Private Sector Development

1
Private Sector Development EBRD Activities in
South-Eastern Europe

• Jean-Marc Peterschmitt
• Peter Sanfey
• Tirana, December 2003

2
Key Messages (EBRD TR 2003)

• Private sector share of GDP rising (BH, SM)
• Large-scale privatisation has advanced (CR, SM)
• Net FDI increasing, from ca. US 3.5 billion in
  2002 to forecast gtUS 4 billion in 2003
• Reforms advancing but region still lags behind
• International trade still below expectations

3
Further advances on large-scale privatisation
EBRD Transition Indicator for large-scale
privatisation
4
Capital flows peak in 2002
US millions
Sources EBRD, IMF, World Economic Outlook, UNCTAD
5
and net FDI to recover in 2003
US millions
Sources EBRD, IMF, World Economic Outlook, UNCTAD
6
Progress in reform in most countries

• Most progress in the reform-minded CIS and SEE

No change was reported in countries that are
not listed
7
But reforms in SEE lag behind accession countries

• EU accession is a milestone, but not the end of
  transition

8
Trade remains restricted
Extended model (borders, infrastructure policies,
institutions)

• Factors explaining the gap
• transit cost (borders, infrastructure)
• policies and institutions
• break-up of former Yugoslavia

Basic model (GDP, distance X-rate volatility)
9
Stability Pact Private Sector Initiatives

• Ten initiatives launched in March 2000with EUR
  356m pledged
• Main priorities (1) Trade facilitation (2)
  SME financing (3) SME support and development
• Implementation is on-going
• As of 31 Oct. 2003 donors committed EUR
  110mmatched by EUR 350m from IFIs

10
Trade Facilitation Objectives

• Develop trade, both inter- and intra-regional
• Institutional development help local banks in
  structuring trade transactions
• Create tracks records with foreign banks
• Avoid cash collateral requirements, i.e. cheaper
  financing terms for exporters or importers
• How? EBRD Guarantee covers payment risks by the
  Issuing Bank (under trade instrument) to the
  Confirming Bank

11
Trade Facilitation Results

• ? 25 banks in SEE participate? Total coverage
  limit EUR 120m? As of 30 Oct 2003 cumulative
  total of over 1,000 transactions for EUR 171m?
  Current annual turnover (expected 2003) 400
  transactions for EUR 70m? 50 of transactions lt
  EUR 100k? Share of intra-regional deals
  increasing
• Possible through EUR 10m donor risk-sharing pool

12
SME Financing Micro-finance

• Micro-finance institutions All countries in SEE
  covered (exc. Croatia). 8 banks - 87
  branches? Cumul. 31 Oct. 03 88,000 loans - USD
  587m ? Average loan amount USD
  6,600? Portfolio 43,000 SMEs - USD
  271m Well-performing? Demonstration, know-how,
  competition and improvements of regulatory
  regimes
• Donor Technical Assistance EUR 25m(provided by
  USA, KfW, FMO, EU, Luxembourg, Germany, Norway,
  DOEN)EBRD and IFC investments EUR 70m

13
SME Financing SME lines

• EBRD/EU SME Facility for Accession Countries? 12
  banks/leasing co. in Romania Bulgaria? EUR
  143m committed by EBRD matched by EUR 25m from
  the EU? 5,200 loans for EUR 157m? Replicate in
  Western Balkans
• Overall EBRD support to banking sector in SEE
  ? As of 30 Sept. 03 cumulative of 120
  commitments of EUR 1.1bn in credit lines and
  equity participations? Relationships with 62
  banks in the region

14
SME Financing Equity

• Small Equity Funds Albania Kosovo? EUR 18m
  capital, 50 provided by Italy? 12 investee
  companies in Albania (EUR 5.2m) and 6 in Kosovo
  (EUR 2.8m)
• Private Equity in SEE? EBRD participates in 26
  funds which are active in some or all SEE
  countries? EUR 340m disbursed as of end 2002 for
  SEE? EUR 200m still available for investment

15
SME support initiatives TAM BAS

• Business Advisory Service (BiH, Bulg, Cro, Mac,
  Mont)? Support through local consultants? As of
  31 Oct. 2003, 461 SME advisory projects (of
  which 66 in progress)? Donor support EUR 3.1m
  (EU, CEI, UK) More needed to expand (Serb, Rom)
• TurnAround Management Programme (all countries)
  ? Specialised industrial advisors? As of 31
  Oct. 2003, 225 SME management support projects
  (of which 84 on-going)? Donor support EUR 13.7m
  more needed

16
SME support initiatives IFC / SEED

• SEED programme active in Alb, BiH, Mac, SMUSD
  25m multi-donor initiative (Austria, Canada,
  Greece, Netherlands, Norway, Slovenia, Sweden,
  Switzerland, USA, IFC)
• Highlights of FY2003? enterprise level support
  9 projects raised financing? 31 capacity
  building/training projects? 16 business enabling
  initiatives? input in donor and government
  strategies

17
EBRD Strong presence in south-eastern Europe

• 250 projectsCumulative commitments as of end
  Oct. 2003EUR 5.6 billion, of which 59 are
  private sector
• Annual commitments flows in 2002-2003 EUR 1.1 to
  1.2 bn per yearmultiplied by 3.5 compared to
  1999
• Mobilisation of commercial co-financing is
  becoming significant EUR 300 million in 2002
• Pipeline remains strong EUR 2.2 billion (Oct. 03)

18
EBRD Commitments to SEEare growing
Annual business volume
EUR million
19
EBRD in SEE Commitments and forecast
(Estimate)
20
EBRD Annual Business Volume by country
EUR million
21
EBRD and infrastructure in SEE

• EBRD has been very active in the energy,
  municipal and transport sectors
• Cumulative 65 projects worth EUR 7.8 billion
  EBRD financing EUR 2.3 billion
• Pipeline 29 projects worth EUR 3.5
  billion EBRD financing EUR 1.2 billion
• Private sector financing taking off in municipal
  utilities (Sofia, Zagreb, Bucharest), power
  (Bulgaria), airports (Tirana)

22
EBRD role in Stability Pact regional
infrastructure projects

• Currently the EBRD is financing 21 active
  Stability Pact projects (out of 51) - all under
  implementation ? Total project cost EUR 2.2
  billion? EBRD financing EUR 800m
• EBRD working on 4 new regional road projects in
  Albania, BiH and SM? Total cost EUR 640m,
  financing EUR 225m

23
EBRD Infrastructure strategy

• EBRD will continue to support projects? which
  have a regional focus and strengthen the economic
  links in the region power, transport ? which
  strengthen local authorities municipal utilities
• Dual public and private approach- efficient use
  of public debt capacity- non-sovereign approach
  / commercialisation- involvement of private
  sector where possible
• Reform still needed regulatory and
  commercialisation / privatisation

24
Key challenges

• Remaining privatisations and move to green-field
• Improve investment climate across the board rule
  of law, clear regulations, level playing field,
  public and corporate governance
• Institutional building at all levels State,
  utilities, financial institutions, regulatory
  bodies
• Unlock potential for FDI intra-regional and
  utilities
• Broaden and deepen SME support
• Expand trade, incl. intra-regional

25
New opportunities for the region

• Leverage regional initiatives energy (SEEREM)
  regional infrastructure (transport) and free
  trade
• Italian/EU initiative (Venice meeting, Oct
  2003) ? Support of EUR 35m in grants to be
  leveraged by IFIs EUR 650m ? Private sector
  (SME, trade, non sov. infra) ? Energy
  ? Transport
• EBRD 2005 AGM an event for the Balkans Belgrade
  proposed as a venue

26
Conclusion

• South-eastern Europe is improving as an
  investment destination - but more to be done
• Stability Pact and donor support, together with
  EU accession/stabilisation process and IFIs, have
  been mitigating risks and provided leverage.
• Private sector still expected to play a bigger
  role and complement bilateral and multilateral
  financial flows

27
EBRD Contacts

• Olivier DescampsBusiness Group Director,
  Southern and Eastern Europe and the CaucasusTel.
  44 20 7338 7164 - Email descampo_at_ebrd.com
• Jean-Marc PeterschmittDirector, Albania, Bosnia
  and Herzegovina, FYR Macedonia, Kosovo - SEE
  Coordinator
  
  
  Tel. [phone] - Email
  peterscj_at_ebrd.com
• Peter SanfeySenior Economist - Lead Economist
  for SEETel. 44 20 7338 6227 - Email
  sanfeyp_at_ebrd.com