UNICREDITUNICREDIT ISPI ISPI

EU Enlargement: Internationalisation and local development EU Enlargement: Internationalisation and local development

The evolving role of the EBRD in the new EU members

Fabrizio SaccomanniFabrizio SaccomanniVice President, Risk Management – EBRDVice President, Risk Management – EBRD

Rome, 9 July 2004Rome, 9 July 2004

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The EBRD – Basic FactsThe EBRD – Basic Facts

Founded in 1991 to help transition to market economy in 27 statesFounded in 1991 to help transition to market economy in 27 states

Owned by 60 states and 2 intergovernmental organisationsOwned by 60 states and 2 intergovernmental organisations

Capital = € 20 billionCapital = € 20 billion

Total outstanding facilities (Dec. 2003) = € 18.4 billionTotal outstanding facilities (Dec. 2003) = € 18.4 billion

Commitments: Commitments: 20032003 1991 - 20031991 - 2003

– number of projects 119 1,017number of projects 119 1,017– EBRD financing € 3.7 B € 22.7 BEBRD financing € 3.7 B € 22.7 B– resource mobilisation € 5.3 B € 45.8 Bresource mobilisation € 5.3 B € 45.8 B

Geographical composition of commitmentsGeographical composition of commitments– Central Europe and Baltic Region (CEB): 40 %Central Europe and Baltic Region (CEB): 40 %– South Eastern Europe (SEE): 20 %South Eastern Europe (SEE): 20 %– Commonwealth of Independent States (CIS): 40 %Commonwealth of Independent States (CIS): 40 %

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The EBRD’s strategy to promote The EBRD’s strategy to promote transitiontransition

Financing of projects conditional on:Financing of projects conditional on:

– sound banking sound banking

– additionalityadditionality

– positive transition impactpositive transition impact

– respect for the environmentrespect for the environment

– effective policy dialogueeffective policy dialogue

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The Transition Process – Definition The Transition Process – Definition and Indicatorsand Indicators

Development of a market economy system based Development of a market economy system based on private sector development and on reform of:on private sector development and on reform of:

– markets and trade regimesmarkets and trade regimes

– enterprise systementerprise system

– infrastructures (telecoms, electric power, infrastructures (telecoms, electric power, railways, roads, water and waste water)railways, roads, water and waste water)

– financial sector (banking and non-banking)financial sector (banking and non-banking)

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The Transition Process – Definition The Transition Process – Definition and Indicators (Cont’d)and Indicators (Cont’d)

EBRD developed set of indicators to monitor process EBRD developed set of indicators to monitor process of transition in general and to assess transition of transition in general and to assess transition impact of individual projectsimpact of individual projects

Each indicator uses a measurement scale ranging Each indicator uses a measurement scale ranging from 1 to 4+, where:from 1 to 4+, where:

1 = little or no change from rigid central planning 1 = little or no change from rigid central planning 4+4+ = standards of industrialised market economy = standards of industrialised market economy

Average indicator computed for each countryAverage indicator computed for each country

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Accession does not mean the end of Accession does not mean the end of transition processtransition process

Structural reforms to be completed in:- state-owned enterprises

- heavy industry and agriculture - energy, telecoms, transport sectors

Low level of financial intermediation relative to GDP - capital markets and non-bank intermediaries

at early stage of development

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Accession does not mean the end of Accession does not mean the end of transition process (cont.d)transition process (cont.d) Establishment of a market-oriented body of laws and

regulations still to be achieved - need for efficient enforcement at local level

lmplementation of acquis communautaire requires substantial investment

- 4-6 per cent of GDP investment in environment and infrastructure

Administrative and project implementation capacity broadly inadequate to task

- lack of experience at regional – municipal level hampers absorption of EU funds.

Transition indicators for the new EU member countriesTransition indicators for the new EU member countriesCountries Enterprise Markets and trade Financial Institutions Infra-

structure

Large-scale privatis-ation

Small-scale privati-sation

Gover-

nance & enterprise restruc-turing

Price liberali-

sation

Trade &

foreign exchange system

Com-petition

policy

Banking

reform &

interest

rate liber-

alisation

Securities markets & non-bank financial institutions

Infra-structure reform

Czech Republic

4 4+ 3+ 4+ 4+ 3 4- 3 3

Estonia 4 4+ 3+ 4 4+ 3- 4- 3+ 3+

Hungary 4 4+ 3+ 4+ 4+ 3 4 4- 4-

Latvia 3+ 4+ 3 4+ 4+ 3- 4- 3 3-

Lithuania 4- 4+ 3 4+ 4+ 3 3 3 3-

Poland 3+ 4+ 3+ 4+ 4+ 3 3+ 4- 3+

Slovak Republic

4 4+ 3 4+ 4+ 3 3+ 3- 2+

Slovenia 3 4+ 3 4 4+ 3- 3+ 3- 3

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Transition in new EU members Transition in new EU members deceleratingdecelerating

Indicators confirm that further transition efforts are needed in:

- enterprise sector

- financial sector

- infrastructure

Momentum of transition process slowed-down in 2003 in most countries (except Latvia and Slovak Republic)

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Decline of FDI to CEB in 2003, as large privatisations completed Foreign Direct Investment (US$ million, net inflows)

0

5,000

10,000

15,000

20,000

25,000

30,000

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003(p)

CEB SEE CIS

Source: EBRD

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EBRD transition agenda in new EU EBRD transition agenda in new EU membersmembers Focus on private sector development - promote creation of private enterprises (SME) - assist in the process of privatisation Foster financial intermediation - encourage efficient allocation of savings - promote capital market development and

non-bank intermediation.

Contribute to modernisation of infrastructure - assist national and local authorities to make effective use of EU Cohesion and Structural Funds

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1.1. EBRD Operational strategy in EBRD Operational strategy in the private sectorthe private sector

Support to SME lending facilities through local banks and in collaboration with EU

Participate in privatisation of state-owned enterprises together with local and foreign strategic investors

Introduce new financing products and structures in agricultural enterprises

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1.1. EBRD Operational strategy in EBRD Operational strategy in the private sector (cont.d)the private sector (cont.d)

Promote the development of mortgage markets to increase financing for housing and tourism development

Promote the recourse to structured financial products, equity and quasi-equity instruments

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2. EBRD Operational strategy in 2. EBRD Operational strategy in the financial sector the financial sector

Develop a broader range of financial instruments for SME and other priority segments not adequately served by local banks

Increase local banks capacity to incur risk by offering credit enhancements and risk-sharing facilities

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2. EBRD Operational strategy in 2. EBRD Operational strategy in the financial sector (cont.d) the financial sector (cont.d)

Support securitisation of mortgages and other receivables

Participate in the development of insurance companies, pension funds, asset management companies to improve the range of savings instruments and the supply of long-term capital

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3. EBRD Operational strategy in 3. EBRD Operational strategy in the infrastructure sector the infrastructure sector

Support tariff adjustment and phasing out of subsidies in the utility sector (water, power, heating)

Support privatisation and liberalisation of power sector to improve competitiveness of downstream industries

Promote commercialisation and restructuring of transport infrastructure (roads and railways)

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3. EBRD Operational strategy in 3. EBRD Operational strategy in the infrastructure sector (cont.d) the infrastructure sector (cont.d)

Decentralise and commercialise municipal and environmental infrastructure

Provide financing for the development of public-private partnerships in the new infrastructure sector (i.e. air transport)

Improve cross-border linkages in power and transport sectors

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Main challenges of the EBRDMain challenges of the EBRD

As transition advances, EBRD to move out of new EU member states: market to determine timing and modalities

In the meantime, EBRD will compete with larger flows of low cost financing to sovereign borrowers: need to coordinate action with EU Commission and EIB

Internal EU governance has changed post-enlargement: need to adjust to new organisation/financial procedures