EBRD: There’s no place like home

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Before it sets off into Africa, the international financial institution needs to look to its roots.

Suma Chakrabarti doesn’t give up easily. Less than a year after the president of the European Bank for Reconstruction and Development (EBRD) failed in his bid to persuade shareholders to expand its remit to sub-Saharan Africa, he has announced plans to raise the issue again at this year’s annual meeting in May.

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Suma Chakrabarti,
EBRD

In some respects, Chakrabarti’s proposals make sense. The EBRD has plenty of capital and has been struggling for years to find ways to deploy it in its traditional countries of operation, particularly since the bank’s shareholders voted to suspend activity in Russia in 2014.

Proponents of a move into southern Africa point to the success of the EBRD’s initial forays outside the former communist bloc. Starting with Turkey in 2009, the bank been steadily expanding its network around the Mediterranean and is now active in markets from Morocco to Jordan, as well as Greece and Cyprus.

Chakrabarti also contends that promoting prosperity in Africa is essential to solving Europe’s own problems of migration and security. This argument is both cogent and canny, in that it provides an answer to conservatives who dismiss international development institutions as instruments of globalization.

Lost interest

In the EBRD’s original stamping grounds, however, the push for African expansion has met with little enthusiasm. Locals in central and southeastern Europe accuse the bank of losing interest in their region now that the initial transition to market economies has been completed.

A recurrent complaint is that the EBRD too often acts like a commercial bank, backing big-ticket infrastructure projects and capital market transactions rather than addressing less glamorous but equally vital issues such as the dire shortage of capital available to small and medium-sized enterprises in countries such as Romania.

Others note that the bank seems more comfortable working in markets where the need for support is urgent, such as Moldova and Ukraine, or where it has been given a special mandate by policymakers – Kazakhstan and now Uzbekistan – than in addressing inequalities in more developed markets.

It may be that such criticisms are unfounded and that the EBRD is already doing all it can in the region it was set up to serve. It is certainly doing a lot. Investment in the western Balkans, for example, topped €1.1 billion last year, thanks to a big increase in spending on infrastructure.

If it is indeed the case that the bank is running at full capacity in central and eastern Europe, however, the message is not being received by senior bankers in the region, let alone small business owners and the general public.

This matters because market democracy urgently needs standard bearers in CEE. The rise of populism in countries such as Hungary and Poland reflects widespread disappointment that standards of living are still well below those of western Europe some 30 years after the fall of the Berlin Wall.

The EBRD should be a very visible counterweight to claims that the West is not doing enough to bridge this development gap. That it is not argues at the very least a failure of communication.

Before it embarks on further African adventures, the bank has work to do back home in Europe.

Article update, March 6, 2019: A response by the EBRD