Exclusive interview of Dmitry Gvindadze, head of Armenia EBRD Office to ejc.am

-EBRD’s 2021 annual meeting and business forum took place in the week of 28 June. What were key topics, and key decisions?

Because of the global Covid-19 situation, the annual meeting and the business forum were held virtually. This annual meeting – the second annual meeting in the virtual format since the Covid-19 pandemic started in 2020 – marked 30 years since the EBRD was established in 1991. It attracted strong interest from our partners in the private sector and the national authorities; we had interesting debates involving top international statesmen and thought leaders.

Cutting through many discussion was the topic of the green economy transition and climate change. This theme is at the center of the global agenda and multilateral development banks like the EBRD have a significant role to play. The EBRD announced that from the end of 2022 all its activities will be aligned with the goals of the Paris Agreement on climate change. We will thus work to accelerate decarbonisation across our countries of operations. This naturally has operational and client engagement implications. Our funding will come hand in hand with policy dialogue and capacity building. 

Beyond the short-term support that the EBRD has been providing to its countries operations to handle the impact of the Covid-19 crisis, the 2021 annual meeting participants discussed how to support the EBRD’s countries of operation to ‘build back better’ through fostering economies which are green, digital and inclusive.

Armenia will host the EBRD’s annual meeting in 2024. I hope by that time the Covid-19 crisis will be over and we will have many government officials and business leaders coming to Yerevan. This will be the unique occasion to showcase the country and to anchor it to radars of investors. 

-The EBRD has just issued the Regional Economic Prospects (REP) – its view on the economic trends, challenges and opportunities in our region. What are the REP’s key themes and messages?

Indeed, the latest REP was issued in June. The EBRD region is expected to return to growth this year, after an economic contraction of 2.3 percent in 2020. Our latest forecast for the EBRD region is 4.2 percent real GDP growth in 2021 and 3.9 percent in 2022. This naturally depends on a number of assumptions about how the Covid-19 crisis will play out in different countries and sub-regions. I must say that the 2.3 percent economic contraction in 2020 was less pronounced than we originally expected, and this is due to significant fiscal stimulus deployed by governments, also because social distancing measures were less strict in some countries. Commodity exporters have been helped by higher commodity prices, and we also see strong demand for manufacturing exports from the region. At the same time, countries which depend on export of services – and here I would emphasize tourism and hospitality services – were hit significantly. Health risks have been partially mitigated with increasing vaccination rates, but these still remain and they affect countries differently. Reduced international mobility and uncertainty about the future course of the global economy affected inbound foreign direct investment into the EBRD region – it remains below the pre-crisis level. Because of output contractions and countercyclical fiscal measures, public debt burden increased in many countries, and this will need to be addressed in the years ahead. Inflationary risk is another issue – we all nowadays see many articles and lots of debate on this topic.

Going forward, much will depend on the evolution of the Covid-19 crisis. Country-level outcomes will differ. Countries entered this period of unprecedented turbulence with different starting conditions; they are eligible for different forms of international support; their healthcare systems and economic structures are different. Some economies are more diversified and more resilient than others. All this will be defining paths of their economic rebound in the months ahead. Eastern Europe and Caucasus region (Armenia, Azerbaijan, Belarus, Georgia, Moldova, Ukraine) is expected to grow by 2.8 percent in 2021, after a 3.9 percent economic contraction last year.

As to Armenia, in 2020 the economy contracted by 7.4 percent due to a decline in exports, investment and household consumption. But we now see a broad-based recovery which we hope will be sustained. Armenia depends on the evolution of the global health crisis, but the pace and breadth of the recovery will also depend on the ability to anchor the country to radars of international investors. Macroeconomic stability and good business climate will be key.

-What were the EBRD’s results in Armenia in 2020?

The latest EBRD country strategy for Armenia was approved in November 2019. In it, we identified two overarching priority areas for our operations and policy dialogue in Armenia in 2019-2024: (1) strengthen private sector competitiveness, improve governance and support business environment reforms and (2) promote sustainable infrastructure through commercialisation and green economy transition. Year 2020 marked the first full year of implementation of this new ambitious strategy. Within these broad priorities, we are deploying the EBRD’s products in areas where Armenia, its public and private sectors need us the most. There are two important principles that we observe: (1) additionality, meaning that whatever we do must be additional to the private sector, in other words the EBRD’s involvement crowds in private investment and spending, kicking in positive multipliers and (2) bankability, meaning that all projects that we support in the private sector – be it financial or real sectors – must be commercially viable, with sound business rationale, able to comply with the EBRD’s internal project selection “filters” – transparency, financial discipline, good governance, sound project sponsor.

The Covid-19 crisis from early in 2020 affected the sovereign, corporate and financial sector balance sheets. The open-ended nature of this crisis dented confidence of lenders, investors, consumers and borrowers. In this context, the EBRD’s annual business volume in Armenia in 2020 was all-time high at more than EUR 160 million, of which EUR 10 million in the public sector and the rest in the private sector operations. We worked with our partner commercial banks in Armenia to foster trade finance, provided liquidity, SME and Women in Business loans. We signed a 55 MW Masrik solar plant deal – this was the first utility-scale solar power plant in the region, co-financed by the EBRD and IFC with support from the European Union. The EBRD supports modernization of the electricity distribution infrastructure in Armenia, which enhances power network’s reliability and flexibility, improves energy efficiency, reduces greenhouse gas emissions via electricity loss reduction and supports integration of renewables in the power system of Armenia. We also signed the Meghri border crossing modernization project which we co-finance with the European Union.

-What are the plans for 2021?

We will continue deploying trade finance, SME competitiveness, women in business, green economy/energy efficiency lines through our partner banks. The financial sector work will continue to be at the core of our operational delivery in Armenia. Our partner commercial banks in Armenia are the main conduits for our outreach to the SME sector. In the energy sector, we are exploring opportunities in the context of the “Republic of Armenia Energy Sector Development Strategic Program to 2040” which was approved in 2020. According to this program, for example, Armenia wants to increase the share of solar power generation by 2030, adding approximately 1000 MW of solar capacity. Within this context, we are keen to support larger utility-scale solar plants, building on our positive Masrik solar plant experience. Modernization of the electricity distribution infrastructure continues.

Yerevan and Gyumri joined the EBRD’s “Green Cities” network respectively in 2016 and 2018. In many countries, this helps to prioritize infrastructure investments and policy measures which enhance cities’ liveability and environmental sustainability. In this context, we are discussing the possibility of modernisation of Yerevan’s municipal bus fleet. This might be a multi-stage flagship project that would bring environmental and social benefits to the city.

In parallel, we are exploring private sector deals in manufacturing and services, property and tourism, telecom-media-technology, agriculture and beyond. In 2021, like in 2020, most of our operations in Armenia will be in the private sector, both volume- and number wise.

We are also engaged in policy dialogue and capacity building. The Business Support Office funded by the UK’s Good Governance Fund and supported by the EBRD provides on-demand support to the authorities on business climate improvement measures. We work with the Central Bank of Armenia on local currency and money markets development. The EBRD’s Legal Transition Team supports judicial capacity building and insolvency related capacity building. With the European Union’s funding, we have recently launched a project which supports the competition agency. These are just a few examples; the policy dialogue fosters opportunities for our operations in Armenia.

Note that the EBRD’s net cumulative investment in Armenia exceeds EUR 1,5 billion for around 190 projects, of which almost 90 percent in the private sector.

-Can you elaborate on the EBRD’s advisory services in Armenia?

The EBRD’s Advise for Small Businesses program supports small and medium size enterprises (SMEs) in Armenia, providing access to local and international know how and best practices. Since 2003, more than 1400 SMEs received support in growing and internationalising their business, more than EUR 11,5 mln donor funding was granted for advisory support, more than 300 consultants trained. In 2020, some 82 SMEs received support for developing their businesses and responding to the crisis. The European Union and Sweden are major donors.

As an urgent response to the Covid-19 situation, crisis response trainings were organised for SMEs in different sectors, including crisis management, strategic management, financial planning, digital marketing, entrepreneurship and tourism recovery. A program for digital transformation was designed and launched. More than 1,000 SMEs received access to knowledge and practical tools for digital solutions. In 2021, support to SMEs in Armenia continues with several priority directions: advisory support for business development, capacity building for local consultants on crisis management, change management, finance to bring the best practice to Armenian consulting market, entrepreneurship skills training for the displaced Armenian population following the war in 2020. Know-How Academy – an online business educational platform for micro and small SMEs – provides SMEs with knowledge and basic skills to overcome the Covid-19 crisis. Digital transformation of SMEs is the priority - trainings, webinars and projects are planned for 2021 to promote the digitalisation of business and transformation within SMEs. Women in Business program support continues for women entrepreneurs. In the first half of 2021, some 35 Armenian SMEs received advisory support to grow the business.

-What can contribute to the EBRD’s work in Armenia?

Armenia needs quality investment that would contribute to jobs, enhance productive potential. Our ability to further scale up lending and investment in Armenia depends on projects with adequate rates of return, good project sponsors, transparency, compliance with environmental, social and governance standards. Sustained economic growth is also key to our ability to implement sovereign deals, which depend on the public borrowing headroom. There is this vision – Armenia as the small state and the global nation. It’s a powerful vision which can help to attract investment, to harness the potential of the diaspora and beyond.

I want to add that in both private and public sectors, for many years, we work very closely with the European Union. This partnership is important and it allows to do a lot for Armenia. I want to thank the European Union delegation in Armenia and friends in Brussels for their strong dedication, engagement and partnership.