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The CGD Podcast
Sir Suma Chakrabarti on the EBRD, Ukraine, and the SDGs
00:16:33
He oversaw implementation of the MDGs, so what does Sir Suma Chakrabarti think of the SDGs that will replace them? Now President of the European Bank for Reconstruction and Development (EBRD), Chakrabarti is a former Permanent Secretary of the...
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- [00:00]
A
Hello, I'm Rajesh Merchandani and for this edition of the CGD podcast, I've come to London to the headquarters of the European bank for Reconstruction and Development, a key multilateral development bank. It was set up in 1991 to help former communist states in Eastern Europe. Since then, it's expanded its scope to include countries in parts of the Middle East, North Africa and Central Asia. So in terms of development finance, the EBRD certainly has a lot to say. Its president says Suma Chakrabarti formerly held a leading position at DFID where he helped oversee the implementation of the Millennium Development Goals. So what does he think about the Sustainable development goals, the SDGs that are set to replace them? Suma Chakrabarti, welcome to the CGD podcast.
- [00:43]
B
Thank you very much.
- [00:44]
A
Let's start with the history of the EBRD helping former Communist states. It certainly must give you a responsibility to stay invested in the region. And that's exactly what you're doing in Ukraine right now, isn't it?
- [00:55]
B
Indeed. So I think we've had a very successful, if you like, nearly quarter of a century of working on transition countries, as we call them in Eastern Europe to start with now, as you said, broadening out to other parts of the world too. And on the whole, if you look at the first 15 years of that, it was a great success story. Many of these countries moving very strongly down the transition road. Many of them also joined the European Union and that helped move them forward to. But then something happened back in about 2005. 06 there was a blip and it's a long blip whereby reform stopped in many of the countries. They got stuck in transition, as we put in our famous 2013 report. And really the task for us now has been to re energize transition. Ukraine you mentioned Ukraine would be a very good example of that. In many ways, Ukraine probably never really quite got started even down that road. Ukraine now, in my view, I think, has the best chance it's ever had. It's got a fantastic government, a really reformist government trying to do the things it should have done many years ago. It got left behind. Poland and Ukraine are about the same in terms of development in terms of 1991 when the Berlin Wall fell. But look where the two countries are now. But there's real hope now, real reform coming in. Conflict obviously a big issue in Ukraine, but I think it's a good example where re energizing transition really could work.
- [02:15]
A
Obviously with the conflict going on in Ukraine that has impacts on development. I mean, peace is a prerequis development. So why continue investing in a country where development is stifled right now?
- [02:28]
B
Well, clearly if the east was without conflict, it was operating normally, Ukraine's prospects would be even better, or at least its transition would be even faster. That's no doubt about that. And we're predicting this year 7.5% GDP drop in Ukraine partly because of the conflict. So you're absolutely right. But at the same time, for us and for the Ukrainians, there's a large chunk of the country where we can do good, where we can move forward in terms of reform and implementation. And it's interesting the Ukrainian government themselves say conflict should not be an excuse to avoid reform. And I completely agree. So energy sector reform, banking sector reform, improving the investment climate, tackling corruption in that country, which has been a real problem of the last 20 years or so, those things still need to happen despite the conflict.
- [03:16]
A
But isn't there a danger then that if you invest in the parts of Ukraine where there's little or less conflict and not in the parts where there is conflict, then when there is peace, there's going to be that kind of difference again, that could lead to further tensions, couldn't it?
- [03:31]
B
Well, there's always a risk that in a conflict affected country, Ukraine isn't the only example of that, that you get sort of dual speed development, if you like. And the key for us as an international development organization is to work with Ukrainians and with others to help think through how would we reconstruct eastern half of Ukraine as well if there was peace there, if geopolitics went right and if there was a settlement, what would we do to reconstruct that part of the country too? It is a part of the country even before conflict that was in some ways, although very important economically, some ways behind on transition. If you compare western Ukraine, which is much further ahead, or many of the transition indicators, there was still a lot to do. That job will still be there to do once peace has come back to you.
- [04:15]
A
And that's possibly part of the problem now that there was this disparity anyway. But you say if peace arrives, what can the EBRD do to help bring that quicker?
- [04:25]
B
Well, I think at the end of the day that is really a discussion even above the EBRD's head. It's very much obviously an issue for the leadership of Europe, for the Ukrainian leadership in particular, but also the Russian leadership as well. They have to find a way through this. There is, you know, frankly, now A frozen conflict in that part of the country and our whole region has a few too many frozen conflicts. These need resolution because through their resolution can we bring transition and prosperity to these parts of Europe. So something that we can of course help with. But the first part of the answer has to come from politics, from political leadership, from political discussion, political resolution, and then people like us bring the economic chances to that part of Ukraine.
- [05:10]
A
Well, peace, as we've said, is a prerequisite for development. So is finance. And we talk about the SDGs, they're very ambitious. The cost of those is estimated to be in the trillions of dollars, which is more than all the multilateral development banks can muster up. So we. What is the role for organisations like the EBRD in future development finance?
- [05:31]
B
So there's multiple roles on the financial side. I think it's beyond just financing the transition, the development, the SDGs, on its own, what we have to do is leverage finance. So in the case of the ebrd, what are we good at? We are good at leveraging private sector finance into working on the MDGs now, but SDGs into even more so. So our role will be partly through our own projects, but it's also about attracting private sector financiers to come into countries, into sectors, into projects that they don't know enough about yet to want to finance. So we've been pretty successful at this. You know, if you look at our leverage ratio currently, even in terms of bringing private finance in, roughly two and a half for every €1 we put in, €2.50 come from other financiers into our projects. But if you take particular areas like, let's say, energy efficiency, a big part of the climate change agenda, the COP21 agenda and the SDGs, well, that's an area where EBRD has been enormously successful. Over a quarter of our financing every year goes into this area. Last year was a 34% in fact. Now when we've done that, we've actually tapped into local banks as well and brought them into the equation too, really leveraging what we do through the banking system. Third area of private financing that's going to be crucial, I think, going forward is sovereign wealth funds, pension funds and the like. We all know that they're looking for places where they can get good returns, but also help achieve development outcomes that's ideal for those sorts of funds. Well, we have to make a proposition. I think that's exactly what we're trying to do. We're trying to create an equity participation fund I think if we're successful, then we'll attract in sovereign wealth money into our projects, into our equity projects, equity projects giving even higher development returns than debt projects. That would be fantastic in terms of attracting in new players, new finances into this game. So that's, I think, what we have to do. But we mustn't forget, we can't just say that it's all going to be about private sector finance. It's very important for traditional forms of finance, aid and other sorts of traditional finance to still play a big role, particularly in the social sectors where it's so much more difficult to attract private financing.
- [07:49]
A
I'm glad you mentioned aid there because all the talk around the Addis Financing for Development conference is about unlocking private finance. And I'm wondering if you think that gets governments off the hook because very few of them are even reaching their 0.7% commitments as yet.
- [08:06]
B
So there's that risk. That's why I put it on the agenda. I think it's important to have a balanced set of solutions to this, to the financing problem. So, yes, it's very convenient for all of us to talk about private sector finance. And that has got to be a much bigger part of the solution than it was for the MDGs. I completely agree with that. But at the same time, there are lots of things you cannot do without grant aid being part of the picture. In fact, for some of our projects, let's take some of the poorest countries we work in, say in Central Asia, it would not be possible, frankly, to finance some of those projects without grant aid being put in alongside us in a blended way. You couldn't, if you're a municipality in a poor part of Kyrgyzstan or Tajikistan, you couldn't really do those wastewater improvements, those, you know, nice public institution development, without grant aid coming in.
- [08:56]
A
But if you follow that to its logical conclusion, then given that the fact is that poverty is concentrated in fewer countries these days and even in regions of countries not necessarily at the state level, then if you're saying that the poorest areas are not good places for private investment or public private partnerships, then that means that grant in aid needs to take care of the poorest in the world. But is there enough grant in aid to do that?
- [09:21]
B
It's still very, very important for countries that committed back in Gleneagles in 2005 to the raising of grant aid levels from rich countries to poor to still perform and try and meet their commitments. They're already way behind schedule, most of them. I absolve, obviously the UK in this because DFID has actually hit the 0.7 target. But others really need to up their game. So I'm not saying that they don't, they need to, but it's not going to be the only game in town. Back in 2005 at the Gleneagles, that is the only thing we were talking about. We weren't talking about private finance, we were just talking about grant aid. We've learned a, because experience has taught us this. But also the types of things MDGs are trying to finance, which is different from the SDGs. Sorry, the other way around, what the SDGs are trying to finance, different from the MDGs. There is now an opportunity actually to attract in private finance in a way that there wasn't before.
- [10:13]
A
How do you alleviate the risks that potential investors have about investing their private funds in developing countries where there's potentially bad governance or issues of corruption or cronyism? That's what stopped it so far.
- [10:29]
B
So you have to work on multiple levels, but two in particular. One, you as an MDB like the ebrd, we have to help those countries where there are those risks. Very obviously investment climate isn't good enough. The institutions are not good enough. Got to help them improve their policies. Firstly their macro policies, their regulatory policies, their competition policies and their policies about access for poorer people to services, women, underserved regions, those sort of things. Those policies have to improve, firstly to make that country more attractive. Secondly, we've got to really help on the investment climate. How do you make that investment climate better? A number of things. There's obviously governance institutions, but you know, the behavior of, let's say the customs authorities, the behaviour of the tax authorities, the behaviour of the commercial courts, the judiciary, all these things really matter in terms of making a private sector investor want to come to your country.
- [11:22]
A
But how do you straighten those things out in developing countries, if people are living close to the poverty line, then they're going to be susceptible to corruption because they're putting food on their family's tables.
- [11:32]
B
So first of all, you can't see this as a sort of 12 month silver bullet type operation. This is a painstaking 5, 10, 15 year progress, but it can be done. Countries have achieved these changes. Chile for example, is a good example and Latin America, I think Kenya has been going the right direction in sub Saharan Africa. Botswana, a country I started my career in, is a very strong example of this. And in Eastern Europe, if you take Poland compared with now say Ukraine, that's a very strong example. So it can be done. So in Ukraine, what we're trying to do is a good example of this. Corruption has bedeviled Ukraine, undoubtedly since independence. So it's been very important to try and build institutions where the private sector in particular, and citizens feel are independent of those authorities that they have always suspected of corruption and always suspected of rigging the rules of the game. So we have helped set up a business ombudsperson institution in Ukraine. This institution will now investigate complaints and it's already actually started, apparently it's already made its first award in favor of the private sector against the authorities. These are sort of things that need to be set up and they will take some time then to really have an impact over time and through transparency of reporting as well. Over time they do change the dial. I think that's what we've got to. So that's one big area, sort of policy area. The other part of it is, I think, as an mdb, as a multilateral development bank, we have our own constitution, if you like, and our own rules that actually should be attractive for partners to come in with us. When I make speeches about why you should invest in places that are difficult in our own region, I always say one of the first places to start, though, is not on your own, but it's to come in with ebrd, come in as a partner with the ebd, as a co investor, because then you get the advantage of our preferred creditor status, which means that if there are issues around attempts at corruption, attempts at bad behaviour, you will be protected because that country is a shareholder of the EBRD and will not want to mess with EBRD because it would ruin its own market standing. So that really helps many investors come in for the first time with us into difficult environments. An Indian investor in Delhi said, actually, as I was pitching, he made a far better speech than I did. He got up on stage and said, I won't name the country he was talking about. This is a terrible country, very difficult to do business in. But, you know, if you go with ebrd, you will make a safe and sound return and establish yourselves there, as we did. And that, in a way, says it all.
- [13:59]
A
You started off talking about Ukraine. You brought it back to Ukraine just now, so it seems a good place to stop. But I just want to ask you one more thing. You were involved in implementing the Millennium Development goals. Now the SDGs, they're so much more unwieldy. 17 goals, 169 targets. If they represent seven much, do they actually mean anything at all. What's the purpose of them?
- [14:19]
B
This is, at this point, you know, people of my generation start getting terribly nostalgic, misty eyed about the good old MDGs. I was very proud of the MDGs, I still am, because before that we had nothing that would actually unite us, give us coherence about what the development agenda represented. So they were a very good thing to do. But they only really captured sort of a section, if you like, of the development challenge, a very important section, but very much the social outcome section of development Challenge. They therefore helped prioritise, but they also led a sort of financing of only a section of the development agenda.
- [14:55]
A
But how can you prioritise with 160 million targets?
- [14:57]
B
It is clearly not possible across the globe to prioritize that. But you can at a country level, think country level, I always say. So I think it's good that the new SDGs have now in a way captured the entirety of the development agenda. Possibly more than than that. But if you say that's the agenda for every country, that's the road to madness in my view. So which are the SDGs that really matter for your country should be determined by sovereign countries themselves, which are the ones they really want to prioritize. And then it's up to us and other financiers to say how we will help them implement those SDGs. So yes, if you look at the entirety, it looks far too much unprioritized. But at country level it makes more sense actually than you think. And from my perspective as ebrd head, the SDGs, the new SDGs speak more clearly about what we can offer to those countries. So infrastructure, energy, these were missing from the old MDGs really, because they're not. These are the sort of hard economic type parts of the development agenda they're now in. Fantastic. And that really helps in terms of the countries we work in, in terms of making the case for why EBRD should be there, in terms of helping with the SDGs that matter to them. So I think it's in that sense an improvement. But it has to be looked at at a country by country level.
- [16:18]
A
Okay, well, Susuma Chakrabarti, thank you very much indeed for being on the CGD podcast.
- [16:22]
B
My pleasure, Rajesh.
- [16:23]
A
And don't forget, you can find out much more about all of our work on our website, www.cgdev.org. i'm Rajesh Merchandani and please do join me again for the next podcast from the center for Global development.