Much to the delight of sun-starved Europeans, the European Bank for Reconstruction and Development’s annual meeting was held this year on the banks of the Dead Sea in Jordan.
It was the first time the bank’s staff and followers had convened in the south and eastern Mediterranean (Semed), the region it began expanding into after the Arab Spring. As well as Jordan, its countries of operation there include Egypt, Tunisia and Morocco – and, since last year, Lebanon, the West Bank and Gaza.
For the most part, the event went smoothly, the sun shone and a good time was had by all. There were a few cultural misunderstandings. The Jordanians presumably thought it would be an elegant tribute to have a local choir sing a Russian song from the Second World War celebrating the Katyusha rocket launcher at the opening session, but the Ukrainian delegation was unappreciative.
They got their own back though. The Ukraine investment outlook session was packed out and lively, in sharp contrast to the Russia event. The latter, the first held at an EBRD meeting since the bank’s shareholders voted in 2014 to freeze operations in Russia, was sparsely attended.
The few hardy souls who did show up were noticeably unenthused, particularly when it turned out that the star speaker, deputy finance minister Vladimir Kolychev, was a last-minute no-show. Claims that his flight to Amman had been cancelled were taken with a large pinch of Dead Sea salt.
The organizers of the evening reception on the opening day also badly underestimated the need of Europeans for food and alcohol after a hard day’s conferencing.
The delay was not, however, entirely the hosts’ fault. The start of the reception was postponed for nearly two hours after a debate on policy issues by the EBRD’s shareholders proved more protracted than expected.
In some ways, expansion would make sense. The EBRD is highly profitable – it posted net income of €772 million last year – and has plenty of capital to put to work. Several of its original countries of operation in central Europe are on the cusp of developed market status, while the Russia freeze cut the bank off from what was once its biggest market.
That gap has been partially filled by Turkey, which in 2009 became the first non-communist country on the EBRD’s operations list. In recent years it has become the largest single recipient of EBRD funding, accounting for €1.6 billion in 2017. Turkey’s descent into authoritarianism, however, has prompted questions about whether or not the bank will be allowed to continue operating there.
Even as things stand, Sir Suma claimed the EBRD’s capital base would allow for an additional €3 billion of lending a year, of which only €500 million could be deployed in the bank’s current countries of operation. This, he argued, would allow for expansion into southern Africa.
Things didn’t quite work out as he had presumably hoped, however. The first signs of trouble came at the start of the meeting, when several of the EBRD’s key shareholders issued statements more-or-less openly opposing further geographical expansion.
The northern Europeans were the most explicit. The Netherlands described talk of further expansion as “premature”, while a joint Franco-German statement urged the bank to focus on “the huge remaining and possibly upcoming challenges in its current regions of operation”.
Both also referred the EBRD to Article 1 of its constitution, which sets out the purpose of the bank as fostering “transition towards open market-oriented economies… in countries committed to and applying the principles of multiparty democracy, pluralism and market economics”.
These concerns were echoed by former communist states such as Estonia and Latvia. A number of larger shareholders, including the UK, also stressed the need for the EBRD to avoid crowding out private-sector funding in more developed economies, as well as to overlap with other international financial institutions.
In the past, expansionists have been able to rely on the support of the US, the bank’s biggest shareholder. The Obama administration was a notable proponent of the push into Semed. This time, however, the country statement suggested little appetite for expansion.
“I don’t think we’re really on the radar of the current US administration,” says a bank insider. “Of course, in many ways that’s no bad thing…”
At the press conference after the shareholders’ meeting, it was clear the anti-expansionists had won the day. Sub-Saharan Africa was not mentioned. Even the possibility of further Semed expansion – into Algeria, Libya and in due course Syria – had apparently been shelved pending an analysis of how the EBRD could do more in its existing countries.
Sir Suma put a brave face on it, attempting to give a positive spin to shareholders’ demands for a review of the EBRD’s operations and its relationship with other IFIs.
“The great thing about today’s discussion was the spirit of wanting evidence,” he told journalists. “People don’t want to make decisions based on a hunch.”
Off the record, however, delegates say it was clearly a disappointment.
“Maybe he thought he could pull the shareholders along with him, or maybe he thought he could pressure them into it. Either way, he seems to have miscalculated,” says one.