ARMENIA

Republic of Armenia

Hayastani Hanrapetut 'Yun

COUNTRY OVERVIEW

LOCATION AND SIZE.

Armenia is located in the southwest Caucasus Region, neighboring on Georgia and Azerbaijan to the north, Iran and Turkey to the south, and a separate province of Azerbaijan in the southeast. The total area of the country is 29,800 square kilometers (11,505 square miles), making it about the size of Maryland. The nation's capital is Yerevan, with a population of 1.5 million.

POPULATION.

The total population of Armenia was estimated at 3,344,336 people in July 2000. According to the United Nations' Human Development Report, the total population of Armenia in 1993 was estimated at 3.7 million people. Hence the population has dropped since 1993 by more than 350,000 people, or about 10 percent. This decline is the result of a low fertility rate and wide-scale immigration (there are 4.23 migrants per every 1,000 members of the population). Life expectancy at birth for the total population is 66.4 years (61.98 for males and 71.04 for females). The total fertility rate is 1.47 children born per woman, which is below the replacement level, with 10.97 births per 1,000 members of the population. (Replacement level is a term that refers to the number of children a couple must have to replace only themselves. Thus, a man and woman would have 2 children to achieve replacement level. If a society has an overall replacement level of 2, then it has a stable population, neither growing nor shrinking. When women in a society typically have fewer than 2 children on average, this can be a sign of a shrinking population over time.) The infant mortality rate is 41.48 deaths per 1,000 live births.

Ethnic Armenians comprise 93 percent of the population. Other ethnic groups include the Azeris at 3 percent, Russians at 2 percent, and Kurds at 2 percent. Almost 96 percent of the nation's population speak Armenian. Russian is the second most common language, although only 2 percent of the population uses it as their primary form of communication. Orthodox Christianity is the most popular religion. The population density is 137 people per square kilometer (355 per square mile). About 31 percent of the population lives in rural areas and 69 percent in urban areas.

OVERVIEW OF ECONOMY

In 1920, Armenia was incorporated into what was then the Soviet Union. While it was under Soviet control, an effort began in the 1960s to industrialize the nation. From its previous state of minimal industrial development, Armenia became a significant manufacturing center, supplying machine tools, textiles, and various manufactured goods to the other Soviet Republics. In return, Armenia received raw materials and energy from these republics. Since independence in 1991, however, many large agro-industrial complexes were divided into small-scale agricultural units. New investments and new technologies are necessary for the healthy development of the agricultural sector. The government has given a high priority to privatization of the industrial sector, although the speed of privatization in this sector is slower than that in the agricultural sector. For food, Armenia relies partially on imports, and it possesses only small mineral deposits (mainly gold and bauxite).

The county experienced a severe economic decline in the beginning of the 1990s, due to a devastating 1988 earthquake, the conflict with Azerbaijan over the Nagorno-Karabakh region (see below), and the disintegration of the Soviet system. In 1994, with assistance from the International Monetary Fund (IMF), the Armenian government introduced an economic reform program which resulted in increased economic performance during the 1995-99 period. Inflation was reduced from a staggering 1,885 percent in 1994 to a mere 2.5 percent in 1999. In 1998, about 200 medium and large-scale enterprises and about 600 small enterprises were privatized. Thus far, 74 percent of the country's large and medium enterprises and 64 percent of the small enterprises have been privatized. As a result of economic restructuring and privatization, Armenia's economy has grown since 1994. In 1999, the nation's gross domestic product (GDP) grew by 5 percent. GDP per capita has also increased to US$2,900 in 1999 from only US$459 in 1994.

Armenia had no foreign debt when it gained independence from the Soviet Union in 1991. At that time, it signed an agreement with Russia that relieved Armenia of any obligations related to the former Soviet Union's external debt . In exchange, Armenia could not claim any of the Soviet Union's external assets. However, after independence the nation ran up a significant foreign debt. By 1998, Armenia's total outstanding external debt was US$827.8 million, or 53.9 percent of its GDP. The nation also has a significant trade deficit : in 1999, it imported US$542 million more in goods than it exported.

External factors have both harmed and helped the Armenian economy. The longstanding ethnic conflict with Azerbaijan over possession of the Nagorno-Karabakh region—an Armenian-dominated region that lies wholly within Azerbaijan—has hurt the economy in a variety of ways, creating internal instability and closing the Azerbaijani markets to Armenian goods (Azerbaijan used to be Armenia's largest trade partner). The conflict also led Turkey, which supports Azerbaijan, to impose a trade embargo . However, Armenia has been the recipient of substantial foreign aid. In 2000, the World Bank granted Armenia US$45 million to reduce the government's budget deficit . The Bank has also granted Armenia US$30 million for economic aid. The country on average has received over US$200 million per year since the mid-1990s.

POLITICS, GOVERNMENT, AND TAXATION

Armenia is a parliamentary republic. The government consists of the executive branch, a legislative branch, and a judicial branch headed by the Supreme Court. The 3 main institutions of the executive branch are the chief of state, the head of government, and the cabinet. Since March 30, 1998, the chief of state has been President Robert Kocharian, elected by popular vote for a 5-year term and winning with a vote of 59 percent. Since November 3, 1999, the head of government has been Prime Minister Aram Sarkisyan. The president appoints the prime minister (usually the leader of the largest political party in the parliament) who in turn appoints the cabinet members. The legislative branch is the unicameral (one-chamber) National Assembly (Azgayin Zhoghov). The Assembly consists of 131 members who are elected for 4-year terms.

In 1999, the Armenian government's revenues were US$360 million, but its expenditures were US$566 million. In an effort to reduce its deficit, the government has cut spending and received aid from the World Bank. In 1999, the government spent US$75 million on military expenditures, or about 4 percent of GDP. Payments on

the debt are a major drain on the governmental resources. In 1999, the government spent US$108 million on payments on the debt.

Personal income taxes range from 0 to 30 percent depending on income, and corporate taxes also range up to 30 percent. Banks and insurance companies are charged a 45 percent tax rate.

In 1996, Armenia signed a trade agreement with the European Union (EU). The main benefit of this agreement has been increased foreign aid from the EU. The government has sought other trade agreements, but the ongoing conflict in Nagorno-Karabakh has created uncertainty about the Armenian economy and prevented significant foreign investment.

INFRASTRUCTURE, POWER, AND COMMUNICATIONS

Armenia's infrastructure needs substantial improvement. Much of the nation's roadways and railways were built during the Soviet period and are in need of repair and renovation. The length of the railway system in 1995, excluding industrial lines, was 825 kilometers (512 miles). Armenia had 15,998 kilometers (9,942 miles) of roads in 1998, of which 7,567 kilometers (4,702 miles) were expressways. All major roads were paved. Pipelines for natural gas in 1991 were 900 kilometers (560 miles) long. Armenia does not have any ports or harbors. There are 12 airports in Armenia (5 with paved runways), but only 10 are in service. Armenian Airlines, the national air carrier, operates service to a variety of international destinations including, Moscow, Paris, Athens, Amsterdam, Frankfurt, and Tehran.

In 1995, of Armenia's total production of electric energy, 60 percent was from gas-fired plants, 34 percent was hydroelectric, and 5 percent was atomic. By 1998 these rates had changed to 25 percent thermal, 49 percent hydro, and 26 percent atomic. The total production of electrical energy in that same period was 5.6 million kilowatt hours (kWh), according to the IMF.

The nation has approximately 650,000 telephones, which gives it a telephone density of 17.7 phones per 100 people. This is relatively low when compared with Western European nations. For instance, Belgium has a telephone density of 50 per 100 people. However, the German company Siemens is engaged in a US$100 million project to upgrade the nation's telephone system with fiber optic and digital telephone systems. About 90 percent of the nation's telecommunications system is now privately-owned. Mobile phone use is increasing with 20,000 mobile units in use in 1998. Use of the Internet is also on the rise with the number of Internet service providers increasing from 1 in 1999 to 7 in 2000. The United States has provided US$1 million to Armenia to supply Internet service for schools.

ECONOMIC SECTORS

Unlike most industrialized and economically developed nations where services and industry dominate the economy, in Armenia agriculture is the main employer and largest source of GDP. According to the World Development report 2000/2001, the total labor force in 1999 was 1.5 million people, of which 55 percent were employed in agriculture, 25 percent in services, and 20 percent in industry. In 1999, agriculture accounted for 40 percent of GDP, industry 25 percent of GDP, and services 35 percent of GDP.

AGRICULTURE

Among the nations that made up the former Soviet Union, Armenia was the first to privatize agricultural lands. It broke up the large Soviet-style farms and reallocated the land to small, independent farmers. However, only 17 percent of the country's land is suitable for farming, which severely limits agricultural production. The nation has numerous vineyards and is a major producer of wine and cognac. In 1998 the World Bank provided US$15 million to establish a fund to furnish loans for small farmers.

Despite the limitations of this sector, agriculture provides the largest source of income for Armenia. Agricultural exports totaled US$15.4 million in 1998, or about 34 percent of all of the country's exports. The most significant exports were alcoholic beverages, various fruit juices, calf skins, and processed tomatoes. In 1998, the nation had to import US$297.7 million in agricultural products. In all, 70 percent of all food consumed in Armenia was imported in 1999. The main imports were eggs, sugar, flour, and processed foods.

A variety of crops are cultivated including barley, corn, potatoes, and wheat. In 1999, the total volume of crops produced amounted to 715,400 metric tons. This tally included 425,000 metric tons of potatoes, 220,000 metric tons of wheat, 65,000 metric tons of barley, and 5,200 metric tons of corn. The main livestock products were chicken, beef, and pork. In 1999, total agricultural production declined by 4.2 percent.

INDUSTRY

Industry in Armenia has traditionally been based on mining and the manufacture of goods such as textiles, electric motors, tires, chemicals, trucks, machine tools, and some consumer appliances (mainly washing machines). The contribution of industry to the economy fell from 46.5 percent in 1991 to 25 percent in 1999. In 1999 alone, industrial production declined by 2 percent. This decline has been the result of a lack of new investment (because of political uncertainty) and because many of the industrial markets in the former Soviet Union closed due to lack of demand.

MINING.

Armenia possesses the second-largest reserves of copper in the world. Other important reserves are molybdenum, zinc, gold, silver, construction stones (mainly granite and marble), and other materials such as betonite, bauxite, perlite, zeolite, and diatomite. In the 19th century, industrial metallurgical mining started in the Alaverdy and Zangezur regions, and during Soviet times these activities increased enormously. In the 1980s, 25 percent of the Soviet molybdenum was supplied by Armenia. In 1991 the mining industry collapsed due to deteriorating conditions in the mines and declines in demand. In 1996, the mining industry started to recover, with production rising 32 percent in the period from 1996-99. From January to June 2000, it rose an additional 16 percent.

After food processing and jewelry and diamond processing, Armenia's mining sector was the third-largest industrial sector and the third-largest exporter. According to the Armenian government, exports of minerals and non-precious metals totaled roughly 23 percent of exports in 1995. Although the mining sector does relatively well, its production and export are well below its potential. The government has prepared a program to increase mining and metal production and to export more semi-finished products because of their higher value added . The major copper-molybdenum companies and the gold company are not yet privatized.

MANUFACTURING.

Armenia was the leading chemical producer in the Caucasus in the 1970s, producing synthetic rubber, latex, acids, various glues, and special films mainly for the military sector. In the 1980s the chemical industry employed 24,200 people and accounted for 6.6 percent of the industrial production. The collapse of the Soviet Union, the energy crisis of 1992-93, and the war with Azerbaijan decreased the volume of production by more than 50 percent. In 1999, Armenia imported 6 times as many chemical products and materials as it produced itself. The main chemical export product is rubber, comprising 82 percent of total chemical exports, of which 93 percent went to states of the former Soviet Union. According to expert Jocelyne Decaye, the main weaknesses of Armenia's chemical industry are "high dependence on imported raw materials, obsolete technologies and old production lines, logistical difficulties related to Armenia's location, overstaffing and high costs for transports and electricity."

Armenia's light industry sector was well developed in the 1980s, when it had 115,000 employees and accounted for 25 percent of total industrial production. In the 1990s, however, the share of light industry in the total industrial production declined to under 2 percent. Textile and clothing production make up the most significant activities in this sector.

In 1999, the food processing industry accounted for 39 percent of total industrial output and 61 percent of total manufacturing output. In the 1980s, food processing accounted for only 18 percent of Armenia's total industrial production. The first 5 years of the 1990s saw a rise of nearly 70 percent. The major food products are wine and brandy, with such products as vegetables, fruits, tobacco, potatoes, cotton, grains, and teas making up the rest. Less than 10 percent of the total production is exported (US$16 million in 1999).

SERVICES

The value of services to the Armenian economy increased as a percentage of GDP from 31 percent in 1990 to 35 percent in 1999. The main segments of the service sector include tourism and financial services. Many common Western services do not exist in Armenia. For instance, there are no fast food or retail chains.

TOURISM.

During the first 5 years of independence, the tourist industry declined, but since 1996, this trend has reversed itself. Since 1996, the number of tourists has more than tripled but remains low compared to the 1980s (about 21,000 visitors in 1999, including business tourism). The share of tourism as a percentage of GDP was 1.7 percent in 1999. The tourism infrastructure needs substantial development and modernization to keep this industry growing.

FINANCIAL SERVICES.

During the Soviet period, the State Insurance Company provided mandatory insurance for all citizens. The responsibility to regulate the insurance market now rests in the hands of the Ministry of Finance. The Ministry of Finance provides licenses for insurance companies, and in 2001 some 65 private and state companies were registered. As of 2001, a legal framework concerning the insurance market was still being developed. Domestic and international companies are treated equally under Armenian law.

The banking system accounts for about 10 percent of GDP. In 1999, there were 31 commercial banks. The main foreign banks are Mellat Bank of Iran and Midland Bank of the United Kingdom. Only Midland Bank has established Automated Teller Machines (ATMs), and only a limited number of businesses in the major cities can accept credit cards as a form of payment. The total capital of all commercial banks in Armenia is US$60 million. The largest private bank is HSBC Armenia Bank with assets of US$9 million.

INTERNATIONAL TRADE

Armenia has maintained a trade deficit since independence in 1991. According to the CIA World Factbook, Armenia exported US$240 million in 1999, an increase of almost 5 percent compared to 1998. The country has also diversified its trading partners and now trades with an increasing number of Western nations. Armenia imported US$782 million in 1999, a decrease of about 6.5 percent compared to 1998, but still 3 times the amount of 1993. Until the nation's economy recovers, this deficit will continue.

Belgium is Armenia's largest export partner, importing a total value of US$84 million, followed by Russia and Iran, both of which imported US$34 million in 1999. In fourth place was the United States, importing US$16 million, and in fifth came Georgia with US$11 million. Most of the Armenian exports, US$127 million, went to industrial countries, and US$97 million went to developing countries, according to the IMF.

Armenia's main import partner was Russia, accounting for US$181 million in 1999. Second came the United States, exporting US$86 million in 1999. The

United States was followed by Belgium, which exported US$85 million, then Iran with US$78 million, and in fifth was the United Kingdom, exporting US$67 million. Of Armenia's total imports, US$368 million came from industrial countries and US$451 million came from developing countries, according to the IMF's Direction of Trade Statistical Yearbook 2000 .

MONEY

The value of the dram has declined significantly since the 1990s. In 1995, 405.91 drams equaled US$1. However, by 2000 it took 539.53 drams to equal US$1. This decline is the result of the continuing weaknesses in the Armenian economy.

In 1993, the Yerevan Stock Exchange (YSE) was established, which was followed by the establishment of 3 smaller exchanges. However, the total value of these 4 exchanges was only US$1.67 million in 1999.

POVERTY AND WEALTH

Officially, 45 percent of the population is considered to be poor, but unofficial estimates place the figure as high as 55 percent. Although poverty is mostly urban (59 percent), the incidence of extreme poverty is higher in rural than in urban areas. Rural poverty is expected to worsen as a result of people leaving rural areas for the

cities. State expenditures on social infrastructure and product subsidies dropped drastically following independence from the Soviet Union in 1991, thus hurting the ability of the poor to meet basic needs. Since people make very low wages, food comprises about 67 percent of household expenditures. In 1996, the Ministry of Statistics and the World Bank found that the poor represented 55 percent of the total population, while the extremely poor constituted 28 percent. The only good news is that there has been a significant decrease in the proportion of the extremely poor, which is probably due to programs designed to help this sector.

Out of 580,000 pensioners (retired people receiving pensions) in Armenia, 223,000 are old age or retired pensioners, of which 186,402 are identified as needy and included in the system of family allowances. Pensions remain exceedingly low, with the average monthly pension worth US$7.5 and average family allowance at US$12. Without assistance from their families, many pensioners would face the most severe poverty.

WORKING CONDITIONS

In 1994, according to the IMF, 1,488,000 Armenians were employed and 106,000 were unemployed, resulting in an actual labor force of 1,594,000 people. The figures for 1998 give a different picture, with the number of total employed persons decreasing to 1,351,000,

and a total of 139,000 unemployed, resulting in an actual labor force of 1,492,000 people. Although official figures state that the unemployment rate was 9.3 percent in 1998, unofficial estimates place the rate as high as 20 percent. In the state sector, 794,000 people had jobs in 1994, and in the private sector 694,000 people were employed. By 1998, 441,000 people were employed in the state sector, and 912,000 in the private sector, reflecting a major decrease in government payrolls.

According to the constitution, employees have the right to join and form trade unions and to form associations, although members of the armed forces and law enforcement agencies are forbidden to do so.

The minimum monthly wage in 1994 was AMD1, 851, although by the second quarter of 1999 it had risen to AMD 5,000. Forced and bonded labor is forbidden in Armenia, and for children the minimum working age is 16 years, although with the permission of a medical commission and the relevant union board, children may work from the age of 14. The standard legal work week is 41 hours, and with such a low minimum wage, most people have to take multiple jobs to support themselves and their families.

COUNTRY HISTORY AND ECONOMIC DEVELOPMENT

c. 900 B.C. A number of small kingdoms are established in what becomes Armenia.

66 B.C. Armenia is conquered by the Romans.

1080-1269. During Armenia's "Silver Age," Armenia gains independence from Byzantium and there is a flowering of Armenian culture and the arts.

1375. Armenia is conquered by the Turks.

1639. Armenia is divided between Persia and Turkey.

1828. Eastern areas of Armenia are conquered by Russia.

1902. The Tiflis-Alexandropol-Yerevan railway is completed, dramatically increasing trade.

1915. During the Armenian Genocide, an estimated 1 million Armenians were killed by the Ottoman Turks.

1918. Armenia becomes an independent nation following the collapse of the Ottoman Empire at the end of World War I (1914-1918).

1918-1920. War occurs between Armenia and Turkey.

1922. Armenia is incorporated into the Soviet Union.

1923. The predominately Armenian region of Nagorno-Karabakh is transferred to Azerbaijan.

1950s. The Soviets undertake a broad effort to industrialize Armenia.

1988. An earthquake in Armenia results in the deaths of an estimated 25,000 people.

1991. Armenia gains independence from the Soviet Union after a nation-wide referendum.

1994. Azerbaijan and Armenia go to war over Nagorno-Karabakh. Economic conditions deteriorate and inflation exceeds 1,800 percent.

1995. A new constitution is adopted.

1996. Armenia signs a trade agreement with the EU.

1999. Prime Minister Vazgen Sarkissyan and other government leaders are assassinated.

2000. Armenia's request for admission to the Council of Europe is approved.

FUTURE TRENDS

A major impediment to Armenia's economic growth is its lack of infrastructure. Antiquated equipment has not been upgraded because of a lack of funds, and as a result many sectors of the economy are neither productive nor competitive. Most privatization efforts resulted in sales to people with connections who usually lacked either the commitment or the capacity to streamline operations. Industrial output is still low, and there is a lack of foreign investment. Armenia's imports exceed its exports by a 3-to-1 margin.

Although there are objective reasons for the failure of the Armenian economy, the widespread perception of corruption at every level of society seriously hampers the government's ability to attract foreign investment. The lack of confidence in the government has also created widespread political apathy among the population.

Furthermore, the high level of unemployment and seeming lack of hope in the country's future has created an emigration crisis. Although reliable statistics are hard to come by, the consensus among most observers is that hundreds of thousands of people have emigrated, with no indication that the exodus will abate anytime soon.

DEPENDENCIES

Armenia has no territories or colonies.

BIBLIOGRAPHY

Bailey, H.W. "Armenian Religion." Encyclopedia Iranica. Vol.2. London: Routledge & Kegan Paul, 1978.

Chetarian, Vicken. "Eurasia Insight: The Struggle to Fill the Power Vacuum in Armenia." Eurasianet.org. <http://www.eurasianet.org/departments/insight/articles/eav040300.shtml>. Accessed January 2001.

"Country Brief/Armenia." World Bank Group. <http://wbln0018.worldbank.org/eca/eca.nsf/ec6733e67523edfe852567d10012dddd/33838e84287562c6c12567e900551544?OpenDocument>. Accessed December 2000.

Decaye, Jocelyne. "Sector Profiles: Mining Industry." Armenian European Policy and Legal Advice Centre (AEPLAC) Papers. <http://www.aeplac.am./papers.html>. Accessed January 2001.

Economist Intelligence Unit. Country Profile: Armenia. London: Economist Intelligence Unit, 2001.

"Economy and Business." Embassy of the Republic of Armenia. <http://www.armeniaemb.org/geninfo/economy.htm>. Accessed January 2001.

"Human Development Report 2000." United Nations Development Program. <http://www.undp.org/hdr2000/english/HDR2000.html>. Accessed December 2000.

International Monetary Fund. Direction of Trade Statistical Yearbook 2000. Washington, D.C.: IMF, 2000.

Krekorian, Robert. "Armenia Under Fire." Transitions Online. <http://archive.tol.cz/countries/armar99.html>. Accessed January 2001.

Papazian, Dennis R. Armenia and Armenians. <http://www.hraction.org/armenia/armenians.html>. Accessed August 2001.

"Poverty Assessment." Government of the Republic of Armenia. <http://www.gov.am/en/gov/iprsp/3.html>. Accessed July 2001.

Russel, J. R. "Armenian Religion." Encyclopedia Iranica. Vol. 2.London: Routledge & Kegan Paul, 1978.

"Sector Profiles." Armenian European Policy and Legal Advice Centre (AEPLAC) Papers. <http://www.aeplac.am./papers.html>. Accessed January 2001.

U.S. Central Intelligence Agency. World Factbook 2000. <http://www.odci.gov/cia/publications/factbook/index.html>. Accessed August 2001.

U.S. Department of State. Armenia Country Report on Human Rights Practices for 1998. <http://www.state.gov/www/global/human_rights/1998_hrp_report/armenia.html>. Accessed December 2000.

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World Bank. World Development Report 2000/2001. Oxford:Oxford University Press, 2000.

—Mehdi Parvizi Amineh

CAPITAL:

Yerevan.

MONETARY UNIT:

Armenian Dram (AMD). One dram equals 100 luma. Coins are in denominations of 1 dram and 50 and 20 luma. Paper currency is printed in denominations of AMD10, 25, 50, 100, 200, 1,000, and 5,000.

CHIEF EXPORTS:

Diamonds, scrap metal, machinery and equipment, cognac, and copper ore.

CHIEF IMPORTS:

Natural gas, petroleum, tobacco products, foodstuffs, and diamonds.

GROSS DOMESTIC PRODUCT:

US$9.9 billion (purchasing power parity, 1999 est.).

BALANCE OF TRADE:

Exports: US$240 million (1999 est.). Imports: US$782 million (1999 est.).