Helping Small Businesses Boost Growth

It certainly isn't an easy task. Closing the annual meeting of the European Bank for Reconstruction and Development (EBRD) on Monday, its President Jean Lemierre said the solid foundation of growth built on the wreckage of the 1998 Russian crisis must be consolidated.

"How do we make progress sustainable, this is the positive and challenging question for the region," said Lemierre in Bucharest, Romania.

The bank has predicted that growth in eastern Europe and the ex-Soviet Union will slow to 3.3 percent in 2002 from 4.3 percent in 2001.

Lemierre said the bank must "remain ahead of the market", moving out of areas where commercial financiers are now willing to lend and focusing on small businesses. The EBRD also wanted to focus on hard-to-restructure state firms that private banks are afraid to help.

Progress for everyone

Easing the pain of change in countries like Romania, where average salaries are just $100 a month more than a decade after communism collapsed, was key to continued reform, Lemierre said. "Progress must be understood by everybody and reforms must be supported by everybody."

Across eastern Europe and the CIS, a gulf has emerged between rich and poor as some benefit from change while the less fortunate are left behind.

Lemierre (photo) promised to boost entrepreneurs in more advanced Central Europe, foster regional trading ties, increase environmental concern, improve energy efficiency and back more agricultural businesses in less industrialized countries.

Investment for growth

The EBRD has escaped the controversy that has hit other financing institutions, such as the World Bank and IMF, by remaining relatively small and operating by market rules, and not getting involved in politics. It has also shifted its focus as some of its target countries develop towards EU entry.

The EBRD was set up in 1991 when communism was crumbling in central and eastern Europe and ex-Soviet countries needed support to build a new private sector in a democratic environment. Last year, it lent a record $3.4 billion in its 27 countries of operation.

It is the largest single investor in the region and mobilizes significant foreign direct investment beyond its own financing. It is owned by 60 countries and two intergovernmental institutions. But despite its public sector shareholders, it invests mainly in private enterprises, usually together with commercial partners.

Polish cookies

One example of a successful EBRD project can be found in Poland. The German baked goods giant Bahlsen set up a subsidiary in Cracow 12 years ago.

The bank gave the German company a favorable loan, which helped make the Cracow baked goods factory competitive. The factory now supplies the whole of eastern Europe with sweet snacks.

Currently, Bahlsen wants to expand its market position in the region even further. "If we want to grow, we need improved production capacity," said Jacek Migrala, head of Bahlsen Sweet. "And if we want to establish better production capacity, we need to expand."

The company wants to build a new production site, but it cannot finance such a large undertaking itself. So, once again, Bahlsen will be turning to the EBRD.