The EBRD is preparing to expand into sub-Saharan Africa (SSA) ahead of a final board meeting in 2022. It has succeeded in quelling shareholder concerns about what expansion could mean for its original members, as it insists there will be “no trade-off”.
Last October, the EBRD’s strategic and capital framework confirmed the institution’s interest in a “limited and incremental expansion to sub-Saharan Africa and Iraq” between 2021 and 2025.
The final decision on expansion is likely to be made at the EBRD Annual Forum in June 2022, said Heike Harmgart, the bank’s managing director for the Southern and Eastern Mediterranean region.
Her comments came after EBRD President Odile Renaud-Basso said this week that the expansion into SSA had been delayed by Covid-19 as the region is ravaged by a third wave.
“The next year is critical in preparing to present our plan to the board,” Harmgart, told GlobalMarkets, sister publication to GlobalCapital, reiterating that the bank is on track to achieve what was discussed in October. “We are now discussing the next step of analysis: which countries are good candidates and fit in with the EBRD mandate of creating markets for the private sector, where we can add value, etc. We are doing our internal homework and speaking to existing clients in the region before we present to the board of governors.”
The push would mark another turning point for the development bank, which has historically focused on developing emerging Europe. In 2011, it made its push into the Middle East and North Africa region, working with borrowers in Egypt, Jordan, Morocco, Tunisia, Lebanon and the West Bank and Gaza.
Some shareholders have, however, voiced concerns about the push into emerging markets so far from its original purview.
“There are, of course, some shareholders that are worried about the expansion, but last year has shown that the bank is able to expand its lending even in times of crisis,” said Harmgart. “Our capital is stable — there is no trade-off and we have sufficient additional capital without making compromises.”
Green cities
The EBRD is already in discussions with the African Development Bank to look at “complementary” areas they can partner on. One of those areas identified has been the development of green cities across Africa.
“We are not focusing on specific African regions; instead we are looking at countries in which the private sector already has some size that would benefit from the opening of markets and investments,” said Harmgart. “We are focusing on countries that we can foster private sector development in, although we are conscious of fragility and the fact that reform is not always an upwards trajectory. However, governments need to be open-minded for private sector reform.”
If the board agrees on the outline for expansion next year, it could take sub-Saharan African countries anywhere from six weeks to two years to become a full member of the bank, Harmgart said.
Hopes for a speedy process of integrating African countries are high.
“Given that all African countries are members of the AfDB and have knowledge about what is needed in a membership, they could be on the faster side,” said Harmgart.
With a third wave of Covid-19 gripping the region, any potential delays to action will probably prove harmful. Head of the IMF Kristalina Georgieva and Abebe Aemro Selassie, director of the IMF’s African department, wrote on Monday that sub-Saharan Africa is “at risk of falling further behind”.
Renaud-Basso said that a lot of work had been carried out in working out capital margins and projections of activity to show that the bank has “room for manoeuvre”.
“But with the Covid crisis, we have to update these elements to take account of the effect of the pandemic on our loan portfolio.”
Infections in the region are growing at the fastest pace in the world, and less than 1% of the adult population is fully vaccinated.