by Venla Sipila

World Markets Research Centre
Global Insight
September 1, 2008

According to data from the Armenian National Statistical Service,
net inflow of foreign investment to the Armenian economy over the
first half of 2008 totalled $515US.1 million, ARKA News reports. This
marks an increase of 65% year-on-year (y/y). Further, it was reported
that FDI made up $352US.7 million of the total. A share of 43.1%
of total foreign investments (and 62.9% of FDI) was allocated to
the utility sector, while also the communications sector and air
transport attracted significant amounts of investment. Russia was
by far the most important investor country, followed by Argentina,
Lebanon and the United States.

Significance:With over 68% of total foreign investment consisting of
FDI for the whole of the first half of the year, this share increased
in the second quarter, as the share of FDI in the first quarter of
the year had been reported at 55%. Despite making a relatively modest
share of total investment, FDI has in recent years been instrumental
in financing Armenia's current-account deficit, thus reducing the need
for Armenia to borrow. FDI inflows have also notably supported Armenian
foreign currency reserves, which provide Armenia with adequate import
cover and means for any exchange rate stabilisation needs. However, in
order to keep attracting increasing amounts of FDI, Armenia needs to
progress further with its structural reforms. Economic restructuring
is needed in order to diversify the economy and to strengthen the
export earnings capacity.