In what could be a major boost to one of the largest sectors of Armenia’s economy, the government approved on Thursday at least 20 billion drams ($54 million) in credit guarantees for local construction firms hit hard by the economic crisis.
“The state guarantees will enable builders to attract credit resources from commercial banks,” Prime Minister Tigran Sarkisian said during a weekly session of his cabinet. He said the approved sum is earmarked for the “first phase” of the financial support, suggesting that the government is ready to increase it later on.
The Armenian construction industry has expanded massively in recent years, generating about one quarter of the country’s $12 billion Gross Domestic Product (GDP) last year. The building boom, fuelled by strong demand in expensive housing and office space, has been a major driving force behind Armenia’s double-digit economic growth.
The sector stopped growing and began contracting with the onset of the global economic downturn last fall. The decline is particularly visible in Yerevan where work at many of the dozens of construction sites has ground to a halt in recent months. The risk-averse Armenian banks are reportedly reluctant to make new loans to construction companies.
“Today the liquidity rate of commercial banks is extremely high,” Sarkisian told ministers. “They have accumulated resources, and the only factor that restrains them from increasing the volume of lending is risk assessment.” The credit guarantees offered by the government will make them finance construction projects far more readily, he said.
According to the prime minister, construction firms needing such guarantees will have to apply to a special task force coordinating the government’s anti-crisis measures and to offer real property as collateral. “Presumably, preference will be given to those incomplete construction projects whose degree of completion is at least 75 percent,” he said. “Obviously, the purpose of that is to put completed apartments up for sale as soon as possible.”
Whether those apartments will quickly find buyers in the existing economic conditions remains to be seen. The Central Bank of Armenia (CBA) announed on Thursday that it will spend 5 billion drams to set up next month a new mortage lending company that will make housing loans cheaper and more accessible for Armenians. The CBA said the company’s authorized capital will grow sharply by the end of this year as a result of similar investments expecteed from the Armenian private sector and foreign investors.
One owner of a Yerevan-based construction firm, who asked not to be identified, cautiously welcomed the announcement. “It will probably have an idirect positive impact,” he told RFE/RL.
The businessman also said that his company is continuing its operations despite the crisis. “We hope to be able to sell apartments,” he said.
“We don’t worry about sales,” said another builder, who also spoke on condition of aonymity. “It’s just that the economic situation is pushing apartment prices down.”
“Targeted” assistance to struggling Armenian businesses is one of the elements of the government’s strategy of reducing the fallout from the global recession. Sarkisian announced recently that the anti-crisis task force has already allocated 25 billion drams ($68 million) in financial aid to 18 firms. Most of that aid is understood to have taken the form of equity investment.
The government also disbursed in February a $10 million loan to Armenia’s largest metallurgical enterprise mostly owned by a German group. The Zangezur Copper-Molybdenum Plant is due to use the money for modernizing its facilities and boosting output in the coming years.