An interview with Tigran Khanikian, Director of the Fund for Rural Economic Development in Armenia (FREDA) Question: Tell us about your fund, please. Answer: FREDA was established under a financing agreement signed between the International Fund for Agricultural Development (IFAD) and the Armenian government. As far as I know, this is the fifth IFAD-sponsored project in Armenia. It envisages creating a structure that will use a well-known, but not widely used version: investment financing – a form of financing, which is not widespread in Armenia and not offered by Armenian banks. Its purpose is to make investments in the authorized capital of an enterprise, acquiring a share not by organizing a stock flotation, but by issuing new shares. In other words, we do not buy or alienate shares from the former shareholders. In this way the authorized capital is increased for the implementation of specific programs. The IFAD has been implementing various projects in Armenia for 15 years, and most of the projects are aimed at improving infrastructure in rural areas. One of them is an investment structure for agriculture financing. This structure is called FREDA, its organizational form is a fund. By the law, the superior body of our management is a board of trustees composed of 13 members. The majority of its members are representatives of the private sector, with civil servants constituting a minority. FREDA started operating in September 2009. 2010 was a year of financing and implementation of specific programs. During that period we financed three programs, and at the end of the year our Investment Committee approved another two. Two more programs are expected to be approved and submitted in February. The total cost of these seven programs is 1.1 billion drams (over million). The Board of Trustees is headed by Prime Minister Tigran Sargsyan. Among the members are Minister of Finance Vatche Gabrielian, Minister of Agriculture Sergo Karapetian, First Deputy Minister of Economy Karine Minasian, Karen Gevorgian of the Small and Medium Entrepreneurship Development National Center (SME DNC), Aharon Chilingarian of the Central Bank of Armenia and 7 businessmen who can be replaced. The Board of Trustees includes representatives of the Yerevan Brandy Company, Bank Turan Alem , Ingo-Armenia insurance firm, and others. The Board of Trustees sets a general policy, hears reports, etc, and appoints the members of the Investment Committee. Q: What is the Investment Committee? A: The Investment Committee is a specialized body; it differs from the Board of Trustees. Its members are investment experts and take decisions on investment making. The committee has three members, the government decided to involve another member. The total capital of our fund amounts to million allocated by the IFAD. After this money has been invested, additional financing will be needed. Our investments are directed at agribusiness sector only. The task is to develop agribusiness in rural areas of Armenia. We have 4 target groups: wine-making, fish-breeding, milk and and dairy product manufacturing, and canning. In addition, we carry out activities in those sectors of agribusiness which will contribute to the development of rural areas. For example, we financed Pyunik CJSC engaged in poultry farming. It is not traditional poultry keeping, the company specializes in incubation. 1-2 chicks hatch daily and are sold as layers or broilers to other companies. One of the programs approved at the end of last year is related to a refrigerating enterprise that will purchase, sort, and store farm products and then sell them. This is a type of agribusiness not included in any of the mentioned four groups. The remaining sum – about 700 million drams is to be invested in 3 or 4 enterprises, after which we will need to obtain funds again and increase our investment. Q: How long can you use the capital provided by IFAD? A: For five years. In fact, during the first year of work, we spent more than half of that capital. In the first quarter of 2011, we should work out development programs to be submitted to foreign institutional investors, development funds (for example, Scandinavian ones) that will acquire our shares. The further participation of the IFAD as a donor is not ruled out. Our task is to encourage the processing sector of agribusiness. Among the companies we finance is Aquatech Automatics CJSC which has fish canneries in cities such as Yerevan, Gyumri, and Masis. The Meghri cannery is a famous jam-producing enterprise located in the south of Armenia. Pyunik poultry enterprise is in the village of Bovadzor near Stepanavan. Q. You receive bids from various enterprises and select the ones to be funded. Do your functions include suggesting new ideas? A: Manufacturers and businessmen engaged in the processing sector come to us, they have a clear idea of how their business should develop. We can make some changes and corrections to their plans, but our investments are limited to а maximum period of 7 years, after which we cannot have a share in the capital of the given company, so we have to sell our share to its shareholders (by pre-emption right) or to a third party (at shareholders’ option), and there is also a third option – to sell our share in the free market – the stock exchange, especially as our investments make part of sums used for expansion and reinforcement of the given production. We do not strive to achieve qualitative changes in a business. Nor do we strive to gain a majority in the capital. The maximum threshold of our investment is 45%. Our aim is to assist businesses in purchasing new equipment and to help them expand and increase their capacities. Q: Can these programs lead to job creation? A: Naturally, they can. All these enterprises are components of a cost chain. Even if new jobs are not created by enhancing their capacities, their activities will help generate jobs and stable employment in allied fields. For example, the Meghri cannery ensures regular purchases from farmers. Pyunik Company generates employment in allied companies that produce eggs and poultry. All these companies are also exporters. We tend to finance exporting companies. The other companies whose financing is expected (except for refrigerating enterprises) are also exporting ones. Agriculture accounts for a large share of Armenia’s Gross Domestic Product. There is much to be done in agricultural sector, and considerable funds are needed. Our major task is to export our goods. It is also important to achieve a high level of food security and a constant growth of production at enterprises. Armenia has much export potential. Q: What countries are considered as ones where you can export goods? A: First of all, some former Soviet countries – Russia, Ukraine, and Georgia. We have a company that exports its products to European and American markets, too. Marketing poses a serious problem for us. In any case, we deal with large markets and great demand. By Haroutiun Khachatrian

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