The EBRD’s founding document commits us to foster the transition towards open market economies and promote private and entrepreneurial initiative. Our focus is thus overwhelmingly on the private sector, which currently accounts for 79% of our total investment.
That emphasis on the private sector is complemented by work on policy reform to help improve the business climate in the almost 40 countries where we operate.
During our early years, immediately after the end of the Cold War, we worked only in the formerly command economies of communist Eastern Europe and the ex-Soviet Union. But so successful has the EBRD model proved that our shareholders have since asked us to take our expertise to new geographies not once, not twice, but on four separate occasions.
And whenever we arrive in a new region, we hit the ground running. We have already invested more than $11bn in over 230 projects in the mere seven years we have been active in Egypt, Jordan, Lebanon, Morocco and Tunisia.
Why do I dwell on our model and its particular status within the IFI system? Because I believe that our approach will be central to meeting the pre-eminent development challenge of our time: how to achieve the Sustainable Development Goals (SDGs).
Unlike their predecessors, the Millennium Development Goals, the SDGs were defined with much greater participation by developing countries and emerging markets themselves, include economic outcomes and sectors where we, as well as others, have a comparative advantage, and are much more explicitly set as goals for all countries, not just low-income ones.
Forget geographical neatness
The problem is that, by now, everyone can see that we cannot finance their delivery in the old way. Areas such as infrastructure and energy — and the linked overarching priority of combatting climate change — require investment from a range of sources far broader than domestic resources, grant funding and the public sector.
The world desperately needs to leverage more private sector financing, including new suppliers from outside the multilateral system, such as pension and sovereign wealth funds.
And mobilising these sources of capital is where we at the EBRD can make a major contribution.
That does not mean that every IFI needs to go back to the drawing boards, reinvent itself wholesale and become more like us.
A far more effective approach would be for our shareholders — and there is huge overlap here — to recognise that business models and specialist expertise trump geographical neatness. As they have, in fact, already done with the EBRD.
We need a mix of models. And we need to move to a world in which we are empowered to explore different partnerships with other Development Finance Institutions (DFIs), joint ventures or common investment platforms.
Our first priority is, of course, reviewing what more we can do in our existing regions, which already stretch over three continents, so as to optimise our impact there.
We are also working on an initial analysis of what extra capital capacity we might call on and whether we could effectively deploy in the region of the world which faces the most acute development challenge of all: sub-Saharan Africa.
“To bend the arc of history, we must succeed in Africa,” last year’s G20 Eminent Persons Group report proclaimed. We wholeheartedly agree.
Guiding principles
At the same time, while welcoming the diversity and pluralism of approaches embodied by the different IFIs, we have been clear about three principles we think should underlie the future of development finance, both in the European context and beyond.
First, all DFIs need to promote sound policy reforms in co-ordinated fashion. Financing on its own is not enough and must go hand in glove with creating an enabling environment and policy reforms in partner countries.
Second, all DFIs should use market-based pricing which crowds in rather than crowds out the private sector. We will only achieve sustainable, long-term growth in partner countries if we foster local financial and capital markets. As public institutions with taxpayer backing, we must be particularly vigilant that we do not distort the market.
And lastly, to have maximum impact, DFIs need an open architecture. DFIs are both partners and competitors. As long we respect the first two principles, competition is healthy and good news for both taxpayers and development partners.
We were encouraged to see such themes receive the prominence we think they deserve in this month’s report of the Wise Persons Group on European financial architecture for development.
Its vision of the system’s future foregrounds qualities which are our strengths. And it argues forcefully for a scenario which prioritises our expertise in mobilising the private sector.
Of course, any decision in this area which impacts us — if and when we reach that point — needs to be taken in the context of the EBRD’s existing governance.
But as a multilateral bank with a global shareholding, albeit one with a European heart, we are more than eager to work on all these fronts with our many partners — for the greater good of all.
Sir Suma Chakrabarti is the President of the EBRD