Pim van Ballekom is a typical financial sector executive. Simple in his descriptions, very pointed in his arguments and always focused on the money, if not the risks associated with it. Ballekom, vice president of the European Investment Bank (EIB), the largest financial institution in the world with a subscribed capital of 242.4 billion Euros at the end of 2013, displays the essential sharpness of top executives. Trained in law, Ballekom commands over 26 years of experience in finance and public policy in Europe. In this exclusive interview with FORTUNE’S, OP-ED EDITOR, GETACHEW T. ALEMU, on the sidelines of the Third International Financing for Development Conference, held in Addis Abeba, from June 13 to 16, 2015, Ballekom shared his thoughts and experiences as top executive of a leading financial institution and his perspectives on investing in Africa.
Pim van Ballekom is a typical financial sector executive. Simple in his descriptions, very pointed in his arguments and always focused on the money, if not the risks associated with it. Ballekom, vice president of the European Investment Bank (EIB), the largest financial institution in the world with a subscribed capital of 242.4 billion Euros at the end of 2013, displays the essential sharpness of top executives.
Trained in law, Ballekom commands over 26 years of experience in finance and public policy in Europe. In this exclusive interview with FORTUNE’S, OP-ED EDITOR, GETACHEW T. ALEMU, on the sidelines of the Third International Financing for Development Conference, held in Addis Abeba, from June 13 to 16, 2015, Ballekom shared his thoughts and experiences as top executive of a leading financial institution and his perspectives on investing in Africa.
Fortune: I have heard that you are opening an office in Addis Abeba. Why now?
Pim Van Ballekom: We are active in Ethiopia since 1976. We did 26 operations for more than 340 million Euros. I have visited Addis now already three or four times, and the investment opportunities here are huge, so we thought it would be better to be closer to our clients, than we are now – operating from Luxembourg.
That is the reason why I convinced my colleagues to open an office here in Addis and I think it is a good opportunity to do that during this week, because this is quite important and it gives us a bit of visibility. Our office here will be in the premises of the European Commission, although the head of operations is going to be responsible for operations in Ethiopia. He is also our liaison between the European Union (EU), the Bank (EIB) and the African Union (AU), so he has a double mandate, so to say.
Q: What kinds of business are you actually targeting through your new office?
That depends from country to country and it depends on the needs of the country we are operating in. We are originally an infrastructure bank, I mean infrastructure in the broader sense of the word – not only roads and airports but also energy infrastructure grids, sustainable energy – solar power, wind power and what have you.
Q: So you are basically opening the office targeting infrastructure?
No. We are also having requests by our shareholders to be more operational in the micro-finance and small and medium size sector and also in agri-business, agriculture growth chains. So I think it would be good if someone is on the ground to invest in the real investment opportunities.
We always do it in close cooperation with other financial institutions, because as a bank, we never can finance 100pc of an operation – always 30pc, 40pc or 50pc. So we are working in close cooperation with the African Development Bank (AfDB), AFD(Agence Francaise de Development), KfW(German government owned development bank) and others.
Q: Of your total loan portfolio, 90pc stays within the European Union (EU). By expanding into this part of Africa, does it mean that there is going to be a change in the loan portfolio structure of the bank or are you going to stick to your 10pc?
Not immediately. Historically, we are doing 90pc of our volume in EU, but what we are doing outside EU, the so called 10pc, that is not set in stone. That is a percentage that can change, so if there is an agreement from our shareholders to do more, in Africa, or outside the EU, that can be easily a bigger percentage.
Q: I have also learned that you are launching new support for water supply in 20 Ethiopian towns.
Yes. This morning we signed a letter of intent for an investment of 40 million Euros, in cooperation with AFD and the Italian Cooperation Agency, 40 million from us and 80 million in total.
Q: How do you see that support in view of the currently discussed issue of sustainable development?
Access to water and clean water is very important for every sector. It is not only important for drinking, but also important for the agriculture sector – so we also signed this afternoon a MOU with the Dutch Ministry of Foreign Affairs, earmarked for more investments in the water sector. Yesterday, we signed a MoU with the FAO [Food & Agriculture Organisation], for agriculture business, so we are trying to improve in our international cooperation to be better equipped to do business here in Ethiopia.
Q: When banks like yours think about Africa, there is an issue of the perception of risks – be it economic risks or political risks. You have been investing in this continent for long, and how do you understand the risks involved in terms of investment?
We have been operating under the Cotonou Agreement, showing close cooperation with our political shareholders, European Commission, European Union, and we as a Bank – we know how to calculate risks so, in that sense, it is better done by the European Investment Bank (EIB) than by the European Commission – so everyone has his advantages – and strengths in the market.
Q: How does your financing structure – whereby you do not actually support 100pc of a given project but rather, a portion of the project – play out in this calculation of risks? Is it a better model?
It is a good model, of course. If you are in a lending operation, there are more institutions involved, so you can better calculate the possibilities and for instance, risk mitigation – than your doing it alone. But that is the way we are operating also in EU. In the same sense, even in EU, where you think probably the risks are lower, which is not the case, but even there, we are operating for maximum of 50pc investment operation.
Q: One of the financing schemes that have been discussed in this very conference in which you are taking part is public-private partnership (PPP). I understand that you have a rich experience in terms of cooperating with the private sector. Do you think PPPs work in a kind of environment like Africa?
Yes, of course. Seventy-five per cent of our portfolio is in the private sector and I think that we have to encourage the private sector to come into the market because as you see, the old-fashioned development aid days are over. The way forward is blending so that we are combining grant or budget money with lending.
So part of the lending is feasible because of the grants – feasibility studies by the project, or what have you. And in PPPs, we have very big, good experiences in EU, as well as in Africa. It all depends, of course, on the policies of the government. If you want to involve the private sector in your operations, you have to have the right policies in place, like good governance, rule of law – so that you can convince the private sector to come into the market.
Q: Talking about policy, for a bank like yours, policy predictability is a very crucial issue because it helps you in a way to calculate your risks. How do you evaluate the change in Africa in terms of putting in place predictable policies?
That varies from country to country – in our countries in Africa, like Ethiopia, we are doing marvellously well. And you see that it is easier for us to operate in such markets than when good governance is not in place.
Q: You have previously mentioned financing small and medium enterprises, where there is actually significant financing deficit, especially in a country like Ethiopia. Where do you see the challenge in financing small and medium enterprises?
Our main challenge is to find the good commercial counterparts in the countries we are operating in. The EIB is the biggest financing institution in the world, far bigger than the World Bank, but our business model is concentrated in Luxembourg. So if you want to reach out to the small and medium-sized enterprises, we are highly dependent on the commercial sector in the market itself. That is the way we operate. With credit lines, through the commercial sector, we want to reach out to the smaller enterprises in the country itself.
Q: Often in talking to executives of big multinational banks, like yours, I am confronted with this issue that African countries are not really good enough in terms of tabling bankable projects. How do you respond to that?
We have a huge technical department in Luxembourg. We provide technical assistance. We try to help our promoters in building a good project. I think that it is even more important as a feature of our bank than other international operators.
We are not only competitive in price, we are not only doing longer terms – than the commercial sector, because we are a public bank, we can do longer terms – but also we can provide advice. We have a huge advisory department in order to help our promoters to build a good business case where we can invest.
Q: You do give technical support, but you would wish actually for your counterparts, be it state enterprise or a private sector counterpart, to come up with ready-made projects. What is your advice for your counterparts in Africa to improve the bankability of their projects in your eyes?
Go to our country liaison person as soon as possible, when you have a good idea, a good investment proposal, and then he can immediately – because he is very experienced – sort out if it is bankable or not. And if it is not bankable, he would help you with how to make a project bankable.
Q: The world is actually moving from Millennium Development Goals (MDGs) to Sustainable Development Goals (SDGs). Where do you see the role for the banks like yours?
I am personally quite a practical guy so what goals you are defining are not important to me — the most important thing is that you can forward a very good investment project and if it is for sustainable energy, or improving business in the agriculture sector, or if its improving access to clean water, then it will be in one of the sustainable development goals, automatically.
Q: Is it at all the right time to talk about financing development at this very time that Africa, Europe, Asia, and North America are facing varying challenges?
I am not a guy who is thinking in continents. I think Africa is in our backyard. Investing in Africa is to the advantage of the European industries. Investing in Africa is also good for transferring knowledge from us to African companies so they are performing better in the future. And if it is good for Africa, it is good for Europe and the other way around so despite the fact that we have some problems in Europe [this] does not make our commitment to invest in Africa lower. On the contrary.
Q: As an executive of the largest financial institution in the world, what keeps you awake at night?
Q: You never worry about anything?
I do not have worries. No, no worries at all.
Really. Sometimes I am worried because my daughter is working in Congo, Kinshasha, and she is a blunt girl. I think, Ok, I would rather her having a job in Brussels, but no, on the average, I do not have any worries.
Q: What worries you about the Bank?
Our bank is a solid bank, we are doing very good – we made last year a volume of 80 billion Euros – and we had a solid profit. We are not a profit maximising organisation, because we are a public bank but we have to make a profit for defaults and keeping that nice pay, so the bank is in good shape and all those shareholders are more and more demanding. I think we can deliver – we always could and I am sure we can deliver in the future.
Q: The demand for financing is changing in its own way, be it in the amount, type or structure. Do you think that banks like yours are evolving with the demand?
Yes. Our bank is flexible in the sense that we are always market oriented and client oriented. So in some corners of Europe we are very good in infrastructure, in other corners we are more demanded as a new business. So, we are flexible on that and we can adapt ourselves easily.
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