UNICREDIT ISPI EU Enlargement: Internationalisation and local development The evolving role of the EBRD in the new EU members Fabrizio Saccomanni Vice President, Risk Management – EBRD Rome, 9 July 2004

2 The EBRD – Basic Facts Founded in 1991 to help transition to market economy in 27 states Founded in 1991 to help transition to market economy in 27 states Owned by 60 states and 2 intergovernmental organisations Owned by 60 states and 2 intergovernmental organisations Capital = € 20 billion Capital = € 20 billion Total outstanding facilities (Dec. 2003) = € 18.4 billion Total outstanding facilities (Dec. 2003) = € 18.4 billion Commitments: Commitments: –number of projects 119 1,017 –EBRD financing € 3.7 B € 22.7 B –resource mobilisation € 5.3 B € 45.8 B Geographical composition of commitments Geographical composition of commitments –Central Europe and Baltic Region (CEB): 40 % –South Eastern Europe (SEE): 20 % –Commonwealth of Independent States (CIS): 40 %

3 The EBRD’s strategy to promote transition Financing of projects conditional on: Financing of projects conditional on: –sound banking –additionality –positive transition impact –respect for the environment –effective policy dialogue

4 The Transition Process – Definition and Indicators Development of a market economy system based on private sector development and on reform of: Development of a market economy system based on private sector development and on reform of: –markets and trade regimes –enterprise system –infrastructures (telecoms, electric power, railways, roads, water and waste water) –financial sector (banking and non-banking)

5 The Transition Process – Definition and Indicators (Cont’d) EBRD developed set of indicators to monitor process of transition in general and to assess transition impact of individual projects EBRD developed set of indicators to monitor process of transition in general and to assess transition impact of individual projects Each indicator uses a measurement scale ranging from 1 to 4+, where: Each indicator uses a measurement scale ranging from 1 to 4+, where: 1 = little or no change from rigid central planning 4+ = standards of industrialised market economy Average indicator computed for each country Average indicator computed for each country

6 Accession does not mean the end of transition process Structural reforms to be completed in: - state-owned enterprises - heavy industry and agriculture - energy, telecoms, transport sectors Low level of financial intermediation relative to GDP - capital markets and non-bank intermediaries at early stage of development

7 Accession does not mean the end of transition process (cont.d) Establishment of a market-oriented body of laws and regulations still to be achieved - need for efficient enforcement at local level lmplementation of acquis communautaire requires substantial investment per cent of GDP investment in environment and infrastructure Administrative and project implementation capacity broadly inadequate to task - lack of experience at regional – municipal level hampers absorption of EU funds.

Transition indicators for the new EU member countries Transition indicators for the new EU member countries CountriesEnterpriseMarkets and tradeFinancial InstitutionsInfra- structure Large- scale privatis -ation Small- scale privati- sation Gover- nance & enterpris e restruc- turing Price liberali- sation Trade & foreign exchang e system Com- petition policy Banking reform & interest rate liber- alisation Securities markets & non-bank financial institutions Infra- structure reform Czech Republic Estonia Hungary Latvia Lithuania Poland Slovak Republic Slovenia

9 Transition in new EU members decelerating Indicators confirm that further transition efforts are needed in: - enterprise sector - financial sector - infrastructure Momentum of transition process slowed-down in 2003 in most countries (except Latvia and Slovak Republic)

10 Decline of FDI to CEB in 2003, as large privatisations completed Foreign Direct Investment (US$ million, net inflows) Source: EBRD

11 EBRD transition agenda in new EU members Focus on private sector development - promote creation of private enterprises (SME) - assist in the process of privatisation Foster financial intermediation - encourage efficient allocation of savings - promote capital market development and non-bank intermediation. Contribute to modernisation of infrastructure - assist national and local authorities to make effective use of EU Cohesion and Structural Funds

12 1.EBRD Operational strategy in the private sector Support to SME lending facilities through local banks and in collaboration with EU Participate in privatisation of state-owned enterprises together with local and foreign strategic investors Introduce new financing products and structures in agricultural enterprises

13 1.EBRD Operational strategy in the private sector (cont.d) Promote the development of mortgage markets to increase financing for housing and tourism development Promote the recourse to structured financial products, equity and quasi-equity instruments

14 2. EBRD Operational strategy in the financial sector Develop a broader range of financial instruments for SME and other priority segments not adequately served by local banks Increase local banks capacity to incur risk by offering credit enhancements and risk-sharing facilities

15 2. EBRD Operational strategy in the financial sector (cont.d) Support securitisation of mortgages and other receivables Participate in the development of insurance companies, pension funds, asset management companies to improve the range of savings instruments and the supply of long-term capital

16 3. EBRD Operational strategy in the infrastructure sector Support tariff adjustment and phasing out of subsidies in the utility sector (water, power, heating) Support privatisation and liberalisation of power sector to improve competitiveness of downstream industries Promote commercialisation and restructuring of transport infrastructure (roads and railways)

17 3. EBRD Operational strategy in the infrastructure sector (cont.d) Decentralise and commercialise municipal and environmental infrastructure Provide financing for the development of public-private partnerships in the new infrastructure sector (i.e. air transport) Improve cross-border linkages in power and transport sectors

18 Main challenges of the EBRD As transition advances, EBRD to move out of new EU member states: market to determine timing and modalities In the meantime, EBRD will compete with larger flows of low cost financing to sovereign borrowers: need to coordinate action with EU Commission and EIB Internal EU governance has changed post- enlargement: need to adjust to new organisation/financial procedures