EBRD approves Cyprus and Libya expansion

By:
Lucy Fitzgeorge-Parker
Published on:

Policy chief defends MENA role; Russian operations under scrutiny.

Board members at the European Bank for Reconstruction and Development voted to start operations in Cyprus and accept Libya as a member at the bank’s annual meeting last month.

The decision to invest in Cyprus breaks new ground for the EBRD, which has previously operated only in developing countries in central and eastern Europe, the Middle East and North Africa. At $26,370, the GDP per capita of Greek Cyprus is well above that of any of the bank’s current recipient countries.

EBRD policy chief Andras Simor tells Euromoney that the bank’s experience of facilitating private-sector development in the former communist bloc will enable it to add value as investor and adviser in recession-hit Cyprus.

"The Troika programme has made good progress in re-establishing macroeconomic stability in Cyprus, but sustaining that stability and improving the country’s competitiveness will require structural reforms," he says. "That is where we come in."

Andras Simor EBRD
EBRD policy chief
Andras Simor
Key areas of activity for the EBRD in Cyprus will likely include supporting the restructuring of the country’s troubled banking sector, promoting privatization and liberalization in industries including energy and telecoms, and encouraging private-sector participation in infrastructure funding.

The bank will also explore the options for involvement in corporate restructurings, Simor adds, as well as looking to roll out its small-business advisory services in Cyprus.

"These are all areas that are very much part of our core activities in the other countries we have worked in for the past 23 years, so in all these areas we expect investment and policy advice to go hand in hand," he says.

In another break with tradition, the EBRD has limited the term of its operations in Cyprus – which will cover both the Greek and Turkish parts of the island – to six years. The bank’s last active investments in the country, which are expected to total €500 million to €700 million, will be made in 2020.

The expansion of the EBRD’s remit to Cyprus, following a request from the Cypriot government at the start of the year, prompted speculation that Greece might also become a recipient of the bank’s support. Although not ruling out the possibility of operations within Greece, however, Simor notes that the EBRD’s geographic footprint makes it easier for the bank to provide indirect support to local firms.

"The Greek government approached the EBRD two years ago and it was decided at the time that the most effective way for the bank to provide assistance was by supporting the subsidiaries of Greek banks and companies that are active in our region, primarily in southeastern Europe," he says.

Country operations are also unlikely to start immediately in Libya. Just days after the EBRD welcomed its fifth member from the southeastern Mediterranean (Semed) region, the already parlous security situation in the country deteriorated again.

Simor notes that, although there is urgent need for the EBRD’s support in Libya, the bank will have to assess whether a local office will be able to function in the current environment. "We have previously faced security issues in our countries, but the situation in Libya could well be more challenging than anything we have encountered so far," he says.

He also acknowledges that the current political climate in Egypt – where a clampdown on supporters of the ousted Muslim Brotherhood government has led to charges of authoritarianism against president and former army chief Abdel Fattah al-Sisi – is making EBRD activities in the country challenging.

"We are continuously monitoring developments there and we are targeting our investment activity primarily towards the private sector," he says. "We hope that Egypt is moving towards the landmarks that they have set themselves for creating a fully fledged democracy."

Nevertheless, Simor defends the EBRD’s decision to invest in the Semed region, a process that began in December 2012. Although noting that it is too early to make a conclusive judgement on the expansion, he says the initial impression is that the venture – which covers Tunisia, Morocco and Jordan as well as Egypt – has been highly successful and worthwhile.

"In less than 18 months we have established local offices in every country, with a significant number of local staff, and we have already invested close to €1 billion in more than 30 projects," he says.

He refuses to be drawn, however, on comments by the US and Canadian delegates at the EBRD meeting concerning Russia’s annexation of Crimea. Speaking at the close of the conference, Canada’s representative said that "as long as Russia continues to illegally occupy Ukraine, there can be no business as usual".

Simor stresses that, while the ultimate decision on policy lies with the EBRD’s shareholders as represented on its board, the bank hopes to be able to continue its work in Russia. "We believe that throughout the years the EBRD has contributed to transition in Russia," he says. "We believe our projects, our technical assistance and policy dialogue did shape the Russian economy and the thinking of decision makers."