China’s new membership of the European Bank for Reconstruction and Development is “a win all round”, says EBRD President Sir Suma Chakrabarti, rejecting criticism that allowing the People’s Republic to join contradicts the multilateral’s Articles of Association.
“It’s definitely a win for the EBRD to have the world’s second-largest economy as a shareholder, allowing us to do proper business development in China and encouraging Chinese companies to work with us,” Sir Suma tells bne IntelliNews, during an exclusive interview in London.
“It’s also a win for China – the EBRD was the only multilateral development bank of which it wasn’t a member,” he says. “Beijing wanted to join not just to complete the set, but because our private sector focus makes us very different from the others.”
China’s EBRD membership from mid-January “is also a really big win for our countries of operation,” says Sir Suma. “The involvement of China will mean more EBRD investment not just in Central Asia, along the New Silk Road, but in Central and Eastern Europe, North Africa and Turkey too.”
Established in 1991 to invest in the former Soviet Bloc countries of Central and Eastern Europe, the EBRD has expanded its reach considerably in recent years. It now invests in Mongolia, Turkey and nations directly or indirectly affected by the 2010 Arab Spring, such as Morocco, Egypt, Tunisia and Jordan.
Initially backed by wealthy Western nations including the US, Germany and the UK, the bank’s donor-shareholders have since expanded to a group of 64 advanced and emerging economies, including Russia, Kazakhstan and Mexico. Sir Suma, previously permanent secretary at the UK’s Department for International Development and then Ministry of Justice, has been EBRD president since 2012.
China became the 67th member of the EBRD in mid-January, just five months after senior Chinese officials wrote to Sir Suma to express their interest. “That was really fast work, as our existing shareholders felt strongly that Chinese membership would be a good thing,” he says.
“China remains underweight in many of the economies where we invest, if you look at their level of development and what China has to offer,” says Sir Suma. “Places like Serbia and Slovenia are already making big efforts to attract Chinese investment, but they recognize it’s much easier to do so through a third party like the EBRD, a party they trust themselves.”
Pointing to Kazakhstan as a country where “the EBRD has really increased its investment in recent years”, Sir Suma says Chinese membership will further increase the flow of capital into Central Asia as Beijing looks to promote its “New Silk Road” policy.
“For the last three years we’ve had this rising trend of investment into Central Asia, partly because the various economies, not least Kazakhstan, have really gone in for reform,” he says. “Even before oil prices fell and it was obvious certain commodity-focused countries needed to diversify, we’ve been helping shift the investment impetus towards non-hydrocarbon sectors.”
Sir Suma cites the EBRD’s involvement with “the first solar power plant in Kazakhstan” and “a new public-private-partnership law, which we helped to develop, that has already resulted in a huge project to build a ring-road around Almaty”.
Describing the “New Silk Road” investment theme as “incredibly important”, Sir Suma says reducing the time taken to transport goods between Europe and China will “cut costs and raise profitability” and is “at the heart of future collaboration” between the EBRD and China.
China has already been working with the EBRD, particularly since the launch in October 2014 of the Asian Infrastructure Investment Bank (AIIB) – a Beijing-led multilateral which large EU countries such as the UK, France and Germany chose to join as founder members, but which the US has so far spurned.
“Until recently, the EBRD was the new multilateral kid on the block, so we’ve been trying to help AIIB get its procedures, processes and systems in place, allowing it to become operational faster,” says Sir Suma. “I know that’s been appreciated in Beijing.”
Asked if the AIIB might cramp the style of, or even come into conflict with, the Tokyo-based US-backed Asian Development Bank, Sir Suma gives the answer of a seasoned diplomat. “The infrastructure needs across our mutual regions of operation are so, so massive that there is no way the EBRD, ADB or World Bank could fulfil them alone,” he observes. “The AIIB can clearly help us meet these needs.”
But can the EBRD, or any other Western interests, really exert influence at the AIIB, given that 70% of the capital must originate from Asia and China holds over 26% of the voting shares, amounting to de facto veto power?
“Just because one country has the idea to set up an institution, it doesn't make them impervious to other influences, so I don’t see why not,” says Sir Suma. “I’ve found those running the AIIB to be very open to sharing ideas and we’ve got a number of joint projects in the pipeline, not least in Central Asia. I’m absolutely confident we’ll co-finance with them this year and I’m looking forward to that.”
Where’s the democracy?
Critics have suggested China’s new EBRD membership goes against the multilateral’s Articles of Association, which state the organization works only with “multi-party democracies”. Sir Suma distinguishes between countries of operation – where the EBRD lends – and the organisation’s shareholders, or donor nations.
“Yes, Article 1 clearly states the EBRD operates in open-market economies, countries committed to and applying the principles of multi-party democracies. But that applies to countries of operation, not necessarily to all shareholders.”
Beijing “accepts” that the EBRD exists in part to promote political pluralism and democracy, Sir Suma argues. “China, in becoming a shareholder, had to sign up to all the EBRD’s Articles of Association,” he says. “So it accepts that is a fundamental motivator of our work in our countries of operation.”
Turning to the EBRD’s other links with the Far East, Sir Suma highlights the opening in March of a new representative office in Japan. “When I arrived as president, I felt we needed to do a lot more with Japan, which was a founder EBRD shareholder back in 1991,” he says. “Japan has huge interests in Central Asia, and that fact that we’ve upped our game in that region partly reflects that.”
Describing business development with Japanese companies as “quite difficult, at several thousands miles reach”, Sir Suma says the new EBRD’s new Toyko Rep Office will “increase in a big way” Japan’s involvement with the multilateral. “I’d also like to see more Japanese staff working at the EBRD,” he says, “as we increase our operations not just in Central Asia, but also North Africa, Eastern Europe and elsewhere.”
Looking ahead to the EBRD’s 25th Anniversary summit, to be held in London May 11-12, Sir Suma says the bank “has now very much secured its long-term future”, working with “a set of countries, from Casablanca to Mongolia, that are very heterogeneous but which all have great development and transition needs.”
Suggesting that China will play “a fundamental role” in the EBRD’s future work, the multilateral’s president predicts a “big Chinese presence” at the upcoming annual meeting.