Out of its comfort zone: EBRD’s home from home in MENA

GlobalMarkets sits down with the EBRD’s head of Southern & Eastern Mediterranean, Janet Heckman, and finds out why the bank is operating in a region so far removed from its original cultural and operational parameters

  • By Elliot Wilson
  • 11 Oct 2017
Email a colleague
Request a PDF

The EBRD financed Al Rajef Wind Farm, an 82 MW greenfield wind farm in South Jordan close to the Rift Valley flyway
Few could have predicted the events that stemmed from the callous treatment of a young Tunisian stallholder in December 2010. When Mohamed Bouazizi had his wares confiscated by an inspector, he set himself alight. Bouazizi’s death a few weeks later led to an outpouring of anger. Within a year, Egypt’s president Hosni Mubarak was in exile and Libyan leader Muammar Gaddafi was dead.

Desperate to stop the fabric of the region from unraveling, the West turned to the European Bank for Reconstruction & Development for help. The London-based multilateral, set up in 1991 to help the nation states of Central and Eastern Europe (CEE) transition into free and democratic markets, had regained its momentum and its mojo in the wake of the global financial crisis.

The decision was a shot in the dark: the development bank oversaw operations that spanned 13 time zones, and which included virtually every nation in the former Soviet Union. Its biggest theatre of operation by far was the Russian Federation, a market in which it had, as of October 2017, completed 788 projects, investing just shy of €25bn ($29.4bn). But it had zero experience operating either in the Middle East or in North Africa, regions well served by the likes of the African Development Bank and the Islamic Development Bank — not to mention the twin Bretton Woods institutions.

Yet on another level the decision to allow the EBRD to expand its borders south of the Mediterranean made good sense. North African states after all suffered from the same blight that hobbled CEE countries as they adapted to life after Soviet rule. In both places state-run institutions kept private sector activity to a minimum and discouraged entrepreneurs and innovation.

“There are a lot of similarities between our original countries of operation” and the EBRD’s newest outposts and offices, says Janet Heckman, head of the bank’s Southern & Eastern Mediterranean (SEMED) region. “Other multilaterals aid government-support programmes or work in tandem with the public sector. Our focus, just as it is in emerging Europe, is to foster private sector growth.”

Reservations felt by many regarding the EBRD’s ability to operate in a region so far removed from its original cultural and

operational parameters must now surely be dispelled. It has thrown itself at the job, channeling in capital, opening new branches and relocating into the region many of its most senior staff.

On September 27, it opened a second office in Morocco, adding Tangier, a city on the country’s northern coast, to its existing base in Casablanca. Its second outpost in Egypt opened for business on October 2 in the Mediterranean seaport of Alexandria. “We are the only multilateral that has offices outside the region’s capitals,” says Heckman, who was head of the bank’s Kazakhstan operations before her transfer last year to Cairo. She draws a direct line between the demands of her former and current job. “Kazakhstan is a vast country so it was all about local presence, about reaching out to companies wherever they were and adding value. The same is true here.”

Morocco plugs in

The multilateral has been at pains to adapt to the fluctuating needs of each new market. Morocco, a relatively rich and stable state that evaded the anarchy of the Arab Spring, has been a member of and a contributor to the EBRD since its inception. It is, when compared to the wider region, relatively accommodating to private capital and enterprise, placed 68th in the World Bank’s 2017 Doing Business survey, against 77th for Tunisia and 122nd for Egypt.

But to propel its economy to the next level it needed help in targeted industries. Morocco’s high, sunny plateaus, fast flowing rivers and long coastline are perfect for capturing and distributing clean energy. To that end, the EBRD is funding, building and operating a 120MW wind farm near Tangier and financing the rehabilitation of 11 hydropower plants. “Morocco has a very significant opportunity to be a major player in renewables,” Heckman notes.

Little here is done by chance. The new branch in Tangier will serve the needs of a host of smaller, innovative enterprises that have sprung up in the north of the country. “It’s a highly entrepreneurial area dominated by private sector firms that feed into the global auto and aerospace sectors,” she says. “Morocco has become a hub for high end, value-chain manufacturing and we will financially support these firms.”

Morocco’s ability to suck in investment dollars and euros and plug itself into global supply chains has not gone unnoticed. Until recently, intra-regional trade in North Africa was a byproduct rather than a driver of economic activity. Now, as economies open up and deregulate, governments are casting around for help, advice and examples of success and many find themselves glancing in its direction. At the end of 2016, there were 13 free trade zones in Morocco, including in Tangier, Casablanca and Oujda, on the Algerian border. “Every nation looks around the region and asks the same questions: what an FTZ is, what benefits they provide and how to build them,” says Heckman.

All systems go

Then there’s the region’s big sovereign beast, Egypt, an economy that has everything, from a vast agricultural sector to limitless natural resources (notably in the case of hydropower) and a driven and hard-working populace. Since the ousting of Mubarak — and indeed well before then — it underperformed economically, unable to tap into its manifest potential.

But that is changing. Another longstanding EBRD partner that became a recipient member in October 2015, Egypt aims to use a $12bn IMF fund facility to turn a 3.5% primary fiscal deficit into a 2% surplus while cutting its high rate of national debt. The Egyptian government has been busy in recent years, transitioning to a floating exchange rate regime and eliminating a host of subsidies that hobbled the energy sector.

That has put a rocket under investment. Foreign direct investment jumped 17% year-on-year in 2016 to $8.1bn, making up 14% of all inbound Africa FDI, according to data from Unctad. And donor aid is flowing in: Egypt was in 2016 the largest sovereign recipient of funding from the Green Climate Fund, part of the UN’s Framework Convention on Climate Change. For its part, the EBRD will invest €1bn ($1.17bn) in domestic projects in 2017, raising the amount invested in Egypt since 2012 to €3.4bn. That would make it the multilateral’s second largest country of operation, behind Turkey and ahead of Kazakhstan.

“Egypt has become a big country for us, no question,” says Heckman. She points to the “major economic reforms” the government has driven through, and lauds an “increasingly investment-friendly business climate”. Egypt’s hopes of building a more environmentally friendly economy also chime with the development bank’s green credentials. “By mid-October, we’ll have signed €315m worth of solar projects,” she says. “We are working on a series of major infrastructure projects with the national railways operator and we have a number of things cooking in agribusiness and energy. It’s all systems go in Egypt.”

In one way, the cry for funding and seasoned advice could not have come at a more propitious time. Russia remains the EBRD’s biggest country of operation — it has an outstanding lending portfolio there worth €3.7bn. But the government’s annexation of Crimea and its attempts to divide Ukraine, led to it being frozen out by the development bank: the last EBRD loan disbursed in Russia was in 2014. Last week, the bank said it would shut five of its seven Russian offices by the end of March 2018, leaving open only its outposts in Moscow and St Petersburg.

Is there a link between this abrupt halt in Russian funding opportunities, and the EBRD’s equally rapid scale-up in North Africa and the Middle East? A spokesman insisted there was “no link between not investing in new projects in Russia and the success of our funding” in the SEMED region. But the EBRD is, at its heart, a bank. If it is not lending, it is not operating, and Russia’s loss in this instance benefits the multilateral’s newest members.

Middle East excursions

And then there’s the Middle East — or more specifically, the eastern fringes of that region. Jordan is the key player here: the EBRD has funded 35 projects since opening its Amman office in 2011. Investment started slowly but properly took off in 2016, with total funding by the multilateral hitting €403m against €163m in 2015. There is a clear focus on clean energy: the bank is funding solar farms that will generate up to 1,000MW hours of power, boosting the share of the energy mix comprised of renewables to 20% by 2020.

On September 6, Lebanon formally became the bank’s 38th country of operation, with the EBRD keen to promote clean energy and financial innovation and to persuade local banks to lend more to private sector firms. With troubled Syria unlikely to join the EBRD in the short to medium term, the list of recipient member states is rounded out by the West Bank and Gaza, two territories burdened by a host of problems great and small.

Even here though, the multilateral is doing what it can. Heckman says she’s been to the West Bank six times since the start of August, talking with public officials and private firms about energy efficiency, encouraging private enterprise and providing financial assistance to the banking sector. When it comes to the Gaza Strip, the EBRD “hasn’t identified any projects yet in the Gaza Strip,” Heckman says, “but when the right one comes along, we can make a difference.”

It’s all a far cry from 2011, when a world still reeling from the global financial crisis stared at their TV screens, at the events unfolding in Tunisia and Egypt, and wondered, with a mixture of hope, despair and fear, what to do. The answer, it turned out, was to call on the services of a London-based development bank that spent its days transforming old CEE states and to ask it to shift its gaze south to a region where it had zero history, credibility or institutional strength. It was a shot in the dark. But no one can say it didn’t work.

  • By Elliot Wilson
  • 11 Oct 2017

All International Bonds

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 JPMorgan 192,079.22 851 8.17%
2 Citi 181,567.62 744 7.72%
3 Bank of America Merrill Lynch 152,466.12 623 6.48%
4 Barclays 142,653.63 569 6.06%
5 HSBC 120,106.34 625 5.11%

Bookrunners of All Syndicated Loans EMEA

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 Credit Agricole CIB 21,924.17 77 8.18%
2 BNP Paribas 19,758.95 84 7.38%
3 Bank of America Merrill Lynch 17,614.25 49 6.58%
4 Deutsche Bank 12,953.29 48 4.84%
5 UniCredit 12,369.61 66 4.62%

Bookrunners of all EMEA ECM Issuance

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 Morgan Stanley 6,404.49 28 10.34%
2 JPMorgan 5,770.67 35 9.31%
3 Goldman Sachs 5,595.50 27 9.03%
4 UBS 4,134.32 20 6.67%
5 Citi 4,045.71 28 6.53%