Sir Suma Chakrabarti, EBRD President
National Parliament, Belgrade
Co-organised with NALED and the European Movement in Serbia
Thank you very much for your kind words of introduction, Prof. Marinković.
Ministers, excellencies, ladies and gentlemen, friends and new aquaintances,
This is my fourth visit to Serbia. Some may even accuse me of bias towards the Western Balkans! And it is an honour to be in this beautiful building where I have not been before.
I also want to thank NALED and the European Movement in Serbia who have helped us to organise this event. These are two organisations which have consistently supported Serbia’s European vision and I am glad to be able to meet their directors and teams here in person.
It’s an honour to be invited to speak here and to be able to share our thoughts on such an important topic.
My subject this evening is ‘Integration, Europe and the EBRD’.
I will be arguing that internationalism, the notion that nation states should aspire to deeper cooperation for the greater good of all, is not the spent force that many would have us believe.
It is actually a really live topic.
And I will be arguing that economic integration is one of the most effective vehicles for advancing its cause.
That is it a powerful force for promoting efficient markets and reforms.
And as such, economic integration is one of the EBRD’s strategic priorities, one that defines what we do across our regions.
Wherever we work, we encourage integration within those regions and between them and with global markets.
Here in Europe, I will argue, that cause for integration has been well served by the European Union and its values.
We at the European Bank for Reconstruction and Development are proud to be the EU’s partner in this endeavour.
It is also fitting it is that I should be delivering this speech here in Belgrade, in the National Assembly building.
Because Serbia has committed itself to a European path and we at the EBRD are doing everything in our power to help speed its journey.
We salute the role both Parliament and the Government have played in steering the country in that European direction.
The EBRD at 25 and our values
Accompanying countries such as Serbia along that road has been one of the major themes of our work ever since the EBRD was founded.
We ae at the end of summer, autumn is almost upon us but I think we are still allowed to celebrate our 25th birthday, which actually fell back in April.
Just to remind you, the EBRD was established to develop open and sustainable market economies in countries committed to, and applying, democratic principles.
And our founders were explicit in commending ‘the importance of close and coordinated cooperation’ to help ‘economies become more internationally competitive’.
The EBRD, when it was created, was envisaged to be a multilateral financial institution of a new kind, they insisted.
It would act as ‘a unique structure of co-operation in Europe’.
As such, true to those internationalist and multilateral principles, in the last quarter of a century we have invested more than €110 billion in thousands of projects, most of them in the private sector, in Europe, Asia and, more recently, in what we call the Southern and Eastern Mediterranean.
Over those 25 years, we have seen the role of the private sector enhanced, entrepreneurship encouraged, market competition boosted and emerging economies much more integrated into global supply chains.
Given the circumstances of our birth, soon after the fall of the Berlin Wall, we are, of course, a child of the end of the Cold War.
The values that inspired our creation were very much of their time.
Our purpose was defined as fostering ‘transition towards open market-oriented economies’.
But those values, were not actually born in those heady years that witnessed the collapse of Communism on our continent.
Ther heritage of the EBRD and the principles we believe in stretches much further back into history.
Economic integration was one of the values that inspired the miraculous rebuilding of Western Europe after the destruction wrought by World War Two and, one might add, the Great Depression of the 1930s.
Indeed, one has to go back to the 19th century to see the origin of those values.
“Free trade! What is it?” asked the 19th Century English Liberal, Richard Cobden.
He answered his own rhetorical question by saying:- “Why, breaking down the barriers that separate nations; those barriers, behind which nestle the feelings of pride, revenge, hatred, and jealousy, which every now and then burst their bounds, and deluge whole countries with blood.”
And the importance of opening markets up to greater competition was also, of course, acknowledged by that son of the Scottish Enlightenment, Adam Smith.
“Monopoly, besides, is a great enemy to good management,” he argued in “The Wealth of Nations” as long ago as 1776.
For good management, he said, “can never be universally established but in consequence of that free and universal competition which forces everybody to have recourse to it for the sake of self-defence”.
So much for the intellectual architecture of the world of 25 years ago, and the world we live in today.
We are, of course, pragmatists. We recognise that the march of history is uneven.
Its tempo varies.
History has its ups and downs.
Its zigs and zags.
But let’s not forget the huge strides that much of Europe has made – in the course of a single generation.
Transition in Central and Eastern Europe
Let’s look, for now, at some of the countries that the EBRD was originally set up to help and which are now members of the European Union.
Let's look at Central and Eastern Europe and the Baltics.
Their transformation over the last quarter of a century has been so extraordinary that I think we are at danger of taking it for granted.
That transformation has been so wide ranging that it is difficult to know quite where to begin summing it up.
But we see how these countries are now so integrated into global value chains, how much more competitive they've become, how quickly they have adopted modern technologies.
Exports have increased dramatically, both as a share of GDP and as a percentage of global trade in those countries.
Income levels are converging with those of the rest of the EU, although, of course, there is still a long way to go before we can talk of parity.
These changes did not happen overnight.
Accession to the European Union took eight to twelve years.
But this was time very well spent.
Democratic values and institutions were reinforced in the accession process.
Countries could prepare for the challenge of membership of a cohesive grouping of nation states with common political and economic interests.
They could get themselves ready for entry to a much bigger market than before, one which brought many more opportunities but also much fiercer competition.
And throughout that period the European Union and its values provided a vital anchor point and a strong incentive for reforms.
The EU was, in no small way, midwife to the historic changes we have witnessed in those countries.
Indeed, while I’m not a great believer in counter-factual history, I do think we can say one thing for sure. Without the EU, if the EU did not exist or embraced some values other than those I mentioned earlier, I think the recent history of those nations in CEE and the Baltics would look very different indeed.
The EU, the EBRD and the Western Balkans
The EU is performing a similar role here in Serbia and the Western Balkans.
Of course, we would all like it to have played that role much earlier had it not been for the instability and conflict of the 1990s.
Today, here too approximation with the EU is the most powerful external anchor for reforms.
But here, quite rightly, it comes together with a focus on regional cooperation.
Regional cooperation is an explicit precondition for aspirant countries as they work towards approximation.
Both are key pillars of stability in their own right. Both are indispensable to the region’s economic prospects.
This region, I believe, knows better than most how important cooperation is as an investment in the future.
Together with our EU partners, we at the EBRD have been particularly active in encouraging cross-border cooperation here.
A 2014 Summit at our headquarters in London effectively launched the “Western Balkans Six” process at the level of Prime Ministers.
Today it is now called “the Berlin Process” and it is a tangible reality.
That sends a strong message to the rest of the world, the message that the region has attained new heights of maturity and stability.
Such intensifying cooperation is one of the region’s greatest achievements of recent times.
And you know this better than I do that cooperation is especially important given the memories of its past.
Progress in coordination between the Western Balkans countries has been matched by better cooperation with and between international donors, the European Commission and international financial institutions such as the EBRD.
The result of all that is a visible strengthening of the way we pool resources in support of regional projects, first of all through the Western Balkans Investment Framework.
Under the leadership of the European Commission, much better coordination has allowed a number of significant regional transport and energy projects to be prioritised.
Among those we at the EBRD are seeking to support is one that Prime Minister Vucic has called the ‘Peace Highway’ – connecting Nis with Durres via Pristina.
Overall, we have provided a total of €2.8 billion for regional infrastructure projects worth a total of €7.5 billion.
Just a few weeks ago in Montenegro I visited a little-publicised but vital system, the South-eastern Europe Coordinated Auction Office. I didn’t even know about it, but I went because I was intrigued. It allocates scarce electricity transmission capacity across the region via a single fair auction process.
Such cooperation would have been unimaginable two decades ago.
Other initiatives go beyond physical infrastructure to connect markets in other ways.
At our latest Western Balkans Investment Summit this February we at the EBRD launched the “SEE Link,” an innovative regional platform integrating the stock exchanges of South Eastern Europe.
The system became operational this summer and is already boosting liquidity and improving access for investors and brokers across the region.
I would also mention here the soon to be launched Western Balkans Business Registries Portal, which will connect your registry agency with that of FYR Macedonia. Several other countries have expressed an interest in joining as well.
These are just some of the projects that are happening in the region that people don’t know enough about – all the cooperation that is going on.
Globalisation and the challenges of today
At that February summit in London I remarked on the way such cooperation is a testament to the vision of this region’s leaders.
And yet in the wider Europe - and beyond - the cause of internationalism and the arguments in favour of economic integration are being challenged.
Certainly in my lifetime I cannot remember anything like the scepticism about these values that we see today.
Indeed, I feel sometimes that the main ideological battle of our times is no longer between Left and Right, but between those who believe in Open societies and those who believe in Closed societies.
We don’t expect everyone to agree with us - although we'd like that. But the EBRD perspective on the world we live in is clear.
The list of challenges our regions face is long. And there are voices out there suggesting that globalisation is making them worse. Or even that globalisation, or integration, is actually the cause of some of them.
Those voices around there advocate a pause in the momentum for greater integration.
Some even argue for rolling it back.
For many of these challenges, we regard deeper economic integration as a key part of the solution, not the problem.
Either that or integration is simply irrelevant to the issues at hand, whatever those arguing against globalisation might think.
So what are these challenges we face, the ones that really matter?
Some argue that they include the negative effect of sluggish or non-existent growth on the EBRD regions as they emerge, still, from the financial crisis of the last decade.
We understand the reasons for the shortfalls in investment that make reenergising that growth such a challenge - and are doing what we can with our partners to remedy that problem.
We are tackling the corruption that dogs some of our countries and are improving their investment climate where we can.
We recognise the threat to our societies posed by rising inequality.
And we are doing our best to promote gender equality and inclusion in general as part of our commitment to sustainable and environmentally sound development.
We are on the ground helping countries deal with an influx of millions of refugees.
And we are pioneers of a private sector approach to growing the green economy and combatting climate change.
‘Going it alone’ is not the answer.
Such a response to the global problems we face – and they really are global in scope and nature – would be a betrayal.
And not just of the internationalist values that are at the heart of the EBRD’s mandate.
We believe that it would betray the hopes and aspirations of the millions of people in our regions who want a better life for themselves and their children – and who realise that the world we live in is interconnected as never before.
And, yes, I am making the case for more and closer integration. Yes, I am a a British president of a multilateral financial institution based in the City of London.
So it may seem a bit surprising, but I believe in this, as do many of my compatriots, and we do at the EBRD.
Whatever the United Kingdom’s future status vis-à-vis the European Union, I know that its traditions of free trade, openness and engagement with the rest of the world run deep.
It was no accident that, when I looked at these values’ historical origins, I cited as some of their founding fathers an Englishman, Richard Cobden, and a Scotsman, Adam Smith.
Integration as a strategic priority for the EBRD
Before I sum up, I would like to dwell for a few moments in more detail on the EBRD’s understanding of integration and what it can do for our world.
How it can further the values of internationalism that are at the heart of what we do.
And help us in our mission to invest in changing lives.
Integration is absolutely central to our performance as a Bank.
In fact, along with boosting our countries’ economic resilience and addressing global challenges such as climate change, promoting economic integration is one of our three strategic priorities.
We see economic integration as a powerful force promoting efficient markets and reform.
It increases competition in product markets.
It widens the range of financing sources available for investment.
It allows countries to opt into institutional arrangements of a higher standard.
And it imposes strict discipline on governance, legal, regulatory and other institutions.
So openness to international markets and integration with them also spurs innovation within businesses and economies as a whole.
For our part, at the EBRD, we support open markets and integration through cross-border financial flows and investment, trade finance, infrastructure, improved skills and standards in SMEs, policy dialogue and partnerships with institutional investors.
That’s a very broad spectrum of activity.
So integration goes to the heart of what the EBRD is about.
As far as investment integration is concerned, we are working with governments to increase volumes of FDI, which lag behind those flowing into other emerging markets.
We've got to help them redouble their efforts to strengthen the investment climate. We are already working on that.
I have already mentioned the Western Balkans Investment Framework.
We are already working to coordinate governments, the European Commission and IFIs in preparing and implementing infrastructure projects that support connectivity in the region.
Such initiatives can do much to address the legacy of sub-standard infrastructure which undermines integration, inclusion and growth across the EBRD regions.
I would also note the way we are assisting countries to diversify their energy sources, in particular through better integration - again! - of regional energy markets.
And while integration needs to work within regions, integration with global markets is also important, particularly if we are going to attract more capital from pension and sovereign wealth funds from around the world into our regions.
The EBRD and Serbia
I’ve touched on Serbia and its European path in the context of the Western Balkans.
I believe that what the EBRD has done here should be seen as an eloquent advertisement of the benefits of working together - and for the wider cause of reform and regional cooperation.
We’ve invested over €4 billion here in Serbia, in more than 200 projects, over the years.
I think it is is telling that Belgrade is, in fact, our largest ‘municipal’ client across all of our countries of operations.
As I look around your capital, I can see the evidence of how much we have achieved.
Our work with the Serbian authorities, in partnership with donors and other MDBs, is having real impact.
We signed recently a €200 million loan to support comprehensive reforms at EPS, in the power sector, last year.
We also are helping private companies, both large and small.
Last year we also supported the largest mergers and acquisition transaction in the region when Mid Europa Partners purchased the Moyi Brendovi conglomerate.
We also made our first loan here as part of our Women in Business financing for micro and small borrowers. And I am enormously proud of that by the way. I think what we have to do in Serbia and the Western Balkans is to support more women entrepreneurs by improving their access to finance.
But our engagement with Serbia is about more than just the financials.
We enhance the role and competitiveness of the private sector, with a special focus on SMEs that suffer from limited access to financing.
When we take an equity share in companies – as we have done many times in Serbia – we also review and improve their corporate governance through the Board and via technical assistance.
We support institution building through our Investment Climate and Growth Initiative.
Here I should note the importance of our work with the Serbian parliament as we advise on legal and regulatory reforms. We need to do more work going forward.
Of course, there is much more which Serbia needs to do to create a truly competitive business environment: reducing corruption, improving the judiciary, streamlining bureaucracy, reducing the role of the state.
But, crucially, all of the steps we are working on will equip your country for its future in the wider European and global markets.
I think, taken together, these different activity streams will help deliver all three of our strategic priorities: integration, economic resilience and an enhanced ability - for Serba - to address global and regional challenges.
And enhance those qualities which, potentially, I believe will make Serbia and its neighbours so attractive to investors.
Not least the prospect of an even closer relationship with the EU, something that other emerging markets just do not have and which promotes market-oriented reforms and EU standards.
But also the region has the attractiveness of a strong macroeconomic stability, where Serbia is leading way, a strategic location, diverse economies, favourable tax regimes and well educated population.
You have yourselves as the best attraction for foreign investment.
Ladies and gentlemen, internationalism, globalism, economic integration, cooperation, tolerance, connectivity, call it what you will.
These are some of the values that inspired the creation of the EBRD 25 years ago.
They have been, in my view, instrumental in delivering historic changes across our regions in the quarter of a century since.
I think the European Union has been one of our most effective and resolute partners over that same period.
That is true both of the broader EBRD regions and here in the Western Balkans, in the form of the Western Balkans Investment Framework and the Instrument for Pre-Accession Assistance.
It is my firm belief that it is in the EU’s own strategic interests to pursue further integration with the Western Balkans.
There is a clear understanding of this in Brussels and other EU capitals.
We are very glad to see the continuing strong support for EU membership in Serbia.
I referred to the march of history earlier and how uneven it can be.
I know that this has sometimes been true of popular support here for the EU.
But experience shows that support increases whenever citizens realise that the way is open for their country to progress to the next phase of EU integration.
Our commitment to the internationalist values of economic integration and regional cooperation does not rest on dogma.
We have always been pragmatic at the EBRD, flexible and adaptable.
We judge our performance by results, not by the way they correspond to theory.
But, like the EBRD itself, the values that lie at the heart of our business are, I assure you, in rude health.
Our success is also the success of our countries, countries like Serbia.
Our mission is not accomplished here or in the region.
There is a lot of work still to do.
But further integration can do a lot of that work for us.
And help build a better Europe.
A Europe, I feel, in which Serbia and the Western Balkans as a whole can really secure their rightful place.
I look forward to that day.
Thank you very much.