bne IntelliNews Dailywww.bne.euA special edition for the EBRD AGM

EBRD lends hand to Belarus after years of cold shoulder p.8

Armenia’s rising e-generation p.9

Kazakhstan drags its feet on devaluation p.10

Sibiu’s decade of change p.15

May 15, 2015

Georgian FinMin: Difficult challenges require strong responses

Currency devaluation, low competitiveness, and a drop in remittances because of Rus-sia’s downturn have put pressure on Geor-gia’s economy, but Nodar Khaduri, finance minister of the South Caucasus nation of 4mn, believes that strengthened relations with Europe will provide support for the economy in the medium and long term.

“These are difficult times, there are plenty of challenges requiring strong re-sponses,” Khaduri tells bne IntelliNews, but after only one year since Georgia signed the Association Agreement with the EU, free trade with a market of almost 1bn people has already brought “tangible” results.

“Today the EU accounts for over a third of the trade and exports and our depend-ence on the Russian market is gradually declining,” Khaduri tells bne IntelliNews. “The geography of our trade shows it is Europe we look at.”

Domestic political uncertainty is also weighing on confidence and growth. On May 8 the  government survived a confidence

Overall stagnation in 2015 and meagre ex-pansion in 2016 are the main themes of the European Bank for Reconstruction and Development’s latest “Regional Economic Prospects” report, which was released on May 14. But those predictions, which span all 35 of the countries covered by the EBRD, mask sharp regional differences. The Rus-sian recession will continue to make life difficult in Central Asia and the Caucasus, the bank says, while the outlook for Central Europe is improving.

In Russia itself, things look bleak: a com-bination of low oil prices, sanctions and deep-seated structural problems mean that

the economy will shrink by 4.5% in 2015, and by a further 1.8% the following year. Never-theless, the bank says, Russia has signifi-cant reserves to mitigate the recession, and the pressure on the ruble has subsided as oil prices have slowly increased.

The situation is even more dramatic in Ukraine, where the economy is predicted to shrink by 7.5% this year – a worse outlook than in January. Economic disruptions in the conflict-ridden Donbas region, the country’s industrial heartland, are one problem. Cur-rency depreciation, tight economic policies, energy tariff increases and credit contrac-tion are others. However, if the security

situation does not deteriorate – and so far, the risks have been contained – the bank reckons that Ukraine will grow 3% in 2016.

The knock-on effects on Russia’s neigh-bours are proving to be deeper than previ-ously anticipated, because of a combination of reduced demand for exports and falling remittances. One effect has been sharp currency depreciations in Belarus, Georgia and Moldova. The economy in Belarus will contract by 2.5% this year, and stagnate in 2016. Armenia’s prospects – a 1.5% contrac-tion in 2015, and 1% growth the year after – are only slightly better. Although Georgia’s prospects are brighter, the predicted 2015

vote in parliament, called after Prime Min-ister Irakli Garibashvili was forced to re-shuffle his cabinet following the departure of seven ministers over the past year.

The European Bank for Reconstruction and Development (EBRD) expects Georgia’s growth to halve to 2.3% in 2015 from 4.7% in 2014, reflecting mainly a deteriorating external environment, with recession in Russia and a sharp slowdown of regional trading partners. The resulting lower ex-ports and remittances have negatively af-fected growth and the external balance of payments.

In the first quarter Georgia’s for-eign trade declined 10% year-on-year to $2.27bn, but exports to EU-member states rose by 21% y/y $170mn and accounted for 33.8% of the country’s total exports. Ex-ports to the Commonwealth of Independ-ent States on the other hand dived by 55%

growth rate of 2.3% is still lower than the 4.2% forecast in January.

In Central Asia, the bank foresees a growth rate of 3.7% in 2015, which is slightly lower than previous estimates. But that hides significant variation. Kazakhstan, which has been most affected by the oil price collapse, will only grow by 1.5% in 2015 (compared to 4.3% last year). Tajikistan, Uzbekistan and the Kyrgyz Republic have been hard hit by what the bank calls the “alarming rate” of decline in remittances from Russia. The re-turn of hundreds of thousands of migrant workers provides an additional economic challenge, and stretches those countries' resources in terms of health care and so-cial welfare. Lower prices for commodities will also dampen growth in Turkmenistan.

See page 2 >

See page 2 >

Georgian Finance Minister Nodar Khaduri tells Monica Ellena that turning towards Europe will help solve the country’s problems.

EBRD economy in 2015-16: a mixed outlookGuy Edmunds in Tbilisi

Photo by Antonio di Vico

Top Stories May 15, 20152 bne IntelliNews Daily

y/y to $175mn and accounted for 34.8% of the total.

The chronically negative trade balance – $1.6bn in the first quarter –“will require several years” to close, but the “access to the European market without barriers is a major achievement”, stresses Khaduri.

Lari depreciationThe devaluation of the lari has been the first casualty of the economic shocks Geor-gia suffered – damaging businesses and people with debt in foreign currency, thus increasing bad loans in an already high-ly-dollarised economy. The national cur-rency has lost 18% of its value against the greenback since the start of the year, and 32% since last November.

The devaluation has sparked a blame game as some members of the govern-ment and the still influential former prime minister Bidzina Ivanishvili have accused the country’s monetary policy makers for failing to support the lari. The central bank intervened, albeit limitedly, in foreign ex-change markets to reduce currency depre-ciations and hiked the key interest rate to 5% from 4.50% on May 6.

The depreciation caused “indeed signif-icant problems,” admits Khaduri, although the lari “is not the only currency suffering from depreciation in the region”.

A widened export base and a renewed privatisation process – proceeds were higher in the first quarter than in the whole of 2014 – are among the measures the

Difficult challenges require strong responsesgovernment is working on to shore up the lari’s value.

Georgia’s access to Europe makes it “an interesting market also for countries like China to invest, and the government is pursuing a pro-active strategy to help entrepreneurship and the agricultural sec-tor”, he says.

India is another heavyweight looking at Georgia, specifically at the country’s po-tential in hydropower. In March the Inter-national Finance Corporation brokered a $250mn debt financing agreement with the EBRD and the Asian Development Bank, paving the way for the largest-ever private hydropower investment in the country, in which India’s Tata Power joined forces with Norway’s Clean Energy Invest.

In 2014 FDI increased by 35%y/y to $1.27bn, the biggest inflow since 2008 and a record Khaduri hopes will be repeated this year.

Georgia’s capital markets are “still rudi-mentary” and the Ministry of Finance “re-mains the main player [issuing] treasury bills”, he says.

“The situation is not satisfactory but we had progress in the recent past,” he says, adding that in early May its ministry and the Ministry of Economy completed a draft strategy to develop capital markets which will be distributed among stakeholders for inputs.

Georgia’s two leading commer-cial banks – Bank of Georgia and TBC Bank – are listed on the London Stock

Exchange and in 2014 the EBRD issued the first lari-denominated bond and this year other IFIs – the ADB and the IFC – followed EBRD’s in footsteps.

Build competitivenessOn paper Georgia ticks all the boxes as a fertile ground for investors - a liberal and easy manageable tax regime, a competitive

cost of labour and energy, a stable finan-cial sector and an investment-friendly en-vironment, as it ranks 15th globally in the World Bank’s Doing Business survey. But it is not enough.

“Sadly competitiveness of our economy is very low, due to low development of [our] human resources, limited access to finance, and low level of enterprise com-petitiveness,” points out the minister, who is also deputy chairman of the EBRD Man-agement Board.

For the minister, expanding vocational education to fill the gap between skills and employers’ needs, and facilitating access to finance are key, with the latter including

the development of a savings-based pen-sion system.

Georgia’s geographical position remains its most valuable asset to bank on as “it stands at the crossroads between Asia and Europe” and “on the background of what is happening in the world [it] has acquired higher importance”.

Pushing for new projects to facilitate its

role as a hub remains high on the agenda. “We have already welcomed the first pi-

lot train for the Baku-Tbilisi-Kars railway link, [as well as] the first train from China, and we have shortlisted the companies which will build the deep-sea port on the Black Sea in Anaklia,” the minister says.

EBRD economy in 2015-16: a mixed outlook

But if that is the bad news, there is some good news for Central Europe, where the EBRD expects average growth to reach almost 3% in 2015. One major reason is the European Central Bank’s monetary easing programme, which was announced in late January 2015. Another reason is the strengthening of the dollar, as lower interest rates and weakened currencies should boost the region’s competitive-ness. As a result, the EBRD has upgraded its growth predictions for Slovenia, Slovak Republic and Poland, the largest economy in the region.

The report also paints a slightly brighter picture for Hungary than it did in January, with a predicted average growth rate of 2.5% over the next two years. That is less than the 3.6% growth Hungary achieved in 2014, which reflected growth in industrial output, export volumes and temporary fac-tors such as the disbursement of EU funds. Those trends have slowed or disappeared in recent months. But the Hungarian econ-omy is still likely to benefit from increased domestic consumption, caused by gains in employment and real wage growth, cuts in interest rates and greater central bank lending to the SME sector.

The economy in Croatia, which endured its sixth straight year of recession in 2014, will grow by 0.5% in 2015, the report pre-dicts, as the country benefits from reduced oil prices and greater demand from the eu-rozone. A range of factors, including the lack

of business-friendly reform and the EU’s demand for fiscal adjustment, means that the situation is unlikely to change in 2016.

Turkey’s export-oriented economy has benefited from lower oil prices, but it is vulnerable to continuing weaknesses in the eurozone, geopolitical tensions in the Mid-dle East and recession in Russia. On the one hand, quantitative easing in the eurozone is likely to squeeze Turkey’s competitiveness. On the other, tightening monetary policy in the US will increase its borrowing costs and vulnerability to capital outflows. The combination may exacerbate currency vol-atility. Growth in Turkey is likely to remain unchanged at 3% in 2015 and 2016, which is significantly below the country’s long-term potential.

All predictions rely on assumptions, which could prove false. If Greece fails to reach an agreement with its creditors, re-duced consumer and investor confidence in the eurozone would result in capital out-flows and weaker export demand. If the US’s tightened monetary policies have a larger impact than is currently expected, Turkey would not be the only country hit by larger capital outflows. And an escalation of the conflict in eastern Ukraine would have ma-jor economic consequences for the whole region. The situation is not as risky as it was, according to the EBRD, but problems still abound.

Watch Monica Ellena’s interview with

Finance Minister Nodar Khaduri here:

https://vimeo.com/127706210

"Competitiveness of our

economy is very low"

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Top Stories May 15, 20154 bne IntelliNews Daily

Donors promised Egypt billions in aid at March's donor conference, which should have marked a back to business point for the country. The government says it plans to issue a Eurobond soon and the stock market rallied earlier this year, but enthu-siasm for the Egytian story already seems to be running out of steam amongst inter-national investors.

Former president Hosni Mubarak and his party are no longer in charge, but the ves-tiges of authoritarian rule and failed eco-nomic polices still are and were on full dis-play at the Sharm-el-Sheik donor meeting. The parliamentary elections timetable was delayed by judicial edict just as charges of treason were brought against leading jour-nalists and Muslim Brotherhood members.

President Abdul Fattah al-Sisi tried to convince thousands of delegates from over 100 countries to consider huge infrastruc-ture schemes rejected in the past, including a $50bn Cairo relocation, but his entreaties fell largely on deaf ears. Egypt's business climate continues to stagnate in the face of tentative steps to mollify Gulf and Western aid providers.

Since Mubarak’s 2011 overthrow, GDP growth has averaged just 2%, or about a third of the pace of the previous decade when the country aspired to “tiger” status. The federal budget is also in poor shape, running a budget deficit of over 10% and a debt to GDP ratio of more than 90%. Inter-national reserves halved over the same pe-riod, falling below the critical three months' import cover threshold after capital fled

Egypt’s dusty pyramid sweepthe country and tourism collapsed. Both poverty levels and unemployment are ris-ing while inflation is now in double-digits.

Egypt is now suffering from stagflation with growth projected to be 4% and infla-tion at 11% this year. The business remains poor and on the World Bank’s “Doing Busi-ness” rankings, Egypt is below 100 across the range of categories from regulation and contract enforcement to labour and finan-cial market efficiency.

The International Monetary Fund (IMF), which completed an Article IV report six months ago, applauded an “ambitious” reform programme, but warned of "imple-mentation difficulties" in view of Egypt's poor historical reform record. It repeated the mantra of “exchange rate flexibility” to boost competitiveness and the central

bank has since engineered over 5% depre-ciation against the dollar. However against the euro, with Europe accounting for one-third of exports, the Egyptian pound re-mains overvalued and foreign exchange shortages persist.

The IMF has offered hard to swallow ad-vice but Egypt's neighbours have offered something a lot more palatable: cash. Ku-wait, the UAE and Saudi Arabia have ponied up $20bn in grants and loans under much looser conditions. Nonetheless, the Gulf states are still insisting on fuel subsidy cuts after President al-Sisi’s election, and spending has fallen 50%, with aid for the poorest citizens. Egypt's luck was in, as the recent collapse in oil prices will take some of the pressure off government finances. New taxes have also been imposed on capi-tal gains and luxury goods, while a new VAT will be rolled out soon.

Gulf sponsors like the developer of Du-bai’s Burj Khalifa, the world’s tallest tower, stand to benefit from the mega-project frenzy, over the objections of the IMF. The

modernisation of Cairo, massive housing and road construction projects together with land reclamation plans will need an estimated $50bn in foreign direct invest-ment against the $4bn Egypt brought in last year.

Tourism and Suez Canal shipping re-main top priority sectors to fix, but 2014 visitor arrivals were at half their 2010 peak and passage revenues from the canal were just one-third of the $20bn in Gulf expatri-ate remittances. The government is plan-ning a second $8bn canal that will be fi-nanced by five-year investment certificates sold to the general population with a 12% yield. The new canal will slash transit time from the Red Sea to the Mediterranean and establish a dedicated manufacturing zone to help offset chronic trade deficits.

Heavy domestic government borrowing at steep rates limits private sector access and has added 15% to the debt/GDP ratio since the end of the Mubarak era. Foreign investors formerly owned a fifth of the do-mestic treasury bills, but these investors have all disappeared. Today domestic banks dominate the T-bill market holding a third (30%) of all assets.

With over 100 listed companies and a to-tal market capitalisation of $70bn, Egypt's stock market remains the biggest in the region and home to a few bluechips, such as conglomerate Orascom, which is dual listed on global bourses. The bourse under new management used the most recent annual Wall Street Egypt Day to encour-age investors to come and hunt for bargain valuations, to little avail. Western inves-tors looking at the Middle East have been distracted by the imminent opening of an exchange in Saudi Arabia and the possible end of sanctions on Iran.

Gary Kleiman of Kleiman International

“President al-Sisi's entreaties fell largely on deaf ears”

Top Stories bne IntelliNews Daily 5May 15, 2015

Not known for its flexibility, Brussels rarely declares openly that it needs to overhaul any policy, but that is just what is happen-ing. War in Ukraine and a tense standoff with Russia has spurred the EU to radi-cally rethink its “European Neighbourhood Policy” (ENP) – a 10-year-old programme designed to spread prosperity, democracy and stability to the east and south of the EU which has palpably failed in its objective. Yet how quick and deep the overhaul will turn out to be remains an open question.

In a thought-piece circulated by the European External Action Service (EEAS) earlier this year, this foreign policy body put almost every aspect of the ENP up for discussion, including bilateral free trade agreements and the very concept of a uni-

fied neighbourhood policy. The Commission and EEAS launched a lengthy consultation process in early March, and they plan to publish a report by November that pro-vides new guiding principles for the coming years. A milestone will be a summit in the Latvian capital of Riga on May 22 with all the EU’s 16 Eastern Partners.

Johannes Hahn, the commissioner for European Neighbourhood Policy & En-

EU neighbourhood policy overhaul seen less radical than hoped

largement Negotiations, who works closely with Federica Mogherini, the EU’s foreign policy chief, said: “The EU must be better at defending the interests and values of its citizens. We must make this policy… more focused… more flexible and differentiated to respond to the needs of our partners.”

The ENP is a one-size fits-all framework offered to a pearl string of states surround-ing the EU including Algeria, Armenia, Azer-baijan, Belarus, Egypt, Georgia, Israel, Jor-dan, Lebanon, Moldova, Morocco, Palestine, Syria (until recently), Tunisia and Ukraine.

The policy framework includes nego-tiations towards a bilateral Association Agreement, generally involving a costly, regulation-heavy free trade agreement (DCFTA), largely copied from parts of ac-

cession agreements offered to EU candi-date member states in the 1990s. It also offers visa facilitation agreements in which the EU liberalises its visa policy in return for those countries signing up to stringent migration control policies, as well as “mo-bility partnerships”, which very modestly open up selective parts of some member states’ labour markets to neighbouring countries.

Iana Dreyer in Brussels

Annual ‘progress reports’ by the European Commission assess the countries’ reforms in the areas of economy, democracy, rule of law and human rights. Based on these reports, governments that steer toward the EU’s pre-ferred direction receive more aid money.

Not-so freeYet the fine-sounding sentiments and goals have not been matched with action in reality.

The free trade deals that the EU offered Armenia, Georgia, Moldova and Ukraine have been widely criticised for not being adapted to these poor countries, which have weak states that are not in much of a position to implement the EU rulebook. Nor are the "free trade" deals particularly free, as they don’t open up the EU agricultural sector much, or give partner countries much more access to EU markets.

And their mere existence has caused trouble in Eastern Europe. Europe's Deep and Comprehensive Free Trade Agreement (DCFTA) with Ukraine provoked Russia into military action to scupper the agreement. Now that the deal has been ratified on both sides, “the EU got itself into [a] conundrum”, Sir Michael Leigh, a former director general for enlargement at the European Commission and now a senior adviser to the German Marshall Fund, tells bne IntelliNews. “We didn’t ask ourselves the question whether it corresponded to their needs. Now that Russia is pressing for us to think twice about this, it would be very hard to back down,” Leigh says.

There’s been some progress on mobility issues. Moldova obtained visa- free travel in 2014. Yet hopes that a visa facilitation agreement could be inked with Ukraine ahead of the Riga summit in May are fading, not least because the EU is afraid of a flow of refugees from eastern Ukraine.

Money has, overall, been scant. €12bn was disbursed between 2007 and 2013. For the period 2014-2020, €15bn has been allocated to the policy. At times the EU doesn’t even get to spend aid monies because the receiving states find it difficult to manage the projects.

The programme has also been criti-cised for overemphasising values and un-deremphasising core EU interests. “The member states have delegated to [Brus-sels] the task of insisting on the values agenda, while the member states have been free to get on with business as usual, privileging trade, security and access to resources,” reckons Sir Michael.

“Fine sounding sentiments have not been matched with action”

Georgia was making wine when Rome was still a village on the Tiber. Little known in the West, Georgian wines are famous across the former Soviet Union and the best of them – the dry red Seperavi and Mukhazani – are as good as the very best French, Italian or Spanish vintages.

Wine has been produced in the region since Neolithic times, laid down in giant kvevri earthenware jars buried to their necks to keep them cool and left to mature for up to 50 years.

Traditionally exported to its ex-Soviet neighbours, for the last four years Georgian wines have increasingly been exported to the West, with Teliani Valley being the most active of Georgia's many producers.

Vintage Georgia

May 15, 20156 bne IntelliNews Daily Eastern Europe and the Caucasus

Frequent power cuts during the cold win-ters and people huddling around fires in the streets were common scenes in the 1990s in post-Soviet Union Georgia. Those dark days are gone, and 25 years on, the country boasts a surplus of elec-tricity thanks its primary natural resource – water.

Georgia’s water resources rank among the world’s highest per capita. Ever since opening its first hydropower plant in 1898, the country has long tried to exploit this potential, building and operating over 50 plants – including the 272-metre tall Inguri dam, which features the world’s second

In March, the World Bank’s Interna-tional Finance Corporation (IFC) mobi-lised a $250mn investment to finance the Shuakhevi plant in western Georgia, the largest-ever private hydropower project in the country. The plant, which brought together the IFC, the Asian Development Bank (ADB), the EBRD, plus India’s Tata Power and Norway’s Clean Energy Invest, is expected to start producing 450 giga-watt-hours of power annually from 2016 and reduce greenhouse gas emissions by more than 200,000 tonnes per year.

Since 2013 Georgia has built HPPs sup-plying 200 megawatts (MW), while ad-ditional plants with another 600MW of capacity are currently under construc-tion and agreements have been signed for 800MW in small and medium-sized plants. Works for two large plants will start between end of 2015 and mid-2016. The Georgian Energy Development Fund, a joint-stock company with 100% share in state ownership, is conducting a feasibility study on four major water basins. “We ex-pect to identify up to 1,000MW new poten-tial by the end of this year,” says Eloshvili.

Georgia has an untapped hydro potential that official data sets at 25% of its current hydropower generation capacity, leaving plenty of room for growth and opportuni-ties for investors. Surrounded by countries with a projected structural power deficit – with Turkey leading the pack – the export potential is clear should Georgia be able to stabilize its year-round production, for example by developing more reservoir hy-droelectric power plants.

“They are more flexible than run-of-riv-ers plants, allowing greater control over electricity supply from HPPs, thus making it easier to match demand, particularly in periods of low rain and in presence of large fluctuations in electricity demand,” considers Norberto Pignatti, professor of

Water load of power in Georgia

tallest concrete arch dam. Currently, hy-dropower meets 75% of Georgia’s energy needs, which increased from 8.6bn kilo-watt hours (kWh) in 2007 to 10bn kWh in 2012, and continues to grow at an average of 3-4% per year.

“Georgia’s hydro depends on seasonal availability of water and it mainly comes from run-of-rivers and snow melts,” Dep-uty Energy Minister Ilia Eloshvili tells bne IntelliNews. “For nine months of the year we are self-sufficient. Production peaks in summer and we have lots of spare power to export, but in winter water flow is low and we have to import [power].”

energy markets at the Tiblisi-based In-ternational School of Economics (ISET).

Getting to the customersBut seasonal production swing is not the only challenge. “Access to market and to export infrastructure is key,” explains David Managadze, the EBRD’s power and energy principal banker. “Having priority access rights to infrastructure, like the Black Sea transmission line, is one of the agreements we reached, as the connection is essential for the sector to grow.”

The 315km high-voltage Black Sea line linking Georgia and Turkey is the first ma-jor interconnector between the Caucasus and Western grid, and one of Georgia’s largest infrastructure projects in dec-ades. Financed by the EBRD, the European Investment Bank (EIB) and the German development bank KfW, the line enables cross-border trade and has brought un-precedented investment like Sukhahevi as newly built hydropower plants have prior-ity access to the new line. “The regulatory regime is still evolving, while investors like predictability and stability, so IFIs mitigate perceived political risk,” adds Managadze.

The Turkish market, with Europe’s highest prices, could absorb Georgia’s extra electricity production in summer, as high demand for air conditioning means that Turkey’s electricity consumption peaks in summer when Georgia's hydroelectric generation reaches its high point, even as Georgian consumption falls.

The access to neighbouring markets means unlocking Georgia’s potential as energy regional hub. “We have a ten-year development plan for internal and ex-ternal connection and by 2025 we aim at 5,000MW interconnection with our four neighbours, Turkey, Russia, Armenia and Azerbaijan,” explains Eloshvili.

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GEORGIAN APPROVAL OF EU, EEU AND NATO MEMBERSHIPSupport for Eurasian Economic Union membership growing despite opinions toward Russiadeteriorating

Source: National Democratic Institute

Belief that Russia is a threat

EEU approval

NATO approval

EU approval

A recent poll by foreign affairs think-tank the National Democratic Institute has shown that Georgian approval of Eurasian Economic Union (EEU) membership has doubled in the last year.

In the poll, 31% of respondents said that they approve of Georgia joining the Russian-led trade bloc - which could eventually grow into a common market covering most of the former Soviet space – nearly twice the 16% who approved a year earlier.

However, a higher proportion of respondents were against EEU membership than for it. 41% said that they disapprove of Georgia joining the EEU.

Despite the increase in enthusiasm over the EEU, negative opinions of Russia are still prevalent in Georgia, with nearly half of all respondents stating that they believe Russia to be a threat. Only 12% said that they believe Russia is no threat to Georgia at all.

Nato and EU membership aspirations remain strong among Georgians, with roughly two-thirds of all respondents approving of membership in both groups, at 65% and 68%, respectively.

Monica Ellena in Tbilisi

“Water resources rank among the world's highest per capita”

bne IntelliNews Daily 7May 15, 2015 Eastern Europe and the Caucasus

work with our member countries and have signed agreements with every single export credit agency [ECA],” says Potapov. “The other IFIs often prefer to invest through us, as we have the relationships with the ECA and they don’t have to take on all the risk and compliance functions to do the deal.”

The IIB has also signed a similar deal

with the World Bank’s IFC under its “Master Cooperation Agreement”, which allows the IIB to co-invest with the IFC in syndication loans, among other things.

The IIB's deal with the IBRD and other international institutions is part of its strat-egy to expand its business and help its member countries develop. The bank has been growing rapidly since the news strat-egy was put in place, with its assets more than doubling to €611mn last year.

“This is a core part of our strategy for investing in network building”

International financial institutions (IFIs) are like parents caring for a classroom of unruly children. They encourage their charges to be diligent with policy-mak-ing homework and responsible when it comes to make tough changes. They even come up with the cash to pay for the equip-ment and infrastructure needed to operate. And demand for this caring is going up as the world stumbles from crisis to cri-sis; the IFIs are deepening their coopera-tion like a financial version of the Parents Association.

The International Bank for Reconstruc-tion and Development (IBRD) – part of the World Bank Group that provides loans and other assistance primarily to middle-in-come countries – and the International Investment Bank (IIB) signed a memoran-dum of understanding on the sidelines of the EBRD general meeting that will rein-tegrate the Soviet-era development bank into the IFI community.

“We look forward to sharing our global experience in using our financial, analyti-cal, and advisory instruments with the In-ternational Investment Bank for the benefit of all its member countries,” said Laura Tuck, World Bank Vice President for Europe and Central Asia, at the signing. “We have engaged with a number of other national

IIB reintegrates with the IFI familyand international development banks, helping build their capacity and supporting alignment of their practices with the stand-ards of established development banks.”

The IIB is based in Russia and was set up by the Soviets to promote development and investment among the Comecon countries. After withering in the wake of the collapse of the Soviet Union, the bank was revital-ised two years ago when it adopted a new strategy and was recapitalised by its eight members, mostly former Warsaw Pact countries in Central Europe.

The MOU is part of this integration process increasingly going on amongst the IFIs. The IIB is strong on small and medium-sized enterprise (SME) financ-ing, trade financing and infrastructure development in its patch, but is keen on co-financing its projects with other IFIs like the IBRD, the EBRD and the World Bank’s International Financial Corpora-tion (IFC), among others. “We have set up a framework that covers diverse aspects of corporate governance, risk manage-ment, treasury functions, compliance pro-cesses and so on,” says Georgy Potapov, head of the department for international financial integration at IIB. “This is a core part of our strategy for investing in net-work building.”

IFIs co-invest and lend money to each other all the time. If one institution hits its mandate cap in a country in one year but has projects it still wants to do, it can turn to a sister institution to make the investment. Alternatively, the IFIs invite others to co-in-vest as a way of spreading risk. “The point of the framework agreement is that once we

make the agreed changes to our system, if one of the IFIs has done the due diligence or the risk and compliance work, then none of the other IFIs that co-invest have to spend a penny on repeating the work,” says Potapov.

The integration of the systems sounds like dull work, but the standardisation pro-cess will save the IFIs huge amounts of money and time, as well as greatly accel-erate the pace at which they can make in-vestments. “We do a lot of trade financing

May 15, 20158 bne IntelliNews Daily Eastern Europe and the Caucasus

Editor-in-Chief Ben Aris discusses events at the EBRD Annual Meeting in Tbilisi with Liam Halligan, Editor-at-Large, here: https://vimeo.com/127701811

The European Bank for Reconstruction and Development (EBRD) and the Belarusian government have agreed to work together on the privatisation of state-owned Belin-vestbank. This move comes after four years of reluctance on the part of the EBRD to cooperate with the administration of Presi-dent Alexander Lukashenko because of his human rights record.

On May 13 on the eve of the EBRD’s an-nual meeting in Tbilisi, the lender’s first

vice president, Phil Bennett, and Belarus Deputy Prime Minister Vladimir Semashko signed a memorandum of understanding, under which the Belarusian government will by 2020 sell its controlling stake in Be-linvestbank, Belarus’ fourth largest lender by assets, with support from the EBRD.

“The EBRD is ready to make pre-priva-tisation funding available on the condition that certain agreed goals are met that will strengthen Belinvestbank’s corporate gov-ernance and guarantee its independence as a commercial entity free from political influence," the lender said in a statement. "The funding could include an equity in-vestment in Belinvestbank, as well as set-ting up a trade financing line for the bank and providing it with loans aimed at fos-tering the growth of local small and medi-um-sized businesses.”

According to Belinvestbank’s chairman, Gennady Sysoev, the EBRD intends to buy a stake of 25% plus one share in the bank, after which the controlling stakes would be sold to one or more strategic investors.

For the multinational lender this deal is the first of its kind since April 2011, when the EBRD decided to recalibrate its ap-proach to Belarus following the disputed December 2010 presidential election and continuing violations of human rights. The new policy meant that the lender concen-trated on developing the private sector and did not give any support – financial or tech-nical – to the central authorities.

EBRD lends hand to Belarus after years of cold shoulder

Vladimir Zinovsky, the economy minis-ter of Belarus, told bne IntelliNews that the EBRD’s decision to reconsider its approach in the case of Belinvestbank and to assist in the preparation of its privatisation is “long-awaited, but it is also the expected result of the country’s consistent efforts to establish a mutually beneficial and mutually respect-ful dialogue with its European partners”.

Over the past few months some signs of a thaw in relations have appeared after Minsk

played a crucial role in facilitating peace negotiations between Ukraine, the EU and Russia. On February 11, French President Francois Hollande and German Chancellor Angela Merkel participated in peace talks held in Minsk on the Ukraine crisis, which was presented as a diplomatic victory by the Belarusian state-controlled media.

Alexander Mukha, a Minsk-based inde-pendent financial analyst, believes that the EBRD’s decision to resume cooperation with the Belarusian government is also motivated by difficulties the lender is ex-periencing with Russia. “The [EBRD] can no longer finance projects in Russia as it did previously, due to the Western sanc-tions against this country. That is why the EBRD has decided to reorient its funding,” he says.

Last year, EU leaders decided to ask the EBRD to suspend new lending to Russia,

which has traditionally been the biggest recipient of financing from the multina-tional institution – the EBRD lent €1.8bn in 2013.

In the second half of 2015 the EBRD is due to start drafting its strategy for Belarus for 2016-2018. “We hope that the document will reflect the EBRD's acknowledgment of its interest in expanding mutually benefi-cial cooperation with our country, as well as in mitigating the recalibrated approach with the aim of abandoning it in the future,” Zinovsky says.

In February at a meeting in Minsk, Pres-ident Lukashenko called on the EBRD’s president, Suma Chakrabarti, to consider removing all restrictions on cooperation with Belarus, in particular with regard to state-owned enterprises. “I think the gov-ernment will show you the state-owned enterprises and you will be able to decide for yourselves whether the bank could co-operate with these enterprises on a wide range of matters,” Lukashenko said.

Meanwhile, analysts believe that the EBRD could pursue an exit from the small-sized RRB-Bank, where it currently holds a 13.91% stake. The multinational lender be-came a shareholder of RRB-Bank approx-imately eight years ago. This is a normal period after which an exit can be expected, because of the EBRD's practice of employ-ing a life-limit regarding investments in

banking capital.In 2013, the EBRD sold its 21.67% stake

in the Belarusian Bank for Small Business (BBSB) to Poland's Getin Holding. Getin, controlled by Polish businessman Leszek Czarniecki, owns financial firms across Central and Eastern Europe, in Poland, Romania, Russia, Belarus and Ukraine.

Sergei Kuznetsov in Minsk

“The funding could include an equity investment in Belinvestbank”

“Minsk played a crucial role in facilitating peace negotiations between Ukraine and Russia”

China gallops to rescue of Belarus

bne IntelliNews

China will extend $3.5bn in credit and in-vestments to banks and companies in Be-larus, officials in the former Soviet republic said on May 11 after presidents Xi Jinping and Alexander Lukashenko met in Minsk to discuss the creation of a modern version of the ancient Silk Road trade route. 

Belarusian Prime Minister Andrei Kob-yakov said the total volume of loans from China now stands at $7bn, with $3bn avail-able on preferential terms.

Despite earlier reports that funds were pledged  “in time” to cover $4bn in foreign debt due this year, the Finance Ministry made it clear that the credits are extended over a period of 10-15 years. Therefore they cannot be regarded as a “bailout” for the country’s troubled state finances in 2015.

The meetings still marked an upturn in Belarus’ fortunes, however, starting with the announcement of $1bn in credits for the state-controlled Belarus Development Bank and Belarusbank. Much of this will be used to finance joint infrastructure pro-jects, and support small and medium-sized businesses.

Elated  by the Chinese financial mus-cle appearing behind the republic’s econ-omy, Lukashenko underscored his coun-try’s readiness to serve as “a kind of plat-form” as China builds its trade relations with the EU.  “We will do the utmost for you to be able to advance your interests in Europe in the best way possible,” he told Xi, who was on a five-day tour through Kazakhstan, Russia and Belarus focused largely on expanding China's trade links through Eurasia.

“We agreed to strengthen comprehen-sive practical cooperation in the joint de-velopment of the Silk Road Economic Belt,” Xi said, referring to plans to connect China by a multi-faceted transport corridor  to Western Europe via Central Asia and the Middle East. 

The anticipated endpoint  will be the Dutch port of  Rotterdam, before the route  doubles  back  to  Venice in Italy  to link up with a parallel “Maritime Silk Road”. This sea freight route is planned to run from  southern China through Southeast Asia and via India to Kenya, before turning north into the Red Sea and the Mediterra-nean and finally connecting with the land route in Venice.

Belarus has been actively courting China in recent months for support for its strug-gling economy, which has been hard hit by neighbouring Russia’s economic slump. With total trade of $3.1bn in 2014.

bne IntelliNews Daily 9May 15, 2015 Eastern Europe and the Caucasus

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THE IMPACT OF CORRUPTION OF PER CAPITA GDPComparing per capita GDP to Transparency International's Corruption Perceptions Index 2014 (CPI) and the International Centre for Asset Re-covery's Anti Money Laundering Index (AML) illustrates a clear correlation between wealth and perceptions of corruption/propensity for money laundering. A high index score denotes high/prevalent corruption or monti laundering.

Anti-Money Laundering Index 2014

Corruption Perceptions Index

EU member

Non-member

Sources: International Centre for Asset Recovery; Transparency International

Transparency International’s annual Corruption Perceptions In-dex (CPI) measures the perceived levels of corruption in different countries across a number of studies. Comparing the results of the 2014 CPI with per-capita GDP across Central and Eastern Europe/Commonwealth of Indepedent States (CEE/CIS) reveals a clear correlation between poverty and corruption.

The bottom-right quadrant of the chart represents countries that enjoy a high level of GDP per capita as well as a low score for corruption perceptions. Not a single non-EU country occupies it, while only two EU member states – Romania and Bulgaria – fall outside of it.

The undesirable top-left quadrant represents high perceptions of corruption and money laundering combined with low GDP per capita. It is occupied almost exclusively by Western Balkan states whose post-Soviet redevelopment was hindered by drawn-out con-flicts in the 1990s, and CIS countries that have little scope for any real political opposition to their current government.

The top-right quadrant of the chart represents countries that enjoy a higher income alongside high perceptions of corruption. The two notable occupants of this area are Russia and Kazakh-stan – both big oil and gas producers.

Mariam, 14, is carefully moving her mouse, sketching out a human figure. “This will be my main character,” she says without lifting her gaze from the computer screen. Next to her Vache, 16, is guiding his fully developed virtual person through a complicated maze. “I have almost finished my first game,” he says proudly.

Welcome to the Tumo Center for Creative Technologies, where experts are shaping the minds of Armenia’s next generation of digital artists. A state-of-the-art facility, Tumo offers Armenian youth free access to learning resources, in the field of animation, game development, web design and film making.

“Tumo is on the border of art and technology,” says Aram Guymishyan, the centre’s deputy director. “It is also a choice based on our reality. Armenia is landlocked and has closed borders, but the virtual world is open and free, and we can exchange ideas, applications, film, programmes.”

A brainchild of the US-based Simonian Educational Foundation, Tumo has provided free IT learning to over 6,000 kids between 12 and 16 years old since its establishment in 2011 and is now expanding beyond the capital into Armenia’s regions.

Armenia’s rising e-generation

Soviet Silicon ValleyTumo looks at tomorrow’s potential work-force, but Armenia’s economic future begs plenty of questions. Closed borders with Turkey and Azerbaijan, a narrow export base and dependence on remittances from abroad offer limited space to expand. Could digital apps and software development pro-vide a solution?

It is not as improbable as it may sound. Dubbed “the Soviet Silicon Valley”, pre-in-dependence Armenia had more scientists per capita than any other USSR republic and produced about a third of the hi-tech and microelectronic equipment used for Soviet defence and space systems. The now defunct Yerevan Research Institute of Mathematical Machines designed one of the first Soviet computer systems in 1959 and by the late 1980s it employed about 7,000 people.

This legacy came crashing down when the Soviet Union imploded in 1991, and Armenia’s war against neighbouring Azer-baijan added tragedy to an economy in tatters. However, the skills and modest wage demands of Armenia’s IT industry offered fertile ground for the new hi-tech sector that re-emerged in the late 1990s. US software companies, mostly owned by

Armenians from the diaspora, chipped in capital and drove the trend.

The sector has been growing at an aver-age of 22% between 2003 and 2014, accord-ing to the  Enterprise Incubator Founda-tion (EIF), Armenia’s leading IT consulting firm. The 400 ICT companies in the country registered in 2014 generated revenues for $474.9mn, about 4.3% of total GDP and 10% of total exports. In 2014 alone, the sector created 17 new start-ups and 1,100 new jobs.

In 2004, Synopsys, one of the world’s larg-est microchip designers, expanded to Yere-van and now employs over 500 engineers, making it the sector’s largest enterprise. Last year, the American-Armenian joint venture Technology and Science Dynamics/Armtab Technologies launched ArmTab, the first tablet made in Armenia. Heavyweights like Microsoft and IBM built research cen-tres and software hi-tech giants like Na-tional Instruments, Mentor Graphics and Cisco Oracles also set up shop in Yerevan.

 “Armenia is becoming a place where the IT industry [players] come to find solutions to their future challenges,” says Bagrat Yengibaryan, EIF’s director. “This is where Yerevan has a competitive advantage, be-cause in a small place you have a high

concentration of specialisations in differ-ent sectors.”

Around Yerevan legions of web entre-preneurs squeeze into small offices in the hope of becoming the next Picsart, the world’s premiere mobile photo editor app with more than 220mn users which was fully created in Armenia.

The diaspora is also developing start-ups in the cyber-space to link Armenian techies around the world; Hive is the first virtual networking and start-up accelera-tor specifically designed to provide seed investment for tech start-ups as well as support technical education.

The government is committed to re-en-ergising the IT legacy and turning the coun-try into a high skilled e-society. In 2008 a 10-year industry development strategy was adopted, focusing on building infrastruc-ture, improving the quality of IT graduates, and creating venture capital and other fi-nancial mechanisms to support start-ups, like tax breaks and simplified procedures.

The long-term vision is to create a knowledge economy. For Guymishyan, himself a web designer who returned to Armenia from Italy, Tumo is an integral part of this perspective. “We give children tools to develop their creativity and skills, and to show them they can use them here, in their country without migrating abroad.”

Monica Ellena in Yerevan

Photos: www.tumo.org

May 15, 201510 bne IntelliNews Daily Central Asia

Kazakh President Nursultan Nazarbayev’s re-election for another five-year term in an early poll on April 26 – and the conse-quent hastily-held inauguration just three days later – have not so far been followed by any signs of an impending devaluation of the national currency. Why?

Devaluation of the tenge had been widely expected for months after the price of oil and the currencies of the country’s main trading partners – Russia and EU coun-tries – hit historical lows against the dollar. Following the inauguration, Nazarbayev reiterated the government’s pledge not to allow “sharp” fluctuations in the exchange rate of the tenge despite predictions of an up to 30% drop in the tenge’s value by the end of June made by Kazakhstan watch-ers, including Morgan Stanley and Bank of America Merrill Lynch.

At a news conference on April 27 Naz-arbayev ruled out a sharp devaluation of the tenge. “There won’t be anything sharp after the election,” he said, because “there are no prerequisites” for devaluation. “We

Kazakhstan drags its feet on devaluation

are working [on the adoption] of a floating exchange rate of the tenge.”

Kazakh analysts explain the president’s optimism by the fact that the delay in deval-uation because of the presidential election has forced the Kazakh economy to adapt to the new conditions. Authorities, aware of the negative connotations ordinary Ka-zakhs attach to the word “devaluation”, have meanwhile started talking about a “switch to a floating exchange rate” in an attempt to soothe fears of devaluation, as if absolving themselves from any conse-quences resulting from this “switch”.

Olzhas Khudaybergenov, a former ad-viser to Kairat Kelimbetov, the head of the National Bank of Kazakhstan, agrees with the president that “there are no requisites” for a devaluation of the tenge now be-cause both the oil price and the ruble have stopped exerting pressure on the Kazakh national currency. “At the current levels of the ruble and oil, there is no pressure on the tenge now,” Khudaybergenov tells bne IntelliNews. However, the need for deval-

uation will arise again “if the price of oil falls below $50 per barrel and stays there for two or three months”.

PreparationsAnticipating a relatively prolonged period of low oil prices and negative effects of West-ern sanctions on the Russian economy, in November Astana redrafted its budget for 2014-2016 based on an average oil price of $50 per barrel. The government also said at the time that it was prepared to revise its spending further should the price of oil dip to $30/b.

This is one of the reasons there is no urgent need to devalue the tenge sharply at the moment, believes Anuar Ushbayev, managing partner at the Almaty-based Tengri Partners investment firm. The Ka-zakh budget does not directly depend on revenue from the oil and gas sector, as all proceeds from the extractive sectors are accumulated in the National Oil Fund and are released to the budget in the form of annual guaranteed transfers. According to

Naubet Bisenov in Tbilisi

law, the government can tap into the Na-tional Fund to the tune of KZT1.7tn (€8.5bn) a year in 2015-2017. In November Presi-dent Nazarbayev pledged up to $3bn an-nually on top of the guaranteed transfer to fund development projects in the country.

“I don’t think there is any threat to gov-ernment finances because of the low oil price,” Ushbayev says. “Given the size of the National Fund, the budget is capable of surviving years of the low price of oil without jeopardising government spend-ing.” According to the Finance Ministry, the assets of the National Fund stood at KZT16tn (€80bn) as of May 1. Generally, the government can dip into the National Fund for additional money as long as the fund's assets do not fall below 30% of GDP. The country's GDP stood at KZT38tn (€190bn).

But many remain sceptical about the authorities’ reassurances about the tenge and the National Bank will sooner or later have to act. “The authorities are afraid of a panic among the population and pro-tests, given how easy it is now to mobilise protest mood on the social media,” an Almaty-based banker says. “Perhaps the National Bank will not dare to conduct a one-off devaluation, but will instead ease the exchange gradually despite the costs of doing so.”

Expectations of devaluation among the local population have caused huge selling of tenge for dollars, with the National Bank defending the national currency at a cost of giving up half of its $28bn of net foreign reserves, including $5bn of gold, Standard Bank said in trip notes on May 6 following a visit to Almaty and Astana.

With confidence in the tenge still low, the central bank will struggle to inject any liquidity – if the National Bank were to bring tenge rates lower, locals would continue selling them for dollars, Standard Bank believes. “With 70% of retail deposits said to be in US dollars by now, confidence in the tenge is at near rock bottom, and only a devaluation would restore calm and li-quidity in the market,” concludes Standard Bank, which expects a 10-15% devaluation in August, after Astana Day. “There is an added argument that with so many deposits in US dollars, the pain from a devaluation would be more palatable than in the past. It would certainly come as no surprise.”

2007 2008 2009 2010 2011 2012 2013 2014

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MONEY TRANSFERS FROM RUSSIA TO FORMER SOVIET COUNTRIES, 2007-2014Total cross-border transactions by non-residents (USDmn)

Source: Central Bank of Russia

Russian GDP

Armenia

Azerbaijan

Kyrgyzstan

Tajikistan

Uzbekistan

As the bne:Chart shows, a clear correla-tion exists between the performance of the Russian economy in GDP terms and the volume of cross-border remittances going from Russia to the former Soviet nations.

The CBR data details all cross-border money transactions executed in 2007-2014 by non-residents in Russia, often labour migrants from bordering nations.

The volume of remittances largely mim-ics the performance of Russia’s annual GDP, with a fall in volume just after the 2008 crisis and another in 2014, when the economy fell victim to a combination of a sharp ruble depreciation, low oil prices and punitive Western-led sanctions.

bne IntelliNews Daily 11May 15, 2015 Central Asia

Ahead of the headlines – for over 20 years

October 2012www.businessneweurope.eu

Inside this issue:

Rogers jumps on bearwagon

Latvia's fanfare for the common currency

Serbia's looming winter of discontent

Saakashvili becomes prisoner of scandal

Special Report: Azerbaijan

A PARLIAMENTARY KLEPTOCRACY

Ukraine elections to decide who stays free

Inside this issue:

Russia feels let down by Europe

China's EU bridgehead crumbles

Turkey's power to the people

A long hot summer in Kyrgyzstan

Special Report: Ukraine on trial

July 2011www.businessneweurope.eu

BEYOND THE BURGERWhy are prices so high in emerging markets?

Inside this issue:

Made (badly) in Russia

Highway robbery in Czech Republic

The lonely life of Turkish Cypriots

Mongolia's crucial month

Special Report: Private equity in CEE/CIS

June 2012www.businessneweurope.eu

POLITICAL FOOTBALL

May 2014www.bne.eu

Inside this issue:

Chaos deepens in Ukraine

Prague's nuclear Hunger Wall

Slovak corruption goes round and around

Macedonia’s ruling party wins big

India flounders in Central Asia

GREATGAME II

A hot peace rather than new Cold War looms

May 2013www.bne.eu

Inside this issue:

Russia's repo men

Putting some Polish on the portfolio

Stalemate in Sofia?

A Kazakh cattle prod

Special Report:Turkey's time

...OR ALREADY IN THE WEST AND LOOKING EAST?

IS TURKEY TO THE EAST LOOKING WEST...

October 2014www.bne.eu

Inside this issue:

Hail to the new Moscow taxis

Slovak corporate shark joins media feeding frenzy

Swiss squeeze in Poland

Trying to make sense of censorship in Turkey

Gas panic again!

November 2014www.bne.eu

Inside this issue:

25 years after Mauerfall

Russia's economy is in the toilet

Critics deride Hungary's Potemkin economy

Breaking the Bank Asya in Turkey

Special ReportInvest in Belarus

The Putinisationof Europe

Inside this issue:

Speeding after Russia's online consumer

How to spend it in Poland

Turkey's ruling control freaks

Gulnara Karimova falls out of fashion

Special Report: A Turkish star in the dark night sky

October 2011www.businessneweurope.eu

War GamesDefence firms battle for lucrative tenders in CEE

June 2014www.bne.eu

Inside this issue:

Spectre of Yanukovych haunts Ukraine

Will EU stand for Energy Union?

The Balkans' bear problem

Almaty in Wongaland

RISE OF THE PSEUDO-STATES

December 2014www.bne.eu

Inside this issue:

The 50-year fight for gay rights

Shining a light on Ukraine’s shadowy arms industry

Belarus benefits from east-west clash

Orban the acrobat

No balancing act in Serbia

A toxic mix in Central Asia

Special focusUkrainian agriculture

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Naubet Bisenov in Tbilisi

Kazakhstan seems to be suffering more from its integration with Russia than it is gaining, despite what the government claimed when it took the country into the Customs Union with Russia and Belarus in 2010.

The union - which was transformed into the Eurasian Economic Union on Janu-ary 1, 2015 - was supposed to open up the 170mn-strong markets of member states. However, it is now creating a head-ache for strongman President Nursultan Nazarbayev’s government as the member states have embarked on a blame game and are engaging in tit-for-tat trade wars.

The Kazakh economy, which grew by 4.3% in 2014, is expected to show only 1.5% growth this year because of the low price of oil and the “negative effect of in-flux of cheap imports from Russia on do-mestic industries and spillovers of nega-tive investment sentiment from the Rus-sia/Ukraine crisis”, the EBRD said in its latest Regional Economic Prospects re-port published on May 14. “Notably, pres-sure from cheap imports from Russia has hit some regions and sectors dispropor-tionately,” the report said.

The Kazakh car industry - the emer-gence of which was largely credited to the Customs Union - is being hit severely by an

influx of Russian cars, which have become cheap in dollars terms as the value of the ruble plunged under the weight of Western sanctions on Russia.

As a result, the much-hyped union has now turned into a source of economic woe for Kazakhstan. And not only is Kazakhstan suffering from the slowdown in Russia and cheap Russian imports, but it is also bear-ing the consequences of Russian sanctions on Western foodstuffs.

Fearing re-exports of Western prod-ucts from EEU member states to Rus-sia, Moscow has effectively imposed an embargo on Kazakhstan-bound Western food transiting Russia. Earlier this month Rosselkhoznadzor, Russia’s agricultural watchdog, blocked the transit of nearly 400 tonnes of Polish apples to Kazakhstan, citing violations of customs regulations.

Despite being members of the free-trade bloc, Kazakhstan and Russia

Eurasian Economic Union turns into a tit-for-tat war

have been engaged in tit-for-tat trade sanctions, targeting one another’s food items competitive in the other country. In the past two months Kazakhstan has restricted imports of Russian petroleum products, meat, poultry and confectionary, while Moscow banned Kazakh dairy products and vegetables.

Both countries claimed the products had not met either technical or safety regulations. Kazakhstan denies it is wag-ing a trade war with Russia, which is the country’s largest supplier, accounting for over a third of total imports. (While Rus-sian imports fell by 13.1% year on year to $1.65bn in January-February, Kazakh exports to Russia plummeted by 34.6% to $536.7mn).

“We are not waging a [trade] war against anyone,” National Economy Minister Yer-bolat Dossayev told bne IntelliNews. “We are simply implementing technical standards.”

Kazakh producers have called on the government to impose temporary bans to protect the domestic market from cheap Russian imports. Olzhas Khudaybergenov, a former adviser to the National Bank of Kazakhstan believes the government could offer subsidies to local producers, although he doesn’t rule out imposing customs du-ties on certain Russian products, the com-

petiveness of which in Kazakhstan has been boosted by the weak ruble.

“The government should subsidise the difference between Kazakh and Rus-sian prices and the issue will be imme-diately solved,” Khudaybergenov told bne IntelliNews. He suggested that the price of the issue was “only” $500mn, which should be distributed among all Kazakh producers affected as “targeted” subsidies.

The economist thinks only 20% of Russian goods imported to Kazakhstan are in direct competition against local products and the government should contain a growth in their imports. “Let imports of these products continue at previous levels, not higher, but let them face customs duties.”

“The much advertised union has now turned into a source of economic woe”

May 15, 201512 bne IntelliNews Daily Central Europe and Baltic States

Panelists on a bne IntelliNews debate were hesitant to label Poland’s post-Soviet tran-sition a complete success, but agreed that impressive progress has been made, albeit with scope for improvement.

“After the fall of the Berlin Wall, devel-opments that should have taken decades were crunched into just a few tumultuous years, and nowhere more so than in Po-land,” said bne IntelliNews Editor-at-Large Liam Halligan, who chaired the event.

“Since Francis Fukuyama’s assertion that the fall of the Soviet Union marked the ‘End of History’, the Polish economy has doubled in size from 32% to 60% of the Western European average per capita income,” Halligan added.

The event, entitled “Poland: A Success-ful Transition?” – held at London’s Covent Garden Hotel on May 5 – brought together panellists from the professional and diplo-matic sectors with the aim of dissecting the political and economic future of the EU’s eighth largest economy.

Solicitor and board member of the Pol-ish City Club, Katarzyna Boguslawska, ex-plained the difficulty that Poles had adapt-ing to a free market economy after nearly half a century of Soviet rule. “We lived in the relative safety net of a state-run gov-ernment and state-run businesses. Lots of people did find the transition difficult,” she admitted.

Despite the impressive macroeconomic figures that Poland boasts, demographic problems such as a shrinking population and low birth rate, together with an unsus-tainable model of cheap credit mean that the journey for Poland is far from com-plete, as former UK Ambassador to War-

Poland’s transition is not over yet

saw Charles Crawford noted. “Many would say it [Poland’s post-Soviet transition] is not a success. Soviet war memorials in every town, a massive rise in debt, 12% un-employment despite 3mn emigrants, and a continuing brain drain,” said Crawford, though he added that demographics aside, Poland’s growth numbers are impressive by any standards. “Poland’s economy in the grand scheme is not huge. It is roughly a third of the size of Spain’s, but that’s got nothing to do with Poland – it’s the cost of communism. If you have 2% growth over 50-60 years, you’re going to be much richer than if you have 2-3% growth over 20 years – but Poland is catching up.”

Current Polish Ambassador to the UK, Witold Sobkow, conceded that the brain drain is a problem, yet he pointed out that much of Poland’s talent is staying at home, or returning. “We still have a lot of young and well-qualified people willing to work in Poland and many of those who leave come back and invest in Poland – not just in mon-etary terms, but also with skills and mana-gerial ability. Many have come back, but not as many as we would like,” Sobkow said.

Panellists agreed that procedural re-forms are key if Poland is to develop fur-ther, with both Crawford and Boguslawska citing complex bureaucratic red tape, which can hinder business. “Even simple, fee-based agreements in Poland will require a three-page contract,” said Crawford, at-tributing the heavy red tape to “communist legacy instincts,” whereby “many Poles just don’t trust people”.

Boguslawska agreed that bureaucracy is a hindrance to progress, recounting that “it can seem impossible to set up a company,

whereas here [in the UK] we can do it on-line in five minutes.”

Ambassador Sobkow highlighted the huge potential for the already-strong man-ufacturing sector in Poland: “We sell a lot of products that are Polish, but you have no idea that they are Polish. Fiat cars, fur-niture in Ikea or brands with nice names like Gino Rossi – an Italian name because it sells goods but it’s actually Polish. Our problem is that we do not have Polish brands, somehow.”

Sobkow also spoke of Poland’s success-ful push to diversify its trade, especially in light of Russian trade embargoes. “If you can’t sell apples to Ukraine or Russia, you can sell them in Hong Kong and in other places. In a way, it [the effect of embargoes] has been good for Poland and it’s forced us to look for alternative markets in America, Asia and elsewhere,” he explained.

Boguslawska, an associate solicitor at Saunders Law LLP, spoke of the room for improvement in the Polish legal system, saying that certain elements of Soviet rule are still present there. “In Poland, the sys-tem of knowing people and networking is still very much on,” she admitted. “Here [in the UK], when I prepare a case I don’t know what judge will hear it. Even if my barrister knows the judge, there is no way that the judge will meet for drinks with them. This still happens in Poland.”

Henry Kirby in London

Watch bne IntelliNews’ debate

“Poland: A Successful Transition?”

held at London’s Covent Garden Hotel

on May 5: vimeo.com/127575199

Vojvodanska banka toughs out the downturn in Serbia

Ben Aris in Tbilisi

Leading Serbian commercial bank Vo-jvodanska banka is toughing out the eco-nomic pall that has fallen over Europe and starting to make money again.

Based in the relatively prosperous re-gion of Novi Sad, the bank, which has been doing business since 1868, has been strug-gling since the break-up of Yugoslavia. The National Bank of Greece (NBG), a commer-cial bank, bought Vojvodanska banka in September 2006 at the top of the market, paying €385mn for the universal bank.

At the time the bank was losing a few million dollars a month, but through a pro-gramme of consolidation, cost cutting and the introduction of more efficient business practices the bank is now in profit. The bank is the market leader in retail depos-its and the biggest issuer of Visa cards in Serbia, with 23 branches and a total of 172 offices through out the country.

"We concentrate on the bread and butter business of taking deposits and making loans," says CEO Marinos Vathis in an interview with bne IntelliNews. "Our loan book is evenly divided between retail and corporate borrowers with small and medium-sized enterprises (SMEs) making up the largest part of the corporate clients."

However, the outlook for the business is depressed by the problems besetting the region, especially in Greece where the parent bank is based.

 "Is Vojvodanska banka still worth what we paid for it? Clearly not," says Vathis. "But we are making money again and look-ing to the long-term."

The outlook for Serbia remains unsure as there are several factors affecting the country that are beyond its control. The slowdown of the Russian economy has been one negative factor, although the EBRD's acting chief economist Hans Peter Lankes points out that the start of quantitative easing by the ECB has been a positive factor. After a 1.8% contraction in 2014, the EBRD is predicting growth of 0.3% this year for Serbia, improving to 1.8% in 2016.

However, Vathis believes a decade of war, followed by several subsequent crises and the slow pace of EU accession is weighing on the population. "People have lost some of their optimism which can be seen in business and investment. 2007 and 2015 are like different centuries, but if Serbia does eventually join the EU that will be very positive for the country as it will provide the reassurances and business climate that could attract more investment."

bne IntelliNews Daily 13May 15, 2015 Central Europe and Baltic States

A month after Russia took the helm of the BRICS grouping of developing nations, it scored a strong 26th place in a global rank-ing of countries that foster “human capital”, or population potential, coming surpris-ingly close behind the UK (19th spot) and Germany (22nd).

Largely because of its highly educated populace (a legacy from the Soviet era), Rus-sia nudged ahead of many EU members, in-cluding Italy and Spain, in the Human Capital

Nuts, bolts and BRICS of “human capital”

Report by the World Economic Forum, a Ge-neva-based non-profit foundation. The coun-try’s placing was just one revealing result of this re-evaluation of perceived current and future growth potential around the world.

“Talent, not capital, will be the key fac-tor linking innovation, competitiveness and growth in the 21st century,” said the study of 124 economies published on May 13. “More than a third of employers glob-ally reported facing difficulties in finding

talent last year and nearly half expected talent shortages to have a negative impact on their business results.”

Russia ranked far ahead of its fellow BRICS. China came in  64th place,  Brazil in 78th, with South Africa and India trailing behind at 92nd and 100th place, respec-tively. Together the five countries account for almost half of the world’s population and around 30% of its global gross domes-tic product.

But accessible education was not the only measure in the development of a given population's skills. Specific quality of edu-cation, professional training and other cat-egories are all part of the picture. Under-employment rates, health and life expec-tancy were also factored into the study, in which Mauritania, Chad and Yemen landed bottom in descending order.

Now in its second annual edition, the Human Capital Report looks at the devel-opment of citizens in five age groups, rang-ing from 15 to 65. Finland came out on top,

with its widely acclaimed education system, followed by Norway and Switzerland.

While the former-Soviet republics face intense economic and political challenges

today, the strong underlying educational base still bodes well for the future of those in Europe. Ukraine, currently wracked by crisis and military conflict, still scored an encouraging 31st ranking, while the three Baltic republics all came in the top 23 rank-ings. Belarus still remains a wild card in many respects, with no data having been available for the study. Georgia too was not ranked because of lack of data.

The study employed three guiding con-cepts: learning and employment; demo-graphics, and holding all countries to the same standard, measuring their “distance to the ideal” state.

As the authors of the report emphasise, “human capital” is not a one-dimensional concept and can mean different things to different stakeholders. In the business world, human capital is the economic value of an employee’s set of skills. To a policymaker, human capital is the capacity of the popu-lation to drive economic growth. To others it may include tacit knowledge acquired in-

formally through experience, non-cognitive skills, such as inter-personal skills and the physical, emotional and mental health of in-dividuals.

Nick Allen in Berlin

“Talent, not capital, will be the key factor in the 21st century”

Macedonia open for businessBen Aris in Tbilisi

Bulgaria sent soldiers to its border with Macedonia on May 14, following armed clashes there at the weekend between po-lice and suspected terrorists that claimed the lives of at least 22 people.

Macedonia is in the grip of a political cri-sis that threatens to spark another outbreak of ethnic violence. The Bulgarian troops were stationed on the border in anticipation of a wave of refugees fleeing possible terror attacks.

A police raid in the northern Macedonian town of Kumanovo over the weekend re-sulted in the deaths of 14 ethnic Albanians and eight policemen.

A third of Macedonia's 2mn people are ethnic Albanian and the gunfight at the weekend could fan longstanding ethnic tensions in the country that had been bur-ied since a 2001 peace accord was signed between the Slavic-speaking majority and the ethnic Albanians guerrillas.

Macedonia’s embattled prime minister Nikola Gruevski has been playing the attacks down, saying the attackers had crossed the border and this was a one-off event. However, the violence has caused a scandal in the country and Interior Minister Gordana Jankulovska and security service chief Saso Mijalkovski both quit on May 12 following allegations of illegal wiretapping and intimidation of media.

In Tbilisi the head of the Macedonian delegation was doing damage control at the country session at the EBRD annual meeting in Tbilisi. "I can assure you that the events of the weekend were a one-off and I have been assured by the government that all the insurgents have been apprehended. This will not affect the business climate nor deter investors," said Viktor Miko, the CEO of the Free Zone Authority.

Strong investment caseThe resumption of violence has marred what would have otherwise been a very strong investment story. The small Balkan

republic has successfully attracted dozens of European (mainly German) and US com-panies to set up in one of its nearly score of free trade zones.

"They come not just because of the good infrastructure and competitive la-bour costs, but mostly because of the in-vestor-friendly government that will meet with investors even if they are only going to create 50 jobs," says Miko.

Macedonia is an EU candidate member and has been bending over backwards to make life easy for inbound investors. It has set up a one-stop-shop that can register a business in only four hours, and much of the government bureaucracy has been put online, which has the added bonus of re-ducing corruption.

More generally, the country has been

climbing up the World Bank's Doing Business rankings: Macedonia has risen from 94th in 2006 to 30 in 2015, putting it ahead of reform star Poland (32), and central European peers

such as the Czech Republic (44) and Hungary (55). The ranking factor Macedonia does par-ticularly well on is ease of paying taxes, and it boasts the lowest effective tax rate in the world (7.4%), according to International Mon-etary Fund (IMF) calculations.

Economic growth is expected to slow to a still decent 3.4% this year, but the EBRD is forecasting it will increase again to 3.7% in 2016, still slightly below the 4% the country was averaging pre-crisis. Like most of the other small countries in the region, Mac-edonia is selling itself as low-cost manu-facturing and logistical hub to the larger markets around it. The country's growth is already largely driven by exports. US com-pany Johnson Matthey, a Fortune 500 com-pany, has a €65mn catalytic converter fac-tory and was the first Macedonian company to pass the €1bn exports mark in 2014.

"Macedonia is one of the only countries in the world that runs a trade surplus with Germany and the surplus is double what Germany sells to Macedonia," says Mizo.

The large number of trade zones is de-signed to allow labour-intensive companies to set up shop based on the cheap local la-bour, but unlike some other countries, these zones are sufficiently spread out so that new investors don’t come in to pinch trained work-ers from existing plants, driving up wages.

"We have a total market of 650mn people that you can reach without paying any cus-toms duties: there are the 28 EU members as well as Turkey and Ukraine. The mar-ket is much wider than just the Balkans region," Mizo told a packed session at the EBRD meeting.

“Macedonia is one of the only countries that runs a trade surplus with Germany”

May 15, 201514 bne IntelliNews Daily South-eastern Europe

Even before the conflict between Russia and Ukraine raised fears about energy se-curity in Southeast Europe, the 2012 Dom-ino gas discovery in the Romanian sector of the Black Sea caused a scramble to ex-plore the region’s gas resources. Now Ro-mania is poised to become a gas exporter, while Bulgaria and Turkey are looking to develop their own offshore areas, which if successful could lead to a sharp increase in competition.

Bulgaria, which is almost totally depend-ent on imports of Russian gas, launched a new licensing round for two blocks – Teres 1-22 and Silistar 1-14 – on April 20. A state-ment from the energy ministry said the launch of the tenders was “an important expression of the government’s commit-ment to reduce dependence on imports and develop their own sources of energy”. Bulgarian officials attended an energy con-ference in Houston in early May to promote the fields, reporting interest from firms in-cluding Anadarko, Noble Energy and Texas, Hunt Oil Co, according to statements pub-lished on the ruling Citizens for European Development of Bulgaria (GERB) website.

Three days later, Bulgarian Deputy En-ergy Minister Jecho Stankov speculated that in addition to a reliable supply of gas for the Bulgarian market, using domestic gas should be around 35% cheaper than the gas currently consumed in the country.

Sofia’s new drive to tap into its offshore resources started shortly after the Febru-ary 2012 Domino discovery by ExxonMobil and OMV Petrom in the offshore Neptune block. In August the same year, the Bul-garian government signed an agreement with a Total-led consortium on a deepwater exploration license for the Khan Asparuh

Southeast Europe to get more competitive gas market

offshore area, where the first well is ex-pected to be drilled in 2016.

Also in the western Black Sea, Turkey’s TPAO and Shell started drilling in Turk-ish waters in January. “At the moment, the Black Sea is a very exciting part of the world, where some of the biggest names in the industry are actively investing,” Chris Meredith, senior analyst for continental and Mediterranean Europe upstream research at energy consultancy Wood Mackenzie, tells bne IntelliNews.

To date, however, the 2.5 trillion cubic

feet (cf) Domino field is the only recent major discovery, and will bring the trans-formation of Romania from a net importer to a net exporter of gas when production starts towards the end of this decade. The country currently produces around 10bn cubic metres (cm) of gas a year – just short of the 12bn cm it consumes – importing the remainder from Russia. However, when

the field reaches peak production of 6bn cm a year, even with production declining at some of Romania’s more mature fields, Wood Mackenzie forecasts that 4bn-5bn cm a year will be available for export.

Helping the neighboursRomania’s neighbours, most of whom are highly dependent on Russian gas, are al-ready keen to secure supplies. Bucharest has pledged to supply Moldova with gas following the opening of the Iasi-Ungheni pipeline in 2014, but the Moldovan market

is small. Bulgaria could potentially absorb around 1bn cm of Romanian gas a year, though this would depend on the flexibility of its existing contracts with Russia. Serbia too is already lining up for Romanian gas, with the prime ministers of the two coun-tries holding talks on the issue in January.

However, according to Meredith, the “big prize” for Romania will be to export gas to

Clare Nuttall in Bucharest

“Southeast Europe could be in a similar situation to northern Europe where suppliers of British, Dutch and Norwegian gas are competing”

the Hungarian market, where according to an April 2015 report from Wood Mac-kenzie uncontracted demand is forecast to increase over the next decade to around 300mn cf (8.5mn cm) per day. “Much of Eastern Europe relies on mature declin-ing domestic production from Romania, Hungary and Croatia, as well as expen-sive gas imports from Russia,” the report says. “However, with the development of Domino, new infrastructure and imported Azerbaijani gas via Turkey, many Eastern European countries will have more choice about where they source their gas.”

The Domino discovery took place two years before the outbreak of the conflict in Ukraine. However following the start of the conflict, and Moscow’s decision to cancel the planned South Stream pipeline that would have transported Russian gas across the Black Sea to Southeast Europe, the impetus for finding alternative gas sup-pliers has grown sharply.

Romanian offshore gas will not imme-diately be in competition with gas from Azerbaijan that is due to reach Europe in 2019 via the Trans-Anatolian Natural Gas Pipeline (TANAP), as much of the gas from this pipeline will be carried westwards via Greece and Albania to Italy through the Trans Adriatic Pipeline (TAP).

Meredith forecasts this will change in the longer term. “In the short term, gas from Azerbaijan via TANAP and gas from the Romanian Black Sea will serve differ-ent markets,” he says. “However, in 10 to 15 years, we expect head-to-head compe-tition between Russian gas, domestic gas from Romania and Bulgaria, and Azerbai-jani gas. Southeast Europe could be in a similar situation to northern Europe where suppliers of British, Dutch and Norwegian gas are competing.”

For this to be possible construction of new interconnectors will be required, but some are already underway. A feasibility study on the extension of the Iasi-Ungh-eni to Chisinau, funded by the European Bank for Reconstruction and Development (EBRD) is due to be completed in July. Ro-mania and Bulgaria are already working on an interconnector, and immediately after Russia’s decision to scrap South Stream the two countries together with Greece agreed to construct the Vertical Gas Cor-ridor to link their grids. The existing pipe-line between Romania and Hungary is not yet fully reversible, but there is time to address this before Domino comes online. “At present connectivity is an issue in the region, but several new interconnectors are planned,” says Meredith. “Any connection is a benefit as it contributes to a more liq-uid market.”

Photo © OMV PETROM S.A.

bne IntelliNews Daily 15May 15, 2015 South-eastern Europe

Sibiu, a small city in Romania’s Transylva-nia, is one of the largest recipients of Eu-ropean Bank for Reconstruction and Devel-opment (EBRD) municipal funding across the more than 30 countries where the bank operates. Infrastructure investments have underpinned the growth of the city’s econ-omy and its transformation into a tourist and cultural hub over the last decade.

Back in 2003, “the local authorities started on the very long and difficult path of turning a dusty provincial town into a modern European city,” says Sibiu’s acting mayor, Astrid Fodor.

The first step toward the city’s transfor-mation was jump-starting the local econ-omy, Fodor explains. The Hapsburg city, formerly known as Hermannstadt, with its medieval old town has become one of Ro-

mania’s top tourist destinations. However, the new West Industrial Area has also at-tracted Romanian and international com-panies, especially in the auto-components sector. Sibiu is also strong in health and medicine, food and clothing.

Fodor attributes this to factors includ-ing Sibiu’s geographical location, qualified workforce, good standard of living and wide transport links to other European cities. Equally important has been the invest-ments into roads, public transport, water and sewage networks, supported by fund-ing from the EBRD and, since Romania became a member state in 2007, the EU.

The process started a decade ago under Sibiu’s former mayor Klaus Iohannis, who was elected Romania’s new president in

Sibiu’s decade of change

November 2014. Since then, his team has continued developing the city under acting mayor Fodor.

City of cultureModernising urban infrastructure became a priority after 2004 when Sibiu was se-lected as the 2007 European Capital of Culture, together with Luxembourg. Prepa-rations focused on two areas – upgrading the main streets and rehabilitating the city centre. Sibiu international airport was also upgraded.

“The European Capital of Culture pro-gramme motivated the community to come together and work to make this a success. From cultural institutions to hotels and restaurants, local authorities and busi-nesses, we all pulled together and we suc-

ceeded in organising a very good cultural programme,” according to Fodor.

After the event, which gave a boost to tourism, culture and the overall economy, efforts continued. “2007 was an excellent year and an impulse for the further devel-opment of the city,” Fodor says.

She points out that infrastructure pro-jects were essential to Sibiu’s emergence as a successful tourist destination. “You can’t have tourists arriving without an in-ternational airport, good street infrastruc-ture, a good living environment and, of course, a rehabilitated historic centre to attract guests and properly display the city’s architectural and cultural heritage,” she says.

Since 2003, a total of more than 250 streets have been modernised using a combination of local budget funds, EBRD loans and EU structural funds.

In addition to lending directly to the Sibiu municipality, the EBRD has also worked with the city’s public transport and water and sewage companies.

In 2006, public transport company Tursib contracted a €5mn loan which it used to upgrade the bus fleet with the purchase of 35 new buses. A second €4.8mn loan, agreed in 2014, is financing construction of a new bus depot in the West Industrial Area, which will draw traffic away from the city centre, thereby reducing pollution.

The city’s water and sewage company Apa-Canal Sibiu has also received EBRD funds to co-finance projects to modernise its infrastructure. A benchmarking exercise for water companies in Romania, launched with support from the EBRD, shows that the Sibiu company is one of the best per-formers within Romania and also com-pares well with Western European water companies.

Today, Sibiu municipality and its water and transport companies are in a position where they could obtain commercial loans, but according to Venera Vlad, senior banker in the EBRD’s Municipal and Environmen-tal Infrastructure team in Bucharest, the municipality will continue working with the EBRD. “Commercial lenders would like to invest because this is a creditworthy, safe client,” Vlad says. “However, they have chosen to work with the EBRD because they want support with further transition activities.”

The mayor says, “We found in the EBRD a trusted partner on which we could count on to finance the upgrading of city infra-structure, the modernisation of the bus fleet and the building of a new bus depot and, of course, support the local water and sewage company.”

According to Vlad, Sibiu has now become a pioneer for other Romanian municipal-ities as well as one of the reference cities in the EBRD’s portfolio. “Sibiu is a pioneer of change and structural reform, that has become a model to follow within Romania,” she says.

Clare Nuttall in Bucharest

“The European Capital of Culture programme motivated the community to come together and work to make this a success”

Turkish PPP reaches ‘critical mass’

Liam Halligan in Tbilisi

Turkey’s programme of Public Private Part-nerships “stands on its own feet” and has “now achieved critical mass”, according to the EBRD.

“This is a model that is working, attract-ing domestic and international investors,” said Jean-Patrick Marquet, EBRD Director for Turkey. “We’ve seen Turkish PPPs suc-cessfully used for airports, infrastructure, urban transportation, motorways - and now the programme is moving into social infrastructure”.

The Turkish government has signed 195 PPP projects combining public and private money to build critical infrastructure, val-ued at $115bn in total - making Turkey Eu-rope’s second-biggest user of the scheme after the UK. “We have all the ingredients for a successful and sustainable story,” said Marquet.

Oliver Descamps, EBRD Managing Di-rector, stressed that PPP will continue to be at the heart of Turkey’s ambitious in-frastructure expansion - which already in-cludes the building of a vast €22bn airport north of Istanbul, a $3bn bridge across the Bosphorus strait and a new port complex in the Galata region. “PPP is where a lot of the action is and will continue to be in terms of Turkish infrastructure investment,” said Descamps.

When bne IntelliNews highlighted that many UK PPPs have been criticised for a lack of transparency and poor value for public money, Descamps acknowledged there were dangers. “There has certainly been a perception that PPPs have had asymmetric benefits,” he said. “That’s why it’s vital to negotiate a fair and balanced deal”.

Marquet added that because “it is abso-lutely obvious that PPPs cost more” than purely state-backed projects - “as it costs the private sector more to borrow” - there must be a “robust justification” for its use, with “safeguards to ensure that, during the 25-year life of any commission, there is value for money in terms of the infrastruc-ture and related services”.

Contrasting the UK with Turkey, Marquet said: “While the UK’s PPP model is very complex, Turkey has mainly plain-vanilla projects - with lower risks and a lower cost of financing.”

Huseyin Arslan, Chairman of YDA Con-struction Industry and Trade, which has extensive experience of PPP projects in Turkey, agreed that there are “big differ-ences” between the UK and Turkey. “Con-struction costs in Britain are three times higher and British trade unions have also made life difficult for PPP providers - we have fewer such problems”.

A Turkish official who didn’t want to be named told bne IntelliNews that PPP would continue but the country would learn from international experience. “There is always careful consideration of public value for money during the decision-making pro-cess,” the official said. “You need to make sure the public sector has people with strong legal and financial backgrounds and also be prepared for dispute reso-lution”.

May 15, 201516 bne IntelliNews Daily Events Schedule

Block C, Level 5Venue Parliament Building Parliament Building Parliament Building Parliament BuildingLocation Block A, Level -1 Block B, Level 3 Block C, Courtyard Block C, CourtyardRoom Room A Room B Room 1 Room 2

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11:00

12:00

13:00

14:00

15:00

16:00

17:00

18:00

Turkey10:00–11:00

Board of Governors’ Plenary Session 14:00–17:00

Bank of Georgia Session: Going Public

14:45–15:45Awards Ceremony & Reception 15:45–16:15

Driving Change: Gender-Responsive Practices in Business 14:00–15:45

Friday, May 15Venue Parliament Building Parliament Building Parliament Building Parliament BuildingLocation Block A, Level -1 Block B, Level 3 Block C, Courtyard Block C, CourtyardRoom Room A Room B Room 1 Room 2

08:00

09:00

10:00

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13:00

14:00

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17:00

18:00

19:00

Egypt09:00–10:00

Ukraine11:00–12:00

Armenia15:00–16:00

Kazakhstan12:00–13:00

Networking Breakfast08:30–09:00

EBRD Alumni Event 18:00–19:30 (By invitation only)

Awards Ceremony10:05–10:45

Awards Ceremony & Reception17:30–18:30

The Impact of Changing Capital Markets on Developing Economies10:00–11:30

Adopt, Adapt, Advance: Innovating for the Future11:30–13:00

Sustainability Report Launch09:00–09:15 Inspiring Sustainability Leadership09:15–10:05

The Global Energy Landscape: A Conversation with Thane Gustafson14:00–15:30

Tbilisi 2015/Caucasus 2051 A History of Our Future: Our Fears, Our Hopes, Our Lives16:30–17:30

Thursday, May 14

Host Country Investment Outlook Session Keynote Address: 17:15–17:45 Georgian Economic Outlook Panel Success Stories: 17:45–18:45

Schedule Key

Forum Partner Events

Host Country Investment Outlook Session

Discussion Panels

Networking and Social Events

Investment Outlook Sessions

Other Events

Institutional Events

Parliament Building Parliament Building Parliament BuildingBlock C, Courtyard Block C, Level 3Press Briefing Room First Republic Room Chavchavadze Room

Moldova

10:15–11:15

Serbia 16:00–17:00

FYR Macedonia 14:00–15:00

Youth Employment: ‘Lost in Translation’ between Skills and Employers’ Needs15:45–17:15

Fostering Green but Affordable Infrastructure Development – Showcasing Regional Initiatives 15:45–17:15

Parliament Building Parliament Building Parliament BuildingBlock C, Courtyard Block C, Level 3 Block C, Level 5Press Briefing Room First Republic Room Chavchavadze Room

Jordan 12:00–13:00

Baltics09:30–11:00

UniCredit Session09:15–10:15

Investing in Times of Geopolitical Uncertainty15:00–16:30

The (R)evolutionary Road:Company Stories Made Real Thursday 14 May Room: Small Auditorium 09:30–11:00

Board of Governors’ Opening SessionThursday 14 May Room: Main Hall 11:30–12:30

Networking Breakfast Thursday 14 May Room: Small Auditorium 09:00–09:30

Networking Lunch Thursday 14 May 13:00–14:00

Networking Lunch Friday 15 May 13:00–14:00

Reception for All Participants Thursday 14 May 19:30 onwards

Board of Governors’ Opening Session

Rustaveli Theatre

Opening Panel

Georgian National Museum

Mtatsminda Park

Block C, Level 5Venue Parliament Building Parliament Building Parliament Building Parliament BuildingLocation Block A, Level -1 Block B, Level 3 Block C, Courtyard Block C, CourtyardRoom Room A Room B Room 1 Room 2

10:00

11:00

12:00

13:00

14:00

15:00

16:00

17:00

18:00

Turkey10:00–11:00

Board of Governors’ Plenary Session 14:00–17:00

Bank of Georgia Session: Going Public

14:45–15:45Awards Ceremony & Reception 15:45–16:15

Driving Change: Gender-Responsive Practices in Business 14:00–15:45

Friday, May 15Venue Parliament Building Parliament Building Parliament Building Parliament BuildingLocation Block A, Level -1 Block B, Level 3 Block C, Courtyard Block C, CourtyardRoom Room A Room B Room 1 Room 2

08:00

09:00

10:00

11:00

12:00

13:00

14:00

15:00

16:00

17:00

18:00

19:00

Egypt09:00–10:00

Ukraine11:00–12:00

Armenia15:00–16:00

Kazakhstan12:00–13:00

Networking Breakfast08:30–09:00

EBRD Alumni Event 18:00–19:30 (By invitation only)

Awards Ceremony10:05–10:45

Awards Ceremony & Reception17:30–18:30

The Impact of Changing Capital Markets on Developing Economies10:00–11:30

Adopt, Adapt, Advance: Innovating for the Future11:30–13:00

Sustainability Report Launch09:00–09:15 Inspiring Sustainability Leadership09:15–10:05

The Global Energy Landscape: A Conversation with Thane Gustafson14:00–15:30

Tbilisi 2015/Caucasus 2051 A History of Our Future: Our Fears, Our Hopes, Our Lives16:30–17:30

Thursday, May 14

Host Country Investment Outlook Session Keynote Address: 17:15–17:45 Georgian Economic Outlook Panel Success Stories: 17:45–18:45

Schedule Key

Forum Partner Events

Host Country Investment Outlook Session

Discussion Panels

Networking and Social Events

Investment Outlook Sessions

Other Events

Institutional Events

Parliament Building Parliament Building Parliament BuildingBlock C, Courtyard Block C, Level 3Press Briefing Room First Republic Room Chavchavadze Room

Moldova

10:15–11:15

Serbia 16:00–17:00

FYR Macedonia 14:00–15:00

Youth Employment: ‘Lost in Translation’ between Skills and Employers’ Needs15:45–17:15

Fostering Green but Affordable Infrastructure Development – Showcasing Regional Initiatives 15:45–17:15

Parliament Building Parliament Building Parliament BuildingBlock C, Courtyard Block C, Level 3 Block C, Level 5Press Briefing Room First Republic Room Chavchavadze Room

Jordan 12:00–13:00

Baltics09:30–11:00

UniCredit Session09:15–10:15

Investing in Times of Geopolitical Uncertainty15:00–16:30

The (R)evolutionary Road:Company Stories Made Real Thursday 14 May Room: Small Auditorium 09:30–11:00

Board of Governors’ Opening SessionThursday 14 May Room: Main Hall 11:30–12:30

Networking Breakfast Thursday 14 May Room: Small Auditorium 09:00–09:30

Networking Lunch Thursday 14 May 13:00–14:00

Networking Lunch Friday 15 May 13:00–14:00

Reception for All Participants Thursday 14 May 19:30 onwards

Board of Governors’ Opening Session

Rustaveli Theatre

Opening Panel

Georgian National Museum

Mtatsminda Park

AlbaniaMr Shkëlqim Cani, Minister of Finance

ArmeniaMr Karen ChshmaritianMinister of Economy

AzerbaijanMr Shahin MustafayevMinister of Economy & Industry

BelarusMr Vladimir SemashkoDeputy Prime Minister

CyprusMr Harris GeorgiadesMinister of Finance

Czech RepublicMr Martin ProsDeputy Minister of Finance

EgyptDr. Naglaa ElEhwanyMinister of International Cooperation

EstoniaMr Sven SesterMinister of Finance

FYR MacedoniaMr Zoran StavreskiMinister of Finance

GeorgiaMr Irakli GaribashviliPrime Minister

GreeceMr George StathakisMinister of Economy

HungaryMr Mihály VargaMinister of Economy

IcelandMr Bjarni BenediktssonMinister of Finance & Economic Affairs

ItalyMr Pietro Carlo PadoanMinister of Economy & Finance

KazakhstanMr Bakhyt SultanovMinister of Finance

JordanMr Imad Fakhoury, Minister

of Planning, International

Cooperation & Tourism

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