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Economy

Investments

During the modern history of Armenia, the share of direct foreign investments in the GDP was at its highest rate of 11.6% in the years of Robert Kocharyan’s presidency, and the lowest rate at 0.13% was registered in the first year of Levon Ter-Petrosyan’s presidency (1992); during the presidency of Serj Sargsyan, the average indicator was 4.7%, and during Armen Sargsyan’s presidency the investments indicator constituted 4.4%.

During Robert Kocharyan’s era, the volumes of direct foreign investments were the following: 

  • In 1998 — 232.3 million USD,
  • In 2007 — 667.7 million USD (increased by 2.87 times).

The total volume of direct foreign investments in 1998–2007 comprised 2,435,462 million USD.

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While in 1998–2002 the volume of attracted direct foreign investments was mainly due to the investment privatizations in the communications and energy sectors, starting from 2003 there has been a significant increase in the volumes of small and medium foreign investments. In 1998–2007, the number of enterprises founded in Armenia with the participation of foreign capital increased by more than 12 times: from 310 to 3845.

GDP

The Gini coefficient, which is a measure of statistical dispersion within the society and is based on consumption, in 1998 demonstrated quite a high level of inequality in income distribution in Armenia, rating at 0.57 (with 0 representing perfect equality and 1 representing perfect inequality). The poverty level in 1998–1999 surpassed 55%, with extreme poverty constituting 23%, while the economic activity indicator was also at a low level. The GDP per capita was 609 USD and the minimum amount of salary provided by law was only 1,000 AMD. During that period, the low salary and poverty not only affected the level and quality of people’s life, but also resulted in lack of hope in the future of their country.

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In the subsequent years, however, the Gini coefficient started declining significantly, reaching in 2007 the level of 0.371. The GDP per capita had considerably increased, which was only 609.2 USD back in 1998. It grew about fivefold and in 2007 reached the level of 3,138 USD. People started to live better, consume more, travel frequently and rest. Several expert assessments indicate that in 2003-2007, more than 60% of families in RA began to live more comfortably, started their own business, were engaged in trade or cattle breeding and agriculture, their family members got jobs, purchased real estate or improved their living conditions. During those years, preconditions for sustainable and effective macroeconomic management were duly established, and it became possible to concentrate on stable and progressive medium-term economic growth, on mitigating unemployment rates and preserving controlled inflation rate (in 1998, the inflation made 8.7%, while in 2007—only 4.6%). In 1998, the GDP in Armenia amounted to 955,384.9 million drams or 1.89 billion USD, whereas in 2007, the figures were respectively 3,149,283.4 million drams or 9.20 billion USD, increasing in dram equivalent by 3.3 times.

In 1998, the GDP per capita was 609 USD and in 2007, it amounted to 3,138 USD, growing by more than fivefold.

It is noteworthy that the following sectors played a critical role in the structure of the Armenian GDP in 2007:

  • Trade and services — 1,059,126 million drams, increased by 3.3 times as compared to 1998,
  • Construction — 772,787 drams, increased by 10.09 times as compared to 1998,
  • Agriculture — 574,739 drams, increased by 1.95 times as compared to 1998,
  • Industry — 471,472 drams, increased by 2.4 times as compared to 1998.

Wine production

In 1998–2007, thanks to the activities implemented in the viticulture and wine production—the leading and most prospective branches of agricultural system of the country—the wine making industry registered renewed development. Owing to voluminous investments in wine industry and to restoring of former market outlets, the demand for vine started gradually increasing, resulting in new grape plantings. The effective policy ensured the tendency of stable exports and sales growth, which also boosted vine demand.

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In 1990–2002, there was a registered cut in the number of vineyards, whereas from 2003 they started to recover.

Since 2002, the introduction of breakthrough technologies in the wine making industry, as well as innovative approaches on cultivation and procurement, have created the wine making culture inherent for the region embodied in the Karas Wines.

Starting from 2002, the vineyards have been treated by way of combining modern technologies and special care for each grape variety, in order to enhance each and every grape variety. Due to expedient lending and coherent policy implemented by the government for the development of viticulture, this sphere registered tangible results.

  • In 2007, output per hectare was 13.8 tons, which exceeds the level of 1998 by more than twice.
  • In 2007, vine crop was 218.9 thousand tons, exceeding the level of 1998 twofold.
  • In 2007, grape wine production volumes amounted to 3.6 million liters, exceeding the level of 1998 more than twofold.
  • In 2007, grape wine exports (including sparkling wine) amounted to 1.3 million tons, exceeding the level of 1998 by 51%.

In 2007, revenues from exporting wine and sparkling wine exceeded the level of 1998 by 6.7 times.

Exports

As of 2007, Armenia's export volumes reached a high level, exceeding the index of 1998 by approximately fivefold. In 2007 alone, goods worth 1.15 billion USD were exported from Armenia, among them:

  • agricultural products — 196,566 million USD,
  • fresh fruits — 156.8 million USD,
  • fresh vegetables — 165 million USD,
  • precious stones and metals — 208,729 million USD,
  • basic metals — 390,160 million USD.

In 1998-2007, the geography of goods exported from Armenia significantly expanded. As a result of cooperation in the economic sphere, the trade turnover between Armenia and Iran alone reached more than 174 million USD as compared to 94.8 million USD of 1998.

Banks and the financial system

At the beginning of 1998, there were 30 banks operating in the Armenian banking system. The bank assets amounted to 106 billion drams, or only 13% of GDP, and their capital amounted to 17 billion drams. The banks were small, "insecure", and the financial situation was unstable. First of all, it was necessary to identify the real problems in the system and “get rid of unhealthy” banks. Consequently, 16 banks were closed or reorganized. For the first time in our history, most of the approximately 15,000 depositors of the so-called "problematic" banks received their deposits, and this was not carried out at the expense of the state and the taxpayers.

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Even though more than half of the existing banks in the country were "problematic", nevertheless, the financial crisis was avoided. After the "clean up", the banking system registered rapid growth. The Armenian banking system was taken to a whole new level, with an attractive environment for foreign institutional banks. If in 1998 there were only three foreign institutional banks in the banking system, now there are 11 of them.

As of 2007, the assets of the banking system amounted to 765 billion drams, or 24.3% of GDP, and the capital — 172 billion drams. Thus, in 1998-2007, the assets of the banking system increased approximately sevenfold, and the capital — more than tenfold.

Banks began to provide credits to large-scale and long-term investment programs, mortgage lending gained vast popularity, and consumer loans became part of the everyday life of citizens. Armenia appeared on the "map" of the international financial market, having received the assessment of reputable international rating agencies.

  • The volume of transfers in 1998 was 166.5 million USD, in 2007 it increased by 9.87 times and amounted to 1,644. 38 million USD.
  • The loan-to-GDP ratio was 7.4% in 1998 and 13.5% in 2007. This means that the RA banking system has played a significant role in ensuring economic growth and development of entrepreneurship in the country.
  • The volume of reserve assets in 1998 amounted to 239.81 million USD, and in 2007 it increased by 6.91 times and amounted to 1,656.89 million USD.

SME

One of the key components of the economic policy implemented in Armenia in 1998-2007 was the development of small and medium-size enterprises (SME). This sphere has its major impact on creating new jobs, improving life quality of the population, shaping the middle class, and ensuring social and political stability in the country. That in mind, it was declared as one of the priorities for developing the Armenian economy. Reforms on establishing the system of SME development and enhancement allowed for introducing in national economy basically all the main principles and mechanisms necessary for the coherent implementation of the state SME policy.

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Starting from 2002, annual programs on state support for the SMEs were elaborated and executed, covering the provision of credit guarantees, subsidy of credit interests, financing of capital, support to start-ups, informational and consultation assistance in training, as well as promotion of the production. Moreover, above 80% of the implemented support programs were aimed at emerging and existing SMEs in remote borderline regions of Armenia. Within the framework of the loan guarantee program, during 2004-2007, guarantees were issued in the amount of about 785 million AMD, thereby providing a loan package of 1.5 billion AMD only for SMEs operating in the RA regions.

In 2002-2007, more than 19,000 active and start-up SMEs received assistance in the framework of state programs, of which 9526 were in 183 regions. In this area, as a logical result of the economic policy, a dynamic growth of indicators characterizing the SME sector was recorded. In 2007, thanks to the state support program, the share of SMEs in industry, construction, trade, services and other areas significantly increased. In 2006, the share of SMEs in the country's GDP was 40.3%, it was twice more than that of 1999. At the same time, the share of this sector in the country's export increased, amounting to 16.9% in 2006, as compared to 14.3% of 2003. The index of SME development in Armenia, calculated according to the UN methodology, increased almost threefold in 2006, as compared to that of 2002.

Mining industry

In 1998–2007, a number of substantial measures were undertaken in this sphere, which were aimed at attracting investments, augmenting production volumes, intensifying the recycling. In 2002, at the Mining Journal’s annual international awards ceremony held in London, which is the most prestigious journal covering the mining industries, the Republic of Armenia won the “Best Country” award, as a country that excelled in reforms aimed at developing the mining industry.

In 1998, the exports volume of mining production was only 20.2 billion drams, whereas in 2007 it reached 169.4 billion drams, increasing by about 8.4 times.

Diamond and jewelry production

In the last 10 years, the development of economy revealed some tendencies in the sphere of diamond and jewelry production. In 2007, the volume of production amounted to 145 million USD. By contrast, in 1997 this indicator was amounting to 29.5 million USD, and in 1998—to 48.1 million USD. In 1998–2007, the total produce in the Republic of Armenia amounted to 1.65 billion USD, which was almost completely exported. In the same period, the number of the employed in this sphere increased by 3-4 times.

Information technologies

Since 2000, the IT industry became a priority sector for Armenia’s economy development.

2007 the number of enterprises in this sector was more than 230.

In 1997–2007, foreign companies’ equity investments in IT amounted to about 75 million USD.

Numerous foreign companies, such as Microsoft, National Instruments, Synopsys, Alcatel, Lycos, Sourcio, etc., established Armenian branches and implemented projects aimed at expanding their activities.