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23 Oct 2013

Keeping Armenia connected

Thies Clemenz

by Thies Clemenz

CEO, HSBC Armenia

Keeping Armenia connected

Armenia has a number of attributes with the potential to support long-term growth

This year Armenia celebrates 20 years of the dram. The introduction of the national currency began a period of economic reform that has transformed the country.

Armenia, a landlocked country high in the Caucasus, was largely closed to international investment until independence from the Soviet Union in 1990. HSBC provided the first cash machines in the country when the bank set up operations in 1995. Over the past two decades, change has been rapid, as has economic growth. Between 2001 and 2008, average annual growth was more than 10 per cent. The international financial crisis led to a contraction of more than 14 per cent in 2009, but the economy has begun to improve and in 2012 expanded by 7.2 per cent.

The country’s trade relationships are broadening and diversifying. In the past, trade was mainly with Russia and the European Union

Armenia faces a number of challenges as it seeks to secure long-term prosperity. Borders with neighbouring Azerbaijan and Turkey are closed and all overland freight passes through Georgia, increasing transportation costs. Armenia relies on imports to meet many of its needs, including energy supplies, and runs a significant trade deficit – imports totalled USD4.9 billion in 2012, against exports of USD2.5 billion. Estimates put unemployment at 19 per cent, and the problem is more acute in the countryside than the capital.

However, the country has a number of attributes with the potential to support long-term growth. A new generation of entrepreneurs is aiming to expand in overseas markets. Boosting exports could support growth and improve the trade deficit.

The country’s trade relationships are broadening and diversifying. In the past, trade was mainly with Russia and the European Union. Many entrepreneurs are also looking to China and other emerging markets. China is now the third most important trade partner after Russia and Germany, accounting for 9.4 per cent of imports in 2012. This is a resurgence of trading patterns last seen centuries ago when Armenia was part of the Old Silk Road linking East and West, looking towards both Asia and Europe.

Armenia facts

  • Gained independence in 1990
  • Capital is Yerevan
  • Population is 3.2 million: estimates suggest that the number of Armenians living abroad could be up to 8 million
  • Armenian language has its own script

New trade routes could unlock further foreign investment. The government welcomes foreign investment, regulatory barriers are low, and the dram is freely convertible. Foreign capital could boost labour-intensive export industries such as mining – for zinc, copper and other metals – and agriculture. Foreign investment could benefit the services sector, too, where Armenia is developing industries in areas such as information technology.

Armenia has an unusually large international diaspora. The population inside the country is around 3 million, while estimates suggest that there may be up to 8 million Armenians living abroad. Remittances from abroad are already an important inflow of foreign exchange. Investment in factories and other projects from the diaspora contributed to rapid growth before the financial crisis, and the International Monetary Fund has said that securing further investment could underpin future growth.

Over the past 20 years, an open outlook has enabled Armenia to grow. Broadening its international connections will continue to be important for its future.