By Nevena Krasteva
The European Bank for Reconstruction and Development (EBRD) is a major international investor in Southeast Europe. In 2019 it plans to invest around 1.1 billion euro in the Western Balkans alone.
Charlotte Ruhe, Managing Director, Central and Southeast Europe, EBRD
What do you see as the main constraints to growth in Southeast Europe (SEE)?
With respect to the economic outlook, I always say that these countries face a few key challenges – competitiveness, their connectivity and infrastructure and the quality of life of the citizens, and there are things that the bank is doing together with the governments for each of these questions.
Increasing the variety of financing sources is really important in these markets. They are heavily bank dependent. The stock exchanges, where they do exist, are small, although we do have the SEE Link whereby Bulgaria, North Macedonia and other countries of the region are linking their stock exchanges to give investors the opportunity to invest across borders. Capital markets development is an important thing to make the region more competitive in the longer term.
In the shorter term, we do a lot of work with the small and medium-sized enterprises (SMEs) to help them be more efficient. We are doing a lot on the green economy, for example, to help companies identify where they are using more energy than they need to and to buy the equipment that would make them more energy efficient, to have lower carbon emissions and effectively lower their cost and make themselves more competitive.
With small enterprises, we offer advice how to improve their management capacity, help them to adapt to innovation, adopt online marketing and other things that are really necessary as digitalisation becomes a bigger thing in the region. And then of course, it is also about the stricter management and understanding what it means to run a company properly, so we help with training CFOs, we are doing a lot to help companies to manage the generational change and to professionalise management. In a family-owned company you need to change the structure and to hire professionals to do some jobs. As the company grows it is no longer possible for two brothers, or a father and a daughter, to manage every job themselves, they need to bring in expertise and we assist them with that.
Of course, we have a range of interesting financing products which we offer companies, especially through commercial banks, to help with competitiveness in the European Union as they adapt to EU standards. We have those small business programmes in Bulgaria and Romania, and not just in the Western Balkans.
In many of these countries, less so Romania and Bulgaria where our portfolio is largely private, the portfolio is tilted to the public sector. And that brings me to connectivity because these countries, the six countries in the Western Balkans in particular, are not well enough connected into the European economy and their connectivity will really make a difference. The faster they can get their goods across borders and to European and global markets, the better. The more individuals have the opportunity to move around freely and easily in the region, the better. You may have heard the prime ministers [of the Western Balkans] talking about wanting to create a Schengen within the Western Balkans Six. Getting rid of the roaming charges and taking this further to make the movement of people and labour free, to give people the opportunity to have their job qualifications recognised across borders – all these things I think will help to increase connectivity and create a larger market to attract investors and a larger market for companies to expand. Because if you are in Montenegro, the domestic market is small but if you can sell cross border in your neighbours, then it gives you a lot more opportunities.
Connectivity on the hard side, we build roads and railways and ports, but we also work to help companies to extend their business across borders, in the Western Balkans particularly, through the regional chamber of commerce and a regional investment portal.
The regional trade registry still does not cover all the markets in the region, what are the plans for its development?
The plan is to cover all of the markets. It is just taking time to expand but definitely it will be there.
In macroeconomic terms, what are the risks that the region faces?
Aside from Montenegro, the countries are on pretty solid ground vis-à-vis their government debt, and their banking sectors are well capitalised. I think that if there is a lot of pressure on the emerging markets generally they will be well positioned. Many of the governments – and Serbia stands out on this because it had a very difficult situation a few years ago – have undergone real fiscal consolidation, and I think that in that respect they may face a bit of a slowdown in growth if the European economy slows. That may not be avoidable but I think that they are not in a real vulnerable position like some markets that are highly indebted.
That being said, these are countries that have a demographic issue. They have had a lot of youth leave and aside from Kosovo and Albania, they are ageing rapidly, and that is why I mentioned the quality of life. Because what they need to do is make sure that the youth of the country have a reason to stay in the country and for that addressing the need for skills, making sure that people feel they can get the training and education that they need, earn a good living and then have the opportunity to earn that living where they are is really important.
Quality of life is not about just education, which is one fundamental element, but it is also about things like air pollution, and one of the things we are doing a lot to help with is to make the cities greener. We have the Green Cities programme with which we tackle the key elements to improve the quality of life in the city, and we do it in a way that engages the public. That enables the mayors to make sure that the citizens make their voice heard, but it also enables us to tackle things like air pollution by bringing in cleaner buses, electric buses or modern buses, even if they are not electric. In the case of Kosovo, it was a bit expensive to go straight to an electric bus fleet, they took an intermediary step. There are also things like water treatment, waste water, to change the nature of district heating. We did a great project in Zenica [in Bosnia]. It was a joint venture with a Finnish partner and Zenica Steel, with ArcelorMittal, to have a new heat and power plant. It is doing district heating and providing the power for the steel plant all in a much cleaner way than the previous plant that existed.
I think that things like this are really important because if you do not create the quality of life that makes people want to stay in their country, they will leave and you will be left with an empty country. And political leaders are aware of this. They talk to us about it. We want to help. And we focus on these kinds of things to facilitate. This is not unique. You hear about it in France and Germany. That is also about the digital net
work. Broadband is now like electricity seventy years ago. It is a necessary utility in today’s world. And that’s another thing we are working on in the region.
Talking of Green Cities and clean air, the EBRD adopted in late 2018 a decarbonisation strategy which puts an end to investments in coal. Yet this region, the Western Balkans in particular, is heavily dependent on coal. Does this mean that you will be investing more in renewables?
Absolutely. We are really excited and we are pushing very hard in some countries because in some places you have regulatory barriers, you need to have the right agreements in place to make it practical and viable for private commercial investors coming to this sector. And yet it offers so much opportunity to have clean power, but also it is private investment coming in and it reduces the reliance on fossil fuels. We think that this is a great region for renewable energy. The countries that do not have a lot of water have a lot of sun.
Apart from renewable energy, what are the other priority sectors that you will be supporting in SEE?
Infrastructure because of connectivity. Coming back to competitiveness, the SMEs, the larger corporates, to help them really be in a position to compete globally and to be part of global supply chain systems, etc. I would say those are really the key three.
Inclusion is also important, inclusion in a few different ways. We have had a programme for women in business for a number of years and while in Bulgaria or even in North Macedonia it is not such an issue, in a place like Kosovo and Bosnia the percentage of women in the workforce is very small, particularly in professional roles, and so we work with women entrepreneurs to give them confidence to grow their companies. We have networking and mentoring support for them, advice for small businesses and we work with the banks to provide a risk-sharing element so that they will finance them in their business if they do not have an adequate collateral.
This is a really successful programme, it is doing very well. We are looking at doing something similar for young entrepreneurs. We have already started something in North Africa where the youth unemployment is also quite severe. We will learn our lessons there and bring it here.
Also, what we are doing here is working with business accelerators and incubators where you have a lot of youth looking for ways to take their engineering, education and then create their own company, or be part of the IT scene. We had a great programme in Bosnia where we worked with the Bosnian IT alliance which is a technology industry group to train young engineers to make them work-ready for their industry. This is an industry to which you can see young people really are attracted. And of course Bulgaria is a hub. And Bulgaria is not far. They can go to Bulgaria, build their company, get financing, they can keep their team working in Bosnia, or in Serbia, while they develop their contacts and their business. We want to be part of this action and you will see more from EBRD in this space.
Do you plan to support more private bonds like you did in Serbia?
We will, absolutely. We have done so much in capital markets in more advanced countries. It is the first that we are doing in Serbia and we are really excited about it and we want to do a lot more. We did the BEH bond in Bulgaria last year. In Bulgaria we have already done some bonds but for the Western Balkans it is a new thing that we want to do more of.
What would you like to say in conclusion?
What I would like say for the region is there is still room for a lot of reforms to be advanced, whether it is developing the capital market, or making it easier for foreign investors to come into the country and invest, or having a better functioning judiciary – these things they [the governments] should be doing for the local population. They will invest, but also foreigners will come and invest as well. So I would say, keep up the good reforms because it pays off.