YEREVAN (RFE/RL)–Helped by the Russian economic crisis and its ongoing consequences–the European Union is reinforcing its recently gained position as the number one trade partner of Armenia.
Armenia’s trade with Russia and other members of the Commonwealth of Independent States took another tumble in the first half of this year–while reaching an all-time high with Europe–in what analysts see as the country’s economic re-orientation. Official statistical figures show that the EU’s share grew to over one third of Armenia’s foreign trade volume during the period in question–whereas that of the CIS plunged to a record-low level of 23.3 percent.
"The Armenian economy is gradually re-orienting itself from the CIS and eastern markets toward richer markets and Europe in particular," said Tigran Davtian–acting head of a foreign relations department at the ministry of trade and industry.
Tightly integrated with other ex-Soviet republics in the past–Armenia’suffered a severe slump in the early 1990s following the collapse of the command economy. The plunge was exacerbated by a cut-off of traditional trade routes caused by the ethnic conflicts in Nagorno-Karabakh and elsewhere in the Caucasus. The radical change in the structure of foreign trade–Davtian said–results from Armenian businesses’ "adaptation" to the loss of traditional markets and high transportation costs.
Anahit Melkumian–an economist with the EU’s Armenia Economic Trends (AET) project–sees a "slow but steady integration in the world economy" amid the "obviously declining dependence" on Russia and other ex-Soviet republics.
The Russian crisis that erupted in August 1998 accelerated this process. As the Russian ruble lost 70 percent of its value within a few months–many Armenian enterprises lost the main market for their production. The turmoil was responsible for last year’s 2.5 percent fall in Armenia’s industrial output despite overall economic growth.
Exports to the CIS in the first half of the year shrunk by half compared with the same period in 1998. By contrast–exports to other countries were up 27.7 percent–which suggests that at least some of the enterprises affected have succeeded in re-orienting themselves. "Many of our [exported] goods changed direction–searching for new markets and finding them in some places," the trade ministry’s Davtian agreed. The fact that Armenian goods can sell in more selective markets outside the ex-USSR and notably Europe is a "very positive phenomenon," according to him.
That there are more European goods imported to Armenia can be seen in Yerevan shops. They serve as an indication of increased consumer standards and purchasing power. It is also evidenced by steadily declining trade with Iran–a leading trade partner as recently as three years ago. The Iranian production is cheap but generally of low quality.
Yet a closer look at the foreign trade structure reveals that Armenia’still has a long way to go. Its trade deficit decreased by 10 percent but still was a staggering $315.7 million. The country continued to import three times more than it exports.
AET economist Melkumian is also concerned about lack of diversity in the exports to Europe. Indeed–a large part of $57 million exports to the EU were still refined diamonds mainly headed to Belgium. Together with Britain–Belgium had the biggest share in EU imports to Armenia worth a total of $143 million. Ties with other European countries lag behind.
Davtian described the huge deficit as "the most sad" of Armenia’s economic indicators. Indeed–economists warn that without a sharp rise in exports the country will find it increasingly difficult to cope with a foreign debt nearing $800 million. The government is to unveil a program on reducing the deficit through an annual 10 percent rise in exports.
Membership in the World Trade Organization–expected later this year–could help matters but analysts caution that it alone is insufficient to make a difference. Nor would a currency devaluation cause a breakthrough–they say.
The problem lies at the heart of the Armenian economy which badly needs substantial foreign investmen’s. They are seen as vital for spurring more rapid growth. Melkumian reckons that growing trade with the West bodes well for the influx of capital but other factors such as a high degree of risks throughout the region and inadequate domestic tax legislation still scare off investors.