Once upon a time, Poland was poor. Tiny, but noisy Polski Fiat 126p cars polluted the air in the 1970s and 1980s, when industrious traders crammed their much loved maluchy to the limit with goods. They would meet counterparts in, say, Hungary who were tagging along with huge holdalls seemingly held together by sheer willpower. With every move between the Baltic and the Black Seas they were tirelessly creating a web of business links.
These were the real pioneers of the market economy, and once set free, there was no stopping the power of human enterprise.
This entrepreneurial spirit changed everything; the destiny of countries as much as people’s lives. Today, Europe is free and united as never before in its history.
The EBRD is a child of the 1989 revolution. The Bank was established with the clearly defined aim of supporting the development of the private sector. True to its word, the EBRD works through market forces. It is an approach that works. The Bank was instrumental in the development of economies which are competitive, create wealth and can raise living standards. Convergence, albeit slower than probably expected and certainly hoped for, is happening.
Thierry Baudon knows the EBRD inside out. He was one of the first members of a working group, established in the late 1980s, when ideas about the establishment of a financial institution to support the systemic transition in central and eastern Europe were first floated. He brought years of experience at the World Bank to address a very specific challenge: “Our objective was to apply the skillset of a development institution to foster the growth and strengthening of the private sector.” It was a task he and his colleagues took on with relish: “It was the only time in my professional life that I had a bed in my office.”
The very first project the Bank approved was a US$ 50 million loan to Wielkopolski Bank Kredytowy, a bank based in Poznań. It was the beginning of a successful relationship that lasts to this day and included the merger with Bank Zachodni, the coming and going of international investors and, finally, the integration of the bank into Banco Santander. Under the name Santander Bank Polska, it is the second largest bank in Poland today.
Paweł Kołodziński, the bank’s current Head of Corporate Development, remembers: “The 1990s were the breakthrough period for the Polish financial sector. At that time, the development of modern and mass banking was getting into full swing. It was 25 years ago that we issued our first payment card. The 1990s were times of great opportunities and great challenges. After the years of shortages inherited from the communist era, the demand on the Polish market was immense, and so was the potential for the development of new services and products.”
The EBRD’s first baby steps soon became giant steps in the countries’ development and growth. GDP per capita in Hungary in US dollars was 36 per cent higher in 2016 compared with 1988, 109 per cent higher in the Slovak Republic and 120 per cent higher in Poland. Overall, the EBRD has invested €19.2 billion through 1,117 projects in the seven countries of central and eastern Europe since 1991.
But the spoils were not divided evenly, something which would, in later years of transition, take its toll. “The well educated urban middle classes were the big winners of the reform process,” Mr Baudon says. “Excessive inequality can be very damaging for the economic and social fabric of society and could undermine support for democratic politics,” warns EBRD Chief Economist Beata Javorcik.
But this was not a concern in the early days of transition. Once the EBRD was firmly established, Mr Baudon moved to Mid Europa Partners in 2001, which soon became one of the largest private equity funds in the region, with approximately €5.2 billion raised and managed since its inception. Since 2005, Mid Europa Partners and the EBRD have been working together, most recently in 2013 in the Mid Europa Fund IV. “It is neither a coincidence nor a surprise that the most successful private equity operations in central and eastern Europe were set up by a development bank,” he says.
The reason for this, Mr Baudon believes, is the wider perspective: “Of course, like any other investor, we are here to make a profit.” But this has also benefited the recipients: “We have invested in hundreds of companies and created tens of thousands of jobs.” He adds: “You must also have a heart and your investments must be able to stand the test of time.” He acknowledges that private equity investors often face a reputational issue as they are often seen as asset strippers who are out for nothing but a quick return, but he insists: “We are a force for good.”
And this is, to a considerable extent, due to the EBRD: “The Bank has always been a good, reliable and strong partner.” Thirty years on, Mr Baudon still sees an important, yet fundamentally different role for the EBRD in its first countries of operations: “Today, central and eastern Europe has reached a new level of development. Where the EBRD is still needed is in closing existing gaps, for instance, where financing remains hard to find or where it can apply its extensive experience in ‘soft skills’.”
Mr Kołodziński from Banco Santander Polska agrees. Facing the challenges of a rapidly changing economy and adapting to the new conditions is easier with the EBRD on board, he says. “We think that the EBRD’s role continues to be particularly important in supporting capital market transactions and the development and growth of sustainable financing.”
As much as the Bank’s role and activities have evolved over the years, the mission remains the same: supporting the transition of the economies in the EBRD regions to free and progressive places where the spirit of entrepreneurship can blossom.
As the world marks the thirtieth anniversary of the historic events of 1989, some commentators are sceptical about the results. Many hopes and aspirations remain to be realised and a significant part of society identifies as the “losers” of transition. Yet, as Ms Javorcik notes: “Convergence may be slower than we all hoped for. But it is definitely happening. And if we look beyond mere economics and financials it is already a fact: the outlook on the lives of the younger generation in the East is exactly the same as that of their peers in the West.”
Timothy Garton Ash, the Oxford historian who has followed the revolutions in central and eastern Europe closely for decades, wrote in his latest essay for the New York Book Review: “On this thirtieth anniversary the question that forces itself onto dismayed lips is “What went wrong?” The question is justified, but it must be preceded by a look at what went right. (…) Measured against the daunting scale of the region’s post-totalitarian challenges, the successes of the first two decades after 1989 are even more impressive than the gathering crisis of the last decade.”