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Thomas Mirow, European Bank for Reconstruction and Development
London, 21 January 2011
Ladies and Gentlemen,
It is with great pleasure that I welcome you today to the EBRD. The regular exchanges between the Council of Europe and our institution are very important to us and we are honoured that you have found the time to pay us your annual visit.
I am grateful for the opportunity to provide you with an overview of the EBRD’s preliminary results for 2010, our current assessment of the region and our outlook for 2011. I also look forward to our discussion after my brief opening remarks.
Our Chief Economist Erik Berglöf will offer you a detailed macro-economic overview in a few minutes. For now let me say that the recovery of the region is reflected in the EBRD’s operations in 2010. We witnessed a return of net foreign direct investment, a revival of demand and the return of a healthy appetite to take on risk.
Eastern Europe, a region some commentators had completely written off only 18 months ago, is not only back from the brink but again on the radar screen of the international business community.
This renewed interest in the transition region allowed the EBRD to achieve a record result with – according to preliminary figures – an annual business volume of €9 billion (more than 11 per cent over 2009).
We are especially proud to report that we have also signed a record number of projects with 386 transactions, an increase of 23 per cent compared with 2009.
The record number of projects led to a decrease in the size of individual projects. This reflects successful efforts to find tailor-made solutions especially for smaller enterprises for which access to finance often remains difficult. With our financing we aim to support the real economy throughout the region.
Not only did the number of projects increase, the quality improved too: 93 per cent of new standalone signings received a transition impact rating of “good” or “excellent”. Moreover, we were able to increase our so-called mobilisation ratio from 1.3 in 2009 to 1.5 in 2010: This means that for every euro we invested in 2010, we also mobilised 1.5 euros from other, usually commercial, sources.
Taken together, the €9 billion of EBRD finance and the €13 billion of external funding generated in 2010 amount to a total project value of €22 billion. It was the first time that the Bank, which will celebrate its 20th anniversary this year, passed the €20 billion mark.
We were also pleased that we made good progress with three strategic initiatives to which you also attach particular importance:
The results demonstrate the role the EBRD can – and must – play in the region. But we would not have been able to achieve these results without the strong support of our shareholders who last year granted the EBRD a capital increase from €20 billion to €30 billion.
I know that the strong and sustained support by the Parliamentary Assembly of the Council of Europe for our institution, for our crisis response and also for our case for a capital increase played no small role in this decision and I would like to take the opportunity today to express our gratitude.
I am doing this on behalf of the institution, but even more so on behalf of the region. The capital increase and the approval of our medium-term business plan for 2011-2015 have provided us with the means to support the region in its recovery and to lay the foundations for sustainable growth.
Looking ahead, we have identified the following four strategic priorities for this coming period:
(1) Building stable financial sectors. This means promoting sound banking as well as accelerating the development of local capital markets. Building on the EBRD-led “Vienna Initiative” we have launched a new initiative last year aimed at developing local capital markets. This is a longer-term and complex undertaking, but it is of crucial importance to deal with the issue of foreign currency lending and to relieve the region of its overdependence on external sources of financing. I would like to encourage all parties to uphold the spirit of cooperation and coordination which made the success of the “Vienna Initiative” possible.
(2) Diversifying economies is the next step in the development of many transition economies. For commodity-rich countries it means lessening the dependence on natural resources. For other countries, especially in Central Europe, the time clearly has come to take the next step towards a knowledge-based economy. Strengthening and improving competitiveness are key to future economic success.
(3) Tackling energy efficiency, climate change and energy security has been at the forefront of the EBRD’s activities for several years. The need for improvement has been further accentuated by the global financial crisis which demonstrated that the inefficient and wasteful generation and consumption of energy in many Eastern countries has become unsustainable. Improving energy efficiency is also by far the safest way to strengthen energy security and tackle climate change and related environmental challenges.
(4) Accelerating transition in infrastructure for us means to ensure that critical infrastructure projects do not fall victim to the crisis and its aftermath. The crisis has been hard for the infrastructure sector, while the needs remain enormous. But the crisis has led to a more focused approach in project design and a return to sounder models of financing. In light of near universal fiscal restraints the situation remains difficult and one of our goals is to develop innovative solutions which combine private and public sector involvement.
Through our activities, we can make a real difference in these four areas for our countries of operation. But for these investments to fall on fertile ground and accelerate transition, determined policy action is needed on the part of our countries of operation. Although we have seen a marked improvement in economic performance, this certainly is no time for complacency. On the contrary, the transition region is facing increasing competition from other emerging markets, quite a number of which are performing very strongly. In order to raise their attractiveness the countries of Eastern Europe need a new reform drive to strengthen their growth model and to boost their resilience when faced with adverse external shocks.
To succeed in the global economy improvements in competitiveness are indispensable. As convergence progresses, the region inevitably loses the very characteristics which made it attractive to foreign investors – characteristics such as significantly lower labour costs than in the West. Thus efforts to strengthen higher value-added production and a knowledge-based economy should be redoubled. Education remains key to this and requires considerable investment by the authorities even in times of austerity.
Another aspect which was identified in the 2010 EBRD Transition Report is the potential to reinvigorate the transition region’s export capacity by reducing trade barriers, by taking further steps towards integration (WTO membership), by alleviating administrative hurdles (like customs clearances) and – more generally, but crucially – by making progress on crucial aspects of the business environment such as the rule of law and the fight against corruption.
As you may know, the EBRD itself has been confronted with a very serious case of alleged misconduct by representatives of one of our countries of operations. Following a request by the Russian and UK governments, our Board of Directors decided on Tuesday to lift the immunity of four officials assigned to the Bank by the Russian government. The EBRD had, upon its own initiative, conducted an internal investigation in this matter and shared its results first with the Russian and now with the UK authorities who are conducting criminal investigations.
Let me point out here that upholding the highest standards of good governance, transparency and accountability is absolutely crucial to the activities and the mission of the EBRD. As I mentioned, the Bank signed almost 400 projects last year. And for every project we sign there are several that do not come to fruition, often specifically because of integrity concerns. Our process of due diligence and integrity checks is thorough to the extent that we are sometimes being accused of being overly cautious.
But it remains an unfortunate truth that corruption remains an endemic problem across the area where the EBRD is active. Making significant progress in matters of integrity is essential to improve the attractiveness of the region for investors. And it is equally important for the stability and long-term development prospects of the transition region. Corruption, let us be clear, is the cancer eating away at the very foundations of every sound economy.
Ladies and gentlemen, let me conclude with a final thought: Eastern Europe was rightly praised for the prudence and maturity it demonstrated during the global economic crisis, which tested not only the countries’ commitment to the reform process but also to democracy. We did not witness any major policy reversals or political upheaval as an immediate response to the crisis. However, there still may be serious challenges ahead. I shall be very interested in learning your views on this, but I know that we share one view: We must not allow a slowdown in the process of stabilising economy and democracy.
Last updated 21 January 2011