Interviewed by Anna Korbut
U.W.: What are the priority areas of cooperation between the EIB and Ukraine today?
After the change that took place in Ukraine over a year ago, the EIB decided to considerably step up its lending to the country. As part of an overall EU effort to support Ukraine, we plan to make available loans for EUR 3 billion for the 2014-2016 period. We have already signed loans for half that amount and I am confident that we can deliver the rest.
The spheres of investment are diverse, ranging from classic infrastructure, transportation and electricity, to urban development, housing, as well access to funding for SMEs in Ukraine. Being a Bank, we offer loans, not grants, albeit at very attractive conditions. The EIB is also fully financed by capital markets, so we must deliver proof to our investors that we do good projects. Therefore, we are looking for economically viable, sustainable projects, and we call on parties in Ukraine to structure and select their priorities .
U.W.: In fact, SMEs are seen as a good alternative to the oligarch business in Ukraine and a potentially solid basis for stronger, more diverse economy. What are your key criteria when selecting a viable SME project to invest into?
In Ukraine as elsewhere SMEs are the backbone of the future economy. That is why SMEs are so important in our financing strategy, both within and outside the EU. EIB Group funding reached some 260,000 SMEs in 2014. SMEs are among the most innovative companies, and innovation is key to every country’s competitiveness.
Of particular interest is Ukraine’s agricultural sector, an extremely important one for the country. There you have a mix of some big companies and new dynamic SMEs which should get particular attention because they can be a considerable source of growth for Ukraine.
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U.W.: When a company gets a loan from you, do you provide it with some expertise or recommendations in the course of its work further on, or is it up to the business to figure out a way to develop?
The EIB, the EU bank, is the world’s largest multilateral public lender. It is normal that we should deal with a great number of large projects. When we go into smaller ones, we still try to be as efficient and effective as we can, by concentrate collaborating with local banks. That is true in Ukraine, too. We need knowledgeable banking partners which have direct client contact on the ground. This chain enables us to give loans to small businesses. We can’t know every middle and small entrepreneur in Ukraine from Luxembourg, so we trust that to the expertise of the local banks.
In terms of technical expertise, the EIB’s is second to none. There is no public bank of that or even smaller dimension with a comparable structure of engineers and researchers who prepare the due diligence checks of projects. The international rating agencies look at our portfolio and assess how sound business projects are.
The EIB also provides technical advice for companies as they prepare their bid for funding, supporting them in preparing the project in the best possible way and even helping them identify ways of picking and mixing different possible sources of funding.
U.W.: Do you have any tools to control how the investment funds are administered on the ground? Or is this the responsibility of the local partners solely?
We have tough criteria vis-à-vis our partner banks. Our contracts set out what we expect from them. Going into details of individual small companies is difficult for us, so we have to rely on our local partners in that. Still we have very close monitoring of what they do, paying regular visits to the banks and telling them to not only find new projects, but to look at the existing ones. Compliance with EIB’s criteria is checked on a regular basis.
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U.W.: You attract money from capital markets, private investors. Where do you see the most investment interest for Ukraine coming from?
So, basically, we do not try to match investors with specific projects. We do not earmark billions coming from a specific investor to a specific small company in Ukraine. Instead, we go to capital markets with the objective of financing our overall business volume, which in 2014 was worth around EUR 80bn in new loans. Investors trust the quality of our portfolio.
Of course in terms of individual projects we act as catalysts for additional investment by others. Once a project has got an approval stamp of the EIB and our engineers, others join in because they see that it is obviously a good one, a reliable partner. This is what prompts investors to put their money into a business. Ukrainian companies, in turn, are ready to live up to certain criteria provided that the EIB participates in the financing.
U.W.: One thing that scares off investors, aside from war, is slow reforms. When you meet with Ukrainian top officials, how determined are they to conduct structural transformations?
Sometimes you only need to mention a few catchwords with the Ukrainian President, Foreign Minister, Finance Minister or others, and say that we have this or that problem with decision making in your administration, they immediately say “I know what you’re talking about”. So, I think that the awareness of the political leaders and our business partners is absolutely there. We can only encourage them to really improve the situation. Administrative processes in Ukraine sometimes do not meet the state-of-art level which we would like to see.
Also, my advice to partners within the EU – we are a public bank, after all, with 28 member-states as our shareholders – that the best thing they can do to help Ukraine is to support the government in the reorganization and restructuring of administration, in streamlining processes, and bringing in clear application of the rule of law. That way, processes will not only be more efficient but more reliable legally. When you are afraid of corruption around every corner, you do not feel free to do the business you would like to.
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U.W.: What do you see as competitive advantages of Ukraine now, even despite the war?
You’ve mentioned the war twice, and I can only say that this is on our mind all the time. When we talk about Ukraine, we see and feel the suffering of people. Some in Western Europe fail to grasp the scale of suffering people in Ukraine are going through. As to competitive advantages, Ukraine has a highly-skilled labor force and a lot of industrial experience. If modernized, Ukraine’s big-scale industry can be a very strong competitor in the world. In Soviet times, it was focused on areas which are no longer in the foreground, so there a huge effort is required. In partnership with Western companies and nations, I think it will be possible to modernize Ukraine within a decade or so, and make it a very competitive economy.
If Ukraine becomes an economic success story, it will make a difference in the world.