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EBRD shifts staff, resources south and east

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EBRD president Jean Lemierre.

The growing economic strength of the eight EBRD countries of operation that joined the European Union in 2004 means Bank resources can be shifted from those new EU members to less-sturdy economies to the south and east, EBRD President Jean Lemierre announced Monday.

In his address to the EBRD’s Board of Governors at their annual meeting in London today, Mr Lemierre noted that he and the Board expect the EU-8 (Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovenia and Slovakia) will ‘graduate’ by 2010.

“The Bank’s investment in these countries will decline and next year we will start to close offices and shift resources to countries where EBRD financing is more necessary,” Mr Lemierre said.

Prospect of EU membership has driven transformation

The prospect, and later the realisation of EU membership have driven economic transformation in these former command economies, he said. “ There has been much increased trade and investment in both the new EU members and the original EU countries. Foreign direct investment has gone from almost zero to €200 billion a year. Three-quarters of that has come from EU-15 investors – a remarkable achievement in just a decade and a half.

“The EBRD has helped forge the way for that investment. The Bank participated in privatisations, and was the first investor to take the risk in many enterprises that private investors would not take on…Now there are fewer and fewer industries that do not have access to capital markets without the support of the EBRD,” Mr Lemierre said, so by 2010, the Bank envisages that its work in these countries will be done.

EBRD investment in the EU-8 has been falling for some time. Meanwhile it has been building in the less-developed economies of the Commonwealth of Independent States (CIS) and southeast Europe where the Board has agreed to direct more staff and capital.

The prospect of EU membership for Bulgaria, Romania and the western Balkans has been a powerful incentive for economic transition in those countries as it was for the EU-8, and strong growth has been the result.

“This was the part of the region where the Bank increased operations most in 2005, to 28 per cent of business volume,” Mr Lemierre noted. “In Ukraine, the EBRD doubled investments last year and with a better investment climate and investor appetite there is scope to increase it further.” The Bank also has made a great deal of progress in its two-year-old programme for the seven poorest countries of the CIS, called the Early Transition Countries Initiative which Mr Lemierre said “has supported many smaller businesses, infrast  ructure and industries, creating jobs and a stronger market economy.”

Russia’s struggle to achieve political and economic stability

Mr Lemierre said Russia’s struggle has been to achieve political stability and then economic stability after the 1998 financial crisis. “In many ways Russia is just now engaging in the most difficult part of the transition process.

“It is taking decisions about equitable sharing of oil wealth, and about structuring its economy to make the most of its strategic resources. Partly that has meant correcting the way resources were distributed after the collapse of the Soviet Union. If there is public support for more state control of key national resources, the challenge is to ensure that resources are redistributed and managed in a way that the people and investors can understand.”

Despite Russia’s oil wealth, economic diversification is key to ensure long-term prosperity. “To build its market economy, there are massive needs for long-term investment that far exceed the flow of cash from oil revenues,” particularly outside major cities and the banking sector.

Overarching need to improve energy efficiency

One overarching need across the region is to improve energy efficiency. Wasteful use of energy is a legacy of the command economy: compared with the western European economies with which they increasingly compete, EBRD countries of operation use up to seven times as much energy to produce each unit of GDP. Their greenhouse gas emissions are commensurately high.

“That is why the Bank is launching a sustainable energy initiative,” Mr Lemierre said. “It will accelerate investment in energy efficiency projects where the returns are quick and significant…The EBRD intends to double its financing for energy efficiency and renewables,” he explained, asking the Governors for support with donor funding “that would help increase awareness of the returns on investment from energy efficiency and develop the business case for newer technologies.”

In summarising the Bank’s achievements in 2005, Mr Lemierre noted that staff had signed more operations than ever, totaling 151 projects with a value of new business of €4.3 billion. The Bank realised a profit of €1.5 billion.

Because the EBRD is going to be doing more, yet smaller deals in more difficult investment environments, the Board has agreed to increase resources, for example by putting more staff in the field and opening new offices in regions beyond capital cities.

Mr. Lemierre ended by saying the historic decisions of this medium-term strategy will rejuvenate the Bank and help it to stay innovative and focused on the priorities of the region.

Read the entire statement.

Written by EBRD Senior Writer Kate Dunn.

22 May 2006