The world has changed dramatically in the last week amidst the ongoing Russian invasion of Ukraine. As a result, the United States and its partners should rethink how we use multilateral organizations. The European Bank for Reconstruction and Development (EBRD) is a little understood, key organization that has an outsize impact in Ukraine and the former Soviet space.
Before the Ukraine invasion, many shareholders wanted the EBRD to become a “green bank” focused on Sub-Saharan Africa as well as the Maghreb and Levant. These ideas need to be immediately rethought. The EBRD should instead ensure that supporting market democracies in the former Soviet space remains its major focus, while prioritizing all forms of energy and making a big commitment to mining for the carbon transition.
The EBRD came into existence with a mandate to create strong and sustainable market institutions in post-Communist Central and Eastern European (CEE) countries that would enable the growth of free enterprise and the private sector. EBRD is the only multilateral investment organization that has a mandate to use its investments to support democracy.
Many of the original countries that EBRD assisted need far less (direct assistance) from EBRD, but COVID and the invasion will likely spike demand from countries that have not called upon EBRD in a long time. In addition, a dozen countries around Russia’s rim require a significant amount of EBRD’s assistance. EBRD needs to double down on helping Ukraine — along with those other countries — given Russia’s unprovoked invasion.
The EBRD is owned by 71 countries, the European Union, and the European Investment Bank. The United States has a 10 percent capital shareholding percentage and is the largest individual shareholder. Ukraine joined the EBRD as part of its expanded membership in 1992, along with many other post-Soviet countries. The EBRD has carried out more than 500 projects in Ukraine and has a current portfolio of investments of $4.8 billion in the country. EBRD once had significant investments in Russia, but — with relations between the West and Russia going sideways, Russia’s seizure of Crimea, and growing authoritarianism — EBRD froze activities there in 2014. After what has happened in Ukraine, EBRD should fully divest itself in Russia.
Given Belarus’s support for Russia’s unprovoked invasion, the EBRD should divest itself in Belarus as well. According to the EBRD website, the current Belarus portfolio is €880 million. The EBRD has stated on its website that “our governors will soon decide whether to suspend Belarus’s access to EBRD finance and expertise open-endedly because of its role in the invasion of Ukraine.”
The EBRD’s president, Odile Renaud-Basso, has rightly come out with strong support for Ukraine, pledging “unwavering support.” Furthermore, the EBRD’s Board of Directors has agreed with a management proposal to take steps to support Ukraine in response to the invasion, and those steps are now going to its Board of Governors for approval.
There are several things that the EBRD should consider given this ongoing and likely protracted conflict:
- The EBRD should recommit to its original mission and “finish the job” in the post-Soviet space, which would mean supporting Ukraine and what might be described as “frontline states,” including Georgia and Moldova as well as the Balkans, Central Asia and other Caucasus countries.
- The U.S. will need to exercise energetic leadership and (re)engage. As of today, the Biden administration has not put forward a candidate for U.S. Executive Director at the EBRD, which means we will not have someone sitting in that chair for at least six months given the nature of Senate confirmations. Senior staff members who happen to be U.S. citizens are dwindling. Of the 20-plus members of EBRD senior management, only one is currently a U.S. citizen. Under the right circumstances, the U.S. might consider a capital increase for the EBRD.
- The EBRD should become a major financier of minerals. With Russia under increasing sanctions, Russia’s minerals and oil and gas reserves are likely going to be sold to China. Given that the carbon transition will require vast amounts of minerals for electronic vehicles, solar panels, and other technology, the EBRD should work with other MDBs and DFIs to help develop mining for the carbon transition in non-Russian contexts such as Kyrgyzstan, Mongolia, Kazakhstan, and Ukraine. The carbon transition is going to take decades, so in the meantime there are other things that the EBRD should take on including:
- The EBRD should finance new, safer, and smaller nuclear power plants as well as liquefied hydrogen, given the recent pro-nuclear announcements in Western Europe.
- The EBRD should actively finance non-Russian oil and gas projects — especially LNG projects — given the disruptions in the energy world due to the Ukraine invasion.
- EBRD should not expand to Africa. There have been significant discussions over the last several years about expanding the EBRD’s footprint to sub-Saharan Africa, which is very important to the world. Nevertheless, while sub-Saharan Africa’s population is growing at a fast pace and requires the types of investments the EBRD provides, the EBRD should “stick” to its space given the crisis in Ukraine. Other institutions — including the World Bank, the African Development Bank (AfDB), and bilateral country development finance institutions — should take the lead, and if need be, those institutions should be strengthened to help Africa, given their respective comparative advantages in Sub-Saharan Africa. There should be a moratorium on mission creep for the EBRD for the next 10 years, given the events of the last week.
While the EBRD was originally founded as a “development finance institution,” it has recently added new forms of development instruments to its toolkit, including blended finance tools, sovereign finance instruments, research grants, and technical cooperation. With these new capacities, and given the crisis, EBRD has stated it is exploring an “emergency financing package for the region.”
The EBRD should be at the center at any efforts to rebuild Ukraine and support countries impacted by the invasion of Ukraine. International observers do not know the extent of the damage, nor the cost of the reconstruction, given the evolving nature of the conflict.
The United States, European Union, and others should use the EBRD to help Ukraine and other post-Soviet states diversify their economies away from Russia.
The EBRD should stick to its original mission, and it should become the premier financier of mining and all forms of energy and power projects in the former Soviet space. EBRD should be asked to play an enormous — even pivotal — role in helping these countries chose their own futures and should stick to its knitting.
Originally published on thehill.com on March 4, 2022.