We invest a tremendous amount of time and effort into SME development
Caspian Energy (CE): President Chakrabarti, in spring you made a three-day trip to the three Caspian states - Azerbaijan, Kazakhstan and Turkmenistan. Are you pleased with the results of the visit? What funding projects across the region are the most capital intensive ones for the EBRD and systemically important for the economies of these countries?
President of the European Bank for Reconstruction and Development (EBRD) Sir Suma Chakrabarti: It was a very successful visit. Central Asia and the Caucasus are very important regions for the EBRD. My team and I visited Baku on 24-25 May after a visit to Turkmenistan and went on to Kazakhstan from there. In all three countries, I met presidents, top government officials and EBRD clients, as well as diplomats and civil society representatives.
In Kazakhstan, I spoke at the Astana Economic Forum, where half a dozen other speakers from the EBRD also delivered their thinking on a variety of subjects, and I co-chaired the Foreign Investors Council with the President of Kazakhstan.
We believe, as do EBRD shareholder countries and institutions, that the Bank has a major role to play in the region. The EBRD has increased its lending in Central Asia, providing €1.4 billion for projects there in 2015. We invested about €270 million in Azerbaijan last year. Our total investment in Azerbaijan now stands at €2.5 billion, with our current portfolio at just over €1 billion.
We invest mostly in private sector projects (55 per cent in Azerbaijan), and the overwhelming majority of our 162 individual projects in Azerbaijan have provided financing and advice to small and medium-sized enterprises (SMEs). It is important to stress that because we invest a tremendous amount of time and effort into SME development, where individual loan sizes are small but the effort applied by our teams is the same as in many larger projects which make headlines.
But speaking of capital intensive projects, in the Caspian region they tend to be in the energy and natural resources sectors, helping the diversification of energy mix and of routes and sources of energy supply. We are now considering how specifically we can support the Southern Gas Corridor project to bring Caspian energy to Europe via Turkey. The EBRD may arrange a significant syndicated financing package, involving commercial banks, to support the Trans-Adriatic Pipeline which is part of that project. Currently we are examining possibilities to finance the Trans-Anatolian Pipeline, another part of the project.
There is far too little integration within the states of Central Asia
CE: How would you evaluate the level of the regional economic cooperation between these three countries? Do you see a potential to expand the cooperation and, accordingly, boost liquidity of the economies of Azerbaijan, Kazakhstan and Turkmenistan for EBRD’s lending?
Suma Chakrabarti: Regional economic connectivity and integration is one of our key priorities as a bank. Promoting private sector investment and market transition is what the EBRD was created for 25 years ago and we want to do more of that in the Caspian region and in Central Asia. Azerbaijan could be key for regional trade, including in the transport and logistics area.
At the moment, I would say there is far too little integration within the states of Central Asia. Each country trades more with the outside world than it does with its neighbours. Some countries, like Kazakhstan, now belong to the Eurasian Economic Union which spans a number of countries outside of Central Asia. Some, like Turkmenistan, have a policy of neutrality. But inside of Central Asia itself, trade and business links, and even transport links, are few and insufficient. There is a lot of potential to cooperate, especially as economies are making efforts to diversify away from excessive reliance on oil and gas. We are supporting, together with governments and other multilateral banks, the modernisation of national and international motorways – this year, we signed projects to modernise a part of the Astana-Almaty motorway in Kazakhstan and a segment of the Dushanbe-Uzbek border road which are both part of key international road corridors. We support international trade more directly through our Trade Facilitation Programme and through supporting export-oriented SMEs in Central Asia.
There is a global gap of US$ 1 trillion of financing for infrastructure projects
CE: Currently the processes of sectoral financial globalization have overwhelmed the financial world. New banks are being established: BRICS, SCO Interbank Association, Eurasian Development Bank. What impact will it have on the global investment climate? Will this trend promote a growth of global GDP and boost business activity in developing economies?
Suma Chakrabarti: At the EBRD, we welcome all new multilateral development banks. We have already started co-investing with the Beijing-based Asian Infrastructure Investment Bank (AIIB), with the first project – a section of road linking the capital of Tajikistan, Dushanbe, with Uzbekistan and beyond – signed at the AIIB’s first annual meeting on 25 June this year. We are also in contact with the Shanghai-based New Development Bank, sometimes known as the BRICS bank. Will this have an impact on the global investment climate? I hope so.
The stated goal of the EBRD – which operates differently from most other development banks in promoting market economy transition and focusing on private sector projects – is to support investment climate reforms in its region of operations. IFC, the private-sector oriented branch of the World Bank, has a similar mandate. We cooperate with many multilaterals and international donors on business climate reforms, support for business councils and promotion of e anti-corruption initiatives such as the successful Business Ombudsman in Ukraine. Will they promote GDP growth? I believe so. For example, modern infrastructure (another sector where the Bank invests) provides the basis for private sector growth but there is a global gap of US$ 1 trillion of financing for much-needed infrastructure projects. In the EBRD region alone, the gap is as big as US$ 400 billion. So we need cooperation between all development banks, old and new, such as the AIIB, and the private sector, to plug some of that gap.
There is now a lot of talk about China’s Belt and Road initiative which will see new transport infrastructure projects from west China via Central Asia all the way to Europe and North Africa. As with the old Silk Road, the hope is that it will not only facilitate Chinese exports but will create value chains along the way, benefiting local SMEs. Only in mid-June this year, we signed a memorandum of understanding with the Silk RoadFund, China’s entity created to promote the Belt and Road initiative, where we agreed to look for joint investment opportunities.
CE: What consequences do you expect from Brexit for the European and global economy? Would you agree with the opinion of Ms. Lagarde, who said that the impact would range from “pretty bad to very, very bad”?
Suma Chakrabarti: We shall be monitoring the impact of financial markets’ reaction to the UK referendum result on the economies of the countries where we invest. It is obviously too early to make any definitive statements or forecast the impact with high certainty. So far, we have not seen a major impact of Brexit on emerging markets.
CE: Low energy prices have slowed down the global investment activity. How did this situation affect the EBRD operations? Do you plan to curtail the investment operations or, by contrast, expand them?
Suma Chakrabarti: An interesting thing happened in many of our countries of operations when the oil and gas prices started to go down – governments began to realise that they really must diversify their economies. I see a real reform push in Azerbaijan, where we are very much ready to expand our non-oil and gas lending; in Kazakhstan where we are the largest non-oil and gas investor; and also in Turkmenistan. Our philosophy is not that there should be less energy investment, but that it should be more balanced with non-energy sectors – and of course that it should be much greener.
We are also the largest renewable energy financier in our region, bringing not only debt and equity financing to projects such as wind farms in Mongolia or hydroelectricity in Georgia, but know-how and support for regulatory and legislative frameworks which enable green energy to compete.
So, from our point of view, now that oil prices are low, this is exactly the right time for governments to lay down foundations for the sustainable growth of diversified economies, because when oil prices are high there is little appetite for drastic reform. We are always ready to be partners on the path of market reform – that is why we were created 25 years ago.
Thank you for the interview
Interview made by Sabina Mammadova, Olga Nagiyeva