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ViewpointNovember 1 2013

Old lessons help EBRD strengthen future prospects

In the wake of the Arab Spring uprisings, the European Bank for Reconstruction and Development (EBRD) made the decision to extend its remit to help those countries transitioning towards democracy. The bank's managing director for the southern and eastern Mediterranean region, Hildegard Gacek, explains how expertise and past experience are now enabling the EBRD to assist Egypt, Morocco, Jordan and Tunisia through a period of great economic and political change.
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Old lessons help EBRD strengthen future prospects

Any country’s experiment with economic and political transformation is a major challenge – a journey up a steep mountain path. Like any alpine ordeal, it demands thorough preparation, adaptation to the new environment and enormous perseverance. Another requirement is carrying the right equipment.

When the European Bank for Reconstruction and Development (EBRD) turned its attention to supporting the Arab Spring countries as they embarked upon the road to transition, we had no illusions about the social and political challenges ahead and the bumps along the road. Such challenges are not new for us and the EBRD is, indeed, well equipped. It can draw on its two decades of experience supporting often tumultuous transition processes in the post-Soviet bloc.

Engaging a new region

The latest journey, in the southern and eastern Mediterranean (Semed) region, began in May 2011. The attention of the international community shifted to the Arab world and mobilised its forces under the Deauville Partnership, to help countries experiencing uprisings and which are still grappling with the complex legacy of change.

The EBRD dealt swiftly with the challenge of adapting its rules to allow it to invest in this new area ahead of full ratification of the banks' statutes. In the wake of the Deauville announcements, Tunisia and Jordan quickly became members of the EBRD, joining existing shareholders Egypt and Morocco in seeking to also become recipients of EBRD financing and support.

The first phase of a three-stage approach to the EBRD’s engagement with the Semed region allowed the bank to funnel donor funding to the region in preparation for future EBRD investments. The second phase was agreed at the bank’s annual meeting in May 2012, involving the creation of a €1bn special fund for the region. This special fund has allowed the bank to start investing in the region even before individual countries have become full countries of operation, after which they will qualify for core EBRD funding, in what will be phase three.

In September 2012, the EBRD’s board of directors signed off on the first projects in the Semed region. Financing has flowed to all four Semed countries: Egypt, Morocco, Jordan and Tunisia.

First steps

Given the EBRD’s awareness of the challenges and the diversity of the new region, we engaged in a dialogue with local authorities, ministries, central banks, the business community and representatives of civil society, helping us to set relevant priorities for each of the Semed economies. The bank also worked closely with other international financial institutions.

It was crucial that each group brought to bear its own unique skills, while avoiding inefficient overlaps. For the EBRD this meant concentrating primarily on the development of the financial sector. By September 2012, as investments began flowing, the bank began establishing representation in the four SEMED countries, and appointed heads of resident offices. Our first permanent resident office was set up in Tunisia in June 2013.

The EBRD is playing an important role in a region that faces pressing issues in the core areas of education, infrastructure and municipal services, and which also needs to develop the private sector, modernise the financial system, establish reliable energy supplies and enhance the agribusiness value chain.

Unemployment is another key socio-economic challenge facing the region – particularly unemployment among women, youth and educated people – and the bank will facilitate access to financing for small and medium-sized enterprises (SMEs) to support job creation, while ensuring gender inclusion.

Towards economic stability

The EBRD provides financing to support these drives. But the bank also supplies the expertise necessary to help these countries develop policies that support change, and that promote good corporate governance practices and business conduct, compliance with international standards, and greater financial transparency.

Along with support for SMEs, the EBRD is also working to restructure and modernise the financial sectors in Semed countries, while investing in private equity funds and in trade finance facilities to help companies develop by growing across borders.

In the energy sector, we provided a senior loan of $100m for the construction and development of the Al Manakher power plant to address Jordan’s acute energy shortages, and to ensure the security of future energy supplies. We also invested $80m in a retail and entertainment centre in the same country, and $24m in a white goods factory in Egypt.

The private sector is the central pillar of the EBRD’s expertise, and we use a number of different financing mechanisms to help us achieve our goals. Our small business support teams, backed with donor funding, help to develop small companies, with tailored advisory services, training and expertise. Typically, a number of these smaller companies would later qualify for full EBRD financing. We have also extended our local enterprise facility to the Semed region. This is a special facility that was created to fast-track tailored financing to SMEs in the western Balkans, and is now also an important tool in the new region.

All of these efforts are aimed at helping the people of the Semed region to achieve greater economic stability. This journey will follow a steep path, and the process is not linear. Success often means going backwards as well as forwards, ascending and descending, and sometimes leaning into the storm until the gale subsides. But as we have seen in eastern Europe, the journey is worth taking.

Hildegard Gacek is the European Bank for Reconstruction and Development's managing director for the southern and eastern Mediterranean region.

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