Europe's EBRD considers expansion in Africa

The president of the European Bank for Reconstruction and Development, founded to help finance the transition of former communist Europe to market democracy, is pitching to expand into sub-Saharan Africa — taking it far beyond its original roots.

Sir Suma Chakrabarti told the Financial Times in an interview that the bank could potentially lend €2.5bn-€3bn more than its €9.5bn average in recent years, without needing any more capital.

He said its solid financial cushion and speciality in lending to private business — setting it apart from most multilateral development banks — could help make a big contribution to meeting globally agreed sustainable development and climate change goals. With every €1 of EBRD lending attracting a further €2.30 of other investments, it could mobilise sizeable extra financing.

“Every time the EBRD has been asked to go into a new place it has done so and really scaled up fast,” Sir Suma said.

The bank would soon have €7bn of investments in Middle Eastern and North African countries where it only started operating in 2012, he added. “We are in the fortunate position that we have abundant capital,” he said.

The bank might be able to invest a further €500m a year in its 37 existing countries of operation, he added, taking its total to €10m a year. But that left ample scope to expand “gradually” into countries in sub-Saharan Africa that were committed to market democracy.

Sir Suma, a former UK civil service mandarin who has headed the bank since 2012, will raise his proposals with politicians during the IMF’s spring meetings in Washington this week. He will then ask EBRD governors at its annual meeting in Jordan next month for a licence to develop an expansion plan.

He said development and climate goals agreed in 2015 — with a 2030 deadline — including infrastructure, energy and renewable energy goals, required much more private financing than previous targets. The EBRD has expanded rapidly into “green” financing, providing a quarter of all multilateral bank funding last year for the green economy.

The EBRD president may face resistance, however, from some north and east European country shareholders who feel the bank should focus on its east European core. The bank is owned by 66 countries — including all EU members and the US — plus the EU itself and the European Investment Bank.

It took the personal involvement of Barack Obama, former US president, to ensure agreement to expand the bank in 2012 into Egypt, Jordan, Lebanon, Morocco and Tunisia after the Arab spring.

Sir Suma said the bank had expanded operations four times — into Mongolia, Turkey, the Middle East, and most recently Greece and Cyprus — without damaging lending to eastern Europe or diluting its unique democracy-promoting mandate.

The “rubicon was crossed” when the EBRD began operations in 2009 in Turkey, which was not ex-communist and already had a mixed economy. Turkey has been the bank’s biggest investment destination for the past three years.

“We have shown our business model is very effective in different economic contexts,” Sir Suma said. Ex-communist countries such as Hungary, Slovakia and the Baltic states, were requiring less financing, he added.

Sir Suma said the bank’s excess financing capacity did not result from shareholders’ decision to freeze new lending to Russia — once its biggest country of operation — in 2014 as part of international sanctions. Annual lending to Russia was €1.5bn and falling by 2014, he said.

The bank has been ploughing at least €500m a year from profits into expanding its capital base. Leaders and shareholders of multilateral development banks, he added, needed to “wake up now” to the need to make changes, including by expanding private sector financing, or risk missing the 2030 targets. “It won’t be much good waking up in 2025 and then the problem’s right in front of our face,” he said.

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