National Promotional Institutions agree to merge: increasing opportunities for investment and sustainable business finance
Today’s meeting of government ministers endorsed the consolidation of the national promotional institutions (NPIs) and outlined the next steps towards this goal. The Ministers agreed to consolidate the current NPIs – Investment and Business Guarantees UAB (lith. UAB “Investicijų ir verslo garantijos“ - INVEGA), Public Investment Development Agency UAB (lith. UAB “Viešųjų investicijų plėtros agentūra“ - VIPA), State Investment Management Agency UAB (lith. UAB “Valstybės investicijų valdymo agentūra“ - VIVA,) and the Agricultural Credit Guarantee Fund UAB (lith. UAB “Žemės ūkio paskolų garantijų fondas" - ŽŪPGF) – and State Investment Capital UAB (lith. UAB “Valstybės investicinis kapitalas” ) on the basis of INVEGA, and to entrust the Ministry of Finance with the task of representing the state as a shareholder.
This solution will ensure a unified investment strategy, synergies between instruments and efficient reuse of EU support, attracting institutional and private investors and generating at least twice the leverage of financial instruments.
Finance Minister Gintarė Skaistė: ‘Following the best examples of national promotional funds such as BPI in France and KfW in Germany, today we have taken an important step in consolidating the national promotional institutions operating in Lithuania into one strong entity. This decision will ensure a unified investment strategy, synergy of instruments, efficient reuse of EU support, attraction of institutional and private investors, generating at least a twofold leverage effect of the financial instruments. A strong National Promotional Authority will ensure greater investment in strategic areas of activity, from the development of high value-added sectors to green and digital transformation.’
According to the Minister, in the government programme the consolidated NPI will operate as an autonomous and politically independent body, complementing the market where weaknesses have been identified rather than competing with it. This would contribute to increased financing of the economy, the development of the capital market and sustainable investment growth. The additional resources mobilised could also be channelled into areas such as the development of public infrastructure and strengthening energy independence.
To ensure a smooth consolidation process, the Ministry of Finance will set up a task force for the consolidation of NPIs, including the Ministry of Economy and Innovation, the Bank of Lithuania and other interested ministries and institutions. This working group will be responsible for resolving practical consolidation issues. It is foreseen that by 1 April this year, the Commission will establish a working group on consolidation. An action plan for the consolidation of the NPIs will be submitted to the government by 1 April 2015, with a view to completing the consolidation process by the end of 2022. Throughout the process, due consideration will be given to consultation with the social and economic partners.
The consolidation of the National Promotional Institutions (NPIs) aims to build on the strengths and competences of the existing NDAs by bringing them together in one place and raising them to a new qualitative level. It will also reduce the administrative burden on business by making all financial instruments available in one office. It is important to note that the consolidation of the NDIs will not affect the continuity of the financial instruments already under implementation.
The main problem that the consolidation of national development institutions seeks to address is insufficient funding to cover the market gap. Currently, the portfolio managed by the NPIs operating in Lithuania (VIPA, INVEGA, VIVA and Agricultural Credit Guarantee Fund UAB (lith. ŽŪPGF) ) amounts to €4.2 billion, while preliminary estimates suggest a market gap of €6.5 billion for the 2014–2020 period, and at least €4.3 billion more if extended until 2027. In addition, the average leverage effect of financial instruments in Lithuania (private investment attracted) is only 1.7, indicating that the current model is not efficient enough as individual NPIs do not exploit the potential for attracting private finance. The fragmentation of the current system hinders the effective coverage of the market gap: consolidation of NPIs would lead to a greater diversification of funding sources and a focus on attracting private and institutional investors.
In addition, all these agencies currently operate with different strategies, management models and funding sources. There is a lack of a sustainable and unified investment strategy for the NPIs operating in Lithuania, which would allow for optimal planning and management of investments in different sectors, ensure synergies between them and target investments to finance strategically important projects.
