Armenia’s Economic Future

Yerevan recently stated its intention to join the evolving Eurasian integration project, beginning with the Customs Union. We met with Aza Migranyan, PhD in Economics, Head of Economics Department at the CIS Institute, to discuss Armenia's economic potential within the Transcaucasian environment, as well as economic and energy relations between Armenia and Russia.

Yerevan recently stated its intention to join the evolving Eurasian integration project, beginning with the Customs Union. We met with Aza Migranyan, PhD in Economics, Head of Economics Department at the CIS Institute, to discuss Armenia's economic potential within the Transcaucasian environment, as well as economic and energy relations between Armenia and Russia.

In 2013, Armenia announced its willingness to become a member of the Customs Union. Does this desire arise mostly from security or economy considerations?

The decision appears fully based on economic, economic security and national security concerns, three issues that are inseparably linked. As a matter of fact, these aims are reachable only with Russia’s assistance, i.e. Russian supplies and brokerage in projects related to Armenian gas deliveries and electric power cooperation between Armenia and Iran. In sum, the decision affects Armenia’s economic, financial, food and national security prospects.

What kind of impact could entry into the Customs Union have on the Armenian economy? Can you forecast the overall and sectoral effects?

Aza Migranyan

Using the data from the Eurasian Development Bank, Armenian and Russian experts prepared a comparative assessment of GDP growth for Armenia upon either joining the Eurasian Community or signing an association agreement with the EU. The Eurasian project appears a definite win-win scenario, with GDP adding up to five percentage points annually. During the initial two years, Armenia will obtain direct financial benefits from lower duties and Russian energy prices. At the same time, the agreement will cancel the duty on raw diamonds. These two advantages are critically important for the Armenian economy. The former benefits both industry and the entire population, while duty-free diamond supplies should expand Armenia’s exports and, consequently, improve its trade balance and overall balance of payments. Yerevan will profit primarily through deeper cooperation with Russia and other members of the integration project, i.e. Kazakhstan and Belarus, whose niche in Armenia's foreign trade will not produce any visible impact on its economy. As of now, Yerevan and Minsk have noticeably moved forward in discussing the supplies of technological equipment. Opponents of the Eurasian project see the only problem in the Eurasian Union’s low competitiveness, among other things, in industrial cooperation, which requires the detailed resolution of such issues as modernization, technological development, integrated approaches, financing, and commodities supplies, as well as the removal of communication barriers.

What is the current status of such ambitious projects as the extension of the life of the Armenian Nuclear Plant life until 2026 and the construction of the Iran-Armenia gas pipeline with the participation of Gazprom? How would you evaluate their future prospects?

The nuclear station is pretty advanced, with the extension of the life of the power units practically settled and technical parameters agreed upon. As for the future of nuclear energy, Armenia’s roadmap for joining the Eurasian project envisages package agreements on industrial cooperation, first of all, the construction of the third power unit by the Russian side. As far as the Iranian gas pipeline is concerned, the advantages for Armenia are obvious, since the line would diversity supplies and bring superior energy security if problems arose over the transportation of Russian gas. The Iranian pipeline plane involves close cooperation between all three states, expanding the project beyond the boundaries of the Eurasian Union. Moreover, the pipeline will significantly alter regional fuel and energy patterns in favor of Armenia which will see a boost to its energy independence and become a transit state, positioning itself as an equal actor on the energy market. The pipeline will also have major geopolitical and geo-economic significance. The prospects appear quite promising, but the project implementation is hindered by many political hurdles related to Iran and its isolation from the global market, i.e. sanctions against Tehran over contracts and settlements.

Maxton

Russia and Armenia interact frequently in international politics, while economic cooperation appears less dynamic. What do you recommend to Russia for improving economic relations with Armenia? What kind of steps and what sectors seem most promising?

In reality, Russian-Armenian economic relations are quite strong, although not that effective. The Russian presence in the Armenian market is definitely too large in virtually all sectors, causing concern both among the government and the externally-motivated opposition. The discussion about economic ties must then cover improving their quality and efficiency rather than about just achieving a greater scale of cooperation or increasing volumes. What Armenia needs is a change in its social structure and in societal conditions. Yerevan is pinning great hopes on signing package agreements to establish industrial enterprises, new types of construction projects and infrastructural facilities. This is a most important economic package of separate large-scale and long-term projects intended to help Armenia solve the paramount problem of creating well-paid jobs. In this case, Russia should receive support for years to come, since these social benefits are the most promising and cannot be manipulated by spin doctors. Should Russia help in handling these problems, the mission will be achieved, meeting both Russian and Armenian interests. Regrettably, there is still a long way to go.

Interviewer: Ilya Ivanov, RIAC Program Assistant