Sir Suma Chakrabarti, EBRD President
24th Annual Meeting of the EBRD
The 24th Annual Meeting of the EBRD held in Tbilisi
Dear Prime Minister, Chairman, dear Governors, dear Ladies and Gentlemen.
I am very pleased to welcome you to the 24th Annual Meeting of the EBRD in the beautiful city of Tbilisi. Let me take this opportunity, Prime Minister, to thank you and your team, so ably led by Finance Minister Khaduri, for working so well with my EBRD colleagues in arranging this Annual Meeting.
Georgia’s long history has of course witnessed many transformations, but also amazing cultural resilience and continuity. To judge by the quality of Georgia’s transition towards a market economy over the past 25 years, this is a country that pursues a long-term vision with great determination. Of course there is still more to do. But Georgia can be proud of the results so far.
Prime Minister, your country’s success is also the EBRD’s success. Ours is a strong and lasting partnership, for investments, for reforms, for transfer of skills. EBRD has invested €2.6 billion in Georgia over the years, and brought along other investors. We are rightly pleased with what we have achieved together.
Ladies and gentlemen, my three years at EBRD have proven to me that this Bank does many things well, but three in particular. It delivers results. It innovates and modernises. And it faces challenges squarely and directly. I want to take these up in turn.
Delivery: CRR4 Performance
Let me start by looking at delivery and results. At what has been achieved over the period of the fourth Capital Resources Review.
The CRR4 decision in 2010 set the Bank’s strategy in the wake of the global financial crisis and increased our capital by 50 percent. The aim was to enable the Bank to provide a sizeable and counter-cyclical investment response and contribute to economic recovery.
I think we can all agree that the Bank has delivered despite the challenging operating environment. During the CRR4 period we saw continuing uncertainty and investment weakness. Due to developments in the Eurozone. Due to the strains on financial sectors and on cross-border banking. And more recently due to the tragic events in Ukraine and severe geo-political tensions.
In this environment, the Bank has invested some €34 billion in its historic region during the period 2011-14. To support job-creating and market-oriented businesses. An increase of more than 50 percent over the first four years of CRR3. And the Bank continued to focus on quality. The share of new projects rated ‘good’ or ‘excellent’ for transition impact has been consistently around 90 per cent. And realised profit after specific impairment was EUR3.6 billion for the period.
Even more dramatically, in response to the Arab spring in 2011, you, our shareholders, seized a historic opportunity to extend the Bank’s mandate. To support Egypt, Jordan, Morocco and Tunisia in their democratic and economic transitions. The Bank was able to establish operations rapidly. With results! Our portfolio in the southern and eastern Mediterranean region recently exceeded €2 billion. In just over two and a half years of investment.
The Board of Governors also granted recipient status to Cyprus in 2014, and to Greece in February of this year. Both with a limited time horizon and aimed at supporting reforms and strengthening the role of the private sector. Together, these mandate extensions represent an important vote of confidence in the Bank, its business model and its ability to deliver.
Innovation and Modernisation
I have spoken about results. Now let me turn to the Bank’s ability to innovate and modernise. The Bank has taken a series of initiatives that address pressing needs on the ground. The choices we have made were inspired by discussions with each of you, our shareholders, learning lessons from our experience, and benefited from the guidance of our Board.
What are these initiatives that show the bank as an innovator and moderniser in the world of transition finance?
- We have significantly ramped up our Sustainable Energy Initiative and widened it to cover other scarce environmental resources. Last year projects under this initiative accounted for a third of the Bank’s total.
- We initiated the Strategic Gender Initiative and a programme on economic inclusion and got them off to a strong start. This year we will present you with a fully-fledged gender strategy and I would like then to follow that up on inclusion more broadly.
- We introduced the Small Business Initiative. We already do a lot in this area - more than a third of our projects are with SMEs. So we have now set out a comprehensive approach to doing it better and having more impact.
- We kick-started operations under the Local Currency and Capital Markets Initiative. This was designed to operationalise key lessons from the global financial crisis and now covers all 36 of our countries of operation. And it included the issuing by EBRD in 2014 of the first ever IFI bond in Georgian Lari.
- We have launched the Knowledge Economy Initiative. This promotes innovation and the adoption of cutting edge technologies across industries—a topic that was developed in detail in the last Transition Report.
- We have maintained a strong level of engagement on food security.
- We have set up an Infrastructure Project Preparation Facility to respond to the pressing need to turn the huge demand in this area into bankable projects. I hope that Governors can approve funding for this facility today.
- And we have made a substantial down-payment on our plans for enhanced policy dialogue. By launching an Investment Climate and Governance Initiative aimed at helping our countries tackle corruption and weaknesses in institutions. We have started in Ukraine and Albania and are at advanced stages of preparation in several other countries.
On several of these initiatives, and in Ukraine, in the southern and eastern Mediterranean, south-eastern Europe and more generally, we have today an unprecedented level of cooperation with other multilateral organisations. With the EIB, the IMF and our fellow multilateral development banks, in particular the African and Asian Development Banks. And we are already building links to the fledgling Asian Infrastructure Investment Bank, a new and important partner for all of us.
Complementing and supporting our delivery we have made a number of important internal changes. As part of our One Bank modernisation programme. The more efficient we are internally, the better we can deliver externally to our countries and clients. That is what drives us. Let me give you some highlights of progress under the One Bank programme.
- Performance management is at the core of the programme, based on results frameworks for external impact and scorecards cascading down to the individual staff member.
- We are putting country strategies at the heart of our results architecture. It is here that results matter, and that we want to be judged.
- To complement this, we have revamped our Human Resource tools and adopted a focus on management quality at all levels. There is still more to be done, but key elements are in place and beginning to shape the way we work.
- We have also worked to create the organisational conditions for effective engagement of our countries on policy. A new Vice Presidency for Policy and Partnerships, which will have real ‘punch’ provided we resource it properly. This is a priority under the proposed Strategic and Capital Framework.
- We are finalising a review of our investment processes, especially for equity and for the management of the portfolio of projects. This is very important in underpinning the long-term financial performance of the Bank.
- And we have, as you know, redesigned our planning process. The new approach was endorsed by Governors in Warsaw last year. It will allow the Bank to remain flexible in the face of considerable uncertainty and enable a strategic and disciplined allocation of resources. In this context, let me recall that the Bank has maintained near zero real growth in its core budget over the past 3 years. Despite the intense pressures, despite the ambitious agenda.
Innovating to Deliver: Performance in 2014
Together, the strengthening of the Bank’s structure, systems and management, the initiatives and tools we have created and the broad-based cooperation among MDBs prepare us well for the goals and the challenges of the next strategy period. But they have also been instrumental in our successful adjustment to last year’s difficult operating environment. A real and recent example of the EBRD innovating to deliver.
2014 was a year of considerable change and disruption, both for our countries of operation and for the Bank.
- We responded to the crisis in Ukraine, more than doubling investments from €500 million to €1.1 billion. You have also authorised up to €450 million in grants to help complete the nuclear shelter in Chernobyl. I am grateful for the bilateral contributions that were announced at the pledging conference in April, under the coordination of the German G7 chair. More will be needed but we are almost there.
- Reforms, strengthening the administration and reining in corruption will be key to Ukraine’s recovery and sustainability. And we have taken steps to support the National Reform Council and create an Ombudsman institution. The Ukraine crisis response of course presents the Bank with a difficult financial challenge. The quality of our Ukraine portfolio has been deteriorating. But we are strongly committed to the objective of creating a new, very different, Ukraine. The reformers in Ukraine deserve our support.
- The Board’s guidance on Russia in July has of course had a considerable impact on the Bank. We remain committed to assisting our portfolio clients, have redeployed staff, accelerated project development in other regions and built a new pipeline of projects, especially in Ukraine, Turkey, Kazakhstan and SEMED.
- We had a strong performance in our second operational year in SEMED, investing over €1 billion. And also did well in Central Asia and Central and South-Eastern Europe, as well as here in Georgia.
In sum, the internal changes that we have made allowed us to be more flexible and adaptive. The result? The Bank in 2014 exceeded its business plan goals by investing a total of €8.9 billion.
The rapid adjustment of operations was not at the expense of quality. Our transition impact performance remained very strong.
Donor partnerships have again been crucial to our ability to deliver on our objectives, and to provide real value to our countries. Total donor funding in 2014 amounted to a record €340 million. Our results in areas such as energy efficiency and support for small businesses, municipalities and gender and broader inclusion goals would not have been possible without that donor support.
At the same time, the operating environment has taken a toll on the Bank’s financial performance. A financial loss of €568 million despite realised profit of €927 million. The impact of currency and market valuations of our Russian equity book and the deterioration in the quality of the Ukraine portfolio took their toll.
We need to bear the Bank’s financial sustainability in mind as we plan for the coming years, and I will return to this point.
But overall I am happy to report to you that, through both the quality and the size of its engagement, and building on its capacity to innovate and modernise, the Bank has been able in 2014 to make a meaningful contribution to reform and recovery in its countries of operations. This was not a given in the present environment. My heartfelt thanks to staff particularly, and to the Board, for their commitment and support.
Strategic Capital Framework
Let me now turn to the third major attribute of this bank. Its willingness to face challenges squarely and directly. As we discussed last year, the transition process has stalled in recent years. Progress towards well-functioning market economies has been modest in most countries in the Bank’s region and there have been reversals. The overarching aim for this new strategy period, from 2016 to 2020, therefore is for the Bank to help re-energise transition.
We have, in the Medium-Term Directions you endorsed in Warsaw, and now in the Strategic and Capital Framework, translated this aim into three headlines.
- First, to strengthen the resilience of transition. By giving greater structure and emphasis to policy dialogue. To gender and inclusion. And to investments that improve economic structure and stability.
- Second, to promote integration, both within our regions and into the global economy. Through investments and measures that help build infrastructure, product, financial and capital market linkages.
- And third, to address common global and regional challenges. In particular climate change, resource depletion and food security.
We are proposing this strategy at a time when you, our shareholders, and the international community prepare for the post-2015 Sustainable Development Goals, and the COP21 meeting in Paris which will aim to reach an agreement to limit the global temperature increase to 2 degrees Celsius above pre-industrialisation levels.
In both arenas the needs and the debate are moving in the direction of the EBRD’s private sector based, hands-on business model. We have much to offer. And, jointly with our fellow Multilateral Development Banks, we have been called on to contribute centrally to these processes.
We are strongly committed to doing so, beginning with the Financing for Development Conference in Addis Ababa in July. And we will put together a substantial offer on climate financing for Paris. All of this is fully consistent with our priorities as set out in the Strategic and Capital Framework.
We all recognise the considerable uncertainty within which we propose this strategic framework. It has been the subject of detailed discussions with the Board of Directors. And we all agree that we need to adopt a careful, strategic approach to managing our portfolio of activities. We must balance transition, risk and financial considerations. We will put this into practice in the forthcoming Strategy Implementation Plan for 2016-18.
Bearing in mind these uncertainties, and in light of our obligations under the Agreement Establishing the Bank, the Strategic and Capital Framework assesses the Bank’s capital resources. It confirms that the Bank has the necessary capital to pursue its strategy. So, this is the bottom line of this review. The Bank is well capitalised, it has a solid triple-A credit rating, and despite the difficult circumstances, it can continue to pursue its mandate without a call for capital.
Prime Minister, Governors, ladies and gentlemen,
I have given you three reasons for why I am proud to be the President of this Bank. And why you as shareholders can have faith in the EBRD. At a time of geopolitical tensions and economic uncertainty, the Bank can be a bridge-builder and integrator. The EBRD can help ensure that transition stays its course, be a major investor when others hesitate, and support common goals both locally and globally. It must also remain financially sound and sustainable, well capitalised and, above all, build on the solid support of its shareholders. The decisions that the Board of Directors and management are proposing today are aimed at achieving just these objectives. I believe they deserve your support.
Thank you very much.