Exclusive: EBRD's Africa expansion plans facing resistance - sources

By Marc Jones

LONDON (Reuters) - The European Bank for Reconstruction and Development's plan to expand its operations into sub-Saharan Africa is facing resistance from some of its top shareholders, several sources at the London-based development bank told Reuters.

Set up in 1991, originally to help ex-communist countries of eastern Europe shift to market economies, and majority owned by G7 top economic powers, the EBRD has spread rapidly over the last decade to more than 35 countries from Morocco to Mongolia.

Ambitions to continue that into sub-Saharan Africa were laid out last year but governments including the United States, Germany and France as well as many in its eastern European heartland have reservations, sources say.

The struggle isn't the only issue shaping the bank's future. Europe is looking to streamline its development financing this year, the bank is due a new president next May, a move to new London headquarters is bogged down by Brexit and the Africa push is part of a broader identity shift.

EBRD management had hoped to overcome some of the scepticism after internal analysis showed only a fraction of a 3 billion euros-a-year ($3.34 billion) proposed increase to its near 10 billion annual lending could be done in its existing bloc.

Two national sources who spoke on condition of anonymity said management had proposed an "Africa full-speed ahead" agenda for the bank's annual meeting in Bosnia next week, only to see government representatives who sit on the bank's board of directors intervene.

"It was almost unprecedented," one of the sources, involved in the discussions, said. "It was a rare example of where the board comes together and said 'no this is not what we want' and changed it."

Sixty-seven countries are EBRD shareholders. Previous expansions have required unanimous backing but changes since mean a 'qualified majority' might now be enough. That would give the United States, which holds 10 percent of EBRD shares, and Britain, Germany, France, Italy and Japan with 8.5 percent each, by far the most clout.

The EBRD declined to comment on the discussions, but sources said months of toing and froing over the Bosnia agenda resulted in a drastically reworked final version with five key 'work streams' tied to the bank's 'Medium-Term Directions' - its priorities for the next five years.

Feasibility work on African countries with "strong links" to the existing EBRD region may get approved, but emphasis will now be on expansion into Algeria, Libya, Iraq and Syria, as well as doing more in its existing bloc.

IDENTITY ISSUES

Potentially eye-catching too is a still-to-be-quantified increase to the EBRD's financial buffers to give it additional protection in case the slowdown in the European and global economy worsens and causes losses on its loans.

Though not directly linked, one source added a "significant" chunk of the bank's Turkish investments were now on an internal "watch" list after the country's slump into recession.

Turkey’s Treasury and Finance Minister Berat Albayrak is due at the Bosnia meeting and will give a public presentation and Q&A session on May 8.

The agenda shows governments will also discuss disbursing some of the bank's identified surplus capital to governments for the first time. The bank had promised to review the possibility after it received a 10-billion-euro capital increase in 2011.

The United States also floated the idea of dividends in 2008 when there was talk of winding down the bank or merging it with the European Investment Bank (EIB).

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"It is just one of the options," one of the sources said.

The idea of a broader overhaul of the bank is back on the radar. A European Commission group is looking at how to streamline the region's development financing efforts, which could lead to calls for some radical changes to the EBRD and EIB.

The work is expected to be finalised around October but some initial findings could emerge by the end of May, people who have followed the work say.

The EBRD's heavy investments in Turkey and Egypt - and now its Africa ambitions - reflect the tilt away from the former Eastern Europe bloc, where there is little prospect of restarting lending in Russia and mainstay markets like Hungary, Romania and even Poland have seen relations turn with the European Union.

"This is going to be a very political meeting," said a third EBRD source. "There are a lot of difficult issues."

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(Editing by Janet Lawrence)