In its annual meeting held in October, the European Bank for Reconstruction and Development (EBRD) approved its next five-year strategy, putting Egypt as the bank’s biggest investment country through 2025.
During her visit to Egypt in November, Managing Director for the EBRD’s Southern and Eastern Mediterranean (SEMED) region Heike Harmgart shared with Ahram Online in an exclusive interview the key pillars of the bank’s new strategy and how Egypt is expected to benefit from the scheme.
She also unveiled the amount of finances Egypt has received from the bank since the onset of the pandemic, including the private sector and the banking system.
Ahram Online: Based on EBRD’s annual meeting held in October, what is the bank’s five-year strategy (2021-2025)?
Heike Harmgart: Every five years EBRD revisits its strategy in light of the recent updates, as the five-year strategy sets the direction that the bank will take in this period of time and outlines the key priorities to focus on.
The main and most imperative pillar in the new strategy is to be more relevant in green. EBRD wants countries as well as companies to recover from the COVID-19 pandemic and its associated repercussions in a green fashion.
Thus, the EBRD’s Board of Governors approved to scale up the bank’s green investments that are directed to our operation countries through increasing our green investments to reach over 50 percent of the total bank’s investments.
We also want to focus more on the private sector, and through the recently approved strategy the bank is committed to channel a minimum of 75 percent of its investments into the private sector.
Moreover, the strategy centres on the equality of opportunity and inclusivity, as the second strategic priority after the green. In this regard, I think that this pillar will be set incredibly well with Egypt, given that it is a country that has many young people who are looking for opportunities and has the labour market and women who are seeking more opportunities in the private sector.
This is what we want to scale up on through financing, advisory support and by mainstreaming all our activities to be sure that everyone has access to equal opportunities.
The third cross-cutting priority is digital transformation, especially that the COVID-19 crisis has proved that we need to invest more in this area, not just for the private sector but also for governments, the financial sector and e-payments. We want to accelerate digital transition in our countries, including Egypt.
AO: What has EBRD allocated to achieve these priorities?
HH: We, as a bank, are focusing on the private sector and we are very demand-driven. We do not work with annual budgets, but, when we find a project that we can invest in, we consider it and allocate the suitable investment budget for it.
Yet, EBRD allocates €10 billion per year to be invested across all of our 38 countries, and we can roll out the new strategy without asking for new capital.
AO: What is Egypt’s portion of these significant investments?
HH: Egypt has been the largest country of investments over the last two years. Investments are expected to reach €1 billion by the end of 2020.
But then again, nothing is stopping Egypt from have more investments in the future, so, green, digital and equality projects are welcomed by the EBRD to invest in.
We are really looking forward to the new Egypt strategy that we discussed with Egypt at the EBRD, and with the Minister of International Cooperation Rania Al-Mashat a few days ago, and we are looking forward to exploring all avenues of engagement with the private and public sectors in the country.
I am very optimistic, particularly on green, as we see a lot of efforts in this area in Egypt and we invest in projects that serve this area like the Benban solar energy plant. We are looking at solar energy as a solution for energy, desalination and irrigation, so this is an area for more growth in green projects in Egypt.
In addition, there is a huge potential for women and young people in Egypt to increase their participation in the economy and this is an area that EBRD will scale up on in 2021.
AO: On the private sector and its role in the recovery process and development in Egypt, how can the government back the sector to play this role?
HH: Egypt is an important partner of the EBRD in achieving all our new strategic goals. For the green area, for instance, we see impulses from the government that are in this direction.
The government sees the opportunities in line with its legislation that will facilitate implementing the private-to-private (P to P) sales of renewable electricity. In addition, the government can also tender green projects to the private sector. So, the government is an important interface in increasing green investments, both through tendering such green projects for the private sector and legislative changes to encourage this sort of investments.
Egypt’s banking sector is also expected to receive a large part of EBRD’s green investments through its Egyptian banks partners.
On 10 November, EBRD launched two programmes to boost green financing in Egypt through partner banks. These new programmes, worth €220 million, were launched in cooperation with the European Union (EU) and the Green Climate Fund (GCF) in response to the impact of the COVID-19 pandemic on the Egyptian economy by boosting green finance as well as the development of value chains for the private sector.
This action is expected to offer sub-loans to businesses for green investments in energy, water, and resource-efficient solutions. The two programmes are expected to give grants of more than €30 million as well as technical assistance of up to €24 million.
Moreover, one of the two programmes focuses on green value chain, with a total of €70 million, which will allow small and medium-size enterprises (SMEs) to invest in advanced technologies and climate mitigation and adaptation solutions that improve competitiveness and enhance the development of green value chains and support activities that enhance equal opportunities for men and women to access finance for green technologies and solutions.
The facility has already provided €140 million of energy efficiency financing in a previous phase through four partner banks, NBK Egypt, QNB Alahli, Alexbank and Arab African International Bank, all of which benefited from EU grants. The GEFF was initially piloted by the National Bank of Egypt in 2014.
EBRD wants to encourage SMEs to borrow from local banks, especially in the area of resource efficiency.
AO: How is Egypt expected to benefit from the EBRD’s new strategy in light of being the largest operations country for the bank?
HH: EBRD will expand its investments in green projects and resource efficiency to benefit the companies in the country through making room for competitive financing and incentives.
In digital transition, we work very closely with the government to help ease registration for small businesses, start-ups and SMEs through adopting digital technologies that save time and money, in addition to providing finances for start-ups through venture funds and private equity funds.
We go hand-in-hand with the government as well as the private sector to be sure that these areas can grow smoothly.
AO: What has the EBRD allocated for Egyptian banks since the onset of the pandemic?
HH: We have rolled out $800 million in SMEs lending through the Egyptian banks. We have also increased our trade facilitation guarantee to Egyptian banks participating in crisis response.
We believe that it is really important for Egyptian banks to have the sufficient liquidity amid the crisis for the private sector, including importers, exporters and SMEs in light of the decline in tourism and Suez Canal revenues due to the pandemic.
AO: Given that the EBRD focuses on the private sector through providing allocations to Egyptian banks to be given to the sector, what are the procedures and incentives that the banks should extend to prepare the sector to play its role in the country’s economy and development?
HH: I think banks should help companies to grow and reach export markets, which is critical to secure the hard currency the country needs. We believe the banking system is the backbone of the economy and we see very good partner banks in Egypt that work with a large network of branches.
We are working with them to develop new products, including the green value chain and the green energy efficiency and programmes that target specific sectors to make sure the financing is really in line with what is needed in a certain sector.
Egyptian banks are playing this role well and 2020 is critical for them to help in a further recovery for the companies.
In 2020 Egyptian banks are in a survival mode, yet, in 2021 we expect that there will be more demand on both bank financing and equity financing, so, banks need to be ready to extend such finances.
AO: Why did the EBRD choose Egypt as the largest investments country for the bank in the next five years?
HH: This is actually based on facts from the past, as we realised that Egypt has been the biggest country of EBRD’s operations.
The past can tell us something about the future, and EBRD is optimistic that Egypt will play a central role in the coming five years.
Actually, it was not a political decision, but it was based on the history of our investments and cooperation with Egypt. It also shows what we have done in Egypt, as we invested with the government in big infrastructure, waste water and transport projects, and we also invested a lot in the private sector and SMEs, so they are different investments in different policy types of dialogue, which are great bases to build on in the next five years.
AO: The EBRD acquired Adwia Pharmaceuticals company in November. Does the bank target more acquisitions in the Egyptian market in the future?
HH: We are very proud of this action. The EBRD is seeing Egypt positioning itself as a hub for global generic pharmaceuticals. Egypt is also hedging in producing pharmaceuticals, which will help lower the cost of medicine for consumers in the domestic market.
This acquisition is the first for us, and there will be many more in the future.