Monday, August 20 2012 13:53
V. Razlog: Development of small and medium-sized enterprises priority for economy of Armenia
ArmInfo ArmInfo’s interview with Valeriu Razlog, Head of the EBRD Yerevan Office
EBRD is one of the biggest investors in Armenia. The country has been cooperating with the bank since 1992. EBRD's investments in economy of Armenia have already exceeded 516 million EUR. The bank has funded 106 programs in the country. In 2012 it is expected to invest another 60-80 million EUR in Armenia.
Mr. Razlog, what is EBRD’s assessment of implementation of international programs by Armenian partner-banks?
The considerable growth of lending to economy sectors, especially the lending to small
and medium-sized enterprises, access of banking services, the growth of the customer base and geographical expansion of the bank networks as well as constant modernization of bank products
are a good reason for high assessment. At the same time, the banking system of Armenia
still has some flaws. Firstly, the banks are trying to work in large settlements; therefore, the branch network does not cover the major part of the country. Secondly, the banks still experience some shortage of drams. In this context, EBRD will continue providing loans to the Armenian banks in the national currency. The third and probably the biggest shortcoming of the Armenian banks is the high price of the financial products.
What sectors of economy are the most attractive for EBRD as an investor?
First, it is the banking sector, because lending to the banks allows financing the small and medium enterprises. EBRD also sees a tremendous potential in the agrarian sector and processing of agricultural products, as well as in the ore mining industry, information technologies, and science-intensive fields of economy. Pharmacy is also of certain interest in terms of attracting investments, for this sector may create new workplaces and increase the export.
What does Armenia need to do to attract potential investors in the sectors that still need funding?
In order to enhance the investors' interest in Armenia's economy, the country should first and foremost improve the investment climate, i.e. create an environment where the foreign investors and local businessmen will feel more confident and protected. The country should soften the requirements to business creation and conduct, strengthen the rule of law and the independence of the judicial system, enhance the efficiency of the anti-corruption fight, enhance the competitiveness of various spheres of economy and activate the fight against the so- called oligopolies.
If the progress in these directions is tangible for the business community and investors, this will increase the flow of both domestic and foreign investments and, consequently, will accelerate the
economic growth, increase the export potential of the economy, create new workplaces and replenish the budget. For its part, the EBRD will continue supporting Armenia to improve the investment climate and the business environment.
What is your assessment of the current investment climate in Armenia and what does country need to do to further improve it?
I have partially answered this question already. But, I’d like to outline that both the previous and the current Government of Armenia took a number of important steps towards improvement
of the business climate. At present, the procedures and costs of business creation, as well as the process of license provision have considerably been facilitated; a so-called "green corridor" has been introduced in Armenia, which will essentially facilitate the import procedure. Dampening of the tax burden for small and medium business is also an important achievement. EBRD
took an active part in improvement of Armenia's business climate. To contribute to improvement of the business climate in Armenia, the Bank actively supports the Business Support Office (BSO), which interacts with the secretariat of inspectoral reforms of the Economy Ministry and the Small and Medium Entrepreneurship Development Council under the Prime Minister of Armenia. EBRD is also cooperating with the IFC, the OSCE, the Economy Ministry of Armenia and other international and local structures.
Do you think Armenia needs structural reform in economy?
The current financial and economic crisis has revealed certain shortcomings in the economy structure of Armenia. Unfortunately, the country's economy had been based on consumption that was fed with foreign money transfers for a long period of time. The consumption-oriented economy sectors were developing at the expense of other sectors. So, Armenia extremely
needs structural reform. Trade deficit is a serious problem, and Armenia should boost the sectors with export potential. The Government is well aware of the problem and takes targeted measures to reduce trade balance deficit. Among such measures is the Program of Export-Oriented Industrial Policy adopted by the Government yet in 2011.
Has the Armenian economy become more stress-resistant after the unprecedented decline in the crisis period?
As I have already said the crisis revealed the weak points of the country's economic system, which gave an impetus for the current reforms launched by the government. The government is currently focusing on development of the sectors with high export potential, takes measures to boost the industrial sectors, agriculture, and the SMEs, as well as promote local products
in the foreign markets. On the other hand, he said, one should reckon with the growing state debt, which has reached 40% of GDP and tangibly reduced the anti-crisis arsenal of the government. Nevertheless, Razlog said, the Government, the Central Bank and other
state structures are well aware of that problem. A program to consolidate the state debt and cut state expenditures is currently being implemented. The country's economy is becoming more stress-resistant; the budget deficit has been reduced for several years already, though some economic indicators have deteriorated.
What are the major risks the country may face next year?
External factors are the main risks for the country: the risks in the region, the Eurozone crisis, and the slackening growth of the global economy. All this may lead to decline of demand for the Armenian products in the world markets. There is also a threat of reduction of the foreign money transfers to Armenia. There are certain internal risks. First of all, Armenia is experiencing pre-election period. However, I hope that the country will avoid political shocks after presidential
elections of 2013 and the government will keep supporting balanced development of economy, restraining inflation, budget deficit and state expenditures.
What inflation risks do you observe at the moment?
Armenia is be able to meet inflation target of 4% + / - 1,5 both in the current and the next year.
Imported inflation is the major risk of the country. Unfortunately, Armenia has no powerful levers of influence on the prices of imported goods. To control import prices, it is necessary to expand import substitution activities, which is a long-term process. However, Armenia has good potential. Synchronization of legislation and introduction of free trade with the CIS and EU will make it possible for Armenian producers to successfully export their products. Armenia has
promising potential of the highly qualified labor force. Possibilities of the Armenian Diaspora should not be neglected either. Diaspora has a big financial, human and scientific potential.
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