First investments flow to Arab countries from European Bank: exclusive interview

The European Bank for Reconstruction and Development (EBRD) is launching its first investments in the Middle East nearly one year after expanding its mandate to include Arab countries.

The bank approved three projects worth more than $80 million in Jordan, Tunisia and Morocco with projects in Egypt expected to be green-lighted in October.

In an exclusive interview with Al Arabiya, EBRD’s Managing Director for the Middle East Hildegard Gacek said the bank is focusing its investment on the energy sector, particularly in Jordan, and the financial sector as well as agri-business, manufacturing and services.

The projects launched this week include a $30 million dollar trade finance line for Jordan’s InvestBank; a €20 million euro commitment to the Maghreb Private Equity Fund III sponsored by AfricInvest-TunInvest which operates in Tunisia and Morocco as well as €20 million to Morocco’s Société Générale Marocaine de Banques (SGMB) for lending to micro, small and medium enterprises (MSMEs) in addition to a €5 million trade finance facility.

In the coming weeks, the bank is expected to give the go-ahead to one of its largest investments in the region, a power plant near Amman in Jordan worth $100 million dollars. Investments in Egypt will be in the range of $30-60 million dollars, Gacek told Al Arabiya, indicating that at least one project would be in the financial sector.

“Egypt is in the process of finalizing its own internal documentation and the process is going very rapidly,” Gacek said.

To fund these projects the EBRD is tapping a 1 billion euro special fund set up in May of this year targeting Arab emerging economies. Already, the bank has deployed 59 million euros in technical assistance to the region and aims to invest 200 million euros before the end of 2012, with the goal of investing up to 2.5 billion euros annually in the Middle East by 2015.

In the wake of the uprisings in Tunisia and Egypt, the industrialized nations known as the G8 launched the “Deauville Partnership” in May of 2011 to support Arab economies in transition. The G8 called upon the EBRD to help channel the economic aid pledged by the international community to the region. It has taken more than a year for actual funds to start flowing and these projects mark the beginning of investments on the ground.

The bank says its work in the Middle East is being coordinated with other international organizations but Gacek told Al Arabiya that in the case of Egypt, the bank’s investments were not contingent upon an IMF loan agreement.

“Our funds are not related and are not in any way dependent on an IMF agreement,” Gacek said, adding that other donors, like the European Union, were waiting for an IMF deal to be finalized.

She said an IMF loan “is extremely important for the perception of investors” and for Egypt’s sovereign credit rating which has been downgraded following a tumultuous post-revolution transition.

There is mounting popular resistance in Egypt to an IMF financing package with a number of groups – including the “Drop Egypt’s Debt” campaign - opposing the loan and the anticipated austerity measures it could bring.

Gacek says it is “important for the government to inform the public in a more thorough and deeper way what are the conditions” of an IMF deal and how they will influence the economic policies currently taking shape.

In Egypt, the bank’s activities have come into question, with some groups such as the NGO Egyptian Initiative for Personal Rights (EIPR) voicing concern over the degree of influence the EBRD and other global financing institutions would have in drafting Egypt’s post-revolution economic policies.

“EIPR finds some of the bank’s announced economic operations quite alarming because they will maintain the current level of violations to social and economic rights, rather than help eradicate them,” the Cairo-based NGO said in a statement earlier this month.

EIPR said it fears “the bank’s push for the liberalization and privatization of public services like provision of potable water, energy, roads and transportation which will have an adverse effect on a large sector of Egypt's population.”

The EBRD says its priority in the region is the development of the private sector and job creation through support for small and medium enterprises (SMEs) as well as improving local services. Gacek said she was confident the bank could avoid the pitfalls of the old regime where a boom in the private sector resulted in unbalanced growth and a widening of the income gap in Egypt.

‘It is our responsibility to monitor where the money goes. We have very strict procurement rules which we apply for any public sector or sovereign project,’ Gacek said. “We have the right staffing on the ground, we have very little failures and we are very confident this will be the same in Egypt.”

The flow of EBRD funds to the region comes at a time of unrest in a number of Arab countries, sparked by an anti-Islam online video that led to demonstrations and violence. Gacek appeared unfazed by the recent turmoil and said the bank’s experience working in Eastern Europe made it well prepared for the challenges of economies in transition.

“We are there to stand by the side of our countries because if we shy away when it becomes difficult then it would not send the right signal,” she said, adding that the bank’s work was continuing un-interrupted.

(Carina Kamel is a Senior Correspondent for Al Arabiya in London and can be followed on Twitter @Carina_bn)