Successfully reported this slideshow.
We use your LinkedIn profile and activity data to personalize ads and to show you more relevant ads. You can change your ad preferences anytime.

Implications for European Development finance Architecture

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

  • Login to see the comments

  • Be the first to like this

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