Despite concerns about sanctions avoidance by countries that enjoy high volumes of trade with Russia, the European Bank for Reconstruction and Development is determined to push on with promoting more “virtuous ways” of doing business in regions such as the Caucasus.
Every day, hundreds of trucks traverse the region’s borders, with some inevitably bound for Russia, potentially carrying goods that may be in contravention of international trade sanctions.
“We don’t know what is in the trucks,” Alkis Vryenios Drakinos, the bank’s regional head of the Caucasus, says on the sidelines of the EBRD’s annual meeting in Yerevan, Armenia.
“There may be imperfections in the system, but not on our watch, and not in our relationships [with local banks],” he says.
Increasing volumes of trade and business between countries in the region and Russia does present challenges for local banks. “The banks don’t have a free ride,” says Drakinos. “They have to be careful and comply with sanctions, otherwise we wouldn’t work with them.”
The imposition of international trade sanctions on the Russian economy resulted in a dramatic decline in direct exports to Russia from the west, with indirect exports intermediated via the Caucasus and central Asia.
However, a report published by the EBRD last year warned that “intermediated trade through a number of countries neighbouring Russia may be used to circumvent economic sanctions”, albeit on a limited scale.
Drakinos says the EBRD can be an “influencer” in the region that promotes “virtuous ways of doing business”, in terms of gender, the environment, corporate governance and transparency.
“But this has a cost,” he says. “We are competing with other schools of thought that are less diligent on the same things and their financial offer may be cheaper. The only sustainable solution is doing the right thing. Politicians [in the region] that are visionary realise this.”
He concedes, however, the limits of the bank’s influence on regional policy.
“We can only support and do more as countries reform and try to push countries in the right direction in terms of European values,” he says.
Georgia in recent years has been held up as the main catalyst for regional economic reforms, and as an example to other states. Yet the country’s proposed foreign agents bill, which critics say bears similarities to a “Russian law” used by the Kremlin to crack down on political opponents, has raised widespread domestic and international concerns.
Civil society group CEE Bankwatch on Monday said that the EBRD’s commitment to promoting multiparty democracy is more urgent than ever, in light of the Georgia crisis and recent adoption of a similar “foreign representatives” law in Kyrgyzstan.
“If the situation in Georgia continues to escalate, we expect the EBRD, together with other international financial institutions such as the Asian Development Bank and the World Bank Group, to step up the pressure and halt funding to the government or entities linked to the ruling Georgian Dream party,” Mark Martin, executive director of CEE Bankwatch Network, said in a statement.
The EBRD says it is monitoring the situation in Georgia closely.
Drakinos hopes that projects like the Middle Corridor, a land and sea transport corridor that links central Asia and the Caucasus to the EU, will bring countries in the region closer to Europe.
“We are looking at bankable projects that support the development of the Middle Corridor that would facilitate trade and the peace process,” he says. “Imagine if one day there will be single cross-border processes, including digitalised ones, between the three south Caucasus countries.”
According to the World Bank, with the right policies, the Middle Corridor, also known as the Trans-Caspian International Transport Route, could “invigorate regional trade and boost connectivity for countries along the route”, as well as provide “resilience and route diversification for the China-Europe container trade, shielding countries and supply chains from geopolitical shocks”.
Yet for the Middle Corridor to emerge as a reliable trade route between Europe and Asia and foster closer economic integration, countries will need to step “out of their comfort zone of what they are used to today, to pursue a new vision”, Drakinos says.
Speaking at a panel on the role of the south Caucasus in developing sustainable trade at the EBRD’s annual meeting, Adrienn Kiraly, deputy director-general in charge of eastern neighbourhood, economic investment plans and relations with IFIs at the European Commission, said integrating the Caucuses into international transport networks linking central Asia and the EU requires the normalisation of a peace agreement between Armenia and Azerbaijan.
“We are working on this with other countries. If this happens we could move in and increase our investments,” she said.
The EBRD is also exploring ways it can be more effective as an investor by co-operating with other IFIs it co-finances projects with in the region.
“We want to increase efficiency by relying on each other’s procedures,” says Drakinos. “So that means we have one IFI’s procurement or due diligence we can rely on, because we trust them, instead of us duplicating resources.”
