Exclusive: UAE applies to join European Bank for Reconstruction and Development

A view of the European Bank for Reconstruction and Development’s headquarters at One Exchange Square in London. Photo by: EBRD BRUSSELS — The United Arab Emirates is the latest country to request to join the European Bank for Reconstruction and Development, while the Czech Republic is considering asking the lender […]

A view of the European Bank for Reconstruction and Development’s headquarters at One Exchange Square in London. Photo by: EBRD

BRUSSELS — The United Arab Emirates is the latest country to request to join the European Bank for Reconstruction and Development, while the Czech Republic is considering asking the lender to restart operations there, 13 years after it became the first to graduate from the multilateral institution.

Following a recent membership request from Iraq and successful application from Algeria, an EBRD spokesperson confirmed an application has also been received from the UAE, adding that the outcome will depend on the bank’s 71 shareholders. Countries must first become shareholders of the bank, before applying to become countries of operation, should they wish.

Meanwhile, the Czech Republic, which graduated from EBRD assistance on Jan. 1 2008 and remains a small shareholder, is “assessing how the EBRD could help in the economic recovery” from the COVID-19 pandemic, a spokesperson for the country’s finance ministry told Devex.

Graduation means an end to support for projects within a country’s borders, though joint investment with Czech companies in other EBRD countries of operation has continued. “Reverse graduation” would see the country and its companies once more become eligible for EBRD loans, equity investments, and technical assistance. 

European Commission tells development banks to ‘rely further on us’

European commissioner Jutta Urpilainen called for a “true collective endeavor” between the commission, European Investment Bank, and European Bank for Reconstruction and Development.

“The Czech Republic is considering various options of economic support, including assistance delivered by the international financial institutions,” the Czech spokesperson told Devex by email. However, they wrote that for now “no official request for EBRD’s re-engagement in the Czech Republic has been sent nor has been made a decision to do so.” The EBRD spokesperson declined to comment.

The overtures come at a crucial time for EBRD, which was founded in the early 1990s to help former Soviet states in central and eastern Europe transition to open market economies. Governors from the bank’s shareholders — including Russia, China, and the United States, as well as the 27 member states of the European Union, and the European Investment Bank — meet virtually this week to elect a new president and approve a 2021-2025 strategy focused on green growth, equal opportunity, and the digital transition.

The strategy includes a target of committing at least 50% of its investments to the green economy by 2025, up from 46% in 2019. Alexia Latortue, EBRD managing director for corporate strategy, told Devex in an interview last week that the new target is commensurate with the scale and urgency of the climate change challenge. “I think we need to make sure that we are not putting out numbers just for the sake of them,” she said, adding that special attention on infrastructure and cities is vital to avoid “baking-in” high carbon trajectories in coming decades.

The strategy also includes carefully formulated language on a possible expansion to sub-Saharan Africa, which was championed by former EBRD President Suma Chakrabarti but proved divisive. The governor of the Central Bank of Bosnia and Herzegovina was one of those who told news site GlobalMarkets at EBRD’s annual meeting in May 2019 that the London-based institution should focus on its original mission in Europe.

The new strategy is not yet public, but according to Latortue “what it says is that we have a strategic interest in expanding selectively to sub-Saharan Africa and to Iraq. In 2021 [at] our next annual meeting, governors will give guidance to the bank about what kind of information they want from us to make decisions … in 2022. So the timeline in the strategy for decisions is 2022.”

Jürgen Rigterink, the acting president of EBRD, told Devex that for now all of the bank’s attention was focused on helping private sector clients and governments in existing countries of operation recover from COVID-19. In the first eight months of 2020, Rigterink said EBRD had new investments of over €7 billion ($8.4 billion), up more than 40% compared to the same period in 2019 where by the end of the year the bank broke through the €10 billion mark for the first time.

If the sub-Saharan move goes ahead, Rigterink said “it will not be a big bang to 30 countries. It will be maybe five or so … and only there where we are additional, where we are complementary to other MDBs, other IFIs, where our business model really adds something to the equation.”

Whether or not to expand the bank’s work further into Africa is linked to the ongoing debate about a possible EU climate and sustainable development bank, which has pitted EBRD against EIB in a race to win the job of coordinating the bloc’s investments abroad for greater impact and visibility.

A high-level wise persons’ report last October was more favorable to EBRD, with the authors citing its more convincing development model. But EIB, which unlike EBRD is wholly-owned by EU member states, fired back in a submission to EU finance ministers in January that while EIB has a mandate to operate in sub-Saharan Africa, LDCs, and fragile states, EBRD is “a regional development bank present in ~30 of these countries.” 

Last June, the then-development minister of Belgium, Alexander De Croo, told Devex that the reflections about the EU’s financial architecture had put EBRD “a bit in a survival race.”

“If your original goal is achieved then maybe the organization just has no space,” De Croo, who last week became Belgian prime minister, said at the time. Acknowledging EBRD’s strong balance sheet, De Croo said that “instead of trying to get into the domain of others,” perhaps the bank’s resources should go to institutions “who have more expertise.”

In response, Rigterink told Devex last week that EBRD is “more relevant than ever,” adding that an “important achievement” of the wise persons’ group was to make EBRD’s own shareholders more aware of the bank’s strengths.

“Let’s face it, when you read the wise persons’ group report, actually the ideal bank, the bank which is actually able to do everything [that] the EU wants that bank to be … That bank, with that DNA, actually was EBRD,” he said.

Rigterink, who will return to his role as first vice-president at the bank once the new president begins their four-year term, said the only question mark over EBRD in the wise persons group report was “Are we EU enough?” With the departure of the U.K. from the EU, the bloc’s ownership share fell to 54.5%, the report noted, while “for any strategic decisions, the lowest majority threshold is 66%.”

But for Rigterink, “having a multilateral shareholdership, with at the core the EU shareholders, actually in many ways makes us stronger. And the fact that our family is growing, that is a very strong sign.”

Such are the issues awaiting the next president. Director-General of the French Treasury Odile Renaud-Basso now looks certain to be elected in a secret ballot Thursday after Italian MP and former Finance Minister Pier Carlo Padoan pulled out on Monday evening. The Financial Times reported that Padoan exited the race after it became clear the biggest shareholders — the U.S., Germany, Japan, the U.K. and Canada — would back Renaud-Basso. Polish Finance Minister Tadeusz Kościński is the third candidate, though he has little hope given his conservative government has few friends in Europe.

To prevail in the secret ballot Thursday, the candidate must win the votes of at least 36 of the 71 governors as well as a majority of the total voting power of members, determined by their shares in the bank.

Mikaela Gavas, senior policy fellow at the Center for Global Development who interviewed all three candidates this summer, said that an earlier effort to build consensus around a single EU candidate had failed.

“There have been rumblings from some member states about how the French and the Germans seem to have taken all the big positions [in European institutions], and therefore it shouldn’t be either one of those that gets the EBRD presidency,” she told Devex on Monday. As the bank’s largest shareholder with a 10% stake Gavas said the U.S. vote is crucial, though “they haven’t been very actively engaged, certainly in the discussions on the presidency, but also generally around the EBRD’s new strategy.”

“It is something for our shareholders, it is not something for management,” acting President Rigterink told Devex last week, when asked about the candidates’ chances. “This is something which is out of our control. I don’t even know what’s happening, and if I knew then I might not tell you.”

Update, Oct. 6: This story was updated after Pier Carlo Padoan pulled out of the race.

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