As Russia, Belarus and Kazakhstan move closer towards a fully functioning Eurasia economic space, the Eurasian Development Bank (EDB) has become a key institution in building the ties between the member countries, and improving the business climate within them.
Established in 2006 by the governments of Russia and Kazakhstan, the EDB is a development bank designed to finance big cross-border projects that integrate the economies of the member states more closely. And other countries from the region are queueing up to join: first Belarus and more recently Kyrgyzstan. "The investment portfolio is up to $3.6bn that we have invested into 49 projects. And we are continuing to move forward. We have been especially active in Belarus more than previously, where we have several important projects especially in the power, potash, rail wagon production sectors, amongst others," says EDB chairman Igor Finogenov in an exclusive interview with bne.
The EDB is a development bank, but unlike its western cousin the European Bank for Reconstruction and Development, it also explicitly invests in projects that are designed to increase trade within the region, thus binding the region closer together. "We focus on big projects so they take time to develop and bring to fruition. The goal is to improve the local economies, but also to promote trade between the member countries to promote mutual cooperation is also very important," says Finogenov.
The trade aspect is of particular interest following the launch of the Customs Union on January 1, 2010, which some have seen as a rival to the EU, but Finogenov argues that the common economic space is complementary to the EU rather than a rival. "It's not a competitive relation but an additional one, as growth in our region will benefit the growth of the continent overall," says Finogenov.
However, the development of the Eurasia Common Economic space is a work in progress and there are some tricky issues to resolve. One of the most fraught is what to do with Ukraine. Already one of Russia's most important trade partners, Ukraine has also negotiated (but not signed) a free trade agreement with the EU; Ukraine cannot be a member of both the Customs Union and the EU, unless the members of the Customs Union enter collectively into a free trade agreement with the EU – something that is possible but is not yet being discussed.
Join the club
Kyrgyzstan is the most recent addition to the club, but new members are admitted on the basis of mutual benefit. As Finogenov pointed out on the panel discussion at the EBRD's annual meeting on the Eurasian Common Economic Space, the free trade agreement is not accepting new members simply to increase the numbers, but only if the participation of a country brings real economic benefits to all the members. "There are a lot of opportunities to help Kyrgyzstan and the country is facing a lot of problems that can't all be solved by the EDB. It is going to need help from regional and international community through a donors club. But here too the projects we are doing in the country are also benefiting the neighbours, such as electricity production and transmission that will help both Kyrgyzstan and those across the border," says Finogenov.
In the next circle out, the EDB is promoting better ties with Asian countries, especially China, which has also emerged as one of the Customs Union's major trading partners. In parallel, the bank is working to deepen ties with the EU. "We have no bias between EU and Asia," says Finogenov. "If the EU has the best technological solution, then we will work with them."
But the main thrust of the Union is to improve the business climate within the member countries and Finogenov hopes that closer integration will help promote a leveling of conditions between the countries. "The three countries have very different conditions of business and all have different rankings on the World Bank's Doing Business survey. If we remove the barriers between these markets, then in a few years the competition will drive the conditions of doing business to converge. It will create new opportunities and the transfer of technology and know-how," says Finogenov.
The EDB estimates the impact of further integration will benefit Belarus the most, where the per-capita increase in GDP will be 6.5% through to 2019. The improvement to Ukraine would be 3.5%, and Russia and Kazakhstan would also get a 2% fillip over seven years. The Union should also prove to be a boon to other countries in Europe by creating a large and more integrated market on their doorstep at a time when Western Europe is once again staring into the abyss. "The problems the EU is experiencing is a useful lesson for us and we are going carefully step by step. The main advantage in our region is the fact that we don't have shared currencies and this gives the member countries a lot more flexibility in dealing with external shocks," says Finogenov.