Foreign investments play a huge role in the development of modern economies. But, why is it so difficult for Armenian companies to attract foreign investors? How do companies begin to raise the investment appeal of Armenia. Is there any hope for development of capital markets in our country? All these questions were discussed by Arno Mosikyan, Investment Banking Director at Ameriabank, in his interview. Mr. Mosikyan, to what extent does the investment climate in Armenia help attract foreign investments? This question is rather broad and manifold, and impossible to answer in one short interview. Firstly, the most appropriate approach to this question would be to divide it into two categories: are we intending to discuss portfolio investments on capital market, or direct investments into the real sector? I’d rather not discuss macroeconomic stability, government strategy, state agency transparency issues, etc. for the time being. From the viewpoint of direct investments into the real sector, well, to be honest, it has never been easy for the private sector. Ever since the day of its establishment, Ameriabank has been actively working with foreign investors who place their money not just in banks, but in other industries as well. We understand their requirements well enough and know what difficulties they face throughout the whole lifecycle of investments. Before “selling” an idea or an equity stake or an investment project to foreign investors, Armenian companies should spend more time and resources to explain why investors should make their investment in Armenia and in an Armenian company, in what jurisdictions they will work, what sort of country Armenia is, what strategic benchmarks they have, what comparative competitive advantages Armenia offers, how key laws and bylaws in the area of protection of foreign investor rights work, etc. In other words, there’s still much to be done to promote Armenia as an international arena. In order to be able to assess the investment attractiveness of our country, we should study and understand the perception of Armenia among international investors who at least have made investments in the same region (South Caucasus, CIS, or South-Eastern Europe). What do they associate Armenia with, how is the country positioned, how do they perceive it? If you ask me, apart from Mount Ararat, Noah’s Ark, perhaps brandy, and of course the most important thing – Kim Kardashian, there aren’t other more substantial factors for doing business that our country is associated with among foreign investors that could potentially generate interest in investing in Armenia. Speaking of attracting portfolio investments, there are other factors here that we should pay attention to, such as the development level of capital market infrastructure, or in particular, what investment products are offered to investors, the scale and liquidity level of respective markets, whether or not the key trading platform and the biggest market segment (Treasury bonds) are connected to global trading, clearing and settlement, custody systems, at what stage of evolution local companies are found… If a couple of years ago I could say that the state could mobilize the stock market by means of IPO of certain infrastructure companies, now the state is almost completely out of assets capable of attracting investors. Almost everything has been privatized, the state has less and less instruments. We saw that even amendments to the Tax Code did not stir up any substantial activity in the stock market. Strangely, the line of conduct of some state agencies in this context is sometimes difficult to comprehend. Just imagine a real situation where some officials representing the state – the issuer of sovereign Eurobonds of Armenia – refuse to meet major foreign institutional investors (something unheard-of) who have invested into our Eurobonds, and who once a year visit our country to assess the investment climate, fiscal policy and macroeconomic situation in order to decide whether or not to continue to hold the bonds or “throw” them back on the market. From the viewpoint of raising attractiveness and interest, this is a step in quite the opposite direction. Note that this October, the government of Armenia and the Armenia Development Fund (funded by the Asian Development Bank) are holding an investment forum in New York. Among the many guests and attendees are investors from various countries, including the Armenian Diaspora. The forum will be held with the support of an international consortium headed by Ameria Advisory, and the other participant of the consortium is US-based Pragma consulting firm. The aim of the forum is to present to the investors the potentially promising economic sectors of Armenia with a detailed analysis of investment opportunities. The matter is interesting enough and can be discussed over and over again, but I think we can draw a line under your question with the following conclusion: there are definitely ways to make the country more appealing for investors. In this regard, you need to assess qualitatively all changes in the region, be ready to get involved in all processes and not lose the right moment. Whether Armenia can become a funnel for Western portfolio investments in Iran (which, let us hope, will open in the nearest future) or from de-offshorization processes in Russia and come to substitute the jurisdiction of Cyprus for Russian private financial and investment capital, whether Armenia’s agricultural and manufacturing industry can gain a substantial share in certain market niches in Russia and elsewhere due to implementation of cutting-edge technologies…. These are questions, which still await their “heroes” both on the state and private levels. Armenian companies, not having international credit history, cannot raise funds from IFIs. Ameriabank already has some IFI fundraising experience for local companies. Will this process become simpler after EBRD’s and IFC’s acquisition of equity stake in Ameriabank? This is not entirely true. Certainly, clean credit history and high credit rating help attract funds more quickly and on more favorable terms, but absence of credit rating or history does not necessarily mean that non-public debt markets on an international level are closed to Armenian companies. In 2008, when we were starting as a commercial bank practically from scratch, Ameriabank was in a similar situation. Yes, we had to make many efforts to establish our cooperation with IFIs, but the result is that so far, we have brought about 500 million US dollars in long-term resources into the economy of Armenia. Fitch has confirmed our credit rating equal to that of the Sovereign; the Netherlands Development Finance Company (FMO) signed an unprecedented deal with a 20 million USD convertible subordinated loan facility agreement, the hitherto biggest subordinated loan agreement in Armenia was with IFC (50 million USD), and the biggest single ticket equity investment in the region was by EBRD (40 million USD invested into the capital of Ameriabank). Now with our help it will of course be easier for Armenian companies to benefit from IFI financing. We have been working to this end for 5 years and our clients are big Armenian manufacturers in various economic sectors. I must say, though, that just the desire to attract investments and pay for the services of Ameriabank is not enough to raise debt and equity finance from IFIs. Working with such partners requires a completely different level of financial transparency, corporate governance, and professionalism of senior management. You should not be affiliated with state agencies and you should have a functional ecological and social control system in place. Obviously, all this requires substantial costs in order to hire a reputable audit company and professional managers and implement internal controls, but there’s much more to gain. Eventually, the client gets long-term and relatively cheap credit resources (which no local commercial bank can offer on the same terms). The signing of deals with EBRD and IFC not only facilitates access to external financial markets, but fundamentally changes the situation on the banking sector of Armenia. Previously major backbone companies raised syndicated loans from international banks without referring to local banks, for the latter’s capital, credit rating and hence cost of credit resources prevented them from offering competitive terms to match those offered by international banks. As you know, CBA standards impose restrictions on maximum amount of loans per borrower or project – a ratio that directly depends on the size of the banks’ capital. After signing deals with EBRD and IFC, Ameriabank’s capital became much larger (almost two-fold), and now we can afford financing bigger and more vital projects which in its turn will trigger a chain reaction: local bank resources will be used in Armenian investment projects, interest income will not “leave” the country, banks will gain more profit (new jobs), and the state budget will get more taxes. In addition, Ameriabank and EBRD can co-finance investment projects which will increase Ameriabank’s crediting potential at least two-fold. One of EBRD’s strategic goals in Armenia is the development of capital markets. In this regard, what outlook does this partnership open for Ameriabank? It is beyond any doubt that the new level of cooperation of Armenia’s biggest investment bank with EBRD will be beneficial for the capital market of the country. But we must not expect that we’ll be able to fundamentally speed up the development of the market, for we are a commercial organization and have to earn money for shareholders. Certainly, if we manage this while developing the infrastructure and market, and creating new investment tools, we will be only happy. As you rightly said, for EBRD development of capital markets in Armenia is a key task, and they have long since been working towards enhancing the infrastructure and creating preconditions for development. EBRD’s priorities for the coming years are set forth in EBRD’s Strategy for Armenia, which is built on three key components: enhancement of competitiveness of the private sector through company capacity strengthening, increasing the transparency of governance and the business environment, development of capital markets and enhancement of access to long-term AMD resources, as well as development of quality and commercialized public utilities. Ameriabank has everything to offer to both EBRD as a partner in Armenia, and to clients and the State in all these areas, and we are hoping for a win-win partnership.