The CEO of the European Bank for Reconstruction and Development is keen to enter sub-Saharan Africa. Its success in the MENA region could help convince sceptical shareholders to go ahead.
Created in 1991 at the end of the Cold War, the original mandate of the London-based European Bank for Reconstruction and Development (EBRD) was to bring Eastern Europe’s ex-Soviet economies back in from the cold after languishing for years under failed communist policies.
As reconstruction in the region proved successful, and the EBRD continued to leverage large amounts of capital from its principal shareholders – the European Union (EU), the European Investment Bank, EU member states, Japan and the US – the bank looked to apply its balance sheet elsewhere.
In 2012, in the aftermath of the Arab Spring, the bank expanded into the Middle East and North Africa, with investments in Egypt, Jordan, Morocco and Tunisia, which were later followed by investments in Lebanon and the Palestinian Territories.
Last year, CEO Sir Suma Chakrabarti went one step further and floated the idea of continuing the push into sub-Saharan Africa.
While the proposal was met with resistance from some shareholders, and the decision will not be confirmed until 2020, success in the MENA region may tilt the balance in favour of moving further south.
The EBRD’s core competencies, developed through the reconstruction of Eastern Europe, are the perfect match for Africa’s current development needs, Chakrabarti tells African Business.
The bank has focused on financing private sector projects averaging between $5m and $250m through a mix of debt and equity.
This chimes well with Africa’s current development logic, which has transitioned from government aid to a rigorous focus on private enterprise.
“The agenda is now much more commercial and economic,” he says.
“For example, infrastructure and energy – all these sectors are centre stage and therefore you’re going to need to attract much more private sector financing which is of course exactly what EBRD does.”
Since its creation the bank has invested more than €130bn ($150bn) in a total of over 5,200 projects from agribusiness to manufacturing.
One sector that has taken the lion’s share of lending in the past few years is renewable energy.
The EBRD launched its Green Economy Transition approach in 2015, with the aim of increasing the volume of its investments in renewables to 40% of annual business investment by 2020.
This aligns with the commitment of African countries to meet the UN’s Sustainable Development Goals, which aim to substantially increase “the share of renewable energy in the global energy mix” and “ensure universal access to affordable, reliable and modern energy services”.
In its African Economic Outlook 2018 report, the African Development Bank estimated Africa’s infrastructure funding gap to be as much as $112bn annually, which gives the EBRD plenty of room to make an impact.
The EBRD has also broadened its conceptual understanding of its development role by considering in detail what makes a vibrant market economy.
Chakrabarti explains how the bank has gradually come to invest in a wider range of actors in pursuit of development.
“When we started back in 1991 people would define the market economy as just trying to make countries or companies competitive; they wouldn’t have thought about the environmental agenda, they wouldn’t have thought about female entrepreneurs,” he comments.
“We’ve modernised the concept of the market economies based on our work in East and Central Europe and we’ve applied it to these countries.”
This echoes the development thinking in many North and sub-Saharan African countries where entrepreneurs, women and the youth are being earmarked as key enablers of the development agenda.
Success in Egypt
While EBRD has projects in Morocco and Tunisia, the bank’s greatest impact by far has been in Egypt.
The bank has funded 92 projects to date in North Africa’s biggest economy, ranging from modernising the financial sector to upgrading transport and telecommunications services.
Last year Egypt became the single largest recipient of EBRD money, which highlights the bank’s resolve in moving beyond its traditional markets.
On the sidelines of the Davos Economic Forum in January, Egyptian prime minister Mostafa Madbouly personally thanked Chakrabarti for expanding the bank’s reach, citing funding of $4.7bn since 2015.
In line with its commitments, 44% of the bank’s lending in Egypt has been put towards the green economy.
One major project was a €148m loan to reduce extreme pollution levels for 6m people living in the Kitchener Drain area of the Nile Delta.
The bank has also majority financed the world’s largest solar park near Aswan in lower Egypt, known as the Benban Solar Park.
The $1.8bn complex houses 30 solar power plants and was financed by a large consortium of development finance institutions (DFIs) including the EBRD.
The bank is financing 16 of the solar plants, making it the single largest investor in renewable energy in the country.
Chakrabarti attributes this impact to what he calls a “boots on the ground” approach.
By quickly building a large network of employees and offices in the country, the CEO believes his bank is best positioned to contribute to Egypt’s development.
“We are the only multilateral bank who tries to do this,” he says. “We don’t just sit in Cairo but we also create offices in smaller cities like Alexandria and Ismailia.
This is part of our offer: to create small businesses and to create jobs.”
Transferring the model
As it stands, however, the bank’s entry into sub-Saharan Africa will not be decided until annual meetings in 2020.
Before that date the shareholders must first agree to a pre-feasibility study, which if given the green light will move to a full study and eventually a presentation at the 2020 meetings.
When the idea was first mooted last year it was met with objection from shareholders France, Germany and the European Union.
As a minister from one of the bank’s shareholders told Reuters on condition of anonymity: “The idea is not dead in the water, but it won’t be a blitzkrieg.”
Success in the MENA region will serve to calm shareholder fears of the ability to succeed outside EBRD’s home markets and offer proof of the transferability of EBRD’s model.
“One of the reasons why they should look at this question of sub-Saharan Africa is because of how successful we have been in North Africa,” says Chakrabarti.
“I’ve put forward the idea and I believe they should think about it.”