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Italy and the EBRD

 

Italy and the EBRD

sarajevo

AGM EBRD - Sarajevo 2019

The European Bank for Reconstruction and Development (EBRD) is an international financial institution created in 1991 whose aim is “to foster the transition towards open market-oriented economies and to promote private and entrepreneurial initiative in the Central and Eastern European countries committed to and applying the principles of multiparty democracy, pluralism and market economics” (Art. 1 of the EBRD’s statute). The EBRD collaborates with other international finance institutions and follows a project-based model, funding projects or investments, granting loans and guarantees, and acquiring shareholdings. Its model is commercial: its loans are issued at market interest rates and sound banking is one of the three principles regulating all its operations. (The other two are transition impact and additionality).

The EBRD’s current shareholders include 69 countries (with San Marino and Libya being the most recent additions), the European Union and the European Investment Bank.

The EBRD differs from other multilateral regional development banks in the marked political dimension of its mandate: its support for economic transition in the countries where it operates is conditional on the presence of a democratic regime based on pluralism and respect for human rights. An integral part of the Bank’s activities is verifying that these countries adhere to these principles, on the basis of a political methodology approved by the Bank’s board of directors.

Uniquely among multilateral development banks, the EBRD’s constitution requires it to prioritise the private sector, stipulating that no more than 40% of the Bank's total portfolio may be accounted for by public-sector projects.

The EBRD’s areas of operation generally include the Commonwealth of Independent States, central Asia, the Baltics, central Europe and the Balkans. After the Arab Spring in 2010, and with the endorsement of the G8 heads of state and government following their meeting at Deauville in May 2011, the Bank extended its geographic mandate to include the south-east Mediterranean (SEMED). Today's bank shareholders include Egypt, Jordan, Morocco and Tunisia; and Lebanon from 2017. Libya became a shareholder in 2019. The Bank suspended its activities in Russia in July 2014, upon the request of its major western shareholders, although it has retained contacts with existing clients in the country and continues to manage its pre-existing portfolio there. In 2014 and 2015 the Bank also engaged in short-term operations in Cyprus and Greece.

Italy is one of the EBRD's founding countries. The Bank plays a key role in Italian interests, as its projects are among Italy’s most important trade and foreign-investment initiatives. Apart from being a major shareholder in the Bank, with an 8.52% holding, Italy is also one of its biggest donors. Italy also contributes to the Bank’s work by supporting the Technical Cooperation Funds Programme (TCFP), a technical-assistance programme with thirty donor countries and participating agencies aimed at maximising the impact of the Bank's activities. Italy participates in the programme through the Italian Technical Cooperation Fund and the Italian Investment Cooperation Fund (which in practice mainly provides guarantees), both of which fall under the competence of the Ministry of the Economy and Finance. These funds have reached a total of over €133m since the EBRD was established. Italy also participates through contributions to the Central European Initiative (to which it is the sole donor), which falls under the competence of the Ministry of Foreign Affairs and International Cooperation.

Italy has also made contributions amounting to €102m to the Shelter Implementation Plan (SIP), a project run by the EBRD to make the site of the 1986 Chernobyl nuclear accident safe by enclosing the reactor in a giant arch-shaped structure termed the New Safe Confinement (NSC). The project began in November 2016, just over 30 years after the disaster, and was completed at the end of 2017. Italy’s contributions were made through the G7’s Nuclear Safety Account and Chernobyl Shelter Fund.

At its 2018 annual meeting, the Ministry of the Economy and Finance allocated approximately €10m from the two abovementioned funds to the Small Business Impact Fund. This fund, a new EBRD project supported by eight donors, is part of the EBRD’s strategy to promote economic inclusion. It finances interventions to support SMEs, which play an essential role in helping countries transition towards market economies. In light of the newly added focus on youth entrepreneurship, approximately €6m of this allocation (€4m for guarantees and €2m for technical assistance) was assigned to a new programme called SEMED Empower Youth Programme (previously Youth Employment in SEMED).

In 2018 the EBRD’s investment volumes reached €9.5bn, covering 395 projects. Its other positive results include: growth in the private sector (73% of total jobs); an increase in risk-capital operations (from 4.5% to 9%); a record portfolio, amounting to €43.3bn (with operational assets reaching €30bn for the first time).

The Bank’s financial results are also encouraging (€370m profit), although they are lower than in the two previous years, as equity performance has slowed due to volatility in the international markets, particularly in the second half of 2018, and the depreciation of key currencies in the Bank’s investment operations.

In terms of regional investment, the highest volumes were in the SEMED region, Eastern Europe, the Balkans and the Caucasus.

Lebanon became an EBRD shareholder in 2018, and the annual meeting that year was held in Jordan, testifying to the Bank’s renewed interest in the SEMED region. During the annual meeting the Bank began evaluating the possibility of enlarging its geographic area of operations southwards.

The Bank’s 2019 annual meeting was held in Sarajevo on 8-9 May. This gave significant visibility to the Balkans, a region in which the Bank has invested over €11bn, and confirmed that it remains a strategic area of operation. During the meeting the programme of work leading up to the 2021-2025 Strategic Capital Framework was approved. This programme comprises five areas of action:

a) Strengthening policies for investing in current countries of operation in order to maximise the impact of transition;

b) Preparing for possible expansion to new countries in the Mediterranean Middle East, a region that already falls within the EBRD’s current geographical area of operation;

c) Evaluating the possibility of increasing the reserves beyond the current prudential requirements, to counter cyclical trends;

d) Analysing potential options for expansion to new countries of operation beyond the current geographical mandate;

e) Evaluating the potential for returning capital to shareholders.

At the Sarajevo meeting the governors noted the work carried out by the EBRD over the years, particularly:

a) A strategy review, entailing a country-by-country evaluation, to establish the margins and potential for optimising and scaling up the EBRD’s actions in countries of operation for the remainder of the current strategic framework (SCF 2019-2020) and the next one (SCF 2021-2025);

b) A pre-feasibility study, based on the strategic review and short-term macroeconomic projections, to verify whether there is sufficient residual capital to allow the EBRD to expand its activities to new geographical areas, particularly sub-Saharan Africa, taking account of the planned reviews of development-cooperation policy by various international institutions, particularly in the EU;

c) The mid-term directions, an in-depth analysis of some of the most important global geo-economic that are key to future strategic planning and which can give useful indications regarding the EBRD’s positioning.

Governor: Roberto Gualtieri

Alternate Governor: Gelsomina Vigliotti

Director: Filippo Giansante

Alternate Director: Massimo Carnelos

 

Governor: Giovanni Tria
Alternate Governor: Gelsomina Vigliotti
Director: Filippo Giansante
Alternate Director: Massimo Carnelos

For more information about the EBRD and Italy’s role in it: http://www.ebrd.com/home - http://www.ebrd.com/who-we-are/structure-and-management/sharehoders/italy.html 


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