International Trade in Armenia

News Related to International Trade in Armenia

Business outline for Armenia

Main Industry Sectors

Agriculture accounts for 18% of the Armenian GDP and employs 45% of the active population.  Armenia mainly produces wheat, potatoes, citrus fruits and wine grapes. Cotton and tobacco are the most important industrial crops.

The industrial sector contributes 33% to the GDP and employs 15% of the population.  Armenia has copper, molybdenum, bauxite, zinc, lead, iron, gold, and mercury deposits, which provide the basis for the country's chemical industry sector and these are the pillars of its exports.  In 2009, the growth rate of the industrial production dropped 12%. The mining products constitute 40% of Armenian exports, textiles also play an important role in this sector.

Lastly, the tertiary sector contributes around 50% to the GDP. New sectors such as information technology and communications, jewelry making and even tourism are beginning to complete the traditional sectors (agriculture and textile).  Armenia depends on its neighbors (namely Russia) for its energy needs (oil and gas). Hydroelectricity is very well developed in the country, to the point that Armenia is now exporting it.  Jewelry making and the size of its diamonds are acknowledged as a stable domain.

Economic Overview

Like other CIS (Commonwealth of Independent States) countries, Armenia's economy suffered, at the beginning, from the legacy of a centrally-planned economy and the breakdown of the former Soviet trading models. However, the government was able to carry out wide-ranging economic reforms that have translated into a solid economic growth since 1995. Growth is sustained by domestic demand, which depends strongly in investments and remittances from Armenians working abroad. This economic progress has allowed Armenia to benefit from increasing support from international organizations like the IMF and the World Bank. The total foreign loans and grants accorded to Armenia since 1993 exceed USD 1.1 billion.

However, the country was heavily affected by the international economic crisis. The investments and transfers from the diaspora were radically petered out.  The GDP had a drop of 17% in 2009.  In order to help Armenia to get out of the crisis, the World Bank, the IMF and Russia have granted a loan totaling almost USD 2 million in the first quarter of 2009.

FDI in Figures

Since the Soviet Union broke up in 1991, Armenia has made a great progress towards the liberalization of its economy.  According to the World Bank, Armenia is ranked first amongst CIS (Commonwealth Independent States) countries in terms of FDI appeal. In effect, the government recently established conditions and laws which are favorable to foreign investments, and because of its economic dynamism, the country has earned the nickname of "The Caucasian Tiger". However, due to the crisis, FDI has dropped 30%, going from USD 1.1 billion in 2008 to USD 700 million in 2009.

Russia, France and the Netherlands are the three major investors in Armenia.  The three sectors covered by these investments are energy, telecommunications and air transportation. Significant investments were also made by the Armenian communities living outside the country (nearly 6 million people). From USD 2 billion in 2008, these investments have decreased by one third since the crisis.

The crisis affected the foreign investment flow, but the support of international organizations has allowed investors to maintain their confidence towards the country. Greece and Russia are the biggest investors in Armenia. FDI is mainly concentrated in the telecommunication, energy, hotel industry and metallurgy sectors.

FDI Government Measures

The Armenian government is conscious of the need to create a more inviting business environment and targeted efforts have been made to the encourage foreign investment, required for the development the growing economy. The law on the reduction of poverty and corruption, as well as other reforms specifically linked to the business environment came into force. In particular, we can name:
- equal treatment for foreigners;
- No limitation on foreign ownership;
- Freedom to repatriate profits;
- Limited State intervention and deregulation.

Country Strong Points

The country's attractiveness is linked to its high economic growth over the last ten years and a series of reforms. We can also name the following factors: 
- Its geographic location, which gives it access to the former Soviet republics;
- A well trained active population, which is relatively cheap to employ;
- A developing economy with sectors requiring foreign investments (e.g. telecommunications);
- A desire to normalize relations with Turkey, pointing to a possible opening of the border.

Country Weak Points

Armenia has a small domestic market and high transport costs (all goods must transit through Georgia due to the embargo imposed by Turkey and Azerbaijan), a fact which hinders the country's economic development.
Corruption, nepotism and interference by state authorities are also problematic issues. Political instability can also be a negative factor, as well as the risk linked to natural catastrophes (earthquakes).
The country's poverty is also a negative factor, especially during times of crisis, as the social climate and domestic consumption could be jeopardized.

Foreign Trade Overview

Armenia has a liberal policy in regards to foreign trade. The share of foreign trade in the country's GDP is around 70%. Armenia joined the WTO in 2003.

Armenia's main export partners are Germany, Russia, the Netherlands, Bulgaria, the United States, Georgia, Iran and China. The main export commodities are pearls and precious stones, iron and steel, beverages and spirits. It is important to note that Armenia is an enclosed territory, under an economic blockade from its neighbors Azerbaijan and Turkey and depends essentially of Georgia to send and receive its exports and imports from Russia.

The three main import partners of Armenia are Russia, China, Ukraine, Turkey, Germany, Iran and Turkmenistan. Armenia mainly imports non-precious metals, precious and semi-precious stones as well as mineral products (oil and gas), machinery and foodstuffs.

In 2008, and especially in 2009, exports experienced a clear decline due to the economic crisis and the reduction in domestic demand.