Economy of Armenia

Armenia is the second most densely populated of the former Soviet republics. It is a landlocked country between the Black Sea and the Caspian Sea, bordered on the north and east by Georgia and Azerbaijan and on the south and west by Iran and Turkey.

Up until independence, 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 1991. Armenian mines produce copper, zinc, gold, and lead. The vast majority of energy is produced with imported fuel, including gas and nuclear fuel (for its one nuclear power plant) from Russia; the main domestic energy source is hydroelectric. Small amounts of coal, gas, and petroleum have not yet been developed.

Like other New Independent States[?], Armenia's economy suffers from the legacy of a centrally planned economy and the breakdown of former Soviet trading patterns. Soviet investment in and support of Armenian industry has virtually disappeared, so that few major enterprises are still able to function. In addition, the effects of the 1988 earthquake, which killed more than 25,000 people and made 500,000 homeless, are still being felt. Although a cease-fire has held since 1994, the conflict with Azerbaijan over Nagorno-Karabakh has not been resolved. The consequent blockade along both the Azerbaijani and Turkish borders has devastated the economy, because of Armenia's dependence on outside supplies of energy and most raw materials. Land routes through Azerbaijan and Turkey are closed; 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.

Nevertheless, the Government of Armenia, helped by the cease-fire that has been in effect in Nagorno-Karabakh since 1994, has been able to carry out wideranging economic reforms which paid off in dramatically lower inflation and steady growth. Armenia has registered strong economic growth since 1995, building on the turnaround that began the previous year, and inflation has been negligible for the past several years. New sectors, such as precious stone processing and jewelry making, information and communication technology, and even tourism are beginning to supplement more traditional sectors such as agriculture in the economy.

This steady economic progress has earned Armenia increasing support from international institutions. The IMF, World Bank, EBRD, as well as other IFIs and foreign countries are extending considerable grants and loans. Total loans extended to Armenia since 1993 exceed $800 million. 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; and ongoing rehabilitation work in the earthquake zone.

Continued progress will depend on the ability of the government to strengthen its macroeconomic management, including increasing revenue collection, improve the investment climate, and accelerate the privatization process. 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. The government has made major strides toward joining the World Trade Organization.

Environmental Issues
Armenia is trying to address its environmental problems. It has established a Ministry of Environment 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. Armenia is interested in cooperating with other members of the Commonwealth of Independent States (a group of 12 former Soviet republics) and with members of the international community on environmental issues. The Armenian Government is working toward closing the Armenian Nuclear Power Plant as soon as alternate energy sources can be identified.

Economy - overview: Under the old Soviet central planning system, Armenia had developed a modern industrial sector, supplying machine tools, textiles, and other manufactured goods to sister republics in exchange for raw materials and energy. Since the implosion of the USSR in December 1991, Armenia has switched to small-scale agriculture away from the large agroindustrial complexes of the Soviet era. The agricultural sector has long-term needs for more investment and updated technology. The privatization of industry has been at a slower pace, but has been given renewed emphasis by the current administration. Armenia is a food importer, and its mineral deposits (gold, bauxite) are small. The ongoing conflict with Azerbaijan over the ethnic Armenian-dominated region of Nagorno-Karabakh and the breakup of the centrally directed economic system of the former Soviet Union contributed to a severe economic decline in the early 1990s. By 1994, however, the Armenian Government had launched an ambitious IMF-sponsored economic program that has resulted in positive growth rates in 1995-99. Armenia also managed to slash inflation and to privatize most small- and medium-sized enterprises. The chronic energy shortages Armenia suffered in recent years have been largely offset by the energy supplied by one of its nuclear power plants at Metsamor. Continued Russian financial difficulties have hurt the trade sector especially, but have been offset by international aid, domestic restructuring, and foreign direct investment.

GDP: purchasing power parity - $9.9 billion (1999 est.)

GDP - real growth rate: 5% (1999 est.)

GDP - per capita: purchasing power parity - $2,900 (1999 est.)

GDP - composition by sector:
agriculture: 40%
industry: 25%
services: 35% (1999 est.)

Population below poverty line: 45% (1999 est.)

Household income or consumption by percentage share:
lowest 10%: NA%
highest 10%: NA%

Inflation rate (consumer prices): 2.5% (1999)

Labor force: 1.5 million (1999)

Labor force - by occupation: agriculture 55%, services 25%, manufacturing, mining, and construction 20% (1999 est.)

Unemployment rate: 20% (1998 est.)
note: official rate is 9.3% for 1998

Budget:
revenues: $360 million
expenditures: $566 million, including capital expenditures of $NA (1999 est.)

Industries: metal-cutting machine tools, forging-pressing machines, electric motors, tires, knitted wear, hosiery, shoes, silk fabric, washing machines, chemicals, trucks, watches, instruments, microelectronics

Industrial production growth rate: -2% (1998)

Electricity - production: 5.764 billion kWh (1998)

Electricity - production by source:
fossil fuel: 48.92%
hydro: 26.44%
nuclear: 24.64%
other: 0% (1998)

Electricity - consumption: 5.361 billion kWh (1998)

Electricity - exports: 0 kWh (1998)

Electricity - imports: 0 kWh (1998)

Agriculture - products: fruit (especially grapes), vegetables; livestock

Exports: $240 million (1999 est.)

Exports - commodities: diamonds, scrap metal, machinery and equipment, cognac, copper ore

Exports - partners: Belgium, Russia, Iran, Turkmenistan, US, Georgia (1998)

Imports: $782 million (1999 est.)

Imports - commodities: natural gas, petroleum, tobacco products, foodstuffs, diamonds

Imports - partners: Russia, US, UK, Iran, Turkey, Belgium (1998)

Debt - external: $862.7 million (1999)

Economic aid - recipient: $245.5 million (1995)

Currency: 1 dram = 100 luma

Exchange rates: dram per US$1 - 527.02 (January 2000), 535.06 (1999), 504.92 (1998), 490.85 (1997), 414.04 (1996), 405.91 (1995)

Fiscal year: calendar year

Reference Much of the material in this article comes from the CIA World Factbook 2000 and the 2003 U.S. Department of State website.