Visit to the EBRD

Future of the EBRD in graduated countries

Yesterday we visited the EBRD as internship students in SBBC. We had a few sessions with important employees of this institution, f.e. Alena Sabelova, the Director`s Adviser for Czech Republic, Slovak Republic, Croatia and Hungary and other prestigious representatives. Anyway, it was a great experience, so I would like to bring out a closer look on main role of the EBRD, specifically its performance in Slovak Republic. We chose the EBRD not only for its main mission, but also for its environmental inclination, which is in harmony with new product package called Eco-MICE.

The EBRD is unique among multilateral financial institutions in that it has had an environmental mandate since its inception. The mandate commits the Bank to finance projects that are environmentally sound and sustainable. 'Environment' is defined by the Bank in its broadest sense to encompass not only ecological impacts but also worker, health, safety and community issues.

To promote environmentally sound and sustainable development, the Bank pursues four main strategies:

• Integrate environmental considerations into every project

• Promote environmentally oriented investments across all sectors.

• Incorporate the environmental mandate in all sector and country strategies.

• Build partnerships to address regional and global environmental issues.

In the Slovak Republic, the EBRD has supported the successful privatisation of banks, and its actitvities now span infrastructure, and the enterprise and financial sectors. In addition, the Bank has recently launched an energy efficiency framework for the country, in order to raise the contribution of renewable sources and safeguard Slovak energy security.

Challenges

Key areas include bringing down inflation, fiscal consolidation, continuation of the health care and education reform and law enforcement as well as the increase of the absorption capacity of the country with respect to EU funding. Further sectoral challenges identified in the recent Assessment of Transition Challenges paper, which the EBRD can address and influence, are, among others:

SMEs/Private equity: The creation of alternative employment opportunities is key to addressing the continued high unemployment rate, especially in the regions outside of the capital. Local SMEs should get more attention in terms of financial instruments available to them and improvement of the environment in which they operate. They continue to have limited access to equity capital and find it difficult to exit through the stock market. The development of private equity funds started later than in the neighbouring countries and the Slovak Republic is still trailing Poland, Hungary and the Czech Republic.

Capital markets & financial sector: The size of capital markets is small compared to other EU members in CEB. Financial institutions also need to improve the management of their capital to deal with the Basel II requirements.

Energy efficiency and MEI: Energy intensity (and dependence) remains high, even by regional standards. The market for energy conservation is in its infancy. Also, the market for renewable energy projects has not been developing at the pace required in order to meet EU directives for the promotion of renewable energy. Water sector reform is lagging behind, although the creation of regional water companies is intended to increase efficiency and enable access to capital and private sector participation, which is currently very limited.

Privatisation: Several large-scale privatizations are still ongoing: the three regional electricity distributors, the six heating companies and the Railway Cargo Company.

Transport: In railways, operating and policy setting functions have been separated and core railway businesses unbundled. The freight cargo company is in the process of being privatised. However, the quality of the road network varies according to region and type of roads. Secondary and smaller roads comprise around 75 per cent of all roads.

Since the last country strategy was approved, the Bank activities in the Slovak Republic have somewhat slowed as a result of significant progress in transition and, in particular, the emergence of a strong, competitive banking sector. The Bank has had a significant transition impact in supporting SMEs by providing credit lines to banks and leasing companies. The Bank’s contribution in the infrastructure sector has remained moderate due to the availability of other sources of financing, the limited size of municipal projects and the still ongoing restructuring of the water sector.

Operational objectives

Looking forward and taking into account the significant progress in transition and the principle of additionality, the Bank’s activities in the Slovak Republic will be very selective and based on the following operational objectives:

Provide equity and structured debt for local companies to fund their growth, in particular in the context of cross border expansion. Support foreign direct investment by medium-sized companies with higher risk products not offered by the private sector, particulary in regions of higher unemployment facing specific transition challenges.

• Develop a finance facility for investments in energy efficiency and renewable energy in cooperation with local banks and the Slovak Ministry of Economy.

• Work on a limited number of public private partnership projects in infrastructure, if possible in conjunction with Cohesion/Structural Funds.

• Offer capital market products to companies and financial institutions such as bonds and asset backed securities.

Mission of the EBRD is clear, there is one question that comes out. Will this institution be still important when the process of transition in all the target countries ends?