Sir Suma Chakrabarti, EBRD President
Organised by the Parliamentary Assembly of the Council of Europe
This year we expect to invest around €8.5 billion in projects
Thank you for inviting me here to Strasbourg.
Special thanks to the Rapporteur for EBRD, Cheryl Gillan, for the highly interesting and thoughtful report.
I met many of you in London half a year ago during your information-gathering visit to the HQ of EBRD. We had a fruitful discussion then about our vision, activities and the challenges we were facing. It is a pleasure to continue this dialogue and to be able to bring you up to date with the activities of the European Bank for Reconstruction and Development in what has been and continues to be a challenging year – but challenges that the EBRD continues to tackle with its usual energetic application and vigour.
History has always loomed large in the life of the Bank. It was a moment in history, the fall of the Berlin Wall almost exactly 25 years ago, which triggered the birth of the EBRD. Again, it was a point in history, namely the Arab Spring of 2011, which led to the Bank successfully expanding its mandate to the emerging Arab democracies. Today the Bank is facing a difficult time with the current geopolitical tensions over events in Ukraine. These tensions are of course shaping some of the Bank’s work.
During the next few minutes, I will give you a brief tour d’horizon of our operations and our considerable impact in our countries of operations.
The EBRD has a huge geographical footprint, marking it out as different to other Regional Development Banks. We are a semi-global Bank, operating in three continents – Europe, Asia and Africa, with investments in Mongolia, through Central Asia, Russia, Central and Eastern and South Eastern Europe, Turkey and in the Southern and Eastern Mediterranean region.
We are actively investing in more than thirty countries, with Cyprus having become the most recent addition where we will use our unique expertise to help that nation, temporarily, as it overcomes its financial crisis. In fact the Board of Directors approved its second project in Cyprus just this week.
This year we expect to invest around €8.5 billion in projects (across our regions including the Southern and Eastern Mediterranean and Cyprus), adding to the €17.6 billion that we invested in 2012 and 2013. By the end of this year we expect to have signed approximately 370 projects – these projects really do make a difference and can change lives through developing the private sector in pursuit of our transition mandate. The EBRD helps countries to develop free, open market economies which can contribute to the eventual bolstering of democracy.
However, our work is not about the number of projects that we have signed or the amount that we invest, considerable as it may be. Our real focus is on the impact that we have. The following is a small overview of noteworthy examples of such EBRD projects:
Providing financing to assist with the electrification programme in rural Morocco which brings social inclusion to deprived households, enhances the quality of life and supports local employment. We also co-financed the Al Manakher power plant in Jordan where power blackouts are a common occurrence.
The EBRD invested €75 million for an equity stake in Romania’s major electricity distribution company, SC Electrica SA, which listed on both the Bucharest and London Stock Exchanges earlier this year.
The Bank’s dedicated Women in Business financing programme in Turkey is going from strength to strength. It allows us to facilitate access to finance and advice for women-led SMEs.
A third of our investment is now in the area of Sustainable Energy. It is not just about renewable energy (although we are the largest investor in renewables in our region, €2.2 billion since 2006 in direct investment and €800 million in credit lines for local banks) but ensuring that we make the best use of the energy that we have. Energy efficiency and energy security are two sides of the same coin.
We also continue to be profit-making – a profit of over € 1 billion in 2013, our most recent full financial year. These funds are recycled back in to building our strong capital base, helping to maintain our triple A credit rating (which has just been reconfirmed by major ratings agencies), and, importantly, go back - through our investments- to our Countries of Operations.
The EBRD is now at a crucial juncture. Some of our countries are ‘stuck in transition’ where growth and structural reforms have stalled. We need to help those countries re-energise transition.
This thought lies behind the agreement at our most recent Annual Meeting, in Warsaw, on the EBRD’s Medium Term Directions. They will help guide our operations for the next few years.
We will focus on making economies more resilient, integrating them more in to the regional and global economy and helping them to deal with common global challenges, such as mitigating the impact of climate change, and, of course, energy security.
We know that investing in projects alone cannot achieve these goals. So, we are stepping up the policy dialogue with the authorities in countries which aim to produce wider economic reform.
We strongly support regional cooperation and integration. One recent example is the historic summit of the Western Balkans countries which took place in February this year at the EBRD’s London HQ. For the first time seven Prime Ministers from the region were gathered together to discuss ways to improve coordination of regional polices and to boost investment in the region.
I began by talking about history. The EBRD was set up, initially, to help countries make the transition from communism to capitalism. The Bank was designed as a bridge between west and east.
Today, those relationships are strained as geopolitical tensions have come to the fore. History has taken a, hopefully brief, turn for the worse.
The current geopolitical tensions between the West and Russia are having an impact on many EBRD countries of operations. The EBRD now forecasts that the Russian economy is likely to be stagnant this year, and that there will be a mild recession in 2015. The economy is forecast to contract by 0.2 per cent, as the impact of sanctions is felt by an already unbalanced economy.
Our forecasts also say that Ukraine’s economy could shrink by nine per cent this year and a further three per cent in 2015. The economic situation is clearly very serious.
We are also seeing an impact on other countries in the region. The weak Russian economy was already affecting remittances to Central Asia and other CIS countries, even before the exacerbation of sanctions. In addition, many countries bordering Russia are exposed to a slowdown of trade and investment channels. Uzbekistan, Moldova, Armenia, the Kyrgyz Republic and Tajikistan have been particularly hard hit.
The EBRD is reacting to these economic challenges.
We are ramping up our support for Ukraine, boosting our investments, including returning to the public sector.
By the end of August, we had invested almost €620 million in 19 projects and are on course towards a billion Euros of investment in Ukraine in 2014.
We continue to support important infrastructure projects, both in the public sector (with a €200 million road project) and in the private sector (with a US$ 60 million grain terminal in Odessa).
The energy sector and agribusiness investment remain a key priority in Ukraine.
We are supporting Ukraine, as well, through policy dialogue and advice. We have been asked to help with the new National Reform Council which is responsible for the preparation, coordination and implementation of Ukrainian-led strategic reforms.
We have also signed an Anti-Corruption Initiative with Ukraine. This will set up an independent ombudsman and we intend to play a major role in this difficult area for the country.
In Russia, we have a lot of existing investments but we are not making new investments, for now. The majority of our shareholders have given us guidance that, for the moment, they do not wish us to bring forward new projects in Russia for Board approval.
And in other countries affected by the Russia slowdown, we will be working to see what we can do to give additional help.
The current geopolitical tensions and the reliance of many countries on gas from a single source, Russia, has brought the question of energy security back in to sharp focus.
The EBRD has been doing much work in this area, and will continue in its efforts to increase energy security in central and eastern Europe.
We began this after the last energy crisis in 2009, at a time then of tensions between Russia and Ukraine. We have invested in large-scale projects which can insure against possible interruptions of supply.
We continue to assist in the sector of energy storage, having invested in a LNG terminal in Poland, which is about to open, together with three existing gas storage facilities in Hungary, Serbia and Croatia.
The transport of gas is equally important. We have co-financed important energy infrastructure projects, such as the Baku-Tblisi-Ceyhan pipeline and the South Caucasus pipeline, which are important for bringing supplies in from the Caspian Sea. We are actively looking at ways to help finance the development of the Southern Corridor and we are currently supporting work on the natural gas interconnector from Greece to Bulgaria. In Ukraine we plan to finance a gas transit system upgrade to allow the reverse flow of gas from the Slovak Republic.
It is not just about bolstering energy security but also about energy efficiency and, as I have mentioned before, we are very active in that sector.
The Bank’s skills in the area of energy efficiency are now much in demand globally, and we are happy to lend our expertise to those who want it outside our regions.
I turn now to the political aspects of our mandate, to which you in the Parliamentary Assembly of the Council of Europe rightly pay close attention.
The recent review of our political assessment methodology, to which the Parliamentary Assembly contributed, has proved helpful. We look forward to continuing cooperation with you in the area of political assessments.
Under the new approach, which reflects the evolution of understanding of modern democracy, the Bank looks more carefully at factors such as fair and competitive elections, the effective power to govern of elected officials, the role of civil society, efforts to combat corruption, the protection of minority rights and equal rights for women.
When assessing a country’s progress in democratic transition, we put special emphasis on the trajectory of change. The underlying approach of the Bank is engagement, even in cases where political conditions are difficult. In the most difficult cases, we do not disengage but rather focus our efforts on a few core sectors – such as SMEs and developing the private sector – and aim to incentivise further reforms through a ‘calibrated’ strategic approach that promises broader engagement in response to improvements against a set of political and economic benchmarks.
Our political methodology is not the only area undergoing modernisation. The EBRD is also responding to changing times by pursuing its own internal modernisation programme, which includes a comprehensive review of its processes and a design of budget and human resources planning in order to better align its priorities and resources.
The EBRD is also seeking to increase its engagement with civil society and to increase its efforts in transparency. Our website contains a wealth of useful information and our Public Information Policy was recently reviewed and judged to be consistent with best practice among international institutions.
Nevertheless, we can do more. And, in this respect I note the call from MPs for a further increase in transparency of our publications. We know where this comes from: EBRD is indeed ranked rather low in the Aid Transparency Index (ATI). The International Aid Transparency Initiative (IATI) standard was developed for traditional aid donors, which is largely for grant funding for public sector projects.
As such, the original reporting schedule is not tailored for the reporting of investments to private-sector clients, the core of what the EBRD does. The detail of such investment is often commercially-sensitive information which is normally the subject of non-disclosure agreements with private-sector clients. IATI itself has acknowledged this fact, and we have been working together, alongside other IFIs, to develop a reporting approach appropriate to private sector investments. When a new private-sector schedule is adopted, EBRD will make an effort to adhere to this. Nevertheless, it is worth remarking here that EBRD’s website contains a wealth of useful information.
History has often taken a hand in our activities but the Bank is experienced at adapting to changing circumstances. The Bank was created to respond to change in Eastern Europe and the Former Soviet Union. It has responded rapidly to the changes in the Arab world.
It has responded flexibly to crises – financial and geo-political. Whether it was by lifting our lending levels and adapting our products after the financial crisis hit or now after the geo-political tensions have taken hold, the Bank has shown a nimbleness and adaptability that is unusual among international public institutions. And we have the headroom to do more if called on.
As President, I am proud to lead a Bank which delivers impact.
Many of our countries have serious challenges, the geopolitical backdrop is difficult, but we are not deterred.
The EBRD will continue to hone its skills, its flexible approach, and its innovative products, to meet the needs of regions which require long term support.