created to respond to investment needs related to the achievement of the SDGs in developing countries. The instrument can also be used to finance investments in the least developed countries (LDCs), which was not possible with the interest subsidy instrument.
The financial resilience required for receiving the funding is ensured through Finnvera’s OECD credit rating, IMF debt sustainability assessments and the overall assessments of development policies carried out by Finnish embassies.
A consultation round is organised at least once a year for concept papers submitted under the instrument. This ensures that businesses will be informed at an early stage if their project is eligible for PIF funding.
The maximum share of construction costs has been set at 20 per cent. The minimum level of funding for capacity building and ensuring the overall sustainability of investments has been raised to 10 per cent.
How does the instrument ensure development impacts?
Decisions to grant funding for PIF projects is preceded by a thorough assessment of their possible development impacts. The development impacts are enhanced by partner countries’ strong ownership and the allocation of PIF credits: projects help developing countries to achieve the SDGs and the objectives of their national development plans.
Human rights, social and environmental impact assessments are made by external experts, using development cooperation resources available in the Foreign Service.
The maximum level set for construction costs reduces the risk of corruption in local subcontracting, while the minimum funding for capacity building improves the long-term sustainability of investments.
What is meant by Finnish competence in connection with PIF projects?
The company implementing the project must be registered in Finland, and the project’s Finnish content must meet the level approved by Finnvera. The level is determined in Finnvera’s valid norms and standards. At present, it usually means that around one-third of the content must be of Finnish origin.
What are the sizes of projects funded through the PIF?
PIF projects are funded through loans granted by commercial banks to the administrations of the developing country in question. Due to transaction costs, banks do not grant loans of less than EUR 10 million, which therefore sets a lower limit for the projects. The budget of the Ministry for Foreign Affairs, for its part, sets the upper limit at approximately EUR 30 million.
What are typical examples of projects suitable for PIF funding?
PIF funding is available for projects that are economically profitable but non-viable from a business perspective. There is a strong likelihood that Finnish expertise could be found for the implementation of projects related to, for example, electrification of rural areas; the construction of solar, hydro and wind power plants in poor regions; waste management plants and water supply; equipment needed for education and healthcare; and ICT networks in sparsely populated areas.
Special expertise is needed also for coastal surveillance radar systems developed for preventing piracy as well as for logistics devices, weather radar systems and dredgers for opening waterways and meeting the needs of fishing.