EBRD – Kosovo Head: Anton Kobakov

 

 

Mr. Kobakov, please provide a brief recent history profile of the EBRD in Kosovo.

Prior to 2012 we provided no assistance to public entities but rather a sole focus on private sector SMEs and banks. This model works well as the private sector in Kosovo is predominately small. Aside from providing financing we also invest in companies as well, namely, Pestova Company and TEB bank. After 2012 we expanded our work, albeit to a small degree, by taking on about 1-3 new investments per year, beginning work with the public sector as well as growing our corporate team in order to accommodate our growing private sector portfolio. Additionally, we’ve merged together with our advisory services team and all of these changes have occurred in just the past year and a half. It’s at this point we immediately developed our country strategy which focused on three main areas: supporting the private sector SMEs, large investments of €10 million + (local or foreign) and working with banks.

When these local business people come in to pitch their idea to the EBRD, are they presenting compelling cases for their business ideas? More so, how do you find their overall aptitude?

It’s a constantly evolving process. Certainly compelling arguments were lacking with many having vague ideas regarding their concept or they were presenting information that was not applicable to the purposes of the meeting. The key issue has always been the financial portion where underreporting of revenues is quite common along with preparing sensible accounting measures.

Clearly this was an obstacle as I am sure not all ideas were bad. How did you address this?

For the majority of our previous investments we educated the market, which is a key tenet to what the EBRD does. So, we took what they have; their personalities, experiences in the proposed sector and assisted them with the technical side of things to enhance the information they were providing as well as project presentation skills.

So this is when the ‘advisory function’ comes into play…

Yes, advisors are helping them primarily with business plan development. However, if a project is realized we also offer advisory services in management, operational efficiencies and so forth; all of which is donor funded.

Are these local advisors?

Yes, in fact, I am the only foreigner here.

You are really starting from ground zero with these business people it seems…

Indeed, prior to the business person entering our office we have no previous relations. We aim for the project and invest in those. Once we move past this initial stage we begin our due-diligence work, which is also donor funded, and are with them all the way more as a partner.

There appears to be a large donor element to your work here. How does this work?

This is because with smaller scale investments the costs of preparation are just not worth it as it might be with a €100 million project. The tactic for the region is the same in this sense, with a focus on SME development, and Kosovo was included within our aggregated donor base dedicated to the Western Balkans.

What are some promising sectors that EBRD likes to invest in and is there a discrepancy between that and what business people are coming to you with?

We are heavily tilted toward agro-business, value-added processing. Again, I mentioned Pestova and we’ve also invested in a dairy production company, Devolli Corporation’s ‘Vita’ brand, which has proved very successful. There is also a winery and a retail outlet which represents the only mall in Kosovo. The reason behind this focus is that Kosovo was, and still is, largely dependent on imports with an economy primarily consisting of international aid and remittances. There needs to be more production within the country to help it become less dependent on outsiders and we are helping with that while still achieving our goals as well.

Are you engaged in any large projects?

Not yet in the private sector. However, as mentioned earlier we are working in the public sector now and at this moment we are providing a stand-by credit line for Kosovo’s deposit insurance fund.

We were looking at the EBRD’s Transitional Report on Kosovo from last year. In it there were three main suggestions which could help propel economic development. Care to elaborate?

We are demand oriented in the sense we do not initiate any projects. However, we do promote ideas that can help perpetuate a better environment for investments in Kosovo by engaging in public policy dialogue and advising the government and stakeholders on what can be improved upon in a particular sector. This was the purpose behind the report. As of yet, not a lot of changes have occurred since its publication date.

The first suggestion within the report talks about privatization. This is naturally a contentious issue amongst the employees of the current state-owned companies. What is the benefit to the people during the privatization process?

It’s very difficult to explain to the people in this regard as it offers no real short-term gain but rather requires a long term perspective. It’s about creating long term viability for the overall companies in a given sector and developing an economy on a sustainable base with several companies growing and developing to scale. Frankly, that is what we are missing here in Kosovo, scale. They have a couple of large enterprises and they need more. Their future depends on this and they could have a focus on energy supply to help bolster this idea of large operations. A lot of people are saying that they should focus on agriculture as the primary growth model but honestly it is more geared towards poverty reduction. Yes, you can have some smaller, value-added, and even export oriented agro-producers but this is not a sector opportune for scale in Kosovo.

Beyond that, in general, state-owned companies have appointed directors who are in place for only four years and lack the long term vision that private company shareholder would have. A myriad of other items hurt the model as well: they are prone to corruption, mismanagement, procurement fraud and so forth. Again, I’m speaking in general as to why privatization is a favorable alternative. Privatizing places true investors at the table which in turn yields a solid foundation to grow and create a dynamic and competitive environment. In the end, this provides a better overall business environment within the sector and a competitive base to enhance employee skills. Of course, the short term downside and why people are primarily opposed to privatization is employee cutbacks.

As mentioned earlier, you do not seek out projects and you see agriculture as a poverty reduction sector rather than a primary economic development strategy. Considering that your primary investments are indeed in this sector; what other type of projects would you like to see coming through your door and are you interested in start-ups?

We are flexible in which sectors we work in although we do have a list of restricted industries but this is a bank wide policy. We can certainly work with energy firms, agro, retail, property and so forth.  However, we are not quite designed to operate as a venture capitalist would at the start-up stage. The reason is simple; we just do not have the man power or resources to be with the company owners 24 hours a day during these critical first months and years.

Why do people come to the EBRD rather than their commercial bank?

Two main reasons I’d say. First, maybe they cannot find the size of loan or a loan at all from their local bank; secondly, due to the advisory services we offer. Another factor is that the EBRD is providing them good visibility and even credibility by association. In fact [with a laugh], a client at one point had an EBRD flag in front of his building; we do not have a souvenir shop so I am not quite sure where he got it from.

Which banks do you work with and in what capacity?

Right now we have an energy efficiency credit line with TEB bank, a Turkish bank part of BNP Paribas, and it is growing very well in an otherwise relatively flat market for banks. We also have a 10% equity stake with a small domestic bank, Banka per Biznes (BpB), and last year provided a sub-loan to them as well. Finally, there is a vibrant micro-finance market here and we are working with several of those institutions.

What are the energy sector opportunities you are seeing and if nothing; what is the problem?

The energy sector here is not easy and the potential for renewable energy is rather limited. For example, estimations for hydro-power in the country are only at about 100MW. However, they are sitting on tremendous coal deposits that appear to be under-exploited with two coal plants powering the country. However, these plants are extremely old and outages are common due to poor maintenance. In fact, I think they are the most polluting power plants in all of Europe. On top of that, not all neighbors are friendly to Kosovo and therefore unwilling to sell them energy. On the other hand, they have committed themselves to the construction of new power generating facilities through private investors and we would certainly consider financing such a project but it has not developed to the stage where it makes sense for us, yet. Of course, we apply strict environmental policies to a project of this type so the investment would need to be of the highest technology available, considering coal is at play.

Are there any bidders out there for the project?

Request for proposals are out and there are 3 core bidders. This process is moving quite slowly and the pre-qualified bidders are yet to prove their commitment to the project. In addition to this, a few lack the track record for this type of project. In fact, two bidders are from the US and the other is from Turkey. Coal in general is a tricky industry and Westerners have essentially pulled back from the region in that sense.

Final words to our readers:

One must ask themselves if they believe in the European perspective, in that they are preparing the region for further integration, socially and economically. Naturally, each country is at different stages of this process but if you believe in this Euro perspective and you position yourself in the right sector than you can really stand to benefit.

As social integration and free market ideals are more deeply established and people begin traveling more freely it changes the dynamic of a market/region. You’ll see demands changing, consumption increasing and frankly, when barriers are removed you may see the large diaspora communities in Western Europe coming back or at least engaging more seriously from an economic perspective.

Finally, if the local government finally tackles the issues with the business environment and introduces a normal atmosphere, supports current large businesses, attracts new ones and tackles the corruption issue I think you’ll find the dynamic will change rapidly. By facilitating larger investments you’ll see a biosphere of smaller companies emerging around them. In the end, it will rely on political will.

Investors are checking Kosovo out and simply seeing how disorganized it is; I mean there are building sites going up illegally without permits. Basically, there needs to be rules and people that respect those rules of the game. Still some sectors have great opportunities that we haven’t even discussed like healthcare. There have been some smaller foreign investments through hospitals but not a significant one; people are still traveling to Skopje [Macedonia] for any major care they may need. There’s fashion, retail and importantly, I think the ICT sector can emerge from these changes as a real winner. Actually, there is a lot of opportunity.

 

Tags: