2012 did not solve economic problems of Armenia

http://vestnikkavkaza.net/analysis/economy/35487.html
2 January 2013 - 1:43pm

Author: Susanna Petrosyan, Yerevan, exclusively for "Vestnik Kavkaza"

Nothing has changed in Armenia as a result of 2012 in terms of the economy.

The negative balance of foreign trade remains one of the main
characteristics of the Armenian economy and continues to increase, in
spite export growth outrunning that of imports. In absolute terms,
Armenia imports more goods than it exports. If 10 years ago, imports
were 1.9 times higher than exports in absolute terms, in 2012 this
figure rose to 2.9 times and is now about $3 billion. This, despite
assurances from the government about the promotion of local producers,
indicates the opposite, i.e. that the market continues to be dominated
by foreign goods, including food products.

Economic growth, which remains at 6%, is traditionally supported by
the sale of raw materials such ferrous metals and metal ores.

According to some experts, despite the fact that there has been a
slight positive dynamic in the Armenian economy this year, the
population remains dissatisfied with the current situation and does
not sense any positive trends. With inflation at 4.5% this year there
have been made no moves to raise the average wage of $280 per month,
and nothing has been done to raise pensions, the highest of which is
$100.

One of the paradoxes of the Armenian economy lies in the fact that
this year once again food prices increased. Thus, the price of
potatoes in Armenia grew by 11%, cabbage by 33%. Meanwhile, prices for
food are falling: on the international stock exchange the average
price of rice, sugar, potatoes fell approximately 15 %.

In 2012, the trend of active capital export continued in Armenia. The
former Prime Minister Hrant Bagratyan believes that the export of
capital in 2012 in Armenia amounted to about half a billion dollars
and called this figure "alarming."

One of the most negative characteristics of the Armenian economy is
the so-called "shadow" economy, which according to the IMF accounts
for 35% of GDP in Armenia. In fact, according to some experts, this
figure is closer to 50%. Even if we assume that the ratio of taxes to
GDP is 35%, the inability to collect taxes is obvious. However, small
and medium-sized enterprises continue to play the major burden in
paying taxes. Economists believe that the current mechanism of
taxation will lead small and medium-sized enterprises in Armenia to
bankruptcy.

Another alarming tendency is the decrease in foreign investment in the
Armenian economy. According to official data, foreign investment
declined by 35% this year, direct investments - by 54%. According to
the head of the research center "Alternative", Doctor of Economics
Tatul Manaseryan, the decline in foreign investment was caused by
political processes in the country. In 2012, Armenia held
parliamentary elections, presidential elections are taking place in
2013. According to Manaseryan, a deceleration in investment with
elections was expected and predictable.

Meanwhile, economic expert and representative of the opposition
Armenian National Congress Vaagn Khachatryan is convinced that the
decline in foreign investments can be regarded as a significant
indicator ofthe unattractiveness of the Armenian economy. He stressed
that there is no free market in Armenia, no competition, and that
private property is not protected. Also, certain people play a great
role in the economy, while capital does not favor such conditions,
opting for freedom, law, and good governance.

A major problem is the lack of positive changes in the development of
small and medium-sized businesses, which have a direct impact on the
social sector. Thanks to the exclusive domination of monopolies in the
economy, there are still very few economically-independent people in
the country. Thus, 85% of Armenian export goods are produced by large
businesses, particularly in the mining sector, while the share of
small and medium-sized business is only 15%.

"This trend has been prevailing for many years now. Exports are
dominated by the usual 25 kinds of products, which are manufactured by
large businesses. This indicates that the country does not produce any
new types of products that could impact on exports," the director of
"AE consulting" Gagik Margaryan believes. According to Margaryan,
small and medium-sized businesses do not have unequal conditions to
compete on the market and could benefit from targeted government loans
to stimulate exports.

Although the government has repeatedly expressed its concerns about
the dominating role of monopolies on the Armenian market, it has not
done anything.

"The economic system in Armenia seems to aim at the destruction of
small and medium-sized businesses. The economy is absolutely
monopolized, oligarchs eliminate small businesses with the help of
administrative resources and power," the former chairman of the
Central Bank of Armenia Bagrat Asatryan believes.
Imports are also monopolized. There are no formal restrictions for
importers, but everyone knows that if someone tries to break a tacit
monopoly, there will be problems at the customs and other
administrative bodies.

"It is almost impossible to diversify the Armenian economy due to
corruption among the tax and customs authorities, the lack of equal
competitive opportunities in the market and the availability of an
oligopoly," the former representative of Armenia at the World Bank
Aristomene Varudakis said.

The majority of the population remains in very harsh socio-economic
conditions, while the country's economy depends only on a few dozen
families. Despite the promises of the government, industry and high
technologies are not developing. These problems can be resolved only
if the authorities have the political will to do so and in 2012 there
have been made no significant steps to overcome the main negative
trends and tendencies in the Armenian economy.