10 investors, almost one billion euro of raised capital and three infrastructural investments – this is the summary of two-year operations of the Three Seas Fund. All investments are of a cross-border nature and they are to improve the infrastructure on the north-south axis.
The Three Seas Region needs infrastructural investments especially in transport, energy and digital technologies. The financing needed in these three areas by 2030 totals EUR 600 billion, as estimated by the analytical center SpotData.
Despite the pandemic, in a very short time since the establishment of the Fund, we made first investments. The first one in October 2020 and the last one in May this year. The Fund’s strategy provides for investments in three areas: transport, energy and digital infrastructure. We already have one investment in each of these sectors. It is very important that each investment affects more than one country. We have made such assumption in the investment strategy of the Fund. I am convinced that with this way of thinking – about the region as a whole and not as individual countries, we are able to much better, more effectively address the needs of our countries in this part of European Union – emphasized Beata Daszyńska-Muzyczka, the president of Bank Gospodarstwa Krajowego and the chairperson of the 3SIIF supervisory board.
3 x infrastructure
For decades infrastructural investments in the region were focused on the effective connection of the Three Seas with industrial centers in Western Europe. Whereas the infrastructure connecting the northern countries with the southern ones (from Estonia to Croatia) has a lot of catching up to do. This significantly lowers the competitiveness of the region and precludes it from using the full geographical potential of the location between the three seas – the Adriatic, the Baltic and the Black.
In May this year the Fund made its first investment in the energy sector and acquired shares in Enery Development GmbH. The company has three solar plants in Romania, Bulgaria, Czech Republic and Slovakia. Thanks to the obtained funds Enery is going to invest EUR 1 billion in the energy transformation of the Three Seas.
The construction of the biggest and most energy-efficient data center in the Baltic region is the investment in the infrastructure sector. The project is implemented by the Estonian company Greenergy Data Centers, the digital solutions of which will be available even for 12 countries of the region. The pandemic showed how important the digital infrastructure development is. Today nobody doubts that the development of digital services is as important as the development of railway lines or new road connections.
The first investment of the Fund in the transport area is Cargounit company – the leader on the locomotive leasing market, with its headquarters in Poland. The company is planning to expand its operations to several countries of the region which will lower the costs of transport in the Three Seas countries. The role of transport is growing, especially in chemical and metallurgical industry and the needs of the region are immense. According to the report prepared by SpotData, the demand for transport investments within the decade will amount to EUR 290 billion.
Private capital needed immediately
The infrastructural needs of the region are significant. As the International Monetary Fund (IMF) estimated, filling half of the infrastructural gap between the region and Western Europe requires the investment in the amount of 3-8 per cent of GDP annually up to 2030. Public and European Union funds will not cover these expenses, private funds will be complementary to them. The increase of the investors share in the infrastructural investments is actually one of the reasons for creating the Three Seas Initiative Investment Fund (the Three Seas Fund) in 2019.
The Three Seas region constitutes a considerable part of the European Union and has at its disposal well-developed commercial links between the countries. The region generates almost 14 per cent of GDP in the entire European Union and covers 30 per cent of the Community’s area. Every fourth resident of the EU lives exactly in this region.
“We are estimating that the Three Seas Fund will ultimately have from 3-5 billion euro at its disposal. Currently there are 10 investors involved in the Fund, majority of which are the regional development banks; there is also the first private investor. We are hoping that there will be more private funds. We are in talks with investors from the United States, Japan, Korea, Australia and Canada” – Beata Daszyńska-Muzyczka says. The president of BGK points out that there are numerous projects. The financial adviser of the Fund has identified over 180 infrastructural projects so far.
According to estimates of Spotdata, among others, the participation of private funds in infrastructural investments in the region is now around 30-40 per cent, whereas in western Europe it is 60-70 per cent. In the long term the Three Seas countries should seek similar proportions.
State development banks, that help combine public and private funding, play a crucial role in achieving this objective. Therefore Bank Gospodarstwa Krajowego is the initiator and co-founder of the Three Seas Fund, and pubic development institutions of the countries of the region are its first investors.
The Three Seas Fund is a commercial project – apart from strengthening the cooperation between the countries and improving the infrastructure in the region, the Fund’s goal is to provide profit to its investors. It would be impossible to attract private investors without this aspect.
The region has a lot of advantages that are crucial from the investors’ perspective: rapid economic development, political stability, well-educated society and also favorable geographical location. The pandemic-induced crisis may influence the changes in global supply chains and allow for a better position on the world markets. However, in order to fully use this opportunity and potential, the Three Seas countries have to increase their investment in infrastructure now.