The economic cooperation is crucial, we are here to help
United States of America decided to shift their focus from futile attempts to create full-blown perfect political solution in the Western Balkan region to the effort to elevate the living standard and the economy. This is clearly visible in the recent Serbia-Kosovo Agreement and in opening the regional branch of DFC, a very important and a quite new American development bank. We talk to John Jovanović, newly appointed Regional Director of DFC about the future plans of this financial giant.
Bearing in mind that the US International Development Finance Corporation deals in, why did it take so long to open an branch here in the region and have the necessary conditions been met only now?
Maybe it is helpful if I explain a little bit how DFC came about. It is an idea that originated actually under the Obama administration which was to create the proper American development bank akin to what the counterparts have, to work together, to achieve some of our development goals globally. So think of EBRD, EIB, IFC and countless others. So the idea was to take OPEC which has been very active around the globe and in the region for decades, combine it with some development credit agency that was previously with the USAid, and combine it, but it was the past Congress that authorized it in 2018 with the bipartisan support. And what it did… it did couple of things that were particularly important. 1) It doubled the size of the balance sheet available to DFC from 30b to 60b, 2) and most importantly, quite importantly for this part of the region, it took away the requirement that any transaction or a project in which we participate, so we the American involvement. So we have projects that have international involvement, with those companies that kind of share our values. That happens with something quite important. Most importantly for Croatia, but we are sitting in a high income country, a member of the EU, stable and true ally of the USA, typically in normal circumstances all of our development work and our investment and financial support… we couldn’t do here. However, with congressional authorization as a part of our desire to spur energy cooperation both within the region and transatlantically, in the energy sector the DFC is being able to be active in the region. By and large that is the motivation for my trip to Zagreb for our work here in Croatia.
OK, I plan to ask you about Zagreb and Croatia later. As an American Development Bank…
Sorry, I don’t think I answered your question… on the regional bill… So DFC only began to work in late 2019. The part of the plan was to really sort of think about the different regions of the world as coverage areas. It came to IFI’s or other development institutions of the globe. As part of the economic normalization that we have reached in the White House between Kosovo and Serbia, this administration saw in the DFC the potential to help both of those countries broaden the financial tools available to them to realize the commitments under the economic normalization agreements. That really helps the Western Balkans and come to the forefront and hence the original place. But this is the first proper regional office and regional presence anywhere. We’ve had investment officers elsewhere around the world but this is the beginning of what would, I’m sure, follow – other regional offices and regional coverage for DFC.
OK, as an American Development Bank that cooperates with the private sector, how interesting you think the Western Balkan is to the US companies? You have history here, and as you explained now, you are just beginning here. We can explain it maybe in that way.
Sure, as I mentioned a moment ago, we have near term goals and we are heavily oriented towards helping Kosovo and Serbia to realize their commitments under the economic normalization agreement. However, a key sector for us and a key focus of our development team is energy security and energy diversification. You perfectly pointed out that our unique toolkit is geared towards catalyzing private sector investment and private sector capital. In Croatia, regional security and regional energy diversification truly has to start with a leader and it is truly a regional story. A lot of countries in the region are too small to think about a sustainable energy future as natural gas and LNG in particular, but even we’re down on the line with some renewables advancements. It’s regional economic cooperation that will be crucial to realize those goals. Croatia has realized and has a proof of concept in Krk, in LNG facility which is meant to go alive in January 2021. Sure, there is a tremendous growth potential here, the smaller scale projects, as far as global scene is concerned… sure, but you’ve demonstrated the proof of concept, you’ve done it. The motivation for this visit is to say… OK, you’ve done this, this is a wonderful achievement. You have now this growth potential and you have this potential to emerge as an energy leader in the region. Let’s talk about that, how can we do that, how can we help you do that, most importantly how can we mobilize American private sector. It’s a good question. With regards to energy projects, it is as much a story about the United States as it is about Croatia… or the region. We are the world leader in shell and there is a tremendous amount of private capital invested in expanding the LNG export capacity. There is a technical know-how and capacity and capability. And there is also a desire in this low-interest environment to find on a risk-reward basis, attractive financial returns. DFC can be tip of the spear and mobilize some of the capital by ways of some of our direct investment products which are energy-eligible, so, oftentimes there are projects in the region, Croatia is no exception: they are attractive, they are making sense, there are common equity sponsors, someone who’s ready to lose money first. That’s a project sponsor. It is attractive enough to bring the bank financing. But there are oftentimes projects that are a bit short fall in capital. And that risk capital shortage is where we’d like to play a role. I’d really like to make myself out of the job, in Zagreb and Croatia and mobilize enough private capital to render us not necessary.
You mentioned relationships between Serbia and Kosovo and we are here now in Zagreb, Croatia. How do you see the differences in the region and where do you think there is most room for progress? For example… In Serbia, Kosovo, Bosnia, Croatia maybe?
I think about it quite differently. I think that the biggest potential is to increase regional cooperation at every level, not just Kosovo-Serbia but across the board. Each of the countries has its unique set of challenges. Likewise, each has its opportunity set. Many of these opportunities sets overlap. We will engage in success of the DFC’s initiative and as we work closely with our European counterparts and other development banks and finding ways to increase the number of jobs here and help these economies in these countries keep their talented young people here to realize their dreams, build their stories, build their companies on the ground here. And be a catalyst even at the local, technical level, for more regional cooperation because you see more value in shared future than in arguing about the past.
Who can apply for the funds? Is it on the state level or is it open for some companies and individuals? For your budget?
In Croatia, I think, our toolkit is much better geared towards the private sector. However, a lot, particularly in the energy sector, there is still a heavy guidance and leadership in the part of the public sector so for that reason many of our consultations in the region are introductory meetings, that’s what they are. I’m never gonna understand, especially the outside, the opportunity side is the wellness of the people on the ground. Both in the government and in the private sector. Getting to know each other, getting a better understanding of these opportunities will rise. I think, ideally, in high-income country like Croatia, we are geared towards the private sector.
What is that DFC insists on in investing? The most important for you?
On one hand we wanna find the deals that make the economic sense. We are here to catalyze and realize projects that by and large make financial and economic sense. On the other hand, we are a development bank, the development agency with very robust development criteria. So, these are thinks we would like to see, the key development goals of ours: 1) job creation 2) female empowerment – we want to support the initiatives that help empower women, employ women, see women in leadership positions they deserve. These are two axes. The other key growth and development criteria: we want the environmental… Especially since the projects have fallen into certain categories of the work, there is in-depth environmental and social impact… there is public comment… there is a very keep development compass in everything we do.
As a development corporation, how many funds have you secured for the region?
There is no minimum and there is no maximum. So it is very much opportunity-set driven. In other parts of the region where we have more development goals, there are actually smaller-scale projects that we think can make tremendous impact. All the way up to larger projects that would require more capital. Our framework is not “we are allocating this much to the region, we are allocating this much to a country, or a sector”. It’s opportunity-driven which is why our conversation like we have had in Zagreb today is so crucial. Introducing ourselves, better understanding where we can work together. We’re to deal with the pipeline, the way we wouldn’t do with the private sector.
It’s the plan you mentioned actually: Krk. What are the project plans for Croatia? You met the people from the Government, some ministers here…
I think it is too soon to identify specific projects. I met these people for the first time today but we have started to crystallize and sharpen our view of certain sectors (energy being the crucial one) and it is extremely important. These are state-born and state-sponsored projects. Right now, rightly so, they are focused on executing their projects. There is no use talking about the future growth unless you can deliver the commitments for today. So we really kindly took time on their busy schedule to have this conversation. In my experience in a private sector, once you get these first few months of operation, and you work out the short-term problems, you very quickly start thinking about the future. And setting up those open lines of communication, as they sort of have those thoughts, and hopefully our team in the region gets better up to speed of the opportunity set, we hope those two paths meet in the middle.
Finally, what is the key message for the successful business? Is there any secret key?
In my experience, it’s been investing in your know-how and your team and your people. And high-quality people with shared ethical point of view, with shared values, that really care about doing a good job together, is crucial. I think that’s where more American involvement, spreading… Capital is being monetized around the world right now, especially when interest rates stay so low, but high-quality partners with know-how and shared vision, with shared values for the future, I think that is crucial. So you want to work with partners, especially as a common investor, in multinationals, that hire local people, help develop the local supply chains, that leave with their work a positive impact on know-how, knowledge and society.
What is the biggest problem here when we talk about business? For whole region, all countries? They might have one and the same problem: people’s minds, legislation… or something?
Each country has its own challenges and its own road to reform. You are very fortunate here in Zagreb… By the way, the entire region is very fortunate. The US Ambassadors are so driven, so committed, they are your biggest champions and your biggest advocates, both here in Europe and home in Washington. And I know the Embassy here in Zagreb and the wonderful ambassador have been pushing for judicial reforms and improvement of administration efficiency etc. By and large it exists everywhere around the world, but this is a shared problem. But I would say… look, it’s hard for me with anything I am doing to help and so on. But one thing is what the entire region is thinking about. It’s turning around and facing each other as a real opportunity for economic cooperation. Even at the micro-level, since the business is by and large already doing it. If we think about the economic prosperity, and it doesn’t necessarily mean getting your differences or you cultural identities, your linguistic identities or your sovereignty, but seeing a true value in better trading and cooperating with each other, building the economic future together.
Good message for the end. Thank you very much.
Thank you for your time.