August - September 1998

by Kristine Gyulbudagyan

Although Armenia was one of the first countries of the NIS to start the privatization process, it has been slow to attract the attention of foreign investors. The decade-long Nagorno-Karabakh conflict with neighbor Azerbaijan raised political and security issues which deterred many investors. Other concerns focused on low domestic savings and investment levels. However, with a lasting cease-fire (1994), declining inflation, and economic growth, albeit small, Armenia is entering a period of relative economic and regional stability, which is attracting foreign business activity.

International Attention
Armenia has already captured the efforts of some private investors and foreign corporations. A number of multinational companies, including Coca-Cola, IBM, Bristol Myers Squibb, and Huntsman, have taken the lead in pursuing local opportunities. Ethnic Armenian entrepreneurs, mainly from the United States, have also been investing heavily in Armenia in recent years. Billionaire Kirk Kerkorian (MGM) has recently funded an $85 million road construction project that will connect the Black Sea and the Persian Gulf via Armenia. Other investment projects by international entities include a $100 million investment in luxury housing units, estimated to create 20,000 new jobs, and production of digital telecommunications equipment.

Recently, international lenders, such as the International Monetary Fund (IMF), World Bank, the Overseas Private Investment Corporation (OPIC), Eurasia Foundation, and the European Bank for Reconstruction and Development (EBRD), have stepped up their programs in Armenia, although not without hitches. Many of these programs have targeted specific industries, ranging from construction services to high-tech hardware and software development.

As of January 1998, EBRD had approved three public sector sovereign-guaranteed projects, for the Hrasdan power plant, the Zvartnots Air Cargo Terminal, and the Yerevan Wholesale Market. The three projects have encountered delays, but EBRD continues to consider projects in Armenia. This summer EBRD decided to purchase a 10 percent stake in the recently privatized telecommunications company ArmenTel.

Commercial Environment
Among the Armenian Government's top priorities in recent years has been focusing on attracting foreign investment. "The Foreign Investment Law" of 1994 provides foreign investors a five-year guarantee that government legislation will not be adversely changed. Furthermore, "The Pledge Collateral Law" of 1995 provides guarantees against liabilities in business for both domestic and foreign entities. According to the law, the lender has a priority right to be paid from the value for the pledged assets if the borrower cannot pay the liabilities guaranteed by pledge collateral.

Former Prime Minister and recently-elected President Robert Kocharian has been a proponent of commercial legislation designed to stimulate foreign investment. The newly formulated "Industrial Development and Restructuring Plan" and the State Council to Protect and Stimulate Investment aim to strengthen industrial output by facilitating the process of foreign investment and reforming Armenia's legal and tax codes.

Opportunities
High technology, telecommunications, apparel, food processing, and construction services all represent opportunities for foreign investment in Armenia. Trade with the United States grew more than 8 percent in 1997, and while charitable donations, primarily of pharmaceuticals and medical supplies, and cereal grains accounted for a large portion of U.S. exports to the country last year, dairy products and machinery also played a role.

For more information on Armenia, see BISNIS Online at www.mac.doc.gov/bisnis/country/caucasus.htm.

Kristine Gyulbudagyan works with BISNIS in Washington, DC.

This report is provided courtesy of the Business Information Service for the Newly Independent States (BISNIS)