Sir Suma Chakrabarti, EBRD President
EBRD 2013 Annual Meeting and Business Forum
EBRD President reviews performance and looks to the future
Prime Minister Erdogan,
Deputy Prime Minister Babacan,
Ladies and Gentlemen,
If a week is a long time in politics, then a year is a long time in the life of the European Bank for Reconstruction and Development. A very long time in the uncertain economic conditions that provide the backdrop for our operations. In the twelve months since I was elected as President of the Bank, a great deal has happened and a lot has been implemented. Allow me to reflect on how the Bank has been performing and what the future holds for the EBRD. One thing is clear to me already: in the economic world that we now live in, the Bank’s contribution is more important than ever.
Since arriving at the Bank last summer I have been able to observe up close why shareholders have placed their faith in the EBRD. This has been particularly visible in my visits to a large number of our countries of operations, seeing the impact that we have on the ground, investing in changing lives.
Right here in Istanbul I saw how we had improved the journeys to work of commuters through the privatisation of IDO ferries. The company is now more efficient and fresh investment is making a big difference. And, at its own instigation and as part of our involvement, the company is taking on far more female staff.
Turkey is now our second biggest country of operations , last year we invested over a billion Euros. Success here proves that the Bank is capable of adapting its model from the traditional post-communist nations, which it has helped for more than two decades. The building-up of our operations in Turkey, from a standing start less than five years ago, augurs well for our eventual success in the countries of our new Southern and Eastern Mediterranean region --Egypt, Tunisia, Jordan and Morocco. This morning, at Prime Minister Erdogan’s invitation, he, the Prime Ministers of Egypt, Jordan and Tunisia as well as high-level representativies from Libya and Yemen, met over breakfast to exchange views on how to attract investment and promote economic cooperation in a historic first ever meeting at this level. In a moment, Prime Minister Erdogan and his colleagues from Egypt, Jordan and Tunisia will take the floor to address the Board of Governors.
We recognise that 2013 will be another difficult year economically for a lot of our countries. Politically, too, there are challenges in both our traditional and new regions. Democratic reforms have progressed in a number of countries just starting out on the transition path. But in other countries reforms have stagnated. Governments almost everywhere need to ensure that they pursue crucial economic and political reforms and improve business confidence. Corruption is a serious problem in a number of countries that must be addressed if investment is to return to pre-crisis levels. If governments and corporates fail to take action now on the investment climate, they will find it harder to benefit from a future upturn in the global economy. The EBRD stands ready to support partner governments and private sector clients in their reform efforts, including corporate governance, through our projects and expertise.
Performance in 2012
In 2012, despite the weak and turbulent economic conditions in many countries, and for the third consecutive year, the EBRD sustained its annual business volume at close to 9 billion Euros. This was delivered by a record number of 393 operations, up from 380 in 2011. There was continued focus on the transition impact potential of the Bank’s activities. 92 per cent of the projects signed in 2012 were considered to have good or excellent transition impact potential. The excellent performance also owes much to the leadership provided by my predecessor,Thomas Mirow, in the four years that he dedicated to our institution.
But, of course, performance is not just about figures. It is about the tangible impact on people’s lives. I have spoken about Turkey. It is just the same in our largest country of operations, Russia. Amongst the projects that we are funding is a loan to modernise district heating systems in a permafrost area in the Far East of Russia. There, the heating season lasts for ten months of the year and winter temperatures drop to minus fifty degrees celsius. .
It is the same in Bulgaria. We are helping a metal-processing company, Sofia Med, sharpen its competitive edge. We are investing 40 million Euros in production and energy efficient improvements, as well as providing long-term financing for working capital. Increased competitiveness could eventually mean more jobs.
Last December,as well, Kosovo became our newest member and country of operations.We have started, already, to deepen the support that we are giving to developing the private sector there.
The 2012 business volume includes the Bank’s first commitments of 181 million Euros to the four potential recipient countries of the southern and eastern Mediterranean – SEMED as we call it. Project approvals began in earnest in the final quarter of the year following the necessary changes to our charter. We will spend this year ramping up our investment and building up our business pipeline, working closely with other International Financial Institutions. We are also very close to the ratification by all shareholders of the amendment to our Article 1, which will pave the way to fully-fledged recipient country status for SEMED countries.
The Bank also continued to maximise its impact through several strategic initiatives. Our Sustainable Energy Initiative aims to mitigate and adapt to climate change and to improve energy efficiency. We delivered strong results here, with 2.3 billion Euros of financing in 2012. This will result in a reduction of almost 9 million tonnes of CO2 emissions and a saving of just under 3 million tonnes of oil equivalent in energy consumption.
We have also been developing our Local Currency and Capital Markets Development Initiative. It now has a dedicated team. Access to local currency lending and capital markets is crucial for households and businesses that don’t have earnings in foreign currencies. Projects signed under this initiative will finance investments of local businesses in rural areas of FYR Macedonia. And in Kazakhstan, local currency loans worth the equivalent of three million dollars are being provided for on-lending to micro and small enterprises. Again, a specific focus is on entrepreneurs in rural districts. Long term loans in local currency will make these businesses less vulnerable to sudden exchange rate movements.
Whilst carrying out all of its transition and operational commitments, the Bank maintained its good financial health. It recorded a net realised profit of 1 billion Euros, an increase on 2011. A clear sign of confidence in EBRD is that all three credit rating agencies reaffirmed our AAA status with a stable outlook, a rare acclamation in today’s world.
The start of 2013 and outlook
Despite the EBRD’s excellent performance in 2012, there is no room for complacency. The external environment remains challenging. In 2013, we are putting greater effort into business development, addressing areas where our pipeline must be strengthened. There are business segments where demand has slackened. In Russia, the economy is slowing and so is the demand for the Bank’s long term financing. Foreign direct investment is still below pre-2008 levels. In many countries, there is also less demand for large infrastructure projects for a variety of reasons. One of those reasons is that some governments have hit their debt ceilings and can no longer afford such investments. And in the SEMED region, potential investors are still waiting on the sidelines until political and economic uncertainties are resolved and the direction of change is clearer.
By the end of this Annual Meeting, our annual business volume should reach some 1.7 billion Euros for over 80 projects, similar to the same period in 2011. Let there be no doubt though that operating conditions are likely to remain demanding for much of the rest of the year. We face a landscape of economic uncertainty. As our Chief Economist will announce later today, the outlook for growth in both of our regions has been revised down significantly. We are witnessing sharp rises in unemployment in some countries, particularly of youth unemployment.
In this context, we are focused on meeting changing country and client demands.
Together with the World Bank and the European Investment Bank, we launched the Joint IFI Action Plan for Growth in central and south eastern Europe. Let me warmly welcome our partners, President Werner Hoyer of the EIB and Vice-President Dimitris Tsitsiragos from the IFC, who are with us today. The aim of the joint plan is to help bolster growth and reform at a time when countries are still consolidating their budgets and suffering from weak economies.
As part of that plan, EBRD has approved a second financial package for subsidiaries of Greek banks that have systemic importance in south eastern Europe. And, in Croatia, we financed the construction of a new wharf for passenger ferries in the port of Split, supporting the further development of the Croatian tourism industry. Hand in hand with such projects goes dialogue with governments on policy reform.Building on the success of our Sustainable Energy Initiative, we are now launching a broader Sustainable Resource Initiative - SRI. This initiative is targeting efficiency in the use of water, waste and other materials – in addition to our work in the energy efficiency field.
The SRI will build on the activities we are already undertaking, such as the ten million Euros of financing for the modernisation of the wastewater treatment facilities in the Kazakh city of Shymkent. Another investment in changing lives.
Also, our Board has approved a Strategic Gender Initiative. It has identified a number of priority countries with significant gaps in promoting equality of economic opportunity for women. In these priority countries, we will design projects that enhance access for women to employment and skills, finance and services.
These initiatives will be delivered through our project based approach, responding to our clients’ demand, sticking to our core private sector oriented business model, and with a focus on our transition mandate. I am committed to return to our Board before the Warsaw Annual Meeting next year with an update on progress on all of these initiatives.
As you’ve heard me say, the Bank is performing well. Like any organisation, we want to do even better. When you elected me last year, I made it clear that I wanted to examine where the Bank could be modernised, and its efficiency and effectiveness further enhanced. Modernisation is not an aim in itself but will enable the Bank to continue delivering effectively and maximise its impact in the coming years. The ability to manage change is crucial to the survival and success of any organisation. It’s a message that we repeat time and again to the companies that we help. If it’s good enough for them, it should be good enough for us.
Over the past year, we have made good progress in implementing the modernisation agenda. This agenda for change will lead to a more results-oriented Bank, as well as a unified and modern organisation.
So far, we have been refining our results framework, with a focus on the incentives framework of the organisation, its transition methodology, and how we report our impact externally. We are proposing a revised institutional scorecard, which will ensure a sharp focus on both quantitative and qualitative transition objectives, and – for the first time - across all teams of the Bank. We are enhancing our policy dialogue capacity and innovating our product offer –with the Sustainable Resource Initiative, for instance. We are also looking at ways to mobilise more effectively global capital pools for investments in our region.
Internally, we have restructured to improve our policy focus. And we will be improving our focus on human resources – our greatest resource – and corporate services too. We are already promoting improved managerial skills, career development, mobility and diversity. And we are on the road to building a stronger culture of efficiency through a focus on costs, process burdens, and value for money. We are being careful to retain what is best about the Bank. And, I repeat, we are always keeping in sight the end goal of modernisation: a more efficient Bank with greater impact through our delivery on the ground.
CRR5 and vision for the future
The Bank’s success on the ground and the modernisation programme provide a solid basis for facing the future.
Indeed, we will soon need to consider the Bank’s strategic direction from 2016. The fifth Capital Resources Review will soon be upon us and we look forward to engagement with shareholders. We plan to propose medium term strategic orientations for approval by Governors at next year’s Annual Meeting in Warsaw. We will then develop the proposals for CRR5 during the remainder of 2014, with shareholders’ close involvement. We aim to submit the CRR5 strategy for your approval at the 2015 Annual Meeting.
We will also have to decide on an operational approach to Post-Graduation and engage with shareholders in an honest discussion of graduation prospects in the coming years. Graduation expectations, pace and conditions were set out in CRR4. Graduation, of course, remains a fundamental principle for the Bank, though I understand and accept that this is not an easy discussion amidst continuing economic uncertainty.
There is also the issue of governance. The question of the representation of Countries of Operations on the Board has been raised by Ukraine and Egypt, with support from others. A resolution setting out how we might proceed will be discussed by Governors tomorrow, if there is agreement this morning on the proposed supplementary agenda item. Again, as we know from other institutions, governance will not be an easy issue to handle . If the resolution is approved, then the aim must be to arrive by consensus at a stable and sustainable governance.
All of these questions will have an impact on the Bank’s future. But whilst dealing with these issues, we must remain focussed on our mission and our work. As I mentioned earlier, the difficult economic and political context points to the key role for the private sector and the EBRD in reinvigorating growth in the region. What specifically can the EBRD do?
We could further step up support to underserved micro, small and medium-sized enterprises, both through the banking system and, where appropriate, directly. This is resource intensive, and we would have to address issues of how best to deliver such an effort, but it would pay off in the form of a higher transition impact.
We also want to examine different ways of enabling sustainable long-term finance in light of changes in the structure of international banking and we want to attract investment from all parts of the world to the EBRD’s regions.
Let me leave you with one thought. Behind everything we do, we continue to believe that the EBRD can play a key role in encouraging the private sector to contribute to economic recovery. I am proud to lead this Bank. Our mission – to serve our countries of operation in their transition to fully fledged open market economies – is noble. I promise you that we will stay fleet of foot and flexible, just as the Bank has always done in its 22-year history. Our emphasis will continue to be on impact – every Euro that we invest counts more than ever in this challenging future that we all face.
Thank you for listening. I wish you all a very successful EBRD Annual Meeting.