Why is the Development Bank in Greece necessary?

Why is the Development Bank in Greece necessary?

A key priority for the Greek government is the utilization of the Development Bank, with the relevant bill already tabled in Parliament. According to the ministry’s estimates, the Development Bank will be provided with funds worth EUR 5 billion, which with appropriate leverage will mobilize investments worth more than EUR 11 billion.

International experience

But let’s look at what is happening in other countries, and if a Development Bank is ultimately useful for society and the economy.

The number of development banks cannot be accurately determined. In the 19th century, there was a wave of creation of development institutions, mainly in industrialized countries such as the United States and Great Britain, as well as in the period following the end of the Second World War, when the National Development Banks were considered an adequate mechanism for re-industrialization, reconstruction, restarting the economy and growth.

In recent years, an increased trend of establishment of development banks has been made evident. Today, the total number of development institutions globally reaches 750, of which 300 are in Latin America, 200 in Asia, 150 in Africa, 100 in Southern Europe and the Middle East.

As far as development banks are concerned, in 2016 there were over 550 worldwide, of which about 520 were national (NDBs).  They are located in 185 countries, with developing countries hosting a very large number of national development banks.  In particular, Latin America and the Caribbean had the highest number of NDBs (152), Africa (147), Asia and the Pacific (121), Europe (49) and West Asia (47).

The German KfW

It is important at this point to highlight the key role played by KfW (German Development Bank) in the initial phase of solar photovoltaic installation in Germany (Solar PV).  KfW had funded significant investments for the installation of solar photovoltaic systems before 2009 in Germany, when they were introduced on a large scale.  As a result, KfW played a key role in financing investments in solar photovoltaic technology in Germany, a role that was then reduced as other private sources of finance (leverage) were introduced.

Greece was deprived of such critical development projects due to the lack of a Greek National Development Bank (equivalent to KfW) that could make a substantial contribution to their financing, attracting at the same time additional private capitals.

The sectors

The economic sectors in which National Development Banks focus vary: 86% of National Development Banks target trade, as well as services and tourism sectors, 84% in industry and manufacturing, 83% in the agricultural sector, 74% in construction and housing, 66% in energy and 65% in infrastructure.  On the other hand, the emphasis on lending to social sectors is clearly lower: 48% target health and 45% education.

With regard to targeted clients, these come from either the public or the private sector, with 92% of the National Development Banks geared towards small and medium-sized enterprises, 60% in large private companies, 55% in individual households and individuals;  54% to enterprises in other countries and 46% to private financial intermediaries, as the European Bank for Reconstruction and Development does./ibna