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Turkey 2013 | ECONOMY | VIP INTERVIEW

TBY talks to Dr. Hossein Ghazavi, President of ECO Trade and Development Bank, on the goals of the bank, challenges to increasing regional trade further, and expanding the Economic Cooperation Organization (ECO).

TBY talks to Dr. Hossein Ghazavi, President of ECO Trade and Development Bank, on the goals of the bank, challenges to increasing regional trade further, and expanding the Economic Cooperation Organization (ECO).

THE BUSINESS YEAR What were the goals of the Economic Cooperation Organization (ECO) member states when establishing the bank in 2005?

HOSSEIN GHAZAVI ECO Trade and Development Bank is a multilateral development bank (MDB). It was officially established in 2005 by the ECO founding member countries of Iran, Turkey, and Pakistan. As with every new institution it takes time to acquire the necessary staff and adapt to the rules and regulations. The policies, rules, and regulations adopted in this respect are all aligned with the practices of other MDBs and the needs of member states. Meanwhile, we are experiencing an endowment of admirable professionalism in terms of human resources. We’ve been fully functional as of 2008. During these past several years the Bank has achieved considerable milestones, even though it is the youngest regional MDB in the world. The bank is headquartered in Istanbul, with representative offices in Tehran and Karachi. The main purpose of the bank is to initiate, promote, and provide financial facilities to accelerate inter-regional trade and economic development. The bank is designed to be the main financial pillar for the ECO region and for the economic co-integration of ECO member states. The bank’s subscribed capital is SDR1 billion, and the paid-in capital is SDR300 million, which is equally shared between the three aforementioned founding member countries. The institution is not meant to be a profit maximizing one, but it needs to be sustainable, which is why it emphasizes profit and other satisfactory financial ratios in order to prove itself efficient in the market. The main goals of the bank are to finance developmental projects and inter-regional trade in ECO countries, to facilitate private and public sector investment through cooperation with international and national financial institutions, and to mobilize resources and provide other banking services as are deemed necessary or incidental to the advancement of its purposes.

What have been the bank’s main achievements?

We finance trade and promote the development of SMEs in member countries, and we also finance the investment needs of corporates and developmental projects. If I may give some examples of our operations, one was a wind power project in Pakistan, financed by the bank in cooperation with other financial institutions. The other co-financers were IFC, the Asian Development Bank (ADB), and a Pakistani bank. The other major projects we’ve helped finance are an irrigation and wastewater project in Iran and a metro project in Istanbul, where we provided financing to the Istanbul Metropolitan Municipality. We place emphasis on infrastructural projects and projects that have developmental aspects. These can be public or private sector developments.

How would you assess the level of trade integration in the ECO region and what do you think needs to be done to increase trade further?

Economic integration is essential for every region in the world. The EU is a prime example of this, regardless of the current crisis it’s facing. Overall, EU countries have benefited from economic cooperation both in economic terms and politically. The ECO should take the EU as an example. Within the ECO framework, trade is regarded as a powerful tool in supporting regional integration, growth, cooperation, and development, as well as in terms of creating jobs. Total trade volume of ECO countries amounted to $880 billion in 2011. There is huge potential for improving even this considerable volume. However, there are still trade impediments like tariffs and other barriers. When we compare the ECO to other regional organizations like ASEAN, where the volume of inter-regional trade is 24%, or the EU where it’s almost 70%, we find that we have a lot of work to do to fill this gap, because the volume of inter-regional trade in the ECO region is a mere 8%. We have to raise this to, say, 20% by 2015. The ECO trade agreement, which is just now being implemented, will lower tariffs in the region. Moreover, we need to forge joint ventures, develop trade-related infrastructure, establish economic and trade zones, create currency swap agreements, establish cross-border trade settlement mechanisms, mutually open bank branches, and support the development of e-commerce. We need to do this to improve the volume of trade, as this will lead to economic growth and job creation in member countries. There is so much potential in the region. I think all the member states realize the importance of initiating and developing these projects. People in the region are already feeling the positive outcome of economic integration, and governments of ECO member states realize that these projects must be continued.

Azerbaijan and Afghanistan are now joining as the fourth and fifth members of the bank. How does that fit into the goals of the bank, and do you think continued expansion is what is needed to promote the development of trade and integration in the region?

The more members, the more financial resources at our disposal in terms of capital and better conditions in terms of recapitalization on the part of shareholders. It will also enable this Bank as the MDB of the ECO region to follow its goals more efficiently. The Islamic Development Bank (IDB) has a considerable number of members, for example. Azerbaijan and Afghanistan will soon finalize the internal states procedure to become members of the Bank, and hopefully other ECO member states will soon join, thus improving the bank’s financial capitalization, leading hopefully to become a premier regional institution having the support of all regional countries. Then, we can mobilize resources at more reasonable prices on the international market, and this will enable us to allocate far more considerable resources to various projects in member countries.

You have proposed the creation of a regional partnership forum. How do you think this will help the bank meet its goals?

We believe that finance is an important factor in regional development and integration. Without mobilizing the necessary capital for developmental projects, we go nowhere. In this respect, there is a need for coordinated and collective action to improve strategic partnerships and alliances among relevant stakeholders. The bank emphasizes the importance of organizing a periodic regional partnership forum comprised of various international and regional institutions that are active or looking for opportunities to locate investment and conduct business in the region. We should bring these institutions together and get them to work on joint initiative and projects, creating some synergy between them. This will benefit the region and the bank greatly.

What steps do you think Turkey needs to take to ensure that it maintains a sustainable level of growth, and what is your medium-term outlook for the Turkish economy?

Turkey is one of the founding members of the ECO Trade and Development Bank and is also a member of other MDBs. It’s a very significant member. I believe the authorities need to give more emphasis to a model of export-led growth that keeps in check the current account deficit, which is Turkey’s Achilles’ heel. I know that the local authorities are aware of this situation and are trying to absorb more sustainable capital inflows into the country, rather than volatile, short-term capital inflows. The economy needs to gain further competitiveness and raise its national savings rate to provide safer financing sources. Access to sustainable financing resources is essential. Turkey benefits in that it’s a bridge between Europe and Asia, and has a stable government. It is able to attract sustainable capital. To ensure these factors remain consistent for the country in the medium and long term, the current account deficit must be addressed. In addition, increasing investment in R&D, innovation, human resources, creating more brand names and promoting energy efficiency would enable the country to achieve higher levels of socio-economic development.

This interview will be published in 'The Business Year: Turkey 2013'. To pre-subscribe please e-mail us at info@thebusinessyear.com

© The Business Year - July 2013