Attractiveness for Investing Environment and Development Perspectives in Armenia
By Arman Varosyan, Art-Lar Finance and Accounting LLC
The activities of recent years prove that, even with limited resources, Armenia has managed to form a flexible economic system to some extent. However, the high speed of growth of public debt and a slowdown of economic growth still exist.
In the fall of 2016, the newly appointed government, headed by Karen Karapetyan, inherited an economy in poor condition. As a result, the government presented a serious programme of radical reforms, which aimed to increase the level of confidence in the country, quality of governance, the country's investment attractiveness, as well as promote public-private partnerships leading to new economic and political freedom. One of the main priorities of Armenia is the consistent policy of attracting foreign investment. Promotion of foreign investment as the main factor to insure economic growth is the primary objective of investment policy of the country, implying a complex programme to increase the attractiveness of the investment environment.
According to the World Bank’s “Doing Business” Report, Armenia is ranked 38th in the world for ease of doing business, and 33rd in Heritage Foundation’s Index of Economic Freedom, improving its ranking by 21 points. In PwC Paying Taxes 2016 report, Armenia is ranked 17th among 189 countries by the average tax burden on business (the collection of all paid taxes). In accordance with PwC report, the overall tax burden in Armenia is 19.9%.
Our country has preferential trade regimes with many countries, including the US, Canada, Switzerland, Japan and Norway, as well as the so-called Generalised System of Preferences (GSP) and the Generalised Scheme of Preferences or GSP+ system with the countries of the European Union.
Particular attention is paid to the Eurasian Economic Union (EEU). Despite all economic difficulties, the positive achievements are evident. It managed to reduce significantly the negative effects of global economic developments, which would be the more noticeable for the member countries of the EEU in the absence of the domestic market. Armenia's accession to the Union is an opportunity to enter the extensive market of 180 million people.
By the end of 2017, negotiations on a new framework agreement with the EU are to be completed. The economic component of the new document opens up fresh opportunities for European business persons to launch new business activities. Moreover, the accurate and full usage of the opportunities provided by the agreement may mutually serve EU and EEU interests. Our good relationship with Iran and economic relations also create good conditions for European business persons to enter the 80 million Iran consumer market via Armenia. Moreover, Armenia contains the shortest and safest route connecting the Persian Gulf and the Black Sea ports.
The Government has already collected over 341 investment projects worth USD 3.2 billion, where the investment object, financial source and those who implement it are listed. Of the total amount of USD 3.2 billion, USD 830- 850 million are deemed realistic for 2017. Another 79 additional investment programmes worth USD 5.3 billion are being discussed with investing countries such as Russia, the USA, the EU and China.
The main spheres for foreign investments are information technologies, tourism, energy, including alternative energy production, mining, ore processing, industry and agriculture. In order to attract investors, the government of Armenia has created an electronic platform that includes the investment plans. This website is a unique bridge between investors and investment seekers. There are also projects on granting customs and tax privileges, exemption from custom’s taxes and delayed payment of VAT for 3 years. Some of the projects require government-private sector format, which involves modification of the land purpose usage or delay of amounts payable because of modification.
The establishment of the free economic zone (FEZ) in the area bordering Iran in the fall of 2017 will promote the country’s economic development. FEZ will occupy an area of 10-15 hectares, with the possibility of extension to 45 hectares. The project was estimated to be worth approximately USD 30 million, and will establish more than 2,500 workplaces. According to the forecasts, 100 companies from the EU, Russia, Iran and China will operate in the FEZ, and will annually export products worth USD 80-100 million. The target destinations for FEZ are Europe, the EEU, CIS, Iran, the Middle East and China. KPMG together with the RA government has developed a guideline “Armenia: Great Country, Smart Opportunities”. The guideline includes the necessary information on current economic reforms, investment opportunities, tax and regulatory environment and the investment potential of the country.
Partnerships with US companies are also developing. Synopsys Armenia is one of the largest Synopsys branches outside the US, providing R&D and product support in the areas of EDA, design for manufacturing and the development of semiconductor IP.
IBM Innovative Solutions and Technologies Center and Microsoft Innovation Center are currently successfully operating. A number of agreements are signed with Microsoft envisaging support to create the Cybersecurity Center, and the establishment of regional centre for cloud and mobile solutions based on the Microsoft Innovation Center. Future endeavours include a Silicon Valley in Armenia: an engineering city for approximately 40 companies on 3 hectares of land.
In the next few years, American companies ContourGlobal and Lydian are going to invest USD 500 million in Armenia’s energy and mining sectors. Additionally, there are currently discussions with a Chinese company on construction of the Copper Smelting Plant worth USD 450 million.
Large investments in the energy sector are expected from Ocean Holding (UAE), which aims to invest USD 100 million beginning in 2017 to construct and operate solar batteries stations, using the best available technologies of the sphere.
Armenia has serious potential to become the most effective country of the region. Indeed, this has been proven by the study of Soviet Armenia’s economic results of the 1980s. In particular, it appears that the production level was 5-6 times higher than it is today, and constituted 68% of the gross national product.
Making up only 1.1% of the population of the Soviet Union, Armenia produced 35% of the military-industrial and cosmic complex technologies, microelectronic devices and computers for the USSR. Armenia also boasts 700 large factories whose products were exported to 70 countries. In particular, there were approximately 33,000 scientists in Armenia: 10 scientists per 1,000 population, which was the basis for ensuring high economic growth. By this index, Armenia not only ranked first among the 15 states of the Soviet Republics, but also led worldwide.
The above-mentioned inspires confidence that implementation of radical reform programmes will lead to the rapid development of Armenia.
Arman VarosyanArt-Lar Finance and Accounting LLC, Yerevan, Armenia
T: +374 10 444-008
Published: May 2017 l Photo: Colourbox.de - Mikhail Pogosov