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Implications for European Development finance Architecture

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This presentation is made by Erik Berglöf. Presented during the Development Day conference 2019.

Published in: Economy & Finance
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Implications for European Development finance Architecture

  1. 1. Remarks at SITE’s Development Day Erik Berglof London School of Economics and Political Science Reforming the business environment/investment climate Implications for European development finance architecture
  2. 2. Example: EBRD and Russian Venture Fund Copy Israeli Yozma – ten funds to develop a private VC market 1. Basic legal framework 2. Fund 1: Co-investing with Russian state-owned bank 3. Fund 2: Politically exposed person owner of the bank 4. Fund 3: Middleman suspect RVC since then gone through several incarnations, but...
  3. 3. Investment climate: Research – policy – implementation • Transition => Law & Finance field => World Bank ”Doing Business” (laws on the books); EBRD Business Environment Enterprise Performance Survey (actual enforcement of laws) - made Andrei Shleifer the most cited economist in the world • Promote growth by changing specific laws or institutions • Change business environment very difficult; political economy • Investment climate – critical for sustainability of development
  4. 4. Getting rid of trade barriers on the books not enough Source: World Bank Doing Business Survey, EBRD/World Bank BEEPS survey. 0 20 40 60 80 100 120 0 0.2 0.4 0.6 0.8 1 1.2 BEEPS: Are Customs and Trade Regulations an Obstacle to Business Operations? DoingBusiness:TradingAcrossBorders EST LTU SLO HUN MNT CRO SLK BLG LVA FYRoM BIHALB ROM SRB POL
  5. 5. How to change development architecture • Must strengthen domestic resource mobilisation in recipient countries • Increase the scale at which Africa is assisted • Deliver development assistance in new ways • Need to facilitate private and institutional capital into development • Require reforms to the investment climate (business environment)
  6. 6. • Policies in recepient countries – investment climate (governance); debt sustainability; development of local currency and capital markets • Policies in sending countries – regulation of institutional investors; • Intermediation by international and national development finance institutions; more equity; exercise governance
  7. 7. Different context • New challenges – new instruments (not just grants) – ”old” institutions • Many more players – good, but risk of fragmentation • G20 Eminent Persons Group: systemic perspective + coherence • ...but also a window in European development finance architecture
  8. 8. State of European development finance architecture • Europe plays an important global role, but architecture also complex, composed of a multiplicity of actors at EU and national levels. • Overlaps, gaps and inefficiencies, sectoral and geographical, especially in terms of presence and experience in Africa, of the main European multilateral finance institutions, EIB and EBRD. • Lack of experience in main institutions in countries with fragilities
  9. 9. EU- level institutions • EIB – significant presence outside the EU and strong experience from sovereign lending. Large-scale, low-risk private sector operations, but not set up to crowd in private finance. Limited presence on the ground. ”Policy taker” with little development experience and unsuitable risk practices • EBRD – most experience from private sector and sub-sovereign lending; strong innovation capacity; more of a development institution with strong ground presence and suitable risk practices; not the same level of EU control, non-EU shareholders; business model in fragile states?; • Neither have significant presence in countries with large fragilities • Neither can currently effectively deliver on education and health
  10. 10. European Commission • Commission needs upskilling to lead effectively on development • Scattered across several DGs without clear leadership • Not sufficient attention and visibility at the highest political level • Increasing overlap between core institutions (EIB and EBRD) • NDICI + EFSD steps in right direction • Good experience of country strategies and programming • Global reach through delegations
  11. 11. National development finance institutions • Important players delivering on EU development financing • Good development impact and good sector coverage • Good presence on the ground • Delivers on national priorities, not necessarily aligned with EU
  12. 12. Short and medium term measures • Improve weak political guidance and coherence of EU policy steer • Improve visibility of EU development policy • Create a strong EU development policy centre • Incentivise European actors to work better together • Using new NDICI instrument for improvement • Ensure EU development financing efficiently delivers on EU priorities
  13. 13. Three options for EBCSD • Work as part of the larger system with global institutions and national development finance institutions • Option 1: with EBRD at the centre (consent of non-EU shareholders) • Option 2: new institution with EIB, EBRD and others as shareholders • Option 3: build on EIB subsidiary and EIB external portfolios • Option 4?
  14. 14. Conclusions • Focus on Africa and climate, but also improve business environment • Short-term measures + standstill on EIB-EBRD expansions • creating a strong policy centre in the EU • using the proposed NDICI as a catalyst for improvement • concrete actions until a political decision taken on institutional restructuring • Strong need for EBCSD – coherence of European development finance • 3 options - Option 1 better development impact, but highly political • All options should be explored in proper feasibility studies in 2020 • Unique opportunity: urgent need for reform + institution looking for mandate

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