EBRD Annual Meeting 2015: Investing and Geopolitical Uncertainty

By Volker Ahlemeyer

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EBRD Annual Meeting 2015: Investing and Geopolitical Uncertainty

Investing in Times of Geopolitical Uncertainty
Businesses are increasingly looking at the current geopolitical changes to understand how they affect existing and future investments. Are they an excessive risk or do they present great opportunities to them?
The events in Ukraine over the past year and changes in the Middle East since the Arab Spring were only two examples which formed part of the lively panel discussion Investing in Times of Geopolitical Uncertainty at the EBRD Annual Meeting and Business Forum 2015.
Tensions in Ukraine are “a signal,” said Alan Rousso, the EBRD’s Managing Director for External Relations and Partnerships, who moderated the discussion: “Many observers would say that the post-Cold War order has come to an end. What will come next still remains unclear.”
Such uncertainty can have a far-reaching impact on the global economy, as businesses may hold off on investments and conflict can cause unexpected currency devaluations or threaten business operations. But what are the features of the geopolitical changes that panellists have observed so far?
Neil Buckley, Eastern Europe Editor of the Financial Times, pointed at the growing differences between the centre and periphery within Europe and beyond.
“The issue is one of reforms,” he said. “The countries that have implemented them to enter the EU will continue to do well.”

While economic growth may not be as vigorous as it used to be, there is still a gap when compared to western European standards that their central and eastern European neighbours will close in the future.
“I see the division between those who made it into the EU and those who did not - and this is due to this reform issue.”
The establishment of integrated value chains is one of the main success factors for eastern European countries, stressed Božidar Đelić, MD and Head of Central and Eastern Europe, Lazard.
The former Serbian deputy prime minister and finance minister pointed to the continued success of Germany’s neighbouring countries as well as the creation of sectoral hubs and clusters as an example of  this.
Furthermore, the EU continues to act as an anchor for economic reforms for eastern European countries, but this is not the case for Russia, said Christopher Granville, Managing Director and Director, Russia/FSU Research, Trusted Sources.
While he sees no easing of East-West relation in the short run, he sees a growing realisation in Russia of  the need of potential reforms. “We can’t go on like this, says a Russian expression – and this can be a deep motivation for change,” he said.
All panellists agreed on the importance of a long-term vision.  Governments have various tools at their disposal to help stimulate long-term sustainable growth, such as regulatory change to improve further the business climate. Also, investors should continue to consider the long-term profits they can achieve in less developed markets.
How about the Middle East and Northern Africa?

“One of the first things that investors look at in the Arab world is demographics,” said Tarek Osman, EBRD’s Senior Political Counsellor for the southern and eastern Mediterranean. It is seen as a region with enormous potential with its 300-350 million inhabitants (two thirds of whom are in their teens) but one with underlying problems.
“Most countries of the Arab world, if not all of them, have been stuck in the horizontal value chain,” he said. For now, it is investors from the Gulf states that are grasping the opportunities in the region, mainly in the real estate sector.
This presents a chance for other investors with a long-term vision – international financial institutions, such as the EBRD, and others.
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