– We want to shift the investment focus from West European countries to our region, which holds a vast economic potential – says Beata Daszyńska-Muzyczka, President of the Management Board of Bank Gospodarstwa Krajowego - the Polish State Development Bank and President of the Supervisory Board at the Three Seas Initiative Investment Fund in an interview with Mateusz Kosiński.
What tasks are envisaged for the Fund?
We have formulated a clear objective for the Fund – to provide financial support for infrastructure investments in the Three Seas region. The Fund will be involved with transport, energy and digital projects which connect the north-south axis of our region. We want for the road, rail and digital communication routes in Central Europe – from the Baltic states, through Poland, The Czech Republic and Slovakia all the way to the Balkan states – to be of the same quality as that in West Europe.
In order to achieve some of the ambitious objectives of the Three Seas Initiative, those relating to infrastructure development in particular, it is necessary to stimulate private capital. Bank Gospodarstwa Krajowego together with other development banks of the Three Seas' countries initiated the creation of an international investment fund - the Three Seas Fund, which will supplement public and EU funds in the implementation of these projects. The Fund's articles of association were signed in May 2019 in Luxembourg.
Importantly, the Fund is an economic initiative and operates on a commercial basis. And it will generate profits for investors.
Why should we strive for closer relations between the countries in our region?
Poland, Hungary and the whole region share a similar past and 20th century history. The regime we were under meant that for many years our development was way below par if compared to other European countries. Poles and Hungarians who go on holidays to West Europe have first-hand experience of how quickly it is possible to travel between countries in Western Europe. Let me give you an example – a journey from Gothenburg to Barcelona (2500 km) takes 24 hours by car or train, while a journey of the same distance from Tallinn to Constanța would require 32 hours by car and 3.5 days by train.
The Three Seas states are countries with similar economic models, facing similar problems and challenges. Economic cooperation, with joint investments, allows for more efficient partnership also in crisis situations, such as we are facing today, during a coronavirus pandemic.
Will the Three Seas Initiative Investment Fund contribute to a reduction of these differences?
Our region faces the difficult task of closing the still significant infrastructure gap with respect to Western European countries, which – despite the valuable contribution of the EU fund and EIB funding – still persists. Effective implementation of this task is a great challenge for governments and public finances of our countries. The Three Seas Initiative Investment Fund is to help bridge these differences in the standard of living of our societies as compared to that enjoyed in Western Europe. It will complement European Union funds and national public funds.
What makes the Three Seas Initiative Investment Fund different from other investment funds?
The scale and breadth of its operations for one. As I've already mentioned, the Three Seas Initiative Investment Fund is an international investment fund, operating under international financial law. It is a commercial undertaking and, like other investment funds, it will be sued to finance profitable investments. Ones which will generate profits for the Fund's participants. We have chosen professional third-party investment advisors to ensure proper evaluation of investment projects and independent management of the fund. We operate similar to many other investment funds on the market. Although, of course, the governments of the Three Seas states must work together very closely to ensure rapid administrative decisions for cross-border infrastructure projects that could be financed from the Fund.
And is there a correlation with EU structural funds?
The Three Seas Initiative Investment Fund will complement and bolster European Union's on-going funds and projects geared towards establishing and modernising EU infrastructure. We will be complementary to one another within the scope of investment sources available in the region. I will stress that our initiative has full support from Brussels, because we are all aware that infrastructural development in our part of Europe strengthens the whole European Union. All Three Seas Initiative countries are also European Union member states. In recent years, our region has been developing rapidly, and EU funds have contributed to this growth. On the other hand, we see that there is still a great dissonance between the quality of interconnections between Western European countries and those in Central and Eastern Europe. We want to shift infrastructure investment focus to Central Europe, to the Three Seas states. We believe that the financial resources of the Fund, together with national and EU funds, will contribute to the development of our region.
What is the role of the Three Seas Initiative Investment Fund in relation to Bank Gospodarstwa Krajowego (BGK)?
The Three Seas Initiative Investment Fund's objectives and BGK's mission are convergent. For almost 100 years we have been supporting the development of Poland, creating transport, energy or digital infrastructure. We are involved in projects which improve the quality of life of Poles in all regions of Poland. I would like to remind you that the Three Seas Initiative Investment Fund is not the first fund we have been involved with – since 2017 BGK has been an investor in the Marguerite II fund, and since 2018 BGK has been representing Poland within the scope of another international investment fund, the Marguerite I. Investors in the latter fund have completed infrastructure projects worth almost PLN 2 billion in Poland alone. I am glad that the Three Seas Initiative Investment Fund of which we are the initiator and co-founder, will be another platform that will contribute to further development of Poland and increase the quality of life of Poles.
At the moment Romania is also involved with the Three Seas Initiative Investment Fund. What about other countries?
I would like to emphasize that Poland together with Romania are the founders of the Three Seas Initiative Investment Fund and signatories of the founding act drawn up in Luxembourg in May 2019. Subsequent states are in the decision-making processes in compliance with their legal frameworks. We know that promising discussions are underway and decisions are in sight in Estonia and Latvia. Talks are underway with other Three Seas countries. Currently, the Fund's authorities have representatives of development institutions from Poland, Romania, Latvia, The Czech Republic and Estonia. And the Fund is constructed in such a way that as soon as subsequent banks from the Three Seas countries obtain internal permits to join the Fund, they can do so at any time.
In addition, the Fund will also seek other sources of funding, such as resources from private investors and international financial institutions – the European Investment Bank, the European Bank for Reconstruction and Development or the World Bank. We are also counting on cooperation with investors from outside of Europe – we are looking towards the USA, South Korea, Japan and Australia.
Potentially, what could the Three Seas Initiative Investment Fund's budget be?
The Three Seas Initiative Investment Fund is to reach 3-5 billion euros. These funds are to supplement EU funds and national budgets of individual Three Seas countries, because the infrastructure needs of our region are much higher. More than 570 billion euros would have to be spent immediately in order bring the infrastructure of Central and Eastern Europe in line with that of Western Europe – only in three areas: transport, energy and digital infrastructure. The estimated demand for transport investments in the Three Seas countries is 290 billion euros – including 165 billion euros on roads and 105 billion euros on rail. The estimated demand for investments in energy networks in the Three Seas countries is 87 billion euros. The estimated demand for investment in digital infrastructure, i.e. information and communication technologies, is 160 billion euros. This clearly shows that the 3-5 billion euros we are aiming for is only a part of the requirement. We want to be involved in projects with a total value of up to 100 billion euros.
Is the Fund looking to change the arrangement of investments in Europe from the East-West axis – connecting Central and Eastern Europe with Western Europe – to the North-South axis, connecting the Baltic States, Central Europe and the Balkans?
We want our region to catch up with Western European countries in terms of infrastructure development. There is vast economic potential in our region. Speaking of the Three Seas, we are talking about 12 countries – Austria, Bulgaria, Croatia, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Romania, Slovakia, Slovenia and of course Poland. Even without Austria, which is not interested in investing in the Fund, we still have over 100 million citizens in the region. The Three Seas countries together record higher economic growth than developed markets, which is a feature of emerging markets, but are also much more institutionally stable than typical emerging markets. By 2030 the GDP of the Three Seas countries, compared to 2018, should increase by 35%, and the region's share in the GDP of the entire European Union should increase from 11% to 13%.
Infrastructural proximity between our countries will also allow us to overcome the economic consequences of the coronavirus pandemic faster. Today, at a time of a marked economic slowdown across almost the whole world, and certainly the European Union as a whole, it is important to stimulate investment, including infrastructure investment. It is also the place for many investments in public-private partnerships, the so-called PPPs. This will also help to minimise the negative economic effects, for example on the labour market.
Will the Fund carry implement investments interconnecting Poland with Hungary?
This is the idea that the Fund should invest in projects connecting the Three Seas countries and having a positive impact on the development of the Three Seas countries' economies. But the implementation of specific infrastructure projects will be decided by an external entity, the so-called Investment Advisor. At the end of February, the Fund decided that Amber Infrastructure would play this role. Let me remind you – the Fund is commercial in nature and is managed by an independent entity that will assess each potential project in terms of its economic viability and the return it may generate.
Whereas the Fund's strategy assumes that all infrastructural investments must have an impact on at least two countries – thus, it assumes strengthening north-south communication. This strategy therefore includes the construction of interconnections – whether transport, energy or digital – between Poland and Hungary.
Is there active cooperation with the Hungarian development bank – the MFB?
We are in touch with many development institutions in Three Seas countries, including the Hungarian development bank MFB. We also know that the Hungarian Eximbank is interested in involvement in the Three Seas Initiative Investment Fund. Since the end of 2019, a series of Three Seas Initiative Investment Fund mini-conferences has been held to inform the individual countries we visit about this initiative. At the end of 2019 we had our first meeting in Bucharest, this year in Warsaw and Riga. Budapest is also in the pipeline, although due to the developing coronavirus epidemic, we will want to move this conference to the second half of the year
Can the coronavirus pandemic hamper the development of the Three Seas Initiative Investment Fund?
According to our forecasts, there is a possibility that things will be just the opposite. Once the epidemic threat is over, individual countries will try to make up for the economic losses as soon as possible. Regional cooperation will be very important in this matter. Investment funds can become something like the modern Marshall Plan, which led to the reconstruction of Europe after World War II. It is commercial investment funds, such as the Three Seas Initiative Investment Fund, that are currently the best form of capital investment.
I'd like to change the subject a little bit, although we're going to remain in international waters. The Polish development bank is among the 5 largest development banks in the European Union, it can be cited as an example for other development banks in our region – for example Romanians, Czechs or Hungarians. Under your leadership, the bank is also expanding into foreign markets...
One of the ways to support the Polish economy is to build a strong position of the Polish economy and financial sector abroad and to support foreign activities of Polish entrepreneurs – expansion and export. For this purpose, we are opening foreign representative offices of our bank. We opened the first office in Brussels in September 2018, then in Frankfurt in May 2019 and London in January 2020. And that's not the end of the story – in the nearest future we are planning to open more branches: in Amsterdam, which is already operational, Milan and on other continents: in the USA and in Singapore.
What are the objectives and tasks of these facilities?
BGK is opening its foreign facilities to build close relations with financial markets and institutions, but also to be close to the institutions where the regulations that have the greatest impact on the functioning of banks and economies are created. Thus, the foreign offices constitute an important support for Polish entrepreneurs.
Is it worth keeping an office in London after the UK leaves the European Union?
Despite Britain's exit from the European Union, London is still one of the financial capitals of the world. The economic relations between Poland and Great Britain are and will remain very good. One of the objectives of BGK's representative office in London is to support the foreign expansion of Polish enterprises and to attract British investors to Poland. The facility will also promote Poland among British business, including private equity institutions and local think-tanks and lobbyists.
The tasks of the London office will also include establishing and maintaining relations with financial institutions from the UK and Polish entities present on the UK market and creating a positive image of BGK and Poland.