NEWS.am is presenting an interview with EBRD President Odile Renaud-Basso on the bank’s projects in Armenia, current challenges to Armenia’s economic development and how the EBRD projects may help Armenia overcome those challenges.
What do you think are the current challenges to Armenia’s economic development? What needs to be changed to address them?
Having seen the government’s 2021-2026 programme, I am delighted to say that its focus on knowledge-based industry and development of value added exports and services is key to Armenia’s economic development.
This could be achieved through improved infrastructure for better connectivity, energy security through development of renewables, support to small and medium-sized enterprises, better governance standards, diversification of trade partners, but also promotion of tourism.
The plan is very coherent, but it is very important to implement it successfully. The private sector has an important role to play in all these areas and its development is our main focus and objective. We are of course working as well with the public sector. Overall, we aim at supporting our stakeholders in Armenia with our trademark business model of investment combined with policy engagement and technical cooperation.
One of the focus areas for EBRD in Armenia is developing the financial sector and improving access to finance for traditional SMEs and micro-finance lines targeting areas outside Yerevan․ To what extent has this objective been accomplished? What are the main problems the bank faces and how are they solved?
Yes, developing the financial sector of Armenia, and improving access to finance for micro, small, and medium-sized enterprises across the country is one of the key pillars of our business in Armenia.
On average, we are investing €100 million annually in Armenian financial institutions, and significant portion of these funds eventually end up with micro, small and medium-sized enterprises via regional branches of our local partner banks.
But the creditworthiness, financial illiteracy and hard currency borrowing remain key challenges when financing regional micro, small and medium-sized enterprises. We have a range of tools to address these challenges, including targeted credit lines with specific emphasis on green and inclusive financing, local currency financing solutions, technical support, but also direct engagement with regional companies through our Advice for Small Businesses (ASB) programme.
We are also working on developing alternative sources of funding and recently engaged with the Central Bank of Armenia to adopt secondary legislation for Crowdfunding Investments. This should further improve access to finance for micro, small and medium-sized enterprises who are struggling to borrow from traditional sources.
Another area of focus is improving municipal and urban transport infrastructure. EBRD has given Armenia a $20 million loan to be used to finance the acquisition of up to 100 buses for Yerevan but the buses have not been purchased yet. Does the bank monitor the process, how is it regulated?
We signed the Yerevan bus project in November 2021 under the EBRD Green Cities programme, which aims at supporting municipalities to develop and invest in a coherent program of projects for the green transition, covering several areas of urban development – transport, waste management, water management, etc. The project value is €25 million, of which €20 million is an EBRD loan, and €5 million comes from the E5P (Eastern Europe Energy Efficiency and Environment Partnership) grant financed by a range of donors, prominently the European Union.
The supply contract for the purchase of buses was signed and first tranches of EBRD Loan grant were disbursed. The project is on track and residents of Yerevan will see these new buses in the streets of the capital in the first half of 2023.
Within the transport infrastructure, the bank has an objective to make reforms including the introduction of integrated transport management and ticketing systems, better parking management, etc. What are the main problems in achieving this goal? Is there any success in this endeavour?
As for the integrated transport management and ticketing, this is a part of the Yerevan bus initiative which, as mentioned above, is financed by the EBRD loan and E5P investment grant currently implemented by the Yerevan municipality, with whom we are engaged in technical cooperation.
We have also provided grant funds for the implementation of New Bus Network, and Corporate Development Programme (CDP) to support the City with the monitoring of bus operations and preparation of the new bus network, including assistance with the development of a public service contracts, corporate business plans, and etc.
If there is a relevant request from the Yerevan municipality, we are ready to provide even more support for further modernisation of the urban transport fleet and relevant systems modernisation.
EBRD also intends to develop agribusiness and high value-added, export-oriented industrial companies. What is Armenia’s potential in this area and where does it stand now region-wise?
Agricultural sector of Armenia is a significant contributor to the country’s economy. And it also employs the largest share of the population – about the third, which raises a real productivity challenge. This is also true for other countries in the Caucasus.
There is a potential for improvement of the sector’s productivity through investments in sustainable technologies, agricultural infrastructure and knowledge transfer. The potential is also there for the introduction of energy and resource efficient technologies. Agriculture accounts for 80% of water withdrawal, pointing to a potential water efficiency issue in the sector.
We are helping to gradually improve the productivity of this sector with sustained financing for investment in relevant technologies to small and medium-sized enterprises. This is done through the branches of our local partner banks across the country.
Improving the regulatory and institutional framework for sustainable energy and the mining sector is another area of focus for EBRD in Armenia. What are the main problems here? Is Armenia’s Government responsive in addressing them? Is more action needed? Please, elaborate.
Renewables are at the core of our strategy for Armenia. Since 2019, we have been supporting the preparation of up to 105 MW solar capacity, and have committed to finance the first utility scale solar plant.
The government’s Energy Sector Development Strategic Plan 2040 includes development of up to 1,000 MW Solar capacity by 2030 and up to 500 MW Wind capacity by 2040. Over the past few years, the government has also improved the public private partnership law.
We stand ready to further support these initiatives, which will undoubtedly increase energy independence of the country and contribute to grow the private sector and attract foreign investments.
The EU and EBRD are expected to provide financial support for the reconstruction and modernization of Meghri border checkpoint. Can you, please, give some updates when the project will be implemented?
Yes, this is a very important project in the Southern region of Syunik, where we have teamed up with the European Union to finance the modernization of the Border Crossing Point.
From what we know, the State Revenue Committee of Armenia is currently in the process of assessing submitted bids. Construction works are expected to start by the end of this year and finish within three years.
Do you plan to meet the prime minister, the president, may be some ministers and representatives of the business sector during the visit? What are the main important issues to discuss?
Yes, I will be meeting the President, the Prime Minister, cabinet ministers and other high level dignitaries, but also our existing and potential clients and partners.
We will focus on discussing the challenges to, and opportunities for developing the financial sector, improving transport infrastructure, developing the sustainable energy infrastructure, supporting the micro, small and medium-sized enterprises, and the issues of the corporate governance.
With political leadership of Armenia, we will also discuss the policy reform, and ways to further improve the general investment climate.
Armenia's foreign debt exceeds 60% of its GDP, and by implementing new credit programs, do you not see any risks that the county may have problems in servicing its debt?
After the Covid-19 crisis, public debt levels went up in most of our countries of operations. Armenia’s fiscal prudence is now necessary to reduce the elevated public debt to safer levels.
But this should not be done at the cost of much needed infrastructure investments, and this year’s robust economic growth presents an opportunity to address associated risks effectively.
