The public sector is slow, when what investors need is a quick response and flexibility, says Armen Avak Avakian, CEO of Business Armenia. He speaks to Andrew Wrobel about the restructuring process the investment promotion agency (IPA) he manages is undergoing currently and what his idea of and IPA is.
Andrew Wrobel (AW): Business Armenia, formerly, the Development Foundation of Armenia, is currently undergoing a restructuring process. Why was this process needed? What are its objectives?
Armen Avak Avakian (AAA): Well, the process was necessary because we need to optimise our output. Let’s look at it this way — if we consider the private sector the digital world, the public sector is analogue. The public sector is slower and there is a lot of bureaucracy involved. It still has an analogue way of operating. When you’re spending public money, you need to make sure that every dollar spent has bureaucratic oversight.
The problem with a lot of investment promotion agencies, including the Development Foundation of Armenia (DFA), is that they are caught up in that analogue system as they are a part of the public sector. It doesn’t allow for quick responses, flexibility, and a lot of other things that the private sector requires as a service from an investment promotion agency.
The objective of the restructuring process is to be digital towards the digital world and analogue towards the analogue world. The team that provides services to investors operates like a private business and is almost 100 per cent free of any bureaucracy, while the support staff is 100 per cent within the government bureaucracy. I simply have an adaptor that converts what the service provider team needs versus what the administrative team needs.
Now, every single dollar that is spent has a key performance indicator (KPI) and every investment has to bring specific results. At the same time, I am able to provide the government with detailed reports.
AW: In June 2018, Emerging Europe published the Investment Promotion Report 2018 and one of its findings was that investment promotion agencies often lack this business approach. Business Armenia is meant to operate like a business. How will that work?
AAA: Let me put it this way, a lot of IPA budgets — including the DFA’s — come from state funding or state donations. This is currently the case for Business Armenia as well. The vast majority of our income stream comes from state budget; I have some grants, and then the rest is generated by a business approach. What I mean by that, is that there are certain services that we sell and we generate revenue from. In order to continuously be more efficient on the digital side of things I need to be able to make my analogue staff be more business oriented. In order to do that I need to make sure that we are less dependent on the state budget. The less dependent we become the less bureaucratic we need to be, which means we can provide services at a higher level. So, our theory is that five years from now we want to be 50-50 — if not 60-40 — in terms of generating our own revenue.
There should be some money coming from the state budget just to make sure that we can say we are “the national authority for trade or investment promotion.” And to be the national authority there has to be some sort of state input, some sort of oversight. But the more we can minimise that input, the more flexible we can be.
AW: So how are you planning on helping foreign investors interested in doing business in Armenia?
AAA: First of all, there is the large diaspora network, which has an emotional connection with its motherland, and that emotional connection triggers the will to do something. Often, however, they are not sure what. We can then come in as a business consulting unit in order to actually help them channel that investment into areas where it would be profitable for them, and deliver a success story for us.
Another big part of what we do is aftercare. I call my aftercare team the anti-bureaucratic team. Their job is to make sure that all the bureaucracy that’s involved in the registering of company and its first six months of operations is minimal for the investor.
With this in mind, we quickly realised that if we offer legal consulting, tax and financial services, we become a semi-governmental body competing with the private sector, because there are business, legal and tax consulting firms out there. So instead of competing with the private sector we decided to go into partnership. We opened up what we call the Business Support Club. We brought together providers such law and tax firms and said: “We could offer you a continuous channel of potential customers, because we have a lot of foreign investors coming through our doors. What we need from you is in that during the first three to six months of any investment, you offer your services for free.” The club now has 16 different service providers and we will have 20-25 by the end of this year, even more next year.
AW: Tell me where you see the biggest opportunities for investors?
AAA: The first question that I am usually asked is how big is Armenia in terms of market size. My answer is that there is a population of 800 million. Of course, Armenia doesn’t have an 800 million population but if you look at our free trade agreements we have customs-free access to an 800 million-strong market. So, from that perspective, there is a broad range of trade incentives that the investors should be looking for. We are a part of the Eurasian Economic Union (EEU), which gives us access to Russia, Kazakhstan, Belarus and Kyrgyzstan. We have the Generalised Scheme of Preferences (GSP+) regime with the EU which gives us customs-free access to the European Union for 6400 different types of products. The EEU just signed a free trade agreement with Iran which lowered tariffs and in some cases reached zero. If you add those three elements together our market is about 800 million people. Or more.
Now, if you are a French company and you want to access Russia, or you’re a Russian company that wants to access to Iran, or if you are an Iranian company that needs to access Germany, Armenia is the perfect stepping stone. The trade agreements are there and the access to that info is crucial.
The second opportunity for us is tech. The tech sector in Armenia is booming. The Armenians have always been known to the world as creators. If Germans are engineers and Italians are designers, then Armenians are creators. We create things, it’s what we do. We created the MRI machine, we created the green colour of the dollar bill, we created the colour TV, we created automatic transmission on cars, oxygen masks for airplanes. All of these have things been researched and developed by Armenians. If you want to tap into that R&D pool, that genealogy of creating new things, then Armenia is the place to be.
AW: What challenges are you facing in attracting more investment?
AAA: Well, investors don’t know where Armenia is, they often confuse us with Romania or Albania. So, the recognition and awareness in itself is already a problem. Content is another problem. We don’t have enough content about Armenia. If you Google ‘Armenia’ the top 20 results revolve around the genocide.
I am a diaspora Armenian, I was raised in Boston and from the day I was born I’ve been taught that what it means to be an Armenian is to fight for the recognition of the Armenian Genocide. When you grow up, that is what you identify with. I think we have to change that dialogue. When I am asked what it is to be an Armenian I say, for example, Armenia is one of the countries in the world that has chess as a curriculum in middle schools. That’s how I start representing my country. Instead of talking about the past I start talking about the present and the future.
AW: In our Investment Promotion Report we discussed common shortfalls as well as best practices. How important is for IPAs across the region to share their experience and learn from one another?
AAA: It is very important, for two main reasons. I have only been doing this for a year, so I am relatively new to the game. But I have been meeting a lot of IPAs, talking to them, and there are two things worth mentioning. Number one is that it’s important to talk and share experiences because you always want to know that you are not alone. For example the struggle between digital and analogue is the same for everyone. Every single IPA has the same problems that they deal with in different ways.
The second thing is actually sharing solutions; and the services that we provided. We don’t want to reinvent the wheel; if mistakes have been made, and surely they have, we don’t want to repeat them. Smart people learn from their mistakes; wise people learn from others’ mistakes.