It is an honour to see you at the Central Eastern European Forum here in Vienna today. We have gathered right at the heart of central and eastern Europe to kick-start 2019… and to set the tone for the banking and finance agenda for the next 12 months.
Vienna is an outstanding example of how this region has been growing together since the fall of the iron curtain 30 years ago. Today both sides are reaping the benefits. Vienna is growing and blossoming, while Bratislava – the capital of the Slovak Republic – has come from behind the shadow of the Iron Curtain to become one of the six richest regions in the EU.
Having grown up in the shadow of the so-called Cold War myself, when the division of Europe seemed unchangeable, it never ceases to amaze me that today you can get on a train quite literally below the hotel where we have gathered today and arrive in Bratislava in little more than an hour.
The progress the region has made over the past three decades has been nothing but spectacular. A huge healing process has been set in motion…
But healing takes time.
When we acknowledge that many challenges persist, let us also not forget that what we are dealing with is the legacy of more than 40 years of communism.
For the EBRD, the CEE region lies at the heart of our operations. This is where it all began for us, when we started investing in 1991 with the mandate to support the transition to market economies, help build (and re-build) the private sector and promote entrepreneurial activity.
In this role we are a powerful and necessary catalyst. To date, the Bank has invested over €46 billion in more than 2,200 projects in the 17 countries of central and south eastern Europe from Estonia to Albania and from Croatia to Romania – out of a total of €130bn in 5,270 projects in what are now 38 economies on three continents.
We have many partners in the region. First, and foremost: you, the private sector investors. You bring so much more than just capital. You provide know-how and expertise, but also an indispensable benchmark of what is needed to take the next step in development.
We are also privileged to have the support of partners like the European Union and the EU Structural Reform Support Service, or perhaps better known as just SRSS. And, of course, we work closely with governments, central banks, regulators and other private sector stakeholders.
Going into 2019 we can see a number of challenges, some of them global, others structural. The former we will have to find shelter from, the latter we will have to address. In both cases the EBRD is here to provide support and assistance.
- First: The volatility of the global economy at a time of growing tensions in international relations and trade. In the latest EBRD forecast from November 2018 our economists warn that “a scenario in which trade tensions escalate globally and international supply chains become severely disrupted entails high risks for the region’s economies that are strongly integrated into global value chains.”
- Second: The same report also points to the continuing uncertainty over Brexit. In fact, it is indeed today that the House of Commons will vote on Prime Minister May’s Brexit deal… with most people expecting a rejection of her plan. Nobody knows what will happen next. But it is clear that a no-deal Brexit may lead to a disruption of cross-border supply chains in the short term and affect the region through a number of other channels, especially through a possible reduction of Eurozone growth and consecutive lower demand for supplies from central and Eastern Europe.
- An issue which remains high on the political agenda, and this is my third point, is the refugee crisis. As an investor in countries like Turkey and Jordan the EBRD had first-hand experience of the impact and we quickly put together a response package addressing urgent needs for instance in infrastructure, but also in job creation through private business support. We are aware that the crisis had much wider repercussions throughout Europe and we encourage political leaders to develop and implement constructive and realistic approaches. Given the huge controversy surrounding this topic finding a wide consensus remains as challenging as it remains imperative.
- Four: This year does not only mark the joyous 30th anniversary of the fall of the Iron Curtain. It is also the 10th anniversary of the Vienna Initiative, established in response to the massive impact the global financial crisis had especially on central and Eastern Europe. While the initiative was a success, the fact that it had become necessary highlighted the inherent weakness and instability of domestic financial markets in the region. Much progress has been made in the resolution of non-performing loans since then. However, corporate indebtedness remains a major concern in the region.
- My fifth point is to consider the need for the diversification of long-term funding sources. The 2008 crisis demonstrated the need to diversify long-term investment flows… and not to rely exclusively on the banking sector. The EU Capital Market Union initiative has made significant efforts in this regard. Today we have made significant progress in legislation for securitisation, covered bonds and SMEs’ access to finance, but how close are we really to having deep and integrated capital markets in the CEE region?
- And, finally: We have to remember that we are exiting a period of almost 10 years of direct central bank support for the economies of the region. With interest rates finally moving from historic lows and instruments such as quantitative easing discontinued, will local markets be sustainable or will they face serious disruptions? This question is especially pertinent for central and eastern Europe… as most economies are built on comparatively small domestic markets. This problem used to be overcome by free trade and the creation of a dense network of interdependency. The question we are facing today is whether what is useful economically can survive a certain political logic.
This brings us back to the first point on my list, the volatility of the global economy.
Ladies and gentlemen, the answer to these challenges is obviously not to ignore them, but to address them heads-on… and the EBRD is just doing that.
In line with our conference’s agenda let me briefly touch about three core issues:
Many CEE economies are based on innovative, smart and agile enterprises. But all too often their size makes access to funding and capital markets a difficult task. Without finance these firms cannot grow. Hence a vicious circle emerges which must be broken.
What is needed is a multi-faceted approach which combines the development of reliable long-term funding tools for the banking sector with support for alternative channels and development of local capital markets.
And we need to step up efforts to explore ways to develop alternative funding channels to reduce the reliance on bank-lending, for instance with listing support and bond issuance programmes for small and medium-sized enterprises.
We are all thrilled – and perhaps a bit scared? – by FinTech. So it is all the more important to create an environment where this can work. We are building innovative solutions with an emphasis on sustainability. We are exploring the establishment of innovation hubs – so-called “sandboxes” where start-ups can test and develop innovative products. We need to examine regulatory barriers and create a level playing field for all market participants.
- Green Finance
Given the CEE countries’ patterns of energy supplies, generation and consumption, energy is arguably one of the critical question for the region’s future. Managing climate change depends on making finance flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development.
In December 2018, the EBRD Board of Directors took a landmark decision to end the financing of thermal coal mining and thermal coal-fired electricity generation. This was complemented by a recent €250 million Direct Investment Framework for Green and Sustainability Bonds, expected to mobilise private sector capital investments of a further €1 billion.
The EBRD remains ready to support the countries of central and eastern Europe as they advance to the next stage of development. Their resourcefulness and tenacity fills us with optimism that future challenges will be overcome. As the saying goes: “The optimist proclaims that we live in the best of all possible worlds, and the pessimist fears this is true.”
Ladies and gentlemen, we have a busy agenda and important topics to discuss today, so I am honoured now to give the floor to Jiang Jianqing, the Chairman of SINO-CEEF Capital Management Company and Former Chairman of ICBC. Chairman, you represent a relatively new and important partner in the region. The EBRD is glad to join forces with you in support of the objectives I have outlined.
Thank you for your attention and on behalf of the EBRD I wish you a successful and happy New Year!