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Economy of Armenia

Armenia is the second most densely populated of the former Soviet republics. It is a landlocked country between the Black and the Caspian Seas, bordered on the north by Georgia, to the east by Azerbaijan, on the south by Iran, and to the west by Turkey. Up until independence (1991), Armenia's economy was based largely on industry--chemicals, electronic products, machinery, processed food, synthetic rubber, and textiles--and highly dependent on outside resources. Agriculture accounted for only 20% of net material product and 10% of employment before the breakup of the Soviet Union. In recent years, the construction sector has taken off, fueled by an ambitious government-backed construction project in the capital, and remittances to relatives by ethnic Armenians living in Russia and the United States.

Like other New Independent States of the former Soviet Union, Armenia's economy still suffers from the legacy of a centrally planned economy and the breakdown of former Soviet trading networks. While investment from these states in support of Armenian industry has virtually disappeared, and few major enterprises are still able to function, Russian entities have nevertheless increased their exposure in the mining, energy, telecommunications, and transportation sectors. In addition, the effects of the 1988 earthquake, which killed more than 25,000 people and made 500,000 homeless, are still being felt, though international donors and diaspora Armenian groups continue to fund reconstruction efforts in the earthquake zone.

Although a cease-fire has held since 1994, the 2-decade-old conflict with Azerbaijan over Nagorno-Karabakh has not been resolved, in spite of intensive efforts by the OSCE Minsk Group to reach a settlement. The consequent closure of both the Azerbaijani and Turkish borders resulting from the war has prevented Armenia from realizing its economic potential, because of Armenia's dependence on outside supplies of energy and most raw materials. Land routes through Azerbaijan and Turkey are closed, though air connections to Turkey exist; land routes through Georgia and Iran are inadequate or unreliable. In 1992-93, GDP fell nearly 60% from its 1989 level. The national currency, the dram, suffered hyperinflation for the first few years after its introduction in 1993.

The structure of Armenia's economy has changed substantially since 1991, with sectors such as construction and services replacing agriculture and industry as the main contributors to the economic growth. The diamond processing industry, which was one of the leading export sectors in 2000-2004 and also a major recipient of foreign investment, faced a dramatic decrease in output since 2005 due to raw material supply problems with Russia and overall decline in international diamond markets. Other industrial sectors driving industrial growth include energy, metallurgy, and food processing.

Despite the Nagorno-Karabakh conflict, the Government of Armenia has been able to carry out wide-ranging economic reforms that have paid off in dramatically lower inflation and steady growth. Armenia registered strong economic growth beginning in 1995, with double-digit GDP growth rates every year from 2002 to 2007.

After rapid expansion in 2001-2007, with average 13% annual GDP growth, economic and financial conditions worsened rapidly in Armenia in 2008, due to a drop in international metals prices and a downturn in the Russian economy following the collapse of oil prices in late 2008. The end of a remittance-fueled construction boom that had driven growth in recent years resulted in a 14.4% drop in real GDP for 2009 (compared to 6.8% GDP growth in 2008), with about 80% of this decline due to a plunge in the construction sector. The economy recorded positive growth rates in the first months of 2010.

Armenia maintains a floating exchange rate regime with no explicit exchange rate target. The nominal exchange rate of the Armenian dram with major currencies was fairly stable between 1998 and 2003. During 2003-2007, the Armenian dram appreciated sharply against the U.S. dollar by around 45%, mainly due to significant growth in remittances, growth of exports in absolute terms, the de-dollarization of the economy, and weakening of the dollar in international markets. The appreciation of the dram negatively affected the traditional export industries, including information technology, diamond cutting, the wine industry, and textiles. Exporters responded to the increased costs by either reducing their production capacity or by reducing their number of employees in order to stay afloat. The exchange rate was mainly stable at around 300 drams per dollar during 2008 and until March 2009, when the Central Bank stopped its heavy intervention in the foreign exchange market and the dram devalued by around 25%. The exchange rate remained broadly stable during 2009, with only a few interventions from the Central Bank to prevent sharp depreciation.

Armenia is highly dependent on import of energy fuel, mainly from Russia. The Armenia Nuclear Power Plant (ANPP) at Metsamor provides around 40% of electricity generation for the country, and hydro and thermal plants provide roughly 30% each. Armenia imports most of its natural gas from Russia, which provided significant discounts to Armenia until 2009. The Russian import gas price rose from $110 to $154 per thousand cubic meters in April 2009, and increased further to $180 in April 2010. However, the current price is still below the international average of over $300, and in the coming years the price is expected to converge with market prices.

In May 2009 Armenia began receiving gas from Iran through a recently constructed pipeline, which is meant to diversify Armenia's gas supply. Much of the Iranian gas is expected to be used for power generation.

Armenia imports nearly all of its refined petroleum products through Georgia. The recent conflict between Russia and Georgia resulted in periodic disruptions of fuel and food imports, and highlighted Armenia's vulnerability to this single transit corridor.

Armenia has received significant support from international institutions. The International Monetary Fund (IMF), World Bank, European Bank for Reconstruction and Development (EBRD), as well as other international financial institutions (IFIs) and foreign countries are extending considerable grants and loans. These loans are targeted at reducing the budget deficit, stabilizing the local currency; developing private businesses; energy; the agriculture, food processing, transportation, and health and education sectors. In 2009 Armenia received more than $1.5 billion in donor financing for budget support and various government-led anti-crisis programs.

Continued progress will depend on the ability of the government to strengthen its macroeconomic management, including increasing revenue collection, improving the investment climate, and making strides against corruption. A liberal foreign investment law was approved in June 1994, and a law on privatization was adopted in 1997, as well as a program on state property privatization. Armenia joined the World Trade Organization on February 5, 2003.

Environmental Issues

Armenia is trying to address its environmental problems. It has established a Ministry of Nature Protection and has introduced a pollution fee system by which taxes are levied on air and water emissions and solid waste disposal, with the resulting revenues used for environmental protection activities. Deforestation by mining concerns in certain parts of the country have resulted in periodic protests by environmental non-governmental organizations (NGOs), and stirred controversy over government policies to support investment in the mining sector. Armenia is interested in cooperating with other members of the Commonwealth of Independent States (CIS--a group of 11 former Soviet republics) and with members of the international community on environmental issues. Armenia is under strong pressure from the international community to close its aging nuclear power plant (ANPP) at Metsamor by 2016. Given that Armenia depends on the ANPP for over 40% of its electricity, the Armenian Government sees no alternative to construction of a new nuclear plant. A U.S. Agency for International Development (USAID)-funded initial planning study was completed in September 2008, and concluded that a new nuclear plant is the least-cost option to replace the existing facility. The Armenian Government is continuing with the planning process for a new plant.

Economy (2009)

GDP: $8.71 billion.

GDP growth rate (CIA World Factbook, 2009): -14.4%.

Per capita GDP PPP (World Economic Outlook, 2009 est.): $4,915.

Inflation (CIA World Factbook, 2009): 3.4%.

Natural resources: Copper, molybdenum, zinc, gold, silver, lead, marble, granite, mineral spring water.

Agriculture: Products--fruits and vegetables, wines, dairy, some livestock.

Industry: Types--diamond-processing, metal-cutting machine tools, forging-pressing machines, electric motors, tires, knitted wear, hosiery, shoes, silk fabric, chemicals, trucks, instruments, microelectronics, jewelry manufacturing, software development, food processing, brandy.

Trade: Exports--$698 million: pig iron, unwrought copper, nonferrous metals, diamonds, mineral products, foodstuffs, energy. Export partners (2009)--Germany 16.5%, Russia 15.4%, U.S. 9.6%, Bulgaria 8.6%, Georgia 7.6%, Netherlands 7.5%. Imports (2009)--$3.3 billion: natural gas, petroleum, tobacco products, foodstuffs, diamonds. Import partners (2009)--Russia 16%, U.A.E. 8.8%, Ukraine 5.6%, Turkey 4.8%, Georgia 4.6%, Iran 4.4%.

Geography of Armenia

Location: Southwestern Asia, east of Turkey Geographic coordinates: 40 00 N, 45 00 E Map references: Asia Area: total: 29,800 sq km land: 28,400 sq km water: 1,400 sq km Area-comparative : slightly smaller than Maryland Land boundaries: total: 1,254 km border countries: Azerbaijan-proper 566 km, Azerbaijan-Naxcivan exclave 221 km, Georgia 164 km, Iran 35 km, Turkey 268 km Coastline: 0 km (landlocked) Maritime claims: none (landlocked) Climate: highland continental, hot summers, cold winters Terrain: Armenian Highland with mountains; little forest land; fast flowing rivers; good soil in Aras River valley Elevation extremes: lowest point: Debed River 400 m highest point: Aragats Lerr 4,095 m Natural resources: small deposits of gold, copper, molybdenum, zinc, alumina Land use: arable land: 17% permanent crops: 3% permanent pastures: 24% forests and woodland: 15% other: 41% (1993 est.) Irrigated land: 2,870 sq km (1993 est.) Natural hazards: occasionally severe earthquakes; droughts Environment-current issues: soil pollution from toxic chemicals such as DDT; energy blockade, the result of conflict with Azerbaijan, has led to deforestation when citizens scavenged for firewood; pollution of Hrazdan (Razdan) and Aras Rivers; the draining of Sevana Lich (Lake Sevan), a result of its use as a source for hydropower, threatens drinking water supplies; restart of Metsamor nuclear power plant without adequate (IAEA-recommended) safety and backup systems Environment-international agreements: party to: Air Pollution, Biodiversity, Climate Change, Desertification, Nuclear Test Ban, Wetlands signed, but not ratified: Air Pollution-Persistent Organic Pollutants

Government of Armenia

Armenians voted overwhelmingly for independence in a September 1991 referendum, followed by a presidential election in October 1991 that gave 83% of the vote to Levon Ter-Petrossian. Ter-Petrossian had been elected head of government in 1990, when the Armenian National Movement defeated the Communist Party. Ter-Petrossian was re-elected in 1996 in a disputed election. Following public demonstrations against Ter-Petrossian's policies on the predominantly ethnic Armenian enclave of Nagorno-Karabakh that is located within Azerbaijan, the President resigned under pressure in January 1998 and was replaced by Prime Minister Robert Kocharian, who was subsequently elected President in March 1998. Following the October 27, 1999 assassination in Parliament of Prime Minister Vazgen Sargsian, Parliament Speaker Karen Demirchian, and six other officials, a period of political instability ensued during which an opposition headed by elements of the former Armenian National Movement government attempted unsuccessfully to force Kocharian to resign. Riding out the unrest, Kocharian was later reelected in March 2003 in a contentious election that the Organization for Security and Cooperation in Europe (OSCE) and the U.S. Government deemed to have fallen short of international standards.

The Government of Armenia's stated aim is to build a Western-style parliamentary democracy as the basis of its form of government. However, international observers have been critical of the conduct of national elections in 1995, 1999, 2003, and 2008, as well as the constitutional referendum of 2005. The new constitution in 2005 increased the power of the legislative branch and allows for more independence of the judiciary; in practice, however, both branches remain subject to political pressure from the executive branch, which retains considerably greater power than its counterparts in most European countries.

The unicameral National Assembly has 90 seats that are elected by proportional representation (party list) and 41 that are single mandate districts. Armenia held its most recent parliament elections in 2007, when the Republican Party of Armenia (RPA) won 33% of the votes cast, followed by Prosperous Armenia (15%), the Armenian Revolutionary Federation (ARF) Dashnaktsutyun (13%), Rule of Law (7%), and the Heritage Party (6%). This election also was marred by irregularities. The RPA and Prosperous Armenia joined to form a governing coalition which secured an absolute majority of parliament seats. The ARF negotiated a cooperation agreement with the governing coalition in exchange for ministerial positions, but declined to join the coalition formally, instead reserving the right to support its own candidate for the February 19, 2008 presidential election.

The Republican Party of Armenia, Prosperous Armenia, the Rule of Law, and the Armenian Revolutionary Federation (ARF) Dashnaktsutyun signed a new coalition agreement on March 21, 2008. The Armenian Revolutionary Federation resigned from the coalition in April 2009, citing differences over the conduct of foreign policy.

The 2008 presidential election, while originally deemed by the OSCE’s Office for Democratic Institutions and Human Rights (ODIHR) to be “mostly in line” with OSCE standards, was later seen to be marred by credible claims of ballot stuffing, intimidation (including beatings) of poll workers and proxies, vote buying, and other irregularities. Recounts were requested, but ODIHR observers noted “shortcomings in the recount process, including discrepancies and mistakes, some of which raise questions over the impartiality of the [electoral commissions] concerned.”

Mass protests followed the disputed vote. For 10 days, large crowds of pro-opposition demonstrators gathered in Yerevan’s downtown Freedom Square. Police and security forces entered Freedom Square early in the morning on March 1, 2008, ostensibly to investigate reports of hidden weapons caches. This operation turned into a forced dispersal of demonstrators from Freedom Square by massed riot police. Following the clearing of Freedom Square, clashes erupted in the afternoon between massed demonstrators and security personnel, and continued throughout the day and evening, leading to 10 deaths and hundreds of injuries. President Kocharian decreed a 20-day state of emergency in Yerevan late on March 1, which sharply curtailed freedom of media and assembly. Dozens of opposition supporters were jailed in the wake of the violence, in proceedings that many international watchdog groups criticized as politically motivated. Armenia's media freedom climate and freedom of assembly remained poor overall, though somewhat improved after the state of emergency was lifted. Serzh Sargsian took office as President in April 2008.

Principal Government Officials

President--Serzh Sargsian

Prime Minister--Tigran Sargsian

Foreign Minister--Edward Nalbandian

Defense Minister--Seyran Ohanian

Ambassador to the U.S.--Tatoul Markarian

Ambassador to the UN--Garen Nazarian

Armenia's embassy in the U.S. is at 2225 R Street, NW, Washington, DC, 20008; tel: 202-319-1976 or 202-319-2983; fax: 202-319-2984.

Type: Republic.

Constitution: Approved in November 2005 referendum.

Independence: 1918 (First Armenian Republic); 1991 (from Soviet Union).

Branches: Executive--president (head of state) with wider powers relative to other branches, prime minister (head of cabinet), Council of Ministers (cabinet). Legislative--unicameral National Assembly (parliament). Judicial--Constitutional Court.

Administrative subdivisions: 10 marzes (provinces) in addition to the city of Yerevan, which has the status of a province. A reform of Yerevan's status, to that of a regular municipality as required by the 2005 constitutional referendum, is currently underway and was expected to occur in 2008, but has since been delayed and will likely occur in mid-2009. Once the parliament enacts legislation to change the capital's status, the mayor will no longer be appointed by the president but instead be chosen by elected city councilors.

Political parties represented in the National Assembly: Republican Party of Armenia, Prosperous Armenia, Armenian Revolutionary Federation (ARF) Dashnaktsutyun, Country of Law (Orinats Yerkir), and the Heritage Party. Other parties include: the Armenian National Congress, People's Party of Armenia, National Accord Party, Republic Party, New Times Party, United Labor Party, Dashink Party, National Democratic Union, and the Armenian National Movement. In addition, there are dozens of other registered parties, many of which become active only during national campaigns, if at all.

Suffrage: Universal at 18.

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History of Armenia

Armenia first emerged into history around 800 BC as part of the Kingdom of Urartu or Van, which flourished in the Caucasus and eastern Asia Minor until 600. After the destruction of the Seleucid Empire, the first Armenian state was founded in 190 BC. At its zenith, from 95 to 65 BC, Armenia extended its rule over the entire Caucasus and the area that is now eastern Turkey, Syria and Lebanon. For a time, Armenia was the strongest state in the Roman East. It became part of the Roman Empire in 64 BC and adopted a Western political, philosophical, and religious orientation.

In 301 AD, Armenia became the first nation to adopt Christianity as a state religion, establishing a church that still exists independently of both the Catholic and the Eastern Orthodox churches. During its later political eclipses, Armenia depended on the church to preserve and protect its unique identity. From around 1100 to 1350, the focus of Armenian nationalism moved south, as the Armenian Kingdom of Cilicia, which had close ties to European Crusader states, flourished in southeastern Asia Minor until conquered by Muslim states.

Between the 4th and 19th centuries, Armenia was conquered and ruled by, among others, Persians, Byzantines, Arabs, Mongols, and Turks. For a brief period from 1918 to 1920, it was an independent republic. In late 1920, the communists came to power following an invasion of Armenia by the Red Army, and in 1922, Armenia became part of the Trans-Caucasian Soviet Socialist Republic. In 1936, it became the Armenian Soviet Socialist Republic. Armenia declared its independence from the Soviet Union on September 21, 1991.

People of Armenia

Ethnic groups in Armenia include Armenians (98%), Kurds, Russians, Greeks, and others. More than 90% of the population is nominally affiliated with the Armenian Apostolic Church, which is considered to be the national church of Armenia. Languages are Armenian (96%), Russian, and others.

Nationality: Noun--Armenian(s). Adjective--Armenian.

Population: Estimates range from 2,967,004 (CIA World Factbook, July 2009 est.) to 3,235,000 (Armenia National Statistical Service, October 1, 2008 est.).

Ethnic groups: Armenian 97.9%; Yezidi 1.3%; Russian, Greek, and other 0.8%.

Religion: Armenian Apostolic Church (more than 90% nominally affiliated).

Languages: Armenian (96%), Russian, other.

Education: Literacy--99%.

Health: Infant mortality rate--20.21/1,000. Life expectancy--72.68 years.

Work force (1.481 million; 7.1% unemployed): Industry and construction--15.6%; agriculture and forestry--46.2%; services--38.2%.