EDFI 2019 Annual Meeting
Good afternoon, ladies and gentlemen.
It is a great pleasure to be here with you today. Particularly so, as it is a long time since I participated on an EDFI meeting in Edinburgh, (way back when I was DFID Permanent Secretary).
So I am particularly very grateful, Nanno, for your kind invitation to join this illustrious group today.
The EBRD shares a deep affinity with European DFIs given that we often have the same approach to how we work in markets and share a common world view on what it takes to do development well.
Only last week, some of you were in Sarajevo at our Annual Meeting as our guests.
And, there is a striking similarity between the topics you are covering today and what we discussed in the Bosnian capital.
Among them: harnessing new technologies to address climate change, fostering skills to address inequalities, and promoting gender finance, inclusion and integration.
This is no accident.
We are addressing the same global challenges with business models that are very much aligned and, I will make the case, reinforce each other.
We share many working methods and enjoy very close personal relationships – and not just because Jurgen Rigterink, former CEO of FMO, last year joined the EBRD as our First Vice President.
And that is very much the underlying narrative I want to emphasise to you today.
We are already working well together, reinforcing each other’s development impact.
But how can we take this to the next level?
- Big development challenges
Today’s development challenges are huge and multifaceted. They demand collective action and a real sense of purpose, at a time when global cooperation faces strains and tensions few of us could have imagined just a few years ago.
The Sustainable Development Goals (SDGs) capture those challenges – and opportunities, because behind every challenge is an opportunity –very well. The SDGs set out a crystal clear vision of the world we want to achieve by 2030.
I believe that this vision is also absolutely ‘doable’.
And yet we all know that to meet the 2030 goals, we need annual investment 20 times higher than today’s volume of official development assistance (ODA), or about $2.5 trillion in additional annual investment.
So the SDGs and, I should add, the COP 21 commitments require more than more ODA. They require new ways of financing.
Domestic resources and ODA will be still needed, but they will not be enough on their own.
And, of course, the scale of the SDG challenge is enormous, far too great for any single country or institution.
But we – the IFIs and DFIs – do have a historic responsibility vis-à-vis the SDGs.
When the time comes to diagnose what worked and what didn’t, who delivered and who was found wanting, an especially bright spotlight will be shone on the development banks.
Just continuing with a business as usual approach will not work.
And even if 2030 may seem far away, time is not on our side!
We should all be able to hear the clock ticking down to the 2030 deadline.
We have a collective responsibility to act now. Otherwise we will simply not deliver.
Two major implications for our work flow out of this:
- first: to meet the investment gap, we urgently need to leverage the private sector more, both in terms of financial resources and delivery expertise; and
- second, we need to come together to build and maintain complementary strategies, facilitated by working under the same norms or rules of the game. We need to build a genuine network linking the IFIs and European and non-European DFIs. Our shareholders should empower us to explore different partnerships with other DFIs, joint ventures or common investment platforms.
As the motto of today’s meeting puts it, we need to “stand together”.
And, I would add, “act together” too.
3. EBRD & EDFI & DFIS
When I look at the EBRD’s relationship with EDFI and all of you as member institutions, there is certainly a lot to build on already.
With EDFI and its members, we’ve co-invested more than €12 billion - €7.6 billion from the EBRD and €4.4 billion from EFDI members - in the past years.
In Turkey, with DEG we co-financed three innovative hospital PPP projects.
In Egypt in 2018, we partnered with Proparco and others to support the modernisation of metro line 1 in Cairo and provided a financial package to the Arab African International Bank.
I could cite many more projects with partners in this room.
So, much is being done. But much more is needed to multiply our impact.
Many projects are in the pipeline already.
Under the European Fund for Sustainable Development (EFSD), EBRD and EDFI will work together in the EU’s Southern and Eastern Neighborhood to boost investment in renewable energy.
We will use the EU’s new EFSD guarantee to address the perceived high risk of private sector power projects, and crowd in local banks and private co-financiers with EBRD and EDFI.
With an EFSD guarantee of up to €100 million, we expect to mobilise €2 billion of investments. These will create jobs, improve access to reliable and affordable energy and mitigate climate change by cutting carbon emissions by an estimated 2-3 million tonnes per year`.
At the EBRD, however, we believe that financing alone is not enough. We need a “Financing Plus” model. Through our multilateral shareholder structure – 69 shareholders in all – we also have the ability to bring real influence to bear on the authorities in our recipient countries and to help them remove obstacles to private sector development and specific projects through policy reform.
The best example of that is probably the Benban solar park in Egypt. We spent two years negotiating the Power Purchase Agreement and regulatory framework with the government before being able to finance what is the largest solar park in Africa. We are now co-financing that with FMO and Proparco.
Conversely, we at the EBRD benefit considerably from the agility of EDFI members – one of the benefits of your single shareholder structures. And I know we have learned from your expertise in markets, such as North Africa, where we were relatively recent arrivals.
So I see real complementarity here – and I want to be clear that we want to partner more closely with you: to stand, and act, together with you to deliver the SDGs.
4. Link to MFF / WPG & Tharman
To stand and act together more broadly, to get to the next level, we DFIs and IFIs also need the right framework.
We need to operate within a much more efficient system, one which facilitates coordination among IFIs and DFIs so that we can leverage each other’s skills and strengths.
This brings me to the ongoing discussion of the global and European financial architecture.
At a global level, the report received by the G20 last year from the Eminent Persons Group on Global Financial Governance, or the Tharman report, was a substantive piece of work.
It identifies steps to get our development ecosystem, what you might call, more ‘match fit’.
I would highlight, for example, its call to exploit the “untapped potential for collaboration” among the IFIs and DFIs, not least by converging around core standards on areas such as procurement, pricing policies or debt sustainability.
There is much more to this report.
It provides a lot of food for thought,
And it sends out a clear message that the status quo is not good enough.
At the European level, this thinking will no doubt feed into that of the Wise Persons’ Group, under the chairmanship of Thomas Wieser.
But before turning to the Wise Persons and their deliberations, I should also say how pleased I am to see that the need to make the system work better has already informed the debate around the post-2020 Multiannual Financial Framework, the MFF.
- What we have achieved
Within the MFF, the proposals for a new neighbourhood, development and international cooperation instrument – NDICI for short - are already well advanced.
We have coordinated extensively with EDFI members to promote a framework that is more inclusive, agile and efficient post-2020.
The current trajectory of the NDICI negotiations is encouraging:-
- First, the move towards financial instruments and blending is very pronounced. Of course, in many areas, grant funding will remain vital to ensure that efficient support is provided to those in need. But in others, we need to squeeze far greater value out of every Euro of grant money. Not only because it is more efficient and has the power to drive private sector participation. But also because it promotes a shift in mindset.
- Second, the principle of “open architecture” has gained traction and the positive experience under the current External Investment Plan has clearly inspired the set-up of the new framework.
That is a framework in which DFIs will have to compete with each other – in a constructive way – to secure EU financial support – something that will get all of us out of our comfort zone, with hopefully even better results for our clients.
A framework that will also facilitate cooperation and coordination, as the current EFSD already does.
- Finally, where financial instruments employ tools such as common guarantee systems, one acid test of an open architecture is the risk management set-up. If the open architecture is to work, risk management of the guarantee needs to be centralised and independent. So it’s good news that the risk management of the EFSD+ guarantee does seem to be heading in this direction, and I know that it is something many of us here today have argued for. I believe it is crucial that we insist on this, to avoid any potential conflict of interest and build a pro-development risk framework, which also ensures sound banking.
In general, what we need is the right set-up for productive cooperation and competition.
We all know that competition can be a source of innovation and can improve performance. But it does need to be well regulated, as in the economy overall.
I believe a positive example of healthy competition is, as I suggested earlier, the EFSD guarantee under the EU’s External Investment Plan.
This process brought about innovative proposals which were heavily scrutinised – and improved – by the European Commission, the other IFIs and DFIs, a group of risk experts and the EU Member States.
We should build on examples such as the EFSD guarantee or the Western Balkans Investment Framework to use the power of competition and cooperation in a productive way.
These represent major improvements.
But in my view even more can be done to build the framework we need.
- What needs to be achieved
That is why I so look forward to the work of the Wise Persons Group – of which Nanno is of course a member.
It will lead a crucial and much needed reflection on our collective system.
Expectations are high, and rightly so.
From my perspective, I will be particularly interested in the Group’s views with regards to two specific issues:
- First: the necessary policy coherence between development banks of the Member States and the EU Institutions.
After seven years as EBRD President, I am more convinced than ever that the primary driver of EBRD investment in any country is the business environment. And what is true for the EBRD is even more so for the private sector. So it is absolutely vital that we help countries get their investment climate in shape and keep it that way.
DFIs therefore need to do far more together to promote aligned reform priorities, working with key donors such as the EU and the Bretton Wood Institutions.
We must be more joined up and, at the very minimum, ensure we do not undercut each other on policy advice and conditions.
What we should be aiming for is to work far more closely together, notably through country and regional platforms, to support reforms that last. This requires us to share and build upon in-house policy expertise – so that we can explore where and how to make positive linkages, with our investments, coupled with technical support.
I am encouraged by the first tentative steps undertaken through the current External Investment Plan, with its three pillar structure, to reinforce policy coherence and coordination between DFIs and EU Institutions.
But current governance arrangements lack the right structure. We should strengthen the architecture to ensure stronger policy alignment across all DFIs in what we do, with policy priorities aligned with EU Institutions wherever EU tools are used.
- The second issue I am particularly interested in is the need to mobilise more private sector investment and, crucially, ensure that increased public investment does not inadvertently crowd out private investment.
This is a real and present danger, most obviously caused by public development banks offering loans to the private sector at rates that undercut commercial lenders and the development of the market.
Concessional EU public financing must be channelled towards well-defined priorities where there are clear market or institutional failures or where beneficiaries face affordability constraints.
We need to ensure that we are avoiding a race to the bottom, that we are building sustainable markets and that we are creating an environment in which competition promotes a more efficient development model.
I look forward to discussing these points in two days’ time when I will be attending the Group’s first meeting with stakeholders.
Indeed, the EBRD is very much looking forward to engaging with the Group.
5. EBRD current outlook
These key reflections on the development finance architecture within the EU and beyond will certainly inform EBRD’s strategy in the years ahead.
The time is right, for many reasons, not least that in Sarajevo last week our Governors asked EBRD Management to prepare a multi-layered analysis and plan for our future strategy for their consideration next year.
We are looking at what more we can do in our existing regions in order to optimise our delivery there.
We are also working on an analysis of what extra capital capacity the EBRD might have and whether we could effectively deploy our resources and skillset beyond our current geographic mandate, including to select countries in sub-Saharan Africa – the region of the world which, by common consent, faces the biggest development challenges.
Governors will then review our findings and approve the EBRD’s next five year strategy for the period 2021-2025 at the 2020 Annual Meeting in London – my last.
They will, I am sure, want to do this in the context of the discussions at global and European level.
Ladies and Gentlemen, the range of development institutions in this room today is impressive.
Stading here, I can almost feel your collective power.
But to paraphrase the EU’s own motto, we will only realise this diversity’s full potential if we are also united.
United in our policies and united in the way we deliver impact, while also acknowledging and respecting our differences.
With the right framework in place, and guided by our shareholders, I am convinced that, together, we can take that impact to the next level, the level we all need.