Feature story

Donor funding triples ETC investment

Subscribe to feature stories email alerts

Related links Technical cooperation homepage

Remittances often pass through currency exchanges.

New energy pipeline, Georgia.

The EBRD’s initiative for its seven poorest countries of operations, launched 18 months ago, has flourished thanks to dramatic increases in donor funding matched by a huge increase in EBRD loans and equity investment in those countries.

“When we launched this initiative, there was a lot of scepticism within and without the EBRD as to whether it would work,” said Olivier Descamps, EBRD’s Business Group Director responsible for the Early Transition Countries (ETC Initiative) .

“It has become a Bank-wide initiative – we’ve really managed to pull it off,” he said at a meeting on Feb. 24 of donors backing the initiative focusing on Armenia, Azerbaijan, Georgia, Kyrgyz Republic, Moldova, Tajikistan and Uzbekistan.

Donor funding for ‘technical cooperation’ projects has more than doubled from €8 million in 2003 to €18 million in 2005, with another €3 million committed in the first two months of 2006. These grants fund expert analysis and advice to the benefit of companies and governments in the EBRD region.

By improving the prospects for investment, donor funds leverage even greater amounts of EBRD financing, which in the ETCs almost tripled from €53 million in 2003 to €250 million in 2005. Of that, €100 million was for a road project in Azerbaijan; the rest of the projects were of an average size of €2.5 million.

“In 2003 we did just 18 operations in these countries; in 2005 we did 61 investments,” said Mr Descamps. “We are delivering, as promised, a wider range of investment products tailored to these countries, an increased level of smaller deals, and we are taking more risk. The Bank is having a broader and bigger impact!”

ETCs get attention

“The ETC region is now the largest group receiving donor assistance,” said Gary Bond, director of the EBRD office managing donor funding. One much-lauded innovation under the initiative is the creation of the ETC Fund. By pooling donor funds, it makes it easier to match donor funds with needy projects, getting many into shape so that they qualify for EBRD loans or equity investment.

To date, €32 million has been pledged to the fund and, as of Friday’s meeting, €19.5 million committed to projects. At the rate things are progressing, the fund will run dry by 2007 unless it is replenished. At last week’s meeting, donors pledged another €5 million to the fund, with €3 million from Spain, €1 million from Sweden and €500,000 each from Canada and Ireland.

Remittances for growth

Among the many projects approved in February 2006 for support by the multi-donor fund was a €350,000 study on remittances sent by migrant workers back to their homes in the ETCs. The huge number of migrants moving about the EBRD region, particularly from central Asia, is due to joblessness in their native countries. For example it is estimated that 10 per cent of Tajikistan’s population, or 600,000, migrate for work.

Remittances are believed to have a major impact on sustaining migrants’ impoverished families back home and in building assets there. Yet little is known about their specific impact in the ETCs, mainly because they enter through unofficial means. They’re carried in by migrants on home visits or wired via grassroots money transfer companies. It is estimated these financial flows far outstrip foreign aid.

The World Bank estimates that $14 billion in remittance flows arrive in the EBRD region annually through the formal financial sector. Irakli Managadze, former Governor of Georgia’s Central Bank and now a policy advisor to the EBRD, says the amount coming in via informal means may be twice the World Bank figure.

The study, led by an EBRD team including Mr Managadze, is expected to form the basis of EBRD remittance-based financial products that will contribute to general economic development and poverty alleviation by building the formal financial sector.

“This remittance study is truly innovative and innovation is what the ETC Initiative is all about,” said Kotaro Tanaka, advisor to the Japanese member of the EBRD’s Board of Directors. He lauded the EBRD’s cooperation with the Asian Development Bank in conducting the study. “This is exactly the kind of proposal we want to see,” agreed UK representative Jim Maund.

Warming up Georgia

Another of the 10 projects approved is €340,000 for technical studies in support of proposed EBRD investment in rehabilitating a vital natural gas pipeline in Georgia, where people suffered greatly this winter from energy supply disruption.

The overall aim is to reduce massive gas leaks in the under-maintained, aging pipeline and improve environmental safety to reduce the risk of catastrophic failure of the distribution system that brings Russian gas to Georgia’s capital, Tbilisi. Fixing this north-south pipeline would also allow Georgia to tap into another which it crosses: the new South Caucasus pipeline carrying Azeri gas from the Caspian Sea via Georgia to Turkey. Despite the cost savings to be realised by cutting energy losses, improving the line is complicated by Georgia’s financial difficulties. So the study will include a search for creative ways to finance the pipeline.

Written by EBRD's Senior Writer Kate Dunn.

Contact:
ETC Banking Team
Tel: +44 20 7338 6035
Fax: +44 20 7338 6599
Email: deanec@ebrd.com

3 March 2006