The European Bank for Reconstruction and Development has adopted a new strategy for the Russian Federation under which it will over the next three years give priority to economic diversification, supporting the real sector of the economy, promoting energy efficiency, strengthening domestic capital markets and funding infrastructure renewal.

These priorities reflect the Bank’s views on how it can best help Russia confront and mitigate the effects of the current crisis in the short term, as well support a post-crisis recovery in the medium term, through making the best use of the EBRD’s local presence in all seven of Russia’s Federal districts, the country’s main administrative divisions.

The EBRD confirms its readiness to support the efforts of the Russian government to accelerate the privatisation of stakes in state-owned companies and to help bring back into private ownership companies and banks in which the state has increased its involvement due to the economic crisis.

The Bank will therefore consider pre-privatisation investments to restructure state companies in order to increase their attractiveness to investors, as well as the possibility of participating directly in privatisations alongside strategic investors or supporting Initial Private Offerings by such companies.

As the crisis has made it more difficult for Russian companies to attract much-needed equity investments, the Bank will actively seek opportunities to provide risk capital to Russian companies and banks.

Such investments allow the EBRD to use its role as a shareholder, including on the board of the companies in which it has invested, in order to exercise a positive influence on corporate governance standards.

The strategy commits the EBRD to reduce energy waste in all sectors in which the Bank finances, thus putting energy efficiency and measures to combat climate change at the heart of its mandate.

Of all the EBRD’s countries of operation, Russia is the most energy intensive. Correspondingly, it offers the largest potential for energy efficiency improvements. In terms of greenhouse gases, Russia alone accounts for 49 percent of all CO2 emissions in the EBRD region.

As part of efforts to strengthen the financial sector, the new strategy also stresses the need to develop a robust capital market infrastructure capable of providing the long-term rouble funding Russia needs in order to finance critical infrastructure projects, as well as to modernise the real economy.

The overall aim, in line with government priorities, is to make Russian industry more competitive and encourage a shift to a knowledge-based economy, thus helping to diversify the economy and reduce dependence on natural resources.

Key to achieving this is the role of micro, small and medium-sized businesses (MSME’s), a sector with huge potential for increasing Russian productivity, creating new jobs and promoting economic diversification.

During the new strategy period, the EBRD will seek new ways of supporting and financing the sector, including through the development of a dedicated MSME facility with the Russian government and a joint programme with Vnesheconombank to fund MSME’s through financial intermediaries.

On the political front, the strategy points out that while Russia remains committed the principles of multi-party democracy, pluralism and market economics, more consistent application of these values would help it achieve its medium-term development goals.

It argues that the policy innovations needed to address Russia’s key challenges are most likely to emerge from a free flow of ideas and information, an open engagement with civil society and enhanced political competition.

EBRD has invested more in Russia than any of the other 29 countries in which it operates. Russia accounted for nearly 31 percent of the EBRD’s total portfolio as of the end of 2008.

Private sector deals represented 84 percent of all EBRD projects funded in Russia at the end of the first quarter of 2009. Equity investments at that moment accounted for 27 percent of the Bank’s Russian portfolio.

 The new strategy was today approved by the EBRD Board of Directors representing the 61 governments and two inter-governmental institutions which make up the Bank’s shareholders.