The European Bank for Reconstruction and Development (EBRD) has been asked by the High Level Steering Group (HLSG) for Donor Co-ordination in South Eastern Europe to define and co-ordinate the international response under the Stability Pact for the promotion of Regional Private Sector Initiatives. The paper presented below provides a strategic framework, outlines programmes and projects which are models of "best practice" in the region, and presents those initiatives which have been agreed among the IFIs as suggested priorities for consideration by the donor community and beneficiary countries.

There are numerous effective bilateral programs benefiting SMEs and private sector activity already underway. The paper does not attempt to catalogue all of them. Nevertheless there are strong synergies and complementarily between IFI projects and grant resources from existing and planned bilateral initiatives. The paper highlights those IFI initiatives that could be extended or implemented on an accelerated basis with grant bilateral co-financing or technical assistance. It is hoped that bilateral donors would find co-financing with an established and proven IFI programme an attractive way to employ their limited grant resources.

Regional Private Sector Initiatives are divided into two types of programs: the promotion of Cross Border Trade and Investment and regional coverage of SME Support. The first addresses large private projects which promote inter and intra-regional commercial linkages and the second addresses the need for broad access by SMEs to the full range of existing and planned support programmes. The expected important contribution of the private sector in the development of infrastructure (as promoted by the EBRD) is assessed separately in the EIB strategy paper as per project list.

EBRD and IFC are the two main IFIs involved in private sector investment. They have increased their combined outstanding commitments to the region by Euro 506 million in 1999 to a total portfolio of Euro 2.6 billion equivalent at end 1999 of which 63 percent is private sector. The total project pipeline has increased strongly with growth of 22 per cent in 1999 reaching a total of Euro 2.9 billion partly reflecting greater investor confidence created by the Stability Pact. Based on these trends, the IFIs estimate that their combined new amount commitments in the region could increase between Euro 600 and 700 million annually. Taking into account the multiplier effect created through co-investment by partners, IFI operations would generate annual new investments of Euro 1.2 billion to 1.4 billion.

Specific new regional initiatives are recommended in immediate support of cross border trade and investment over the next 24 months. Each is based on existing programmes already operational in parts of the region such as: Trade Facilitation Programme (local bank guarantees); Trade Insurance Programmes (local specialist insurance institutions) and Political Risk Guarantees (to cover political risk for inward investment). The extension of these programmes to cover all countries and territories of the region would require donor support totalling Euro 128 million. An analysis of the regional coverage of SME programmes shows that a considerable amount of donor and IFI finance is already committed. However, there are gaps in the provision of specialist micro, small equity funds and enterprise support which require a high proportion of donor funding. In summary the total amount of donor funds requested for extension of these programmes is Euro 103 million. Second and Third Pillar support for SMEs have important synergies with the finance provided by IFIs. A number of already announced programmes will facilitate coordination of finance and non-finance support including: IFC Balkan Enterprise Facility (USD 35 million) and the EBRD/US Trust Fund for SMEs (USD 25 million). In addition EC/ Phare has made available co-financing of Euro 15/20 million to Bulgaria and Romania under the EBRD/EU SME facility (Euro 125 million). This facility could be further extended to include the Western Balkans.

Each of the regional private sector initiatives described in the paper have different timing profiles related to their urgency, geographical coverage of existing programmes and extent of institutional infrastructure already in place. As a result it is possible to identify initiatives which can be implemented on a "Quick Start" basis, defined as those initiatives where donor funds could be employed within the coming 12 months (April 2000-March 2001). The IFIs and donors have already committed Euro 186 million for these initiatives. The funding gap for "Quick Start" projects amounts to about Euro 104m. The balance of donor funding requirements (Euro 127m) is for "Near Term" projects, i.e. with commitments and/or disbursement occurring approximately during 2001. Most of the projects are based on existing operations or on proven models which can be extended from one country to another. This approach is designed to facilitate the donors ability to identify those projects which will have an immediate impact in the region.