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The European Bank for Reconstruction and Development rallied to the support of emerging economies in 2014 as they struggled to emerge from a six-year slump, under pressure from geopolitical tensions and a fragile Eurozone.

 

Bank investments remained on target for the year, despite guidance from a majority of the Bank’s Board of Directors in July that they would not currently approve any new projects in Russia, previously the largest single recipient of EBRD annual finance.

As financing rose elsewhere, the EBRD also increased its investments in sustainable energy projects and responded to a request to apply its private sector expertise to a new country of operations, Cyprus, to help it emerge from a severe economic crisis.

Looking ahead, EBRD President Sir Suma Chakrabarti saw further strong demand for EBRD finance as a weak Eurozone and serious problems in Russia continued to erode growth. “We do have concerns about prospects for growth in the EBRD regions,” he said. “It is therefore encouraging that a number of countries are demonstrating their commitment to putting their economies back on the road to reform.”

Total investments for 2014 across the whole EBRD region are expected at between ?8.0 and ?8.5 billion, after ?8.5 billion in 2013, with increases seen especially among countries in Central Asia, Eastern Europe and the Caucasus and in south eastern Europe --  as well as in Turkey which is set to receive the largest share of investment in 2014.

The EBRD only began investing in Turkey in 2009 but financing there is expected to reach ?1.4 billion this year. In September, the Bank opened a third office in the country, in the south-eastern city of Gaziantep, meeting increased demand for EBRD investments outside of the larger metropolitan areas.

Investments also rebounded in Ukraine, after the new administration embarked on a programme of economic reforms and signed up to an Anti-Corruption Initiative,  a major step forward in its bid to improve the investment climate in an economy that is expected to contract sharply in 2014.

Ukraine financing -- expected to exceed ?1 billion—included support for road transport as the EBRD resumed lending to the public sector after a one-year gap.  The EBRD also provided credit to upgrade Ukraine’s gas transmission system. A second Ukrainian office was opened in Lviv, aimed primarily at providing much-needed support to the country’s smaller firms.

The crisis this year between Russia and Ukraine has had impact on economies that stretched well beyond the borders of the two countries directly involved.

Economies in Central Asia and the Caucasus that depend on remittances from Russia have been particularly affected. Central Europe and the Baltics saw lower demand from Russia, which also placed a ban on food imports from some countries in the region as part of a series of sanctions and counter sanctions

As for the Russian economy, the EBRD was already predicting stagnation this year and contraction in 2015, even before an end-year oil price plunge and a rout of the rouble which led to a sharp increase in central bank interest rates.

Turbulence in eastern Ukraine has weighed on the country’s economy. As a result of disruption to output and trade, agricultural losses and a partial military mobilization, Ukraine’s GDP is seen shrinking by nine per cent in 2014.

As the EBRD bolstered economies in its traditional region, it also stepped up financing for its newer countries in the southern and eastern Mediterranean. Total investments topped the ?1.5 billion marker in December, just two years after the Bank started providing finance to the region.

In Cyprus, the Bank brought its financial sector experience to bear with support for the country’s largest bank, Bank of Cyprus, in which it bought a stake. EBRD involvement in Cyprus was agreed in May as a temporary measure, coinciding largely with other international efforts to restore the economy to health.   

2014 saw a major focus for the EBRD on sustainable energy investments as the world gears up for crucial climate talks in Paris in 2015. In October, EBRD’s investments under its Sustainable Energy Initiative topped ?15 billion, having supported over 850 projects worth more than ?80 billion. They now account for around 1/3 of annual investment.

Other initiatives pursued by the EBRD this year included moves to prepare economies for more robust growth in the future. In addition to the Anti-Corruption Initiative in Ukraine, steps to improve governance and the investment climate were taken with authorities in Albania, Serbia and Moldova.

The EBRD also pushed ahead with support to strengthen local capital markets and reduce overdependence on foreign currency borrowing and continued to promote agricultural productivity and food security by attracting private finance and expertise to the agribusiness sector.