Economy of Armenia
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{{Economy of Armenia table}}
[[Armenia]] is the second most densely populated of the former [[Soviet Union|Soviet republics]]. It is between the [[Black Sea]] and the [[Caspian Sea]], bordered on the north and east by [[Georgia (country)|Georgia]] and [[Azerbaijan]] and on the south and west by [[Iran]] and [[Turkey]].
Until independence, Armenia's economy was based largely on industry--chemicals, electronic products, machinery, processed food, synthetic rubber, and textiles--and highly dependent on outside resources. [[Agriculture]] accounted for only 20% of net material product and 10% of employment before the breakup of the Soviet Union in 1991. Armenian mines produce [[copper]], [[zinc]], [[gold]], and [[lead]]. The vast majority of energy is produced with imported fuel, including gas and nuclear fuel (for its one nuclear power plant) from Russia; the main domestic energy source is hydroelectric. Small amounts of coal, gas, and petroleum have not yet been developed.
Like other former States, Armenia's economy suffers from the legacy of a centrally planned economy and the breakdown of former Soviet trading patterns. Soviet investment in and support of Armenian industry has virtually disappeared, so that few major enterprises are still able to function. In addition, the effects of the 1988 earthquake, which killed more than 25,000 people and made 500,000 homeless, are still being felt. Although a cease-fire has held since 1994, the conflict with Azerbaijan over Nagorno-Karabakh has not been resolved. The consequent blockade along both the Azerbaijani and Turkish borders has devastated the economy, because of Armenia's dependence on outside supplies of energy and most raw materials. Land routes through Azerbaijan and Turkey are closed; routes through Georgia and Iran are inadequate or unreliable. In 1992-93, GDP fell nearly 60% from its 1989 level. The national currency, the dram, suffered hyperinflation for the first few years after its introduction in 1993.
Nevertheless, the Government of Armenia, helped by the cease-fire that has been in effect in Nagorno-Karabakh since 1994, has been able to carry out wideranging economic reforms which paid off in dramatically lower inflation and steady growth. Armenia has registered strong economic growth since 1995, building on the turnaround that began the previous year, and inflation has been negligible for the past several years. New sectors, such as precious stone processing and jewelry making, information and communication technology, and even tourism are beginning to supplement more traditional sectors such as agriculture in the economy.
This steady economic progress has earned Armenia increasing support from international institutions. The IMF, World Bank, EBRD, as well as other IFIs and foreign countries are extending considerable grants and loans. Total loans extended to Armenia since 1993 exceed $800 million. These loans are targeted at reducing the budget deficit, stabilizing the local currency; developing private businesses; energy; the agriculture, food processing, transportation, and health and education sectors; and ongoing rehabilitation work in the earthquake zone.
Continued progress will depend on the ability of the government to strengthen its macroeconomic management, including increasing revenue collection, improve the investment climate, and accelerate the privatization process. A liberal foreign investment law was approved in June 1994, and a Law on Privatization was adopted in 1997, as well as a program on state property privatization. The government has made major strides toward joining the World Trade Organization. By 1994, however, the Armenian Government had launched an ambitious IMF-sponsored economic liberalization program that resulted in positive growth rates in 1995-2005. Armenia joined the WTO in January 2003. Armenia also has managed to slash inflation, stabilize its currency, and privatize most small- and medium-sized enterprises. Armenia's unemployment rate, however, remains high, despite strong economic growth. The chronic energy shortages Armenia suffered in the early and mid-1990s have been offset by the energy supplied by one of its nuclear power plants at [[Metsamor]]. Armenia is now a net energy exporter, although it does not have sufficient generating capacity to replace Metsamor, which is under international pressure to close. The electricity distribution system was [[privatized]] in 2002. Armenia's severe trade imbalance has been offset somewhat by international aid, remittances from Armenians working abroad, and foreign direct [[investment]]. Economic ties with [[Russia]] remain close, especially in the energy sector. The government made some improvements in tax and customs administration in 2005, but anti-corruption measures will be more difficult to implement. Investment in the [[construction]] and [[industry|industrial]] sectors is expected to continue in 2006 and will help to ensure annual average real [[GDP]] growth of about 13.9%.
==Overview==
Under the old Soviet central planning system, Armenia had developed a modern industrial sector, supplying machine tools, textiles, and other manufactured goods to sister republics in exchange for raw materials and energy. Since the implosion of the USSR in December 1991, Armenia has switched to small-scale agriculture away from the large agroindustrial complexes of the Soviet era. The agricultural sector has long-term needs for more investment and updated technology. The privatization of industry has been at a slower pace, but has been given renewed emphasis by the current administration. Armenia is a food importer, and its [[mineral]] deposits ([[gold]], [[bauxite]]) are small. The ongoing conflict with Azerbaijan over the ethnic Armenian-dominated region of Nagorno-Karabakh (which was part of Soviet Azerbaijan) and the breakup of the centrally directed [[economic system]] of the former Soviet Union contributed to a severe economic decline in the early 1990s. By 1994, however, the Armenian Government had launched an ambitious IMF-sponsored economic program that has resulted in positive growth rates in 1995-99. Armenia also managed to slash inflation and to privatize most small- and medium-sized enterprises. The chronic energy shortages Armenia suffered in recent years have been largely offset by the energy supplied by one of its nuclear power plants at Metsamor. Continued Russian financial difficulties have hurt the trade sector especially, but have been offset by international aid, domestic restructuring, and foreign direct investment.
==History of the modern Armenian economy==
[[Armenia]] emerged from the [[umbra]] of the former [[Soviet Union]] in [[1991]] and migrated from a [[centrally planned economy]] ([[Communist]] system) to a [[market economy]] ([[capitalism |capitalist]] system). Both the [[nation]] and the [[economy]] are [[nascent]]. Regional conflict retards [[economic growth]]. In addition, the border with [[Turkey]] is closed, making access to sea ports difficult and [[transportation]] [[logistics]] challenging to a country largely dependent upon imports. In 2003, Armenia became a member of the [[WTO]] ([[World Trade Organization]]). The nation is making substantial progress in privatizing ownership of what used to be State Owned [[industries]] under the former Soviet system. Despite marked progress, Armenia still suffers from a large trade imballance and is still largely dependent upon foreign aid and remittances from Armenian nationals working abroad, and members of the [[diaspora]] donating aid through [[NGO]]s (non-governmental organizations) such as the church. There are some foreign capital inflows, but no robust foreign investment. Despite progress since the Soviet era, the unemployment rate still hovers near 30% and there remains a huge gulf between actual and potential [[Gross Domestic Product]].
==GDP==
The [[Gross Domestic Product]] of Armenia is estimated in 2006 to be 6.6 billion US [[dollar]]s per calendar year and the GDP per capita (purchasing power parity) is estimated at $5400 US. The growth rate is high at 13.4%, but the relatively low base must be considered. Low inflation is maintained around 2.6% annually. ''Source:'' [[CIA Factbook]]
==Average wage==
According to the state-owned [[Armenpress]] news agency, the average monthly wage in Armenia for the first half of 2007 was 70,700 [[drams]] (about $210 USD).<ref>[http://www.armeniandiaspora.com/archive/105751.html "Average Wage In Armenia Rises To $210"], [[ARMENPRESS]], August 3, 2007.</ref> As of April 24, 2008, the average monthly salary is 75,000 drams (about $242 US dollars).<ref name="EurasiaNet-Apr24-08">[http://www.eurasianet.org/departments/insight/articles/eav042408.shtml "ARMENIA: GAS PRICE HIKE POSES CHALLENGE FOR GOVERNMENT"], EurasiaNet, April 24, 2008.</ref>
==Economic growth==
According to official figures, Armenia’s economy grew by 13.8 percent in 2007.<ref name="EurasiaNet-Apr24-08"/>
==Environmental Issues==
Armenia is trying to address its environmental problems. It has established a Ministry of Environment and has introduced a pollution fee system by which taxes are levied on air and water emissions and solid waste disposal, with the resulting revenues used for environmental protection activities. Armenia is interested in cooperating with other members of the Commonwealth of Independent States (a group of 12 former Soviet republics) and with members of the international community on environmental issues. The Armenian Government is working toward closing the Armenian Nuclear Power Plant as soon as alternate energy sources can be identified.
==Energy==
===Oil===
Armenia has no proven oil reserves. Most of its oil demands are met through imports from Russia. Armenian oil demand is constrained, in large part, due to an economic embargo maintained by Azerbaijan to the East, and Turkey to the West. The embargo began shortly after the secession of Nagorno-Karabakh , an Armenian enclave within Azerbaijan in 1988, and has held, despite a cease fire declared in 1994.<ref name="DOE-Cauc-Energy">[http://www.eia.doe.gov/emeu/cabs/Caucasus/LocalIssues.html Official Energy Statistics from the U.S. Government - Caucasus Region], [[Energy Information Administration]] of the U.S. [[Department of Energy]]</ref>
===Natural Gas===
Natural gas represents a large portion of total energy consumption in Armenia, accounting for 50%. Armenia does not produce significant quantities of natural gas, making it heavily dependent on imports to keep its economy running.<ref name="DOE-Cauc-Energy"/> The Russian company [[Gazprom]] supplies Armenia with gas.<ref name="EurasiaNet-Apr24-08"/>
===Electricity===
Despite a lack of fossil fuel, Armenia has significant domestic electricity generation resources. In 2002, non-thermal domestic electricity generation accounted for 56% of total generation: 32% nuclear and 26% hydroelectric.
Armenia has a total of 11 power stations and 17 220 kV substations. A map of Armenia's National Electricity Transmission Grid can be found at the website of the [[Global Energy Network Institute]] [http://www.geni.org/globalenergy/library/national_energy_grid/armenia/index.shtml here].
====Thermal Power Plants====
Armenia has three thermal power plants (one in each of the following cities: [[Vanadzor]], [[Hrazdan]], and [[Yerevan]]) which together account for 44% of Armenia's domestic electricity generation.<ref name="GENI-Elec-Map">[http://www.geni.org/globalenergy/library/national_energy_grid/armenia/armeniannationalelectricitygrid.shtml Map of Armenian Electricity Grid], [[Global Energy Network Institute]], September, 2000.</ref>
====Hydroelectric====
Armenia has 9 hydroelectric power plants which together account for 26% of its domestic electricity generation. The plants are grouped along two cascades:<ref name="GENI-Elec-Map"/>
* The Sevan-Hrazdan Cascade: [[Sevan]], [[Atarbekyan]], [[Gyumush]], [[Arzni]], [[Kanaker]], [[Yerevan]]
* The Vorotan Cascade: [[Spandaryan]], [[Shamb]], [[Tatev]]
====Nuclear Power Plant and Nuclear Fuel====
Armenia has one nuclear power plant, the controversial [[Metsamor Nuclear Power Plant]], which provides about 32% of the country's domestic electricity generation. Nuclear fuel must be flown in from Russia and then taken along a dirt road from Yerevan because Armenia's border with Turkey is closed.<ref name="DOE-Cauc-Energy"/>
==Takeover of Armenian industrial property by the Russian state and Russian companies==
In implementing its strategy to regain political dominance over post-Soviet countries by taking over their economic infrastructure, the Russian state, since 2000, has acquired several key assets in the energy sector and Soviet-era industrial plants. Property-for-debt or equity-for-debt swaps (acquiring ownership by simply writing off the Armenian government's debts to Russia) are usually the method of acquiring assets. The failure of market reforms, clan-based economics, and official [[Corruption in Armenia|corruption in Armenia]] have allowed the success of this process.<ref name="IASPS-Nov13-02">Socor, Vladimir. [http://www.iasps.org/strategic/socor12.htm "Armenia's Energy Sector, Other Industrial Assets Passing Under Russia's Control"], ''IASPS Policy Briefings: Oil in Geostrategic Perspective'', November 13, 2002.</ref>
In August 2002, the Armenian government sold an 80 percent stake in the [[Armenian Electricity Network]] (AEN) to Midland Resources, a British offshore-registered firm which is said to have close Russian connections.<ref name="IASPS-Nov13-02"/>
In September 2002, the Armenian government (under Robert Kocharian's tenure) handed over Armenia’s largest cement factory to the Russian [[ITERA]] gas exporter in payment for its $10 million debt for past gas deliveries.<ref name="Eurasianet-May-7-03">Danielyan, Emil. [http://www.eurasianet.org/departments/business/articles/eav050703.shtml RUSSIA TIGHTENS GRIP ON ARMENIA WITH DEBT AGREEMENTS], ''Eurasianet'', May 7, 2003</ref>
On November 5, 2002, Armenia transferred control of 5 state enterprises to Russia in an assets-for-debts transaction which settled $100 million of Armenian state debts to Russia. The document was signed for Russia by Prime Minister [[Mikhail Kasyanov]] and Industry Minister [[Ilya Klebanov]], while Prime Minister [[Andranik Markarian]] and defense and security strongman [[Serge Sarkisian]] signed for Armenia.<ref name="IASPS-Nov13-02"/> The five enterprises which passed to 100 percent Russian state ownership are:
* Armenia's largest thermal power plant which is in the town of [[Hrazdan]] and is gas-burning
* the Mars electronics and robotics plant in Yerevan, a Soviet-era flagship for both civilian and military production
* three research-and-production enterprises -- for mathematical machines, for the study of materials, and for automated control equipment -- these being Soviet-era military-industrial plants
In January 2003, the Armenian government and [[United Company RUSAL]] signed an investment cooperation agreement, under which United Company RUSAL (which already owned a 76% stake) acquired the Armenian government's remaining 26% share of [[RUSAL ARMENAL]] aluminum foil mill, giving RUSAL 100% ownership of RUSAL ARMENAL.<ref name="IASPS-Nov13-02"/><ref>[http://www.rusal.ru/en/armenal.aspx RUSAL ARMENAL]</ref>
On November 1, 2006, the Armenian government handed de facto control of the Iran-Armenia gas pipeline to Russian company [[Gazprom]] and increased Gazprom's stake in the Russian-Armenian company [[ArmRosGazprom]] from 45% to 58% by approving an additional issue of shares worth $119 million.<ref name="EURA-Nov-3-06">Socor, Vladimir. [http://www.jamestown.org/edm/article.php?article_id=2371612 "RUSSIA CEMENTS CONTROL OF ARMENIA’S ENERGY SYSTEM"], ''Eurasia Daily Monitor'', November 3, 2006.</ref> This left the Armenian government with a 32% stake in ArmRosGazprom. The transaction will also help finance ArmRosGazprom's acquisition of the [[Hrazdan electricity generating plant]]’s fifth power bloc (Hrazdan-5), the leading unit in the country.<ref name="EURA-Nov-3-06"/>
===Controversy over non-transparent deals===
Critics of the Kocharian government say that the Armenian administration never considered alternative ways of settling the Russian debts. According to economist Eduard Aghajanov, Armenia could have repaid them with low-interest loans from other, presumably Western sources, or with some of its hard currency reserves which then totaled about $450 million. Furthermore, Aghajanov points to the Armenian government's failure to eliminate widespread corruption and mismanagement in the energy sector – abuses that cost Armenia at least $50 million in losses each year, according to one estimate.<ref name="Eurasianet-May-7-03"/>
Political observers say that Armenia's economic cooperation with Russia has been one of the least transparent areas of the Armenian government’s work. The debt arrangements have been personally negotiated by (then) Defense Minister (and now President) [[Serge Sarkisian]], Kocharian’s closest political associate. Other top government officials, including Prime Minister [[Andranik Markarian]], had little say on the issue. Furthermore, all of the controversial agreements have been announced after Sarkisian’s frequent trips to Moscow, without prior public discussion.<ref name="Eurasianet-May-7-03"/>
Finally, while Armenia is not the only ex-Soviet state that has incurred multimillion-dollar debts to Russia over the past decade, it is the only state to have so far given up such a large share of its economic infrastructure to Russia. For example, pro-Western [[Ukraine]] and [[Georgia (country)|Georgia]] (both of which owe Russia more than Armenia) have managed to reschedule repayment of their debts.<ref name="Eurasianet-May-7-03"/>
== Other Statistics==
'''Investment (gross fixed):'''
19.8% of GDP ([[2004]])
'''Household income or consumption by percentage share:'''
<br>lowest 10%: 2.3%
<br>highest 10%: 46.2% ([[1999]])
'''Distribution of family income - Gini index:'''
44.4 ([[1996]])
'''Agriculture - products:'''
[[fruit]] (especially [[grape]]s and [[apricot]]s), [[vegetables]], [[livestock]], [[Wine]], [[Brandy]]
'''Industrial production growth rate:'''
15% (2002 est.)
'''Electricity - production:'''
6,492 GWh ([[2002]])
'''Electricity - consumption:'''
5,797 GWh ([[2002]])
'''Electricity - exports:'''
704 GWh; note - exports an unknown quantity to Georgia; includes exports to Nagorno-Karabakh ([[2002]])
'''Electricity - imports:'''
463 GWh; note - imports an unknown quantity from Iran (2002)
'''Oil - production:'''
0 barrel/day (2001 est.)
'''Oil - consumption:'''
5,700 barrel/day (2001 est.)
'''Oil - exports:'''
NA (2001)
'''Oil - imports:'''
NA (2001)
'''Natural gas - production:'''
0 m³ (2001 est.)
'''Natural gas - consumption:'''
1.4 billion m³ (2001 est.)
'''Natural gas - exports:'''
0 m³ (2001 est.)
'''Natural gas - imports:'''
1.4 billion m³ (2001 est.)
'''Current account balance:'''
$-240.4 million (2004)
'''Exports - commodities:'''
cut [[diamond]]s, [[mineral]] products, foodstuffs, [[energy]]
'''Imports - commodities:'''
[[natural gas]], [[petroleum]], [[tobacco]] products, [[foodstuffs]], uncut [[diamond]]s
'''Reserves of foreign exchange & gold:'''
$754.9 million ([[2005]])
'''Debt - external:'''
$1.819 billion ([[2005]])
'''Currency:'''
[[dram (currency)|dram]] (AMD)
'''Currency code:'''
AMD
'''Exchange rates:'''
[[Armenian dram]] per US dollar - 310.00 (2008), 457.69 (2005), 533.45 (2004), 578.76 (2003), 573.35 (2002), 555.08 (2001), 539.53 (2000)
== See also ==
* [[List of companies of Armenia]]
==References==
*[https://www.cia.gov/library/publications/the-world-factbook/geos/am.html CIA World Factbook]
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