The European Bank for Restructuring and Development (EBRD) is one of the least visible and most controversial regional development banks. Its unique features include its political mission to advance liberal market transition in countries committed to democratization, as well as an exceptionally large and diverse shareholder structure that comprises 71 countries (including US, Japan, China, and Hungary). As countries in its original region of operation – in post-communist Eastern Europe and Central Asia – have evolved into new political economic regimes, the EBRD accumulated a host of tensions in its operation. These tensions prompted the EBRD to establish a new ground for its legitimacy as it moved into a new region of operation into Egypt in 2011, after the Arab Spring. This paper provides a theoretically grounded explanation for the move of the EBRD, a regional development bank, into a new region of operation.
Following the fall of the Mubarak regime, the EBRD, relying on its expertise in transitology, sought to establish its operation in a foreign geographical region. As a first step, it reviewed large companies from the Mubarak-era for their political commitment to the old regime. Based on this scrutiny, the EBRD granted only a limited amount of loans, mainly to the private sector. As Egyptian politics changed, however, the EBRD actively looked for a new legitimation base for its activities in an uncertain environment of the MENA region.
Regional development banks are prone to operate in organizational fields. Lacking the expert authority and the support of great powers of the World Bank, regional development banks seek to build a network of development banks, commercial actors, and public authorities to strengthen their operation’s impact. According to organizational field theory, large and complex organizations in an uncertain environment will mimic the behaviour of organizations that they perceive to be more legitimate and successful. Consequently, the EBRD in Egypt was both actively seeking connections with other development actors, and prone to mimic the operational logic of the development finance field.
Since 2014, inside the EU, a development finance field has emerged with the EIB and national development banks at its core. Since 2015, this development finance field started dominating the neighbourhood policy of the EU towards the MENA region. Financed by member states and the EU’s newly established funds, the EIB and national development banks of core countries channelled financial resources and technical expertise to Egypt. The EBRD moved closer to this new field of European development finance and embraced its logic of supporting sustainable infrastructure to combat climate change, promoting public investment, and countering Europe’s geopolitical rivals in both Egypt and elsewhere in the MENA region.
Since 2015, the EBRD has been both imitating European development actors and relying on its own expertise. It offers capacity-building and technical assistance projects to the Egyptian state. It has also reorganised its own loan portfolio to support PPPs (many of which it classifies as private investments), projects of well-connected private companies, and the development of public infrastructure. At the same time, the EBRD has become a valuable partner of the authoritarian Sisi government as most of its financing is related to the megalomaniac Vision 2030 of the Sisi administration, which includes new ports, a new Cairo city, and related infrastructure.
In this transformation of EBRD practice, the Bank has retained its emphasis on liberal market conduct capable of curtailing corruption and ensuring the freedom of market actions. Nevertheless, the EBRD has also become a critical link between global capital market investors and the authoritarian regime in Egypt disregarding its original mandate. The sweeping ease of the EBRD’s commitment change is a warning to the global development finance community to maintain democratic control over their practice while embracing new goals in new regions of operation.