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SOFIA (Bulgaria), March 18 (SeeNews) - The European Bank for Reconstruction and Development (EBRD) aims to grow its investment in Bosnia to 300 million euro ($340 million) this year, as infrastructure will continue to absorb most of the funding, EBRD Secretary General Enzo Quattrociocche said on Monday.
"The EBRD invested about 200 million euro in Bosnia and Herzegovina in 2018 and we are aiming to raise this amount significantly to up to 300 million euro in 2019," Quattrociocche told SeeNews in an interview ahead of the EBRD Annual Meeting in Sarajevo in May. "In line with the country’s needs the majority of our investments is in infrastructure, with the Corridor Vc highway by far the largest project in the country at the moment."
Pan-European Corridor Vc, with a total length of 700 km, is a branch of Corridor V, connecting Hungary's capital Budapest and the Croatian port of Ploce via Bosnia. To date, the EBRD has committed 550 million euro to the project which will, upon completion, integrate Bosnia in pan-European trade flows.
In Bosnia's road sector alone, the EBRD is prepared to invest 700 million euro, Quattrociocche said.
"But to succeed we need the private sector – on a local level as well as through foreign direct investment," he stressed, adding that the EBRD Annual Meeting can play an important role in attracting and mobilising such funds.
The EBRD Annual Meeting, due to take place in Sarajevo on May 8 and 9, is expected to bring together around 2,000 participants, including the highest representatives of Bosnia and Herzegovina, the leaders of all remaining Western Balkans countries, and business delegates from the 38 economies where the EBRD is active. Some 120 local staff, paid by the EBRD, will be recruited to assist in various logistical functions.
The EBRD is also investing in municipal infrastructure in transport, water and wastewater in Bosnia.
Moreover, the lender is supporting the green economy in the country, helping it deal with high levels of pollution. In addition to individual projects like financing a biomass heat plant in Banja Luka, it is supporting a structured strategy: Sarajevo, Banja Luka and Zenica have joined EBRD Green Cities, a comprehensive approach to build a sustainable future by addressing environmental challenges and infrastructure needs in a joint-up approach.
"We are also actively working with the financial sector with credit lines for small businesses to, for instance, boost their competitiveness, and residential consumers for energy efficiency. Especially as Bosnia and Herzegovina continues to have a very large state sector, private sector development remains crucial," Quattrociocche said.
To qualify for EBRD financing every single project must meet clearly defined criteria, they must be economically viable and they must contribute to the development of a successful and sustainable economy.
"This is the framework for our operations, and this also has an impact on what we support where. We are working in and with the market, we are not in the business of shipping coal to Newcastle or selling fridges in the Arctic. But of course, we are very selective in how we invest our capital and are determined to support innovative, cutting edge businesses which have the potential to move economies to the technological frontier," Quattrociocche explained.
"We are a demand driven institution and there is a strong appetite for the EBRD offer of investment combined with policy reforms," he noted.
In his words, foreign investors sometimes find it difficult to understand and navigate through Bosnia's large and complex administration, whose efficiency leaves room for improvement. Quattrociocche, however, stressed that irrespective of the complexity of government, there are private companies that thrive and grow throughout the country.
There are many ‘hidden champions’ in the economy who have shown that entrepreneurial spirit is alive and well in the country. This is also absolutely essential in order to create jobs and convince people to stay and deploy their skills in their own country, Quattrociocche stressed.
"We would like to see many more of them."
CONNECTING ECONOMIES FOR STRONGER GROWTH
The EBRD's strategy in Bosnia and Herzegovina mirrors its policy towards the whole region of the Western Balkans.
"The same is true for the region what I said earlier about Bosnia and Herzegovina: We can do more and we want to do more. This will be driven by where the EBRD's offer, combining investment with policy reforms, is needed and can make a difference: private sector development, green economy, infrastructure," Quattrociocche said.
In 2018, the EBRD made a record-high 1.1 billion euro-plus of new investments in the six countries of the Western Balkans.
"The Western Balkans is a region with huge potential, our goal is to turn promises into delivery," he added.
In Quattrociocche's view, this can be done in multiple ways, for instance with a more effective and efficient state administration.
In an environment of tough competition for investment a favourable business climate is indispensable, the EBRD official said.
"If we look at the economic structure we often still have a large state sector which is not competitive and a drain on public resources. This is often an impediment to the development of the vibrant, yet often insufficiently financed, private sector. Many countries have started changing their energy balance with a focus on renewables and energy efficiency. While this is very welcome, it does not come one moment too soon."
Green Economy Transition is a strategic approach by the EBRD which commits the bank to dedicate 40% of its annual business investment to green projects by 2020.
"We are well on track and this is testimony to the sea change we have seen in many countries in recent years. This is also true for the Western Balkans. A region once known for thick black smoke churned out by coal-fired plants is now heavily investing in renewables," Quattrociocche said.
The EBRD is co-financing the two largest wind farms in Serbia to date, Cibuk and Kovacica. The lender's Energy Strategy, approved in late December 2018, ends investments in coal power plants unconditionally.
In Quattrociocche's words, there are other examples, but the key challenge is to create conditions for the people of the region to benefit from their talents and efforts in their own countries.
The Western Balkans need inclusive as much as resilient economies, he stressed.
The EBRD Annual Meeting, whose theme is “Connecting Economies for Stronger Growth”, will focus on ways to connect economies for strong growth and impact, both in the Western Balkans and beyond.
“Connectivity” is a priority for the region and Bosnia and Herzegovina in a dual sense: It means building the physical infrastructure, for instance roads, to connect the country with the region and wider European markets," the EBRD secretary general stressed.
"This will create the condition for an increase of trade flows and economic integration. It also means supporting the private sector with investment, improvement of the business environment and advisory services which the EBRD offers. At the same time “connectivity” requires the implementation of the economic and social reforms needed to support the country’s EU approximation process."
The goal to one day to become a member of the EU outshines and guides everything in the Western Balkans, according to Quattrociocche. While the countries are at different stages in their approximation, they are all very serious about it and the European Commission’s assessment sees real progress, he commented.
In 2018, Bosnia's GDP per capita was $5,700, six times higher than in 1996 when the country joined the EBRD, but just one third of the level in the new EU member states.
"This illustrates a task which sometimes may seem daunting. However, we would like to turn this challenge into an opportunity. The EU process is the single largest driver of both investment and reforms. I can’t think of a better example when these two necessary and linked steps were closer and better linked," he said. "The Western Balkans have the chance to avoid many mistakes that have been made in previous accession processes."
BREXIT AND THE WESTERN BALKANS
Commenting on the potential impact of Brexit on the Western Balkans, Quattrociocche said the harder the Brexit, the more severe the impact on the economies in the EBRD regions through a possible variety of consequences from disruption of trade flows to re-introduction of customs borders.
"Unless other member states increase their contributions, Brexit will lead to a 10 to 15% decline in structural and accession funds available to countries in central and south-eastern Europe, amounting to a reduction of up to 0.4 percentage points of GDP in EU-supported investment," he said.
According to Quattrociocche, Brexit may also weaken the prospects of EU accession for candidate and potential candidate countries.
A slower reform momentum in these countries will then weigh on growth, he commented.