Attractiveness for investing environment and development perspectives in Armenia
The activities of recent years prove that even with limited resources Armenia to some extent managed to form a flexible economic system. However, high speed of the public debt growth, as well as a slowdown of economic growth still exist.
In the fall of 2016, the newly appointed government, headed by Karen Karapetyan, inherited the economy in a very difficult condition. As a result, the Government presented a serious program of radical reforms, which aim 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 program to increase the attractiveness of the investment environment.
According to the World Bank’s “Doing Business” report, Armenia is ranked the 38th in the world for the 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 the 17th among the 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. We enjoy preferential trade regimes with the US, Canada, Switzerland, Japan, and Norway, the so-called Generalized System of Preferences (GSP), and Generalized Scheme of Preferences or GSP+ system with the countries of the European Union.
Particular attention is paid to the Eurasian Economic Union. 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 Eurasian Economic Union in the absence of the domestic market. Armenia's accession to the Union is an opportunity to enter the market of 180 million people, which is an extensive market for Armenia.
By the end of 2017 it is planned to complete the negotiations on a new framework agreement with the EU. The economic component of the new document opens up fresh opportunities for the European businesspersons for launching 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 create good conditions for European businesspersons to enter the 80 million Iran consumer market via Armenia. Moreover, through Armenia passes the shortest and safest route connecting the Persian Gulf and Black Sea ports.
The Government has already collected over 341 investment projects worth 3.2 billion US dollars, where the investment object, financial source, and those who implement it are listed. Of the total amount of 3.2 billion US dollars 830-850 million US dollars are deemed to be realistic for 2017. 79 more investment programs worth 5.3 billion US dollars are being discussed. Basically the investing countries are Russia, US, EU and China.
The main spheres for foreign investments are information technologies, tourism, energy, including the alternative energy production, mining, ore processing, industry, agriculture.
In order to attract investors, the Government of Armenia has created an electronic platform which includes the investment plans. This website is a unique bridge between investors and investment seekers.
There are projects on granting customs and tax privileges, exemption from custom’s taxes and delay the 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 as a result of modification.
The establishment of free economic zone 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 at around 30 million US dollars, and will establish more than 2,500 workplaces. According to the forecasts 100 companies from the EU, Russia, Iran and China will operate on FEZ, and will annually export products worth 80-100 million US dollars. The target destinations for FEZ are Europe, 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 the current economic reforms, investment opportunities, tax and regulatory environment, and the investment potential of the country.
Partnership with US companies is also developing. Synopsys Armenia is one of the largest Synopsys branches outside the USA, 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 establishment of regional center for cloud and mobile solutions based on Microsoft Innovation Center.
It is planned to have a Silicon Valley in Armenia: to build an engineering city for around 40 companies on 3 hectares of land.
In the next few years, American companies “ContourGlobal” and “Lydian” are going to invest 500 million US dollars in Armenia’s energy and mining sectors.
There are currently discussions with a Chinese company on construction of the Copper Smelting Plant worth 450 million US dollars.
Large investments in energy sector are expected from “Ocean Holding” company (UAE), which aims to invest 100 million US dollars starting in 2017 to construct and operate the solar batteries stations, using the best available technologies of the sphere.
Armenia has a serious potential to become the most effective country of the region. It is proved by the study of Soviet Armenia’s economic results of the 80’s. In particular, it appears that the production level was higher 5-6 times, than it is today, and constituted 68% of the gross national product.
Making up only 1.1% of population of the Soviet Union, Armenia produced 35% of the military-industrial and cosmic complex technologies, microelectronic devices and computers for the USSR. There were 700 large factories whose products were exported to 70 countries. There were about 33 000 scientists in Armenia; 10 scientists per 1000 population, which was the basis for ensuring high economic growth. By this index Armenia was not only the first among the 15 states of soviet republics, but was leading worldwide.
The above-mentioned inspires confidence that implementation of radical reform programs will lead to the rapid development of Armenia.
GGI Insider May Issue https://www.ggi.com/no-89-may-2017/