Sir Suma Chakrabarti, EBRD President
Press conference held at end of 2013 Annual Meeting and Business Forum
The key issues: innovating for growth, says EBRD President at press conference
Good afternoon everyone.
First, I want to thank the Turkish hosts, particularly the role played by the Prime Minister and our Turkish Governors, both the Deputy Prime Minister and the Finance Minister Çalakci. They really made this event happen and helped us make it happen; so we are very pleased and want to thank them very much.
The key messages from the Annual Meeting: the first thing is that there is a very strong sense of enthusiasm, spirit and enjoyment from the Governors, and there was a feeling that we were addressing the issues of the moment, that we were on the key issues. The key issue was put onto our banners: innovating for growth. The focus was on how to kick-start growth. As our Chief Economist will have explained, the growth rate expected for our countries of operations this year has now dropped to 2.2 per cent across all those countries. We are particularly concerned about the growth rate in central and south-east Europe, but we also note that countries that were relatively protected before – Russia, Turkey and Poland – have also seen their growth rates fall this year. Growth is a big concern because that number also implies, and has led to, high unemployment, high youth unemployment and the social, political and economic consequences that flow from that. Therefore, growth is a big issue and that is what we are really focused on.
Our Governors gave us very strong support for being as innovative as we can be whilst sticking to our business model. The key issues we focused on were small and medium scale enterprises and how the EBRD could do more to help SMEs. Many SMEs have a good track record on job creation and growth, so there is strong support for us to do more in that area. There is also strong support for us to try and find more good infrastructure projects, particularly regional infrastructure projects to help with regional economic integration. There is support for our discussions in regard to finding innovative financing methods to bring additional sources of finances to the EBRD. There is also support for us in working on economic opportunity, essentially to do with underserved markets, whether it is for women, youth unemployment or underserved regions, if the client wishes that to happen.
That was all rather good and thoroughly discussed in the Board of Governors’ Roundtable meeting that took place yesterday. All the feedback I have had from the Governors who were there was that it was a very good discussion. They felt that it was a very lively, open discussion and one of the best, if not the best that they had ever been to; so I am very pleased with that and want to thank our Directors who helped formulate the questions that we asked our Governors.
There was a strong feeling that it is not just about more investment, which is very important, but that it is also about policies and the right investment climate. You know the usual things that countries need to do to improve their investment climate, so I will not list everything, but they include immediate issues like tax regulation. Some of them are more medium to longer-term issues including the court system and commercial courts in particular; and some of them are more systemic issues such as corruption. In this regard I had a very good meeting with the Ukrainian authorities and Finance Minister Kolobov who very much welcomed the push we have given Ukraine and the help to reformist elements in the administration and in businesses in Ukraine. We hope and he hopes that we can come up with a fully-fledged anti‑corruption initiative by the summer.
We also talked a lot about how the EBRD can work well with other international financial institutions. It was no accident that we invited the EIB, the IFC and the Council of Europe Development Bank to sit on a panel yesterday afternoon, which Jonathan [Charles, EBRD Director for Communications] moderated, to talk about some of the things we should do together. The EIB had 24 people in its delegation as a testament to its desire to work more closely with us. The relationship between the EIB and the EBRD has gone from strength to strength, and I am really pleased about that. We have a joint action plan in south-east Europe with the World Bank Group and the EIB. That is being delivered on schedule. There will be a full-scale report on that in October in Washington at the annual meetings of the IMF and the World Bank. IFI cooperation is going very well.
A very important step yesterday was that the prime ministers from the new region, from Tunisia, Jordan and Egypt who were invited here to join me by the Turkish Prime Minister and the Bank, gave a very good presentation of their challenges and what they are looking for from the EBRD. That helps a lot to frame the debate.
We have moved very quickly in SEMED. We have already assigned €260 million worth of projects in just six months. The Board has approved a larger amount than that but we are still waiting to sign a few projects after the Board has approved them. That is quite a good start.
We were also able to welcome our new member, Kosovo. You heard some brief remarks from Prime Minister Thaçi. They are very pleased to be a member of the EBRD and already have a number of ideas for projects, which we are working on with them. The private sector in Kosovo is approaching us very strongly; and we are very pleased about that.
There are a few last things for me to say on the importance of being in Turkey. That was a feature of many of our discussions over the last couple of days. Turkey has been very fast growing. For us it is now the second largest market after Russia. A strong Turkey has quite a lot of importance for countries in our traditional region and also our new region because of its geography, its commercial ties and historical ties with both regions. It is very important to observe what has been happening in Turkey.
Governors strongly supported the modernisation programme that the management team has put in place in the EBRD.
I should stop there and let you ask some questions.
CAROLYN COHN, Reuters: You had breakfast yesterday also with the Libyans, so I wondered if there is anything you could tell us about the EBRD’s plans in Libya.
I wondered if there was anything concrete that you had agreed upon in order to help SMEs.
THE PRESIDENT: Libya was invited by the Turkish Prime Minister; he wanted the full set of Deauville countries, so he invited both Libya and Yemen to the breakfast. Libya is not a member of the EBRD. The Central Bank Governor who represented Libya said at the breakfast that Libya is interested in technical cooperation and would like to have a dialogue with the bank in that regard.
This is something we will have to follow up with the Libyan administration.
The key issue with SMEs is that we already do a lot on SMEs across our countries of operations. The question we need to ask ourselves is not whether we should do more because clearly there is an appetite amongst our shareholders and management that we should do more. That is the easy answer. The more interesting and difficult question is how to do more in a way that maximises job impact and growth. We are going to do a fast-track review, which will present results to the Board immediately after the summer. It will have to ask questions such as, what is the right balance between direct work with SMEs and indirect; do we go through the banks more or do we take a more direct approach.
A more direct approach has consequences because of course you have to know your sectors, countries and companies even more, and therefore it is a much more staff-intensive approach. That is one of the issues that we need to discuss. We have both approaches in our EBRD arsenal and we need to look at which approach has been the most successful.
There are some big issues there, if we do a lot more; but the easy answer is that we will do more, definitely.
RALPH ATKINS, Financial Times: Can I ask a question about your initiative on developing local capital markets, which is perhaps related to the SME issue? Can you give an update on that initiative but also say specifically what you are doing about encouraging savings as well as lending?
THE PRESIDENT: The update is quite short really, Ralph. For the first time ever we very recently, about six months ago, put together an integrated team in the EBRD. This involves bankers, lawyers, economists and finance people, all in one place. They are working on this.
You are right that this is crucial in a number of countries where, frankly, the kinds of enterprises we want to work with are not going to work with foreign exchange, so they need local currency.
The team has now prepared quite a large number of needs assessments. The most recent examples to give you are those that have been prepared in Morocco, Tunisia and Jordan. There is one in preparation for Egypt now. We are in discussions through this team and our country team with the central banks in those countries to see if we can do more. In some places legal changes will be required to allow us to lend directly in local currency. An example is Ukraine: yesterday, Mr Kolobov said that the draft law is now in parliament because the Ukrainian authorities also want us to do more but it requires a change in the law. That is where we have got to. I have promised Governors, through the Board of Directors, a review, an update report, before we get to the Warsaw Annual Meeting on this initiative. It is time we did that update. Somewhere between December and April next year we will do a short update and we will be able to say more on that.
It is important to encourage savings. I do not want to encourage too much saving at the moment; I would like people to spend a bit more actually. Of course, a good healthy economy has a good savings GDP ratio generally, and in some countries that is too low. That is partly in response to the crisis; savings rates are probably low because of that. We do encourage that as well.
RAYMOND LLOYD (Parity Democrat Westminster): I have two questions. I have admired the way in which the EBRD has extended its operations to new countries suffering from communism, like Mongolia and Kosovo. There is an even greater challenge coming up in 2014 when the allied military will leave the country and hand over completely to civilians in the once Soviet-occupied Afghanistan. Can the EBRD envisage extending its good work to that poorest of poor countries?
My second question is this: in London last year I told of the Parity Directorate’s equal numbers of able women and men established by women leaders in the World Food Programme and UNESCO and asked whether you would be the first male head of an international body to do likewise. You replied that as civil service head of the Department for International Development you had appointed 50 per cent women, and as head of the Department of Justice 40 per cent. What progress have you made during the past year with the European Bank?
THE PRESIDENT: On Afghanistan, the question of membership of Afghanistan is a shareholder issue; it is not really for management. I do not know of an instance when Afghanistan has asked and I do not know any shareholder that has approached management about it. It is a non-issue for me at the moment. Basically, it has not come up.
Second, on diversity in the EBRD, yes, we are trying to do more on this. In the end, our ultimate objective is to have proper competitive processes for all posts. For some posts at mid-ranking level, we will make some direct moves as well because we want to encourage mobility and so on. At the top ranks, I have instilled competition. The key thing is to get the best person for the job but I always have an eye to diversity, both nationality and gender diversity.
It is too early to say how much progress we are making. We are probably making more progress at the moment in the middle ranks than at the top end. It is quite an interesting observation that for many of the top end jobs in EBRD we do not get as many women applying as we should. There is a job to do in EBRD to get our head-hunters and our own staff to encourage more women to apply for some of those jobs. I would like the percentages to be a lot higher in the first place.
That is quite consistent with international data that suggest that women generally tend to be much more aware of their abilities than men. Men tend to “chance their arm” a lot more and apply for a lot of things they have no chance of getting; women tend to be more cautious. The key thing is to encourage women actually to apply in the first place and say to them, “You are credible and you should go for it”. That requires senior managers, not just myself because I am not running all the competitions, to do that sort of work, and that will take time. In DfID, to get to 50 per cent in the senior echelons right the way down to the third tier, it took me six years and I was in a field over which I had much more control than I do in the international sphere, and so it will take some time.
HANNO MUSSLER, Frankfurter Allgemeine Zeitung: This question is on the business model of EBRD. You are strengthening that towards more efficiency and more profitability. What is an average gain, let us say on a five-yearly basis, we can expect in future from EBRD? If I am not mistaken, you had around €1 billion profit last year. Can we expect 20 per cent more from EBRD on a five-year basis on average, after the reform of the business model?
The second question is about graduation. Next year we will meet in Warsaw. Maybe this is a candidate, after Prague, for closing the office there. What do you think about that?
Last year you spoke about more diversity in the Bank. What about diversity of the flows? Russia is quite dominant and if I am not mistaken some of the donors criticise you, saying that you are focusing too much on Russia. Will you change that?
THE PRESIDENT: I will take those in turn. On the business model, we do not set ourselves a target profitability. Obviously it was good to have the €1 billion figure. I am not setting a target but we need to be profitable to do our business and it is part of the model.
Going forward, what I think our Governors were saying, particularly if we do more SME lending, is that we will take on a bit more risk; we are bound to do that if we are going more into the SME area. Actually, given how we are in terms of our finances, that is unlikely to change our overall financial picture because SMEs will not constitute such a huge amount in terms of volume that would change the overall picture. I do not think the business model is going to change that much in those terms. The change in the business model is much more about the sorts of skills we need to do more SME work and things like that, so it is more of a skills‑based change probably than anything else that we have to think about and talk to the Board about.
On graduation, yes, this came up in discussions with the Governors. There is, of course, a commitment to graduation built into the EBRD itself, but also into the CRR4 language. It was always very carefully worded to show that it was conditional on the economic and financial situation at the time. Quite clearly, many of our countries of operation feel that they need the EBRD for a number of years longer because of the difficult situation they are in at the moment. Some other shareholders clearly also think it is quite important at least to set out a timeline for when graduation will take place.
I expect this debate to continue between now and Warsaw and for it to be a feature of discussion around CRR5 considerations, but I do not expect Poland will be graduating next year. I do not think that will be happening. We think Poland has quite a lot of transition gaps and we have a very good relationship with Poland. Let us see where that debate gets.
Diversity of flows also came up in yesterday’s Governors’ discussion. There was a very good question the Directors had put down about flexibility in geographical and sectoral considerations. It was not so much that Governors felt management was being inflexible. The question they were asking of themselves was: had what was put into CRR4, what is being put into business plans, been interpreted in a way by certain shareholders as being targets and commitments. I thought the Governors very clearly said that these were indicative plans essentially and that management should have some degree of flexibility in interpreting those plans, and that is helpful. There was a good understanding of that as well.
At the same time, I have to say that from management’s perspective it is important that if management puts the business plan forward, we do feel some sense of commitment to it, and so we should really try to achieve the business plan, even when the circumstances are difficult. I do feel that we are honour-bound to try to achieve the 2013 Business Plan as written down.
MR WILLIAMS: If there are no further questions, thank you very much for coming. We will see you next year in Warsaw.
THE PRESIDENT: Thank you, everyone.