Sir Suma Chakrabarti, EBRD President
Center for Global Development, Washington, D.C., USA
Organised by the Center for Global Development
Thank you so much for the invitation to speak today.
Before I turn to the EBRD and the changing world we live in, I want to say a few words about our hosts, the Center for Global Development.
And specifically Nancy, who will be grilling me later.
The CGD’s standing as one of the world’s powerhouses of development thinking is testament to Nancy’s leadership.
Nancy will be the first to say it has been teamwork that got CGD to where it is today. Of course that is true. But Nancy’s leadership, professionalism, ability to ask good questions and provide interesting answers, her vision and energy, but also her humanity is a strong part of the CGD success story.
So, Nancy, on behalf of all of us at EBRD, we say thank you and wish you and the CGD well.
Now, ladies and gentlemen, this is a year for important birthdays! I know that the CGD is celebrating the fifteenth anniversary of its founding later this year.
In fact, today’s event is a mini joint birthday party for us both.
We at the European Bank for Reconstruction and Development, the EBRD, are 25 this week.
So please bear with me as I look both backwards into history and forwards to tomorrow’s changing world.
1991’s changing world
The EBRD is a child of the end of the Cold War, established to help build a new post-communist era in Central and Eastern Europe and beyond.
Our founding document mandates us to ‘foster the transition towards open market-oriented economies and to promote private and entrepreneurial initiative’.
In that I am convinced that we have been successful.
While I have been president of the Bank for only the last four years, I believe that the EBRD should be proud of its many achievements over the whole of the last quarter century.
In many ways the narrative of those twenty-five years, the world over, has been that of how emerging markets have transformed the global economy.
In our recipient countries – and the EBRD is now investing in more than 30 countries from Morocco on the Atlantic coast to Mongolia in Central Asia – we have played a major role in that transformation.
There have, of course, been bumps in the road along the way.
But overall we have seen the role of the private sector enhanced, entrepreneurship encouraged, market competition boosted and our regions better integrated into global supply chains.
If we compare the world of 1991, our point of origin, with that of today, we can see many other differences, of course.
Some of you may not have been around or have only hazy memories of the period.
But for those old stagers like me who recall the annus mirabilis of 1989 – and the fall of the Berlin Wall – and the end of the Soviet Union two years later, it really felt as though we were making a decisive break with the past.
History was being made before our very eyes.
And for the policymakers among us, the agenda was clear. There was a consensus that a liberal market-based economy backed up by democracy was the way to deliver prosperity, stability and freedom.
That was self-evident, it was believed.
So the choices we then faced were very much couched in the language of black or white, the past versus the future or wrong as opposed to right.
Looking back on it, that era really now seems far less complex than what we are experiencing today.
EBRD responded well to the challenge of 1991. And has evolved to meet the challenges of the last 25 years. In 2012, on the initiative of our shareholders, we started investing in Egypt, Jordan, Morocco and Tunisia.
From a standing start three and a half years ago, our demand-driven, private sector focussed approach in these four countries has now delivered investment to the value of more than US$ 4 billion.
Our shareholders have also asked us to work, on a temporary basis, in Cyprus and Greece, where we have invested almost US$ 565 million despite opening for business in the latter only a year ago. This ability to adapt will be even more important as we look to the challenges ahead.
2016’s changing world
Indeed the pace of change is more rapid and the world is arguably much more complex than ever before.
The forces at work in the EBRD regions and beyond are variegated and influencing and reinforcing each other in a way that wasn’t the case in the past.
The unprecedented increase in connectedness, with technological change critical to the trend, is redefining our world as we speak.
Cross-border movements of trade, services, capital, information and people are bringing countries much closer together.
New patterns of demographics are also going to have a major influence on the shape of the world to come:-
- The ageing and shrinking population in developed markets as well as in developing Europe and Central Asia.
- The youth bulge in other parts of the world where we work, including EBRD countries in what we term the Southern and Eastern Mediterranean.
- A growing middle class in many emerging markets.
Linked to that, we see the growth of ever larger cities and ever more rapid urbanisation.
Clearly, many of these issues are double-edged, presenting not just major challenges but significant opportunities as well.
For example, increased connectedness can, of course, hasten the spread of economic crisis from one country to another.
But the long-term benefits of deepening global trade and investment links, as well as technological change, should clearly outweigh the risks.
Urbanisation brings with it obvious problems but is also another proven driver of economic growth.
And then there is the urgent and critical challenge of climate change.
This is the biggest threat now confronting humanity.
And yet if we engage actively in trying both to mitigate and adapt to the reality of change, the green economy represents a huge opportunity for investments, innovation and employment.
As if all this wasn’t complicated enough, we have to devise answers to these problems in a relatively hostile economic environment.
The average growth of emerging markets has halved since 2010.
In EBRD countries this has been accompanied by a marked slowdown in the pace of economic convergence.
Since the financial crisis of 2008 and 2009, investment has been sluggish. And the drop in investment has been far sharper than the weakness in economic activity could explain all on its own.
The EBRD’s region, in particular, faces a large investment gap, which we conservatively estimate to be of the order of some US$ 75 billion a year.
To make matters worse, some of our countries have fallen victim to ‘reform fatigue’, partly because the ‘low-hanging’ fruit of less costly structural change has already been harvested. Partly perhaps because rapid economic development in many emerging markets has come at the price of growing inequality.
In response we see protectionism and economic nationalism staging a comeback.
For example, we are seeing an increase in the number of non-tariff barriers.
But it’s not all doom and gloom! There are bright spots.
Last year, we witnessed a very encouraging resurgence of structural reforms in a number of our countries.
A new generation of leaders is in power in some of these countries, with vision that extends far beyond the next electoral cycle.
The EBRD and the changing world
What conclusions should we in the development profession draw from this more complex environment?
In the past I have argued that there are three ways in which multilateral development banks can do a better job of responding to today’s challenges.
They need to be more fleet of foot and demand-driven in their response.
They should better leverage their expertise by working together more closely – as we are already doing with the new Asian Infrastructure Investment Bank.
Lastly, the MDBs have to leverage private sector finance at a time when the global gap between investment needs and investment flows in infrastructure, a key driver of development, is as high as US$1 trillion every year.
Those would be my general prescriptions as to how the IFIs should gear up for the future.
However, I want to focus this afternoon on the specific ways in which the EBRD is changing in a changing world.
EBRD's mandate, fostering transition to market economies and promoting private enterprise, hasn’t changed.
Neither has our commitment to sustainable development, as reflected in the new Sustainable Development Goals, nor our obligation to operate in countries that are applying the principles of multiparty democracy and pluralism.
How we define transition is evolving, however, and is likely to evolve still more.
We remain faithful to the principles above. In practice and in the light of the more complex world we now live in, we see our goal as boosting reforms and our countries’ competitiveness, reinvigorating transition and growth.
To that end, EBRD's shareholders last year approved a three-pronged strategy that, in our opinion, leaves us well placed to negotiate these new complexities.
- We aim to build up economic resilience and our countries’ institutions;
- We will help them to integrate better into the regional and world economy;
- We will assist them in combatting common global challenges such as climate change
Doing justice to everything that the EBRD is doing and how in detail we are adapting to the new environment is going to be a stretch in the time we have available.
With your permission, I am going to focus on a few examples of how we are changing which, I hope, illustrate the themes we have touched on.
The first objective of this three pronged strategy is to build up the resilience of our countries’ economies, and the institutions that support this effort.
We are supporting those economic reforms that improve the investment climate of our COO to attract foreign and domestic investors; we are supporting reform that increases social inclusion, particularly of women and young people; we are working to grow the number, size and productivity of SMEs which helps create jobs; and we have many initiatives underway to develop local capital and currency markets. For example:
to increase financial inclusion, we recently funded financial literacy training programmes in Armenia, Azerbaijan, Kyrgyz Republic, Georgia, Moldova and Tajikistan. As a result of the programme some 28,000 new Bank accounts were opened, and more than $25 million brought into the formal economy;
to help entrepreneurs access finance, we provided $34 million to a major Serbian Bank to on-lend to SMEs; and,
we bolstered the stability of the Bulgarian financial sector with a $338 million long term loan to the Bulgarian Deposit Insurance Fund.
I want to give you a few more examples of how we are fostering resilience. EBRD’s first ever Gender Strategy was approved at the end of the last year. This a further illustration of how our understanding of transition has evolved over the last quarter of a century.
Gender is now integrated, via a rigorous assessment of gender gaps, into the way we prioritise and select projects across all sectors and countries. An example, the $338 million initiative to make loans available to female entrepreneurs in Turkey. Allowing women without assets, as property is often held in a man’s name, to access finance.
Back in 1991, gender would not have featured as part of the transition to a market economy. Today it rightly does: tackling the access of women to the marketplace is now fundamental to transition. And we are extending that argument to youth and regions that are also relatively excluded from the market economy.
Impact of refugees on resilience
But there are some of our countries of operation which face increasing threats to their economic resilience. Our flexibility and capacity to innovate in line with the wishes of our shareholders, has enabled us to respond. For example, in moving quickly to develop an EBRD approach to the refugee crisis in the Mediterranean.
A number of our recipient countries are now hosting large numbers of refugees. For example, Turkey and Jordan now have millions of refugees, many of whom may remain for the long term.
Whilst we are not a crisis response organisation, in line with our mandate, we are putting into place programmes and investments to build their resilience to help them cope with the strain placed on host populations, on resources and on the local economy.
We are working with municipalities on improvements to water, waste water, waste facilities and municipal infrastructure. And increasing access to finance for the private sector, especially SMEs, to help create the growth and jobs that a swelling population needs.
Ladies and gentlemen, I mentioned the EBRD's strategic prioroty of jelping our countries better integrate into the regional and global economy and the need to boost investment.
We believe that properly targeted infrastructure investment is crucial to integrating our countries of operations in regional and global markets.
We have pioneered ways of bringing in such investment through public private partnerships. Studies show that responsible infrastructure investment has a strong multiplier effect - every dollar invested adds $1.60 to GDP output.
It helps to create jobs and increases the productivity of companies, boosting long term economic growth.
That is why, to give you just one example, we are extending a $103 million loan to Kazakhstan's national road operator to improve a stretch of the Astana to Almaty Highway. It will spur Kazakhstan's integration.
Such infrastructure investment will be a specific focus for us in the next few years because of the direct impact it has on the growth of the private sector.
But we are also doing more to tap investment at source, upping our business development efforts in some of our major shareholding countries.
In fact we have just formally opened our first ever North America Representative Office, which will cover the US, Canada and Mexico.
You are all welcome to join us in celebrating this particular expansion at the reception later, here at CGD.
And most recently, China became our 67th shareholder. Its membership of our Bank better reflects the realities of the modern world.
You only have to look at the map illustrating China’s ambitious Belt and Road Initiative and overlay it on our regions to see the potential for joint investment and inter-regional trade
(iii) Global Challenges
Our third strategic objective is to assist our countries of operation to combat common global challenges such as food security, energy security and climate change.
In some of our regions that challenge is particularly acute.
Their use of carbon-based fuels and resources such as energy and water is still among the highest in the world.
This undermines their energy and water security, and potentially their overall security, as well as exacerbates the already considerable risks of climate change itself.
We at the EBRD have been pioneers in devising private sector solutions to these problems and up till last autumn, as part of our Sustainable Energy Initiative, had invested US$20 billion in over 1,000 projects with a total value of US$110 billion.
However, we now take the view that that we have to do even better in this field.
So late last year we unveiled a new Green Economy Transition Approach which aims to invest as much in climate finance over the next five years as we have done in the last decade, that same figure of $ 20billion.
We believe that such levels of investment can make a significant contribution to delivering the commitments made at COP21 last December.
iv) Modernisation: operational effectiveness and efficiency
Last but not least, we need to ensure that our youthful energy, that of a bank only 25 years old, endures.
Indeed, that, as an institution, we are continually challenging ourselves to modernise, innovate and adapt to the complex world surrounding us.
To be operationally more effective and efficient.
Internally, that process of continuous improvement is already underway.
And we are confident that our shareholders, the countries where we work, our clients – and our staff – will all benefit from it.
This, ladies and gentlemen, is the perspective of the EBRD on our world today and its likely shape tomorrow.
I know that we are not alone in thinking along these lines.
Other MDBs are busy adapting to the complex environment we find ourselves in.
Given the changing global context and the need for multilateral banks to adapt, I am of course keen to see the findings of the CGD Review. And to find out whether your panel approves of how we and other MDBs are doing and what shifts it is recommending.
This changing world has dominated the four years I have had the honour to be EBRD President.
I remain firmly convinced of the importance of the EBRD’s mission and optimistic about the prospects for the countries where we operate.
We have learnt a lot over the last quarter of a century.
And we are well placed to work with our partners, old and new, to continue to invest in changing lives.
And to do so, however complex the world around us.
Thank you very much.