Q: The Russian government expects economic growth to bounce back to between 1.5% and 2% this year. Is this in line with your expectations?
A: The shock coming from the fall of oil prices, combined with Western sanctions, was a great help for the Russian economy as it triggered its modernisation and helped it shift away from hydrocarbons. This transition was long overdue, but didn’t happen until these external shocks kicked in.
Growth in Russia has already resumed, but not in the way it happened before, when it was all about oil and gas and natural resources. New industries that were virtually absent in the economy have become significant drivers of growth. I’m thinking of sectors such as agriculture or complex manufacturing, that became suddenly competitive due to the devaluation of the ruble in Russia and the tenge in Kazakhstan. That all happened, somewhat surprisingly, without triggering a significant inflationary spike.
Q: What is the investment strategy of the Eurasian Development Bank [EDB] in this phase?
A: The structure of our portfolio mostly reflects the structure of the economies where we work, which are dominated by natural resources and energy, and combined account for more than 40% of our portfolio. The remainder is more or less evenly spread between mechanical engineering, metallurgy, transport and other infrastructure. With regards to natural resources, we are not focusing on the expansionary side, but mainly on deeper processing and the modernisation of existing productions.
We are also keeping a close eye on the petrochemical and chemical industry, which has become globally competitive and is going through a real boom. Then we focus on infrastructure, which has historically [suffered from underinvestment in all] Eurasian economies. Infrastructure is the sector [that brings the most integration]. We invest in airports, railway, roads, energy infrastructure – anything that helps bring the economies of the Eurasian Economic Union [Armenia, Belarus, Kazakhstan, Kyrgyzstan and Russia] closer and increases their global competitiveness.
Q: Can you give us some insight into your lending activity?
A: We have a loan portfolio of $2.5bn and we are looking to grow it to $3.3bn by the end of 2017.
Q: Are you willing to take on projects abandoned by the European Bank for Reconstruction and Development because of its post-sanctions freeze of lending in Russia?
A: We have had to replace other development institutions when they have been unable to proceed for reasons that are political, but [not related to] the quality of the project itself. We are more than happy to step in.
Q: How have Western sanctions, which are likely to stay in place throughout 2017 and beyond, affected the EDB's activity?
A: We are an international financial institution. As such, we are not under any kind of sanction and have not been affected directly. With regard to the Russian economy, today sanctions have a negligible effect. It was a shock when they were introduced because the EDB and local commercial lenders had to replace a large amount of financing. That has been done and there is no problem of money in Russia.
On the other hand, there is a problem with the quality of projects and their level of bankability. And the cost of money is high for the inflation-targeting monetary policy approach of the [Russian] central bank. Interest rates are as high as 9%, but rates on the interbank market are higher, and that is strangling the economy. Sanctions are not the issue. In fact, the quality of policymaking has to be upgraded significantly if we want to see growth beyond 2%.