THESSALONIKI, Greece, July 30, 2002 (UPI) — The Black Sea Trade and Development Bank’s stated mandate — of promoting trade, job creation and, when possible, environmental improvements — is well attested in the 2001 Plovdiv project.

This is Part 2 of an analysis of the BSTDB; Part 1 appeared Monday.

Until recently, the biggest polluter in Plovdiv, Bulgaria, was the Kombinat za Czetni Metali S.A. zinc smelter. Everything near this state-owned monstrosity stank of heavy metals and stagnant wastewater. The resulting contamination contributed to both the discontinuation of agriculture and the psychological torpor of the locals.

“KCM was so smelly and dirty, people saw it as a symbol of everything that was wrong with Bulgaria,” quips Robert de Bruin, Communications Manager at the Black Sea Trade and Development Bank. “Now, after our $9.2-million loan, KCM is clean, privatized, and one of the biggest exporters in Bulgaria.”

Without the clean-up project, BSTDB claims, KCM would have been finished- and with it, the loss of 2,400 jobs, $60 million in annual exports, and $7 million in annual tax revenues. The KCM success story is exemplary of what the Thessaloniki-based bank wants to achieve.

Trade financing is a major strategy of the BSTDB. A pre-export financing scheme, to promote regional trade through working with financial intermediaries, now operates in Turkey, Bulgaria, Georgia, Romania, Russia and Azerbaijan. The bank has given in excess of $130 million for trade finance facilities since 1999.

The BSTDB is particularly proud of its Turkey operations. In August 2000, it offered Turk Eximbank an $18.4 million trade finance revolving credit line, to on-lend to Turkish export companies — especially, for inter-regional export to countries.

In the past two years, the fund has significantly increased Turkish exports throughout the Black Sea region, as well as the Czech Republic, Germany, Hungary, Spain, Switzerland, the Unite States and Commonwealth of Independent States countries. For the bank, this is a big success: Turk Eximbank now facilitates more than $36.8 million of Turkish exports annually with the money lent.

The latest member in the scheme arrived May 28, when the BSTDB extended a revolving credit line of $1 million to Commercial Bank-Bulgaria Invest A.D. The CBBI is the third Bulgarian bank to participate in the trade finance program (after First Investment Bank and CB Union Bank). The BSTDB funds, used to advance sub-loans to Bulgarian exporters, are strategically focused on cultivating small and medium-size enterprises in Bulgaria.

This emphasis aims at increasing trade and diversifying economies. In formerly state-controlled economies like Bulgaria, building SME’s is a vital part of privatization.

In countries with severely unbalanced economies, like oil-dependent Azerbaijan, diversification also helps to mitigate future economic risk. For the BSTDB, developing Azerbaijan’s private manufacturing sector is seen as crucial for protecting that country from fluctuating oil prices.

SME development in the Black Sea region is not without its challenges, however. For the European Union, an SME is defined as a company with a $15 million annual turnover, and up to 500 employees. Says Programs Officer and strategist Panayotis Gavras, “you’d be challenged to find many companies as large as this in Greece — let alone in Georgia or Albania!”

Another challenge is executing risk assessment in a diverse and complex region. The widely varying economies in the BSTDB’s purview preclude any uniform policy of risk assessment. Countries have vast economic differences, and so must be assessed individually. Sometimes, the statistics are misleading.

Albania, for example, has posted the region’s highest growth rate (more than 7 percent annually) for the past four years, yet has little infrastructure, and is economically and politically chaotic. The high growth rate can be attributed instead to the remittances of Albanian émigrés, often obtained through organized crime or under-the-table migrant labor.

The continuing instability of certain economies also factors in. Last year, Turkey suffered a practical economic collapse, with real gross domestic product falling by 9.1 percent. “This was a much bigger challenge for us than the country’s recent political crisis,” states Gavras. “But we didn’t lose anything in our trade financing portfolio- probably because we lend to the largest and most stable Turkish banks.”

Overall, the bank has high expectations. Each member state (with the exception of Turkey) saw steady growth in 2001. A 6 percent increase in exports of goods and services, together with increased investment, saw Ukraine’s real GDP increase by 9.7 percent. Similarly high growth was recorded for Azerbaijan and Armenia (9.6 percent), while Moldova, Georgia, Greece, Russia, Bulgaria and Romania all posted growth between 4 and 6 percent.

Despite the challenges of navigating rough economic waters, the bank has experienced no real failures. The BSTDB has protected itself by keeping strictly to co-financing, and a financial limit ($20 million or 35 percent) per project. While some projects sunk due to the failures of partner commercial banks, the BSTDB has not gotten any bad loans, and even hopes to go solo by fully financing certain upcoming projects.

One test of the bank’s staying power will be in Georgia, an impoverished country decimated by civil war. Since breaking from the Soviet Union in 1992, Georgia has been plagued by separatists in the provinces of Abkhazia and Ossetia, as well as spillover destabilization from Chechnya. There have been several kidnappings of foreign businessmen in the past few years and corruption is rampant. The dizzying political climate is exemplified by the fact that over 1,000 candidates vied for Tbilisi’s recent city elections.

Nevertheless, the BSTDB is forging ahead with a feasibility study on Georgian manufacturing, exports and banks. The study, contracted out to Athens-based Kantor Consulting, should be finished by September. If a solid project does come out of this, it will be seen as a test- both of the bank and the capabilities of its smaller countries.

“Diversifying and expanding the export base is a huge challenge for them,” says Gavras. “For Georgia, big exports are wine, scrap metal, and timber, agriculture. What we want is sustainable industry, a stronger emphasis on manufacturing, and to improve the weak and not very liquid banking system.”

The BSTDB already has a modest presence in Georgia, in trade financing, banking, and agriculture. According to Gavras, “we would also be inclined to work in the tourism sector — it has a lot of promise.”

Cautious optimism is necessary in regard to Georgia, however. The government controls only two-thirds of the country, and the convivial Georgian lifestyle is antithetical to the ethos of Western business. In a country where businessmen can spend more time eating than having meetings, implementing change takes time. Yet if the Georgian experiment bears fruit, similar feasibility studies may be held for countries like Moldova and Albania, and Armenia has expressed a similar interest.

In addition to potentially increasing the bank’s capital base, and developing independent financing, there are other factors for the bank’s future potential. “I would like to see us diversify beyond lending, and possibly make greater use of equity — which is currently a very small portion of our portfolio — as well as guarantees and leasing,” states Gavras. “Equity is riskier, the payback period is ill-defined, and diligence is required for monitoring, but I’d like us to do more of it.”

The BSTDB expects a favorable regional balance of trade with Europe within the next few years. “It is a huge challenge,” says Gavras, “and not without its risks. But our relations with the European Union … this is the big-ticket issue in the coming years.”

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