Foreign investments play a huge role in the development of the economy. Why Armenian companies find it difficult to attract foreign investments, how to increase the investment attractiveness of the country, and are there hopes for the development of capital markets in Armenia - we talked about all this with Arno Mosikyan, Director of Investment Banking Operations of Ameriabank.
Mr. Mosikyan, how favorable is Armenia's investment environment for attracting resources?
Your question is quite broad and multifaceted, and it is difficult to answer it in one short interview. First, the question should be considered from two perspectives: do we intend to discuss portfolio investment in the capital markets or direct investment in the real sector? I propose not to address macroeconomic stability, state strategy for economic development, transparency of state institutions, and other issues for the time being.
To be honest, in terms of direct investment in the real sector, the private sector always faces difficulties. Since its establishment, Ameriabank has actively cooperated with foreign investors who invest not only in the banking sector, but also in other branches of the economy. We understand quite well the requirements of foreign investors and know the difficulties they face throughout the investment process.
Before "selling" any investment idea, company share or project to foreign investors, Armenian companies spend a lot of time and resources to thoroughly explain why the investor should invest in Armenia and in the Armenian company, under which country's jurisdiction to work. What is Armenia, what are its strategic benchmarks, what are the country's comparative competitive advantages, how do the main laws work, laws on the protection of the rights of foreign investors, normative acts, etc.? In other words, it is obvious that we still have a lot to do to promote our country in the international arena.
In order to be able to assess the investment attractiveness of Armenia for ourselves, we need to study and understand the perception of Armenia among those investors who have at least invested in the region (Transcaucasia, CIS or South-Eastern Europe). What associations does Armenia evoke, how is the country positioned, how do investors imagine Armenia? If you ask me, I can say that apart from Mount Ararat, Noah's Ark, maybe brandy, and most importantly, Kim Kardashian, Armenia is unfortunately not associated with anything else that is important for business, that can generate interest in investments.
If we talk about attracting portfolio investments in the capital markets, there are other factors that need to be paid attention to, in particular, how developed the infrastructure of the capital market is, what investment products are offered, how extensive and liquid the market for these products is, whether they are connected the main trading platform and the largest part of the market - the government bond sector - to the global systems of trading, clearing, custody, at what stage of development are the joint-stock companies.
If a few years ago I could say that the state can activate the stock market through the initial placement of shares (IPO) of some infrastructure companies, now there are almost no assets of interest to investors left in the hands of the state. Almost everything has been privatized, so there are fewer and fewer instruments left under the control of the state. We saw that even after the changes to the Tax Code, the stock market did not activate.
Strange as it may seem, in this context it is sometimes difficult to explain the behavior of some government bodies. Imagine a real situation where some officials who represent the state, the issuer of Armenia's sovereign Eurobonds, refuse to meet with large institutional investors (unheard of) who have invested in Armenia's Eurobonds and visit Armenia once a year to assess the investment environment, fiscal politics, the macroeconomic situation and decide whether to continue to hold the bonds or to "throw" them back into the market. If our goal is to increase investment attractiveness and generate interest in our country, this is just a step in the opposite direction...
I would like to mention that in October this year in New York, the Government of Armenia and the Development Fund of Armenia are holding an investment forum with the financing of the Asian Development Bank, in which investors from different countries and the Diaspora will participate. The forum is held with the support of an international consortium led by the Ameria consulting company, and of which the American Pragma company is a member. The purpose of the forum is to present to investors those branches of the Armenian economy that have the greatest potential for development with a thorough analysis of investment opportunities.
This is quite an interesting topic, on which we can talk for a long time, but I think that your question can be summarized with the following conclusion: there are definitely "prescriptions" to increase the investment attractiveness of Armenia, it is necessary to qualitatively analyze the changes taking place in the region, to respond quickly and be ready to engage in the processes taking place at the right time, not to miss the moment. ...can Armenia become an outpost for portfolio investments in the capital market of Iran in the West, which we hope will open in the near future, or take advantage of the de-offshore situation in Russia and replace the jurisdiction of Cyprus for Russian private financial investment capital? whether Armenia's agro-industrial complex can take a significant position in some markets of agricultural products of Russia and other countries due to the latest technologies... these are questions that are waiting for their "heroes" both at the state level and at the private sector level.
Armenian companies that do not have an international credit history are deprived of the opportunity to attract funds from international financial institutions. You already have experience in attracting debt funds from international financial institutions for Armenian companies. Will EBRD and IFC participation in the capital of the bank make it easier to attract now?
It is not so. certainly, a "clean" credit history and a high credit rating help to attract funds faster and on more attractive terms, but their absence does not mean that the non-public market of international debt capital is closed for such Armenian companies.
In 2008, when we practically started our activity as a commercial bank from scratch, Ameriabank was also in a similar situation. Yes, it took us a lot of effort and energy to cooperate with international financial institutions, but the result of these efforts was that we attracted a long-term resource of about 500 million dollars for the country's economy, we were awarded a rating equal to the country's rating by the Fitch agency, the Netherlands Development Bank (FMO) ) signed an unprecedented deal: a convertible subordinated loan agreement of USD 20 million, with IFC, the largest subordinated loan attraction deal in the history of Armenia - USD 50 million, and with EBRD, the largest deal to acquire a one-time equity participation in the Bank's capital in the region ( 40 million USD).
Now, with our help, it is certainly easier for Armenian companies to attract funds from international financial institutions. We have been working in this direction for 5 years, among our clients are large Armenian manufacturers and companies working in various branches of the economy.
But I must say that the mere desire to bring in investments and pay for Ameriabank's services is not enough to obtain debt and equity financing from international financial institutions. Working with such partners implies a completely new level of transparency of financial reports, quality of corporate management and professionalism of management staff, lack of interconnection with state bodies, as well as the presence of a system for controlling the impact on the environment and social environment. Of course, all of this obviously involves high costs: hiring a reputable auditing company, professional managers, implementing an internal control system, but the benefit is much greater. As a result, the client receives a long-term credit resource with a relatively low interest rate, while local commercial banks practically do not offer financing on the same terms.
Ameriabank's conclusion of transactions with EBRD and IFC will not only make access to external financial resources easier, but will also radically change the situation in the banking market of Armenia. In the past, large Armenian companies forming a system attracted syndicated loans from international banks without turning to Armenian commercial banks, because the latter's capital size, credit rating, and therefore the cost of credit funds did not allow them to offer more competitive terms compared to international banks. As you know, according to the regulations of the Central Bank of the Republic of Armenia, banks have restrictions on the maximum volume of loans provided to one borrower or one investment project. This norm depends on the size of the bank's normative capital. After concluding transactions with EBRD and IFC, Ameriabank's regulatory capital has increased significantly (almost doubled), so the bank can now lend to larger and more important projects for the country's economy, which in turn will lead to the next chain reaction - local banking resources will be used in Armenian investment projects, interest income will remain in the country, banks will get more profit (new jobs), the budget will get more taxes.
In addition, Ameriabank and EBRD can co-finance investment projects, which will at least double the bank's lending potential.
One of the strategic goals of EBRD, including in Armenia, is the development of capital markets. From this point of view, what prospects does such cooperation open for Ameriabank?
There is no doubt that the close cooperation between Armenia's largest investment bank and EBRD will be fruitful for Armenia's capital markets. However, we should not expect that we will be able to dramatically accelerate the development of the market, after all, we are a commercial organization and we need to make a profit for our shareholders. Of course, if we can make a profit at the same time, and contribute to the development of the infrastructure, the market, creating new tools for investments, we will only be happy.
As you rightly mentioned, the development of Armenia's capital market is one of the most important issues for the EBRD, and the EBRD has been working for a long time to improve the infrastructure and create the preconditions for developing the market.
The EBRD's priority agenda issues for the next few years are outlined in the "EBRD Strategy for Armenia", which is built on three main components: improving the competitiveness of the private sector through the development of companies' capabilities, transparency of corporate governance and business environment, capital market development and improvement of access to long-term financial resources, development of commercial and quality public infrastructure companies.
In all these directions, Ameriabank has something to offer to the EBRD as its partner in Armenia, to its clients, and to the state, and we hope for a fruitful future cooperation.
Lragir.am