It’s easy to forget how much can happen in 25 years. When the European Bank for Reconstruction and Development was created in 1991, the world was a very different place. The Soviet Union still existed — just; Yugoslavia was in the first, chaotic and fluid phase of its bloody break-up.
Europe’s single union was less than half its current size: enlargement had yet to capture Sweden, Finland and Austria, let alone the first batch of nation states from central and eastern Europe. Other future events — the global financial crisis, the Arab Spring, a revanchist Russia’s attempts to turn back time by invading Ukraine and parts of the Caucasus — were unforeseeable and even unimaginable.
Back then, the challenge facing lawmakers in the democratic developed world was ostensibly quite simple. The Soviet Union was dying (it would formally be dissolved on December 26, 1991, four days short of its 69th birthday).
Most expected the fallout to be messy. The trick would be to ease the pain: to help every nation used to being directed and controlled by Moscow, to cast off five-year plans and embrace private capital and free markets; to help countries manage their own affairs and begin to think for themselves.
Enter the EBRD. “We were set up to deal with transition,” the sixth president of Europe’s premier international development bank, Sir Suma Chakrabarti, tells Emerging Markets. “Our aim was to help every nation state in the Eastern bloc make the difficult transition to an open market economy. And every economy we have worked with has become an open market economy.”
That last statement is open to interpretation — it would be a stretch to describe the likes of Belarus or Tajikistan, two of the 36 countries in which the EBRD operates, as standard bearers of free enterprise. But there is much about which Chakrabarti and his staff — and his predecessors — can be justifiably proud. He is quick to point to the vast amount of capital that the bank has disbursed over the past 25 years: €100bn ($115bn) in total, channelled into more than 4,500 private sector projects.
GREEN SUPPORTER
As the EBRD grew into its shoes, it became a willing proponent of worthy causes, most notably sustainably responsible investing: the bank launched the first of many green bonds in December 2010. “We are known globally as a pioneer in the field of renewable energy and promoting energy efficiency,” says Chakrabarti, a former UK civil servant. “That has been a major focus since 2006 and it has been a big success for us.”
Adaptation has been central to the bank’s ability to survive and thrive. In many ways, the EBRD that faces the world from its controversial glass-and-steel headquarters in the heart of the City of London has changed little in the intervening quarter century. It is home to the intelligent and well lettered, offering well paid employment to an army of former investment bankers, central bank chiefs and economists. And while any gathering of officials is multicultural and multilingual, the bank is still dominated at the highest level by members of the western European elite: before Chakrabarti it was run by two German politicians and a trio of French civil servants.
Yet for all that, the EBRD has proven remarkably durable, proving able to expand its donor base, adapt and respond to new challenges, pick the right fights and, perhaps most importantly, to be in the right place at the right time. It helped steady the ship in Tbilisi and Riga when Georgia and Latvia suffered banking crises. When the financial crisis rolled across the Western world, it worked with the European Investment Bank, one of its key donors, to roll out the Vienna Initiative, a financial containment strategy designed, in Chakrabarti’s words, “to make the process of deleveraging”, as financially-stressed Western commercial banks withdrew funds from central and eastern Europe, “far more successful and far less harmful than it could have been”.
Perhaps the most curious chapter in the EBRD’s short but rich history occurred in 2012, the year Chakrabarti joined the development bank. The so-called Arab Spring was still roiling northern Africa and parts of the Gulf and the Levant, and many nation states faced the same challenge presented to the CEE region during the break-up of the Soviet Union. Notably: the need to promote free markets and private enterprise; to deepen local capital markets; and to raise energy efficiency and integrate renewables into often crumbling power grids.
FAR FROM EUROPE'S BORDERS
In the eyes of the United States (which had questioned the EBRD’s very existence in the run-up to the financial crisis) the bank had suddenly become the ideal development partner for these troubled nations, having maintained its support for transition states across the CEE while providing financial support to private sector projects stretching from the Balkans to Mongolia. “Our shareholders could see that we had something to offer in the southern and eastern Mediterranean [SEMED] region,” says Chakrabarti.
The bank’s expansion to include within its developmental remit four countries — Egypt, Jordan, Morocco and Tunisia — so far from Europe’s borders, has not come without criticism. Yet the EBRD chief remains unapologetic. “We are in SEMED for the long haul,” he says. “We have already invested €3.5bn in 45 projects across the region. And we have received support from other key multilaterals, notably the African Development Bank, which sees not duplication but complementarity in terms of our focus on the private sector.”
The EBRD’s continued existence as a profitable and highly rated lending institution can be seen in two ways. On the one hand, it acts as a crucial sounding board and mentor to strife-ridden states. Without it, the region it covers would be immeasurably more friendless and impoverished.
On the other, it is troubling that the bank’s manifold services are in such great demand. In recent years, Cyprus and Greece, their economies hollowed out by low growth and soaring debts, have become temporary countries of operation, while the two nation states to which the EBRD lends the most, Turkey and Ukraine, have suffered variously with and from low growth, political uncertainty and capricious, unstable or aggressive neighbours. To Chakrabarti, burgeoning demand for the bank’s services is “clear proof of our success”. To others, it’s a sign that the world is becoming an increasingly unbalanced and unstable place.
UKRAINE DISTRESS
Perhaps no nation underlines the constant shifting of global tectonic plates more than Ukraine, a nation torn between Europe and Russia and still in the grips of a small clique of powerful and wealthy oligarchs. Russia’s move to annex Crimea and foment unrest in the country’s resource-rich Western regions has left the broader economy in a state of considerable distress.
The EBRD, says Chakrabarti, “has engaged extremely actively in Ukraine over the past 21⁄2 years, since the Euromaidan events” of 2013. “We have invested €2.2bn in 65 projects across the country, seeking to stabilise and support the banking sector and to stimulate economic growth. They are reacting actively to the crisis and we should feel very proud about the help we provide.”
Russia is a different kettle of fish. The EBRD was busily ramping up its presence in the country when president Vladimir Putin decided to boost his popularity ratings by invading his smaller neighbour. The bank, says Chakrabarti, has “maintained its portfolio” in Russia, “keeping its clients warm” and, wherever possible, engaging with them. “Russia is a very important economy in its own right and our officials are as keen to engage with them as they are with us. When that economy catches a cold, as we have seen, it’s bad news for the Caucasus and Central Asia.”
GROWTH FEARS
Going forward, opportunities and challenges abound. “One of the biggest challenges facing the region over the medium to long term is that of growth,” says Chakrabarti. “It overlays every country and every region, from Slovakia to the Baltics to Hungary. Many countries across the region also have ageing populations, which means they suffer from far lower productivity than they should. This is something everyone needs to work on.”
Another key focus for the bank will be infrastructure. “It’s a motor for growth. Some of the countries we engage with have a bit of fiscal space available. They could and should be investing far more in infrastructure and energy efficiency. In Ukraine, the bank has made a concerted effort to improve the efficiency of the country’s power grid. “If they could reach Western levels of energy efficiency, they wouldn’t need to import much energy at all,” he adds.
Every economy the bank covers has its own needs. Each is at a different stage of development, forcing the EBRD to adapt and tweak the nature and terms of its local engagement. “In more advanced states such as Poland, the Baltics and Slovakia, we are looking to do far more private equity-style investments. We want those states to create corporations that can become not just national but regional and even international champions, and that can only happen by boosting corporate governance.”
TRANSFORMING CHALLENGE
Elsewhere, the challenge is to transform single-track economies, fostering new companies and industries and encouraging governments to push ahead with much needed reforms. On one end of this scale sit oil and gas dependent states like Turkmenistan and Azerbaijan, both suffering from the fall-off in energy prices. At the other is Kazakhstan, a country that has, under its current two time premier Karim Massimov, embraced reform, pushing forward with public-private partnerships and liberalising state run enterprises. It’s not a stretch to say that Kazakhstan is one of the EBRD’s most prominent success stories, given the trust and intimacy that exists between Massimov and the London-based institution.
The EBRD had a rough start to life. Born into chaos, it was forced to toughen up quickly and early, and its success in helping unidirectional nation states to transition into free (or freer) market economies, from northern Africa through the CEE region to Central Asia, is a credit to Chakrabarti, his staff and all of his and their predecessors.
It’s hard to know what the next quarter century will hold for the development bank. Its president would like its success story “to become a case study at Harvard Business School, demonstrating how a publicly owned institution can help to transform the private sector, wherever it goes.” With offices opening in Tokyo and Washington DC later this year and China having now become its 67th member country — underlying how far the bank has come in so short a period of time — his wish may well come true.