By Lisa Barrington
BEIRUT (Reuters) - The European Bank for Reconstruction and Development sees enormous prospects in Lebanon, but potential investors need to see progress on reform and, over the border, a process towards a settlement of Syria's war, the bank's president said.
On his first visit since the EBRD began operating in Lebanon in September, EBRD President Suma Chakrabarti said he saw a role for the bank in financing small and medium-sized enterprises and renewable energy, energy efficiency and infrastructure projects.
On Thursday Lebanon agreed its first two EBRD deals: a 2.51 percent equity investment in Lebanon's largest lender Bank Audi and a $50 million trade finance line with Fransabank, the third-largest.
"I think the prospects for the EBRD in Lebanon are enormous," he told Reuters, and added that the bank has not set an upper limit on investment in Lebanon. "It depends on the demand we get from private sector players."
While the war in Syria continues, Lebanon's biggest challenge will remain regional risk.
"Providing (Lebanon) continues with that (economic) reform process, provided there is a process towards a settlement in Syria, I think the prospects are really good," Chakrabarti said.
Set up by governments in 1991 to invest in the ex-communist economies of eastern Europe and owned mainly by developed countries, the EBRD has expanded its mandate in the last decade to operate in almost 40 countries.
Lebanon joins Egypt, Jordan, Morocco and Tunisia in the EBRD's southern and eastern Mediterranean (SEMED) region, where it has invested more than 6.5 billion euros ($8 billion) in 170 projects since 2012.
FUNDING DRIVE
Lebanon has one of the highest debt-to-GDP ratios in the world at about 150 percent. Growth and state revenues have been low for years, undermined by war in neighbor Syria and domestic political inertia.
To help stimulate the economy, Lebanon is seeking up to $16 billion for infrastructure this year from investors and donors. Fundraising will begin with an April 6 conference in Paris.
Chakrabarti said the EBRD will voice support for Lebanon in Paris and is keen to invest further, especially in public private partnership (PPP) projects. "The $16 billion cannot be financed unless there are more PPPs," he said.
Chakrabarti said the EBRD and other lenders will be "very much focussed" on how Lebanon implements promised reforms and projects. "No-one should believe that just having a conference in Paris is a success in itself."
CONSENSUS BUILDING
After agreeing a president and prime minister in late 2016 after years of political paralysis, Lebanon has passed its first budget since 2005, signed it first offshore oil and gas deals and signed a long-awaited PPP law.
Chakrabarti said these developments have made him more confident "than I would have been a couple of years ago".
"Conversations we've had ... suggest there actually is a consensus building that more reform is going to be required."
Lebanon is due to hold its first parliamentary elections since 2009 in early May. They will be held under a new electoral law, making it harder to predict the outcome.
"People are talking very openly that they don't think the parliamentary elections will derail this process. Even after the election we can expect a continued push in the right direction."
LENDING SHOULD INCREASE
Through equity in its investment in Bank Audi, Chakrabarti said the EBRD hopes to establish itself in Lebanon's banking sector where it wants to help banks reach new customers.
"If Lebanon is to achieve the rates of growth economic growth that it can do, lending has to increase in the medium term without a doubt," he said.
A group of customers Chakrabarti is passionate about reaching is women entrepreneurs.
"We have our Women in Business programs in 17 countries. We have learned how to do this really well," he said.
Chakrabarti said the EBRD can work well with Lebanon's entrepreneurial spirit and its move towards a private sector-focused development model. Lebanon's capital investment plan also focuses on EBRD strengths: energy, infrastructure and SMEs.
Lebanon has hosted over a million refugees fleeing Syria's conflict, straining public services around the country.
Chakrabarti said the bank has been talking to the Lebanese government about projects to help host communities and refugees. But this will require donors to contribute funds alongside the EBRD's market-based loans.
($1 = 0.8116 euros)