Foreign investors still bypass Armenia
By Abdul Kerimkhanov
While Armenia is awaiting foreign capital flow in the country, potential investors seem to lack any interest to invest in this post-Soviet country, yet under influence neighboring Russia.
The Armenian government will find it difficult to convince foreign investors why they should choose Armenia, and not another country of the region, says Head of Alternative Research Center Tatul Manaseryan.
The desire of foreign investors to invest in Armenia cannot be caused only by the "velvet revolution" and the change of power that took place in April 2018, he said at a press conference giving a press conference last week.
He believes that the authorities have no policies, as a result of which some kind of reformed sphere attracted a local and then a foreign investor.
Indeed, trust plays a key role in this issue, which is absent in today’s Armenia. First of all, the problem concerns confidence in the Armenian economy. In this regard, the situation in Armenia is more than gloomy. Armenia’s business environment is clearly unattractive to local capital. There are specific reasons for this, both direct and indirect.
One of the most prominent examples of the fact that Armenian capital doesn't hold a burning passion to invest in Armenia is the indicator of capital outflow from the country. According to the Central Bank of this country, published in early 2019, a record year in terms of capital outflow was 2018. Thus, Armenian citizens transferred $1.19 billion abroad through the banking system last year. This is almost 10 percent of the country's GDP and about a third of the budget.
There is a version that such a significant increase in the transfer of funds by Armenian citizens abroad is associated with a sharp increase in car imports. However, this version is by no means comforting for Armenia.
First, mass purchase of cars by Armenian citizens can be attributed to the category of domestic investment in the local car market. However, it is obvious that the lion's share of these investments is simply frozen because the enormous supply on the market is facing slow demand.
Secondly, if to assume that auto imports mainly caused a sharp increase in capital outflows from Armenia in 2018, it is obvious that the 2019 figures for capital outflows will be record-high. Meanwhile, for the first quarter of 2019, car imports grew by 60 percent compared to the same period in 2018. That is, the amount of invested funds transferred by Armenian citizens abroad was much greater. This can hardly be considered a positive message for potential foreign investors.
Since almost a third of the budget flows from Armenia annually, it is obvious that there are clear issues in terms of trust. The main sources of these problems are the absolute unpredictability of the economic course and social policy, non-working political sphere of this state, the ruined system of justice, the deformed system of government and strange personnel policy. This is only a small part of the list of factors that undermine both internal and external investment confidence of Armenia.
In this situation, one of the encouraging statements of Armenian Prime Minister Nikol Pashinyan regarding economic growth looks at least dubious.
Recently, Pashinyan said that achieving double-digit figures of economic growth no longer looks as bleak. However, Minister of Economy Tigran Khachatryan told reporters that to ensure an 8 or 10 percent economic growth, the economy needs investment amounting to 28-30 percent of the country's GDP. That is, only with a 3.5 billion investment volume indicator, it is possible to talk about double-digit economic growth.
Yet it is unclear what the PM’s optimism is based on, but the 3.5 billion investment flow to Armenia seems to be an ill fantasy. Especially against the background of an increase in capital outflows and discouragement of potential investors with such “creative” ideas as confiscation of property without a court decision, or initiatives that threaten the principle of bank secrecy.
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Abdul Kerimkhanov is AzerNews’ staff journalist, follow him on Twitter: @AbdulKerim94
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