Exclusive interview with Mr. Thomas Lubeck, IFC regional manager for the South Caucasus
ARKA- Can you describe IFC’s activities in Armenia? Please talk about IFC’s plans in the country in 2014.
T. L. Creating favorable conditions for sustainable economic growth is one of the key objectives of the World Bank Group’s strategy for Armenia. Job creation is key for improving living standards and reducing poverty. We believe the private sector is critical to development and job creation. IFC, with its focus on private sector development, has a crucial role to play in supporting job creation through the private sector.
Through a mix of investments and advice, we support sectors that are the engines of economic growth and job creation. Since 1995, IFC has invested around $271 million in 44 projects across a range of sectors, including financial markets, manufacturing, and mining. IFC advisory services provide advice on the financial sector, sustainable energy, business regulations and food safety.
Continuing the successful expansion of IFC’s investment program in Armenia during the last four years, IFC plans to maintain a strong investment program in this country in the coming years.
In addition to ongoing financial sector support, IFC will aim to grow its real sector portfolio through investments in competitive sectors such as mining and agribusiness. We plan to deepen advisory services operations in order to improve the investment climate with a focus on the agribusiness sector, the financial sector and renewable energy.
ARKA- What was the volume of IFC investment portfolio in Armenia in fiscal year 2013 and what types of investments are planned in 2014? How do you evaluate the investment climate in Armenia as a whole?
T.L. IFC supports the development of private sector activities that create jobs and contribute to the growth of Armenia's economy. IFC’s current portfolio in Armenia stands at $146.5 million including debt and equity investments in the financial markets, manufacturing and mining sectors.
During fiscal year 2013, which ended on June 30, 2013, IFC committed about $33 million in Armenia. We have continued supporting our financial intermediaries in Armenia and made our first investment in Armenia’s agribusiness sector, a loan to support Euroterm, the producer of Noyan fruit juices and preserves in Armenia. The project will benefit rural communities by creating jobs, boosting agriculture, and increasing exports. IFC is also providing advisory services to Euroterm, helping implement a food safety management system based on international standards.
IFC has also provided advice on projects focused on regulatory simplification, food safety practices, sustainable energy finance, and corporate governance.
Fiscal year 2014, which started in July 2013 and will run until June 2014, has also been marked by important developments. In July 2013 IFC signed its first local currency loan agreement in Armenia, lending $4 million to FINCA Armenia to support micro and small enterprise lending. In December 2013, IFC issued its first Armenian dram bond to strengthen Armenia’s capital markets and boost lending to the private sector. In December 2013, IFC provided $5 million and mobilized $5 million for Armenia’s Unibank to promote SME lending.
In response to your question about the investment climate in Armenia, our Armenia Investment Climate Reform Project works with the government to improve the investment climate in Armenia by reducing the time and cost of doing business, and increasing the effectiveness of regulations in four key areas: business taxation, trade logistics, business inspections, and food safety.
The project builds on close government collaboration established within the framework of the Armenia Doing Business Reform - Regulatory Simplification Project (implemented by IFC from 2009-11). The previous project helped the government streamline start-up procedures for businesses and simplify the tax system and customs control procedures. IFC also helped the government make business inspections more efficient and transparent and reduce the average time required to obtain a construction permit.
We are continuously looking for opportunities to build on the success of our investments and advisory services programs in Armenia, and to increase the availability of long-term debt funding and equity investments to local enterprises.
ARKA- How do you assess the first experience of issuing Armenian dram bond in Armenia, as well as their placement conditions?
T.L. IFC has issued its first local currency bond in Armenia to strengthen Armenia’s capital markets and boost lending to the private sector. Deep, efficient local capital markets are the foundation for a thriving private sector, the key driver of jobs and growth. Therefore developing local capital markets is a strategic priority for IFC. Local capital markets create access to long-term, local currency finance. When companies borrow in the currency in which they earn revenue, they are protected from foreign exchange risk, and can focus on expanding and creating more jobs.
Limited access to infrastructure services also limits private sector growth. Local capital markets can mobilize funds to finance infrastructure, housing, and other priority sectors. Countries with strong local capital markets are more resilient to economic crises.
Efficient local capital markets also protect economies from capital flow shocks and reduce dependency on foreign debt. IFC is a leader in local capital market development.
We are happy to support the deepening of Armenian capital markets. The IFC Sevan bond offers a high-quality investment alternative for institutional investors and makes available funds that can be put to work in the local economy. It is part of a larger IFC program under which we plan to issue multiple bonds for a total volume of up to 8 billion Armenian dram.
ARKA- How will the issuance of Eurobonds affect the Armenian stock and financial markets, and the economy as a whole?
T.L. The issuance of Armenia’s first Eurobond is important in terms of setting a benchmark for the country for international investors and is expected to promote Armenia’s attractiveness to foreign investors. -0-