Sir Suma Chakrabarti, EBRD President
Washington DC, USA
EBRD-EIB-World Bank Joint IFI Action Plan for Growth for Central and South Eastern Europe
Scaling up finance and scaling up reforms is key
EBRD President Sir Suma Chakrabarti and Chief Economist Erik Berglof provided an update on the EBRD-EIB-World Bank Joint IFI Action Plan for Growth for Central and South Eastern Europe while in Washington DC last week. The three institutions are well on their way to meeting the target of more than €30 billion of commitments for the period 2013-2014. Sir Suma and Mr Berglof made their comments on 12 October.
Significant volumes of investment have gone into the region. All three institutions, as [EIB President] Werner Hoyer and [World Bank Vice President for Europe and Central Asia] Laura Tuck said, are actually ahead of where we expected to be in terms of the investment volumes in the first year of this initiative, and that's very, very good, and I think we're not going to be held back by the €30 billion. If we can do more than that, if there's demand, so be it.
But it's more than money, of course. It's very important that our projects go hand in hand with steps pushed forward and, in some cases, to restart the process of reform that's been interrupted by the crisis.
So, I like to see this as both scaling up finance, but scaling up reforms, too, alongside that finance.
Now, the projects that we've prepared as investors I think have provided some very unique insights into any of the problems that there may be also in the legal regulatory framework or overall business environment in the region that hinders business and investment.
Now, among the projects that EBRD has invested in as part of the joint plan is the provision of 400 new buses in the Serbian capital, Belgrade. If anyone who has been on a Belgrade bus in recent years knows, this is a major, major success story, very welcome for many of the commuters - not only a more comfortable ride for commuters but also a drop in carbon dioxide emissions of 35,000 tons a year.
There's €20 million to support the efforts of a foreign investor, Danieli, to restart production at a steel factor in central Croatia, a major employer in the private sector, and it will enable the firm to produce the highest world market standard steel, very important.
And the last example I'll give is a smaller example in terms of volume, but it's a €3 million loan to a food and pharmaceutical equipment manufacturer, Biomashin in Bulgaria, or a €1.3 million loan to a retail and fast food facility operating in Kosovo.
I'll give that example because, as Werner said, it isn't just about the huge projects, it's also about the sort of SME level, as well. I think all three of us are trying to really restart the SME sector, as well.
Now, all of these projects and many more are part of the EBRD contribution, but the key, I think, reason we have to go back to why did we start this initiative, why is it so important? Well, it's because growth in this region remains halting, the recovery is timid, ever since the Lehman collapse, growth remained consistently below pre-crisis levels. And we felt, all three institutions felt, and the leadership felt, that this could create a very vicious cycle with long-term unemployment eroding skills, nonperforming loans becoming a drag on credit supply. And to be honest, we also feared the political consequences in the region with this sort of scenario.
Foreign direct investment, as many of you know, had declined, and has not been offset by domestic savings. Investment in general is at a very low level in many countries.
So, that was a picture, and now it's great that we've got going with the investments that we had. We remained concerned, though, I think, all three institutions, that the region is stuck in terms of transition policy reform. So, whilst we can see incremental progress in some of the sectors, and you can see that in the report, there's also some backsliding, frankly, on reform, and it may be adjustment fatigue, it may be lots of things, but it's really important that we now get back onto the track in the region in terms of structural reform. That would really help the region's long-term prospects.
I think the key for us going forward is to continue with the investment programs we have working together, but there's also trying to help the countries really create the right environment that will attract investment, both from a foreign and domestic perspective - raise the investment GDP levels, and put them back onto their growth path.
And I think, therefore, a little work between the three institutions on business environment and governance will be required. And for us, at the EBRD, that's one of the reasons we realized that we needed to strengthen our country offices, our resident offices, with more policy skills going forward, including economists as well. We were a bit too London-centric in the way we did this, so we're doing that as well.
I strongly believe that combining investment with policy reform, this action plan for growth will help--is helping and will help to prepare the region for a more competitive and prosperous future in the longer term.
The way the Vienna Initiative has developed since the first days, now Vienna II, is exactly trying to do that, bring people into the same room together, all the parties.
And it might be good to get Erik Berglof, our Chief Economist, really, who has been the moving spirit in that, just to give a bit more detail to you.
Erik Berglof, EBRD Chief Economist: Well, there are many in this room who have been moving spirits in this effort, but I very much agree with what you say, and I view these two initiatives as highly complementary.
We had a meeting yesterday with the Vienna Initiative Steering Group, and what is so rewarding is that we have the home countries' authorities, the host country authorities, we have the private banks, and we have the IFIs in the same room and we can have discussions.
And I agree with you, it does reduce the risk level, which we have seen a lot of competition, sometimes, between home and host authorities, between different home authorities and between different host authorities. It is very important to get them all in the same room.
We will do so in three weeks--or two weeks in Brussels the full forum, which is now 100 people, with 18-19 of the private banks and so on. So, I think we are really trying to bring this together, and I think we are trying to create regulatory certainty for the banks as well.
Sir Suma: I think the period ahead, as I see it, is one of increasing optimism, actually, about the world economy and about our region as well.
But for many of these economies in our region are not huge economies, and so they really have to go the extra mile in terms of reform to really take advantage of the global conditions, and that's really important. I think we have to help them, because these reforms are not easy. If they were easy, it would have been done.
We have to help them take those steps, and I think we need to continue to work together on that. But as I said earlier, we've got to scale up our finance, too, as well as scaling up reforms.
By the time we get together again next year here, we'll have an even better story. I think that is the aim.
Thank you very much.