2012 Investment Climate Statement - Armenia

2012 Investment Climate Statement
Bureau of Economic and Business Affairs
June 2012


While the Armenian government (GOAM) officially welcomes foreign investment and the country has received respectable rankings on some global indices as a place to do business, the country's investment climate poses several significant challenges: a population of just three million; relative geographic isolation due to closed borders with Turkey and Azerbaijan; per capita Gross Domestic Product (GDP) of about USD 3,000; and high levels of corruption in both official and commercial spheres. Armenia ranked 129th of 182 countries in Transparency International’s 2011 Corruption Perception Index, falling into the “mostly corrupt” category. Foreign businesses must frequently contend with tax and customs processes that lack transparency and add to costs; the court system lacks independence, making it an unreliable forum for resolution of disputes; and while it has made progress, the GOAM does yet not ensure the prompt and transparent refund of Value-Added Tax (VAT) payments across the board, all of which create serious problems for export-oriented companies.

Major sectors of Armenia's economy are controlled by well-connected businessmen—some of them members of parliament or other high-ranking officials—who enjoy government-protected market dominance. This raises barriers to new entrants, limits consumer choice, and discourages investments by multinational firms that insist on partnering with politically-independent businesses. The GOAM has also on occasion deployed government agencies, including the tax and customs services, against political opponents.

From January to September 2011, Foreign Direct Investment (FDI) showed the first signs of recovery post-global economic crisis, following drops of nearly 30 percent in 2009 and approximately 10 percent in 2010. Foreign investment for the first nine months of 2011 totaled USD 586 million, a 24.2 percent increase over the same period the previous year. GDP grew by 2.1 percent in 2010, and 5 percent from January to September 2011. A dramatic 15 percent decline in GDP in 2009, driven by a general economic recession, was a departure from primarily double digit growth earlier in the decade.

The largest foreign investors in Armenia are those that have acquired interests in the telecommunications, mining, energy, air transportation, and financial sectors. The privatization of Yerevan's largest hotels, two historic brandy factories, the Zvartnots International (Yerevan) and Shirak (Gyumri) Airports, the telecommunications network, several mining assets, and much of the energy generation and distribution system accounts for the bulk of the foreign commercial presence in Armenia.

The base metal production sector was the largest recipient of FDI from January to September 2011, attracting almost 36 percent of the total. The telecommunications sector accounted for 21.5 percent of total FDI and the energy sector attracted around 15 percent. Investments in air and ground transportation, as well as the mining sector, have grown slightly compared to previous years, constituting 6 to7 percent of the total. There are currently approximately 35 U.S. information technology (IT) firms operating in Armenia.

The current Armenian Dram (AMD)/USD exchange rate is fluctuating around 380-385 drams to the dollar, showing a slight devaluation during the second half of 2011. The foreign exchange market has remained relatively stable, with no major currency shocks following the 20 percent AMD devaluation in March 2009 (precipitated by the Central Bank of Armenia (CBA) ceasing its interventions through sales of foreign reserves). The dramatic dram depreciation drove significant price increases for certain commodities, including food staples, in 2009. Officially reported annual inflation was approximately 7.7 percent as of December 2011, exceeding the GOAM’s original projection of 5 percent. Although official reports blamed international commodity price increases, many embassy contacts speculated that import monopolies were responsible for continuing price hikes.


Armenia's investment and trade policy is relatively open, and the GOAM consistently asserts its interest in obtaining foreign investment. Foreign companies are entitled by law to the same treatment as Armenian companies (national treatment). Significant obstacles remain, however, particularly with respect to corruption. Armenia ranked 55th out of 183 economies in the World Bank's Doing Business 2012 report, up 6 points from 2011. Noticeable improvement was made in dealing with construction permits (57th, up from 95nd in 2011) and starting a business (10th, up from 20th in 2011). Armenia also made slight improvements in paying taxes (153rd compared to 159th in 2011) and getting credit (40th compared to 45th in 2011), but dropped 27 points in enforcing contracts (91st compared to 64th in 2011). Although Armenia compares favorably to regional averages, that group includes Central Asia.

Basic provisions regulating American investments are set by the Bilateral Investment Treaty (BIT) signed by the United States and Armenia in 1992, and by the 1994 Law on Foreign Investment. In addition to providing for national treatment and most-favored nation treatment, the BIT sets out guidelines for the settlement of disputes involving the governments of either party.

Armenia's 1997 Law on Privatization (amended in 1999) states that foreign companies have the same rights to participate in privatization processes as Armenian firms. Nevertheless, the majority of important privatizations of Armenia's large assets have not been competitive or transparent, and political considerations have in some instances trumped Armenia's international obligations to hold fair tender processes.

Under the Constitution, foreign individuals are prohibited from owning land in Armenia, but this prohibition does not apply to foreign businesses. Armenia does not issue foreign tax credits and does not recognize an existing double taxation treaty with the United States. The Armenian government has expressed interest in negotiating a new double taxation treaty with the United States, but no record of a U.S. company currently being double taxed exists.

Armenia is a member of the following major international organizations: IMF, World Bank/IDA, IFC, WTO, OSCE, Council of Europe, UN/UNCTAD/UNESCO, MIGA, ILO, WHO, WIPO, INTERPOL, European Bank for Reconstruction and Development (EBRD), the Asian Development Bank (ADB), IAEA, World Tourism Organization, World Customs Organization, International Telecommunications Union and the Organization of the Black Sea Economic Cooperation (BSEC). Armenia became the 145th member of the WTO in February 2003.

The seemingly open legislative framework and the government's visible effort to attract more foreign investment are overshadowed by instances of unfair tender processes and preferential treatment. Such instances, as well as the state's failure to ensure a fair investigation of abuses and judicial review, have undermined the government's assurances of equal treatment and transparency. However, on September 15, 2011 the Republic of Armenia became the first CIS country and 15th Party to accede to the WTO’s Government Procurement Agreement (GPA). This accession is viewed as a positive move aimed at increasing the openness and transparency of internal markets.




TI Corruption Index



Heritage Economic Freedom



World Bank Doing Business



MCC Gov’t Effectiveness



MCC Rule of Law



MCC Control of Corruption



MCC Fiscal Policy



MCC Trade Policy



MCC Regulatory Quality



MCC Business Start Up



MCC Land Rights Access



MCC Natural Resource Mgmt



MCC Indicators for FY 2012 reflect situation in 2010


There are no limitations on the conversion and transfer of money or the repatriation of capital and earnings, including branch profits, dividends, interest, royalties, or management or technical service fees. Most banks can transfer funds internationally within two to four days. The GOAM maintains the AMD as a freely convertible currency under a managed float, although between September 2008 and March 2009 the CBA sought to maintain the AMD through intervention in the foreign exchange market. According to the 2005 law on "Currency Regulation and Currency Control," prices for all goods and services, property and wages must be set in AMD. There are exceptions in the law, however, for transactions between resident and non-resident businesses and for certain transactions involving goods traded at world market prices. The new law requires that interest on foreign currency accounts be calculated in that currency, but be paid in AMD.


Under Armenian law, foreign investments cannot be nationalized. They also cannot be confiscated or expropriated except in extreme cases of natural or state emergency, upon a decision by the courts and with compensation paid to the owner. The U.S. government is not aware of any confirmed cases of expropriation.


According to the 1994 Foreign Investment Law, all disputes that arise between a foreign investor and the Republic of Armenia must be settled in Armenian courts. In late January 2007, however, then Armenian President Kocharian signed a new law on Commercial Arbitration, which provides investors with a wider range of options for resolving their commercial disputes. The Bilateral Investment Treaty (BIT), signed by the U.S. and Armenia, provides that in case a dispute arises between an American investor and the Republic of Armenia, the investor may choose to submit the dispute for settlement by binding international arbitration. As an international treaty, the BIT supersedes Armenian law, a point which Armenia's constitution acknowledges and which holds in actual practice.

Many Armenian courts suffer from low levels of efficiency, independence and professionalism, and there is a need to strengthen the Armenian judiciary. While there have been a few investment disputes involving U.S. and other foreign investors, there is no evidence of a pattern of discrimination against foreign investors in these cases. In general, the government honors judgments from both arbitration and Armenian national courts.

Disputes to which the GOAM is not a party may be brought before an Armenian or any other competent court, as provided by law or by agreement of the parties. Following the court reform in January 2008, commercial disputes are tried in courts of general jurisdiction. The verdict can be appealed to the Court of Appeal and Court of Cassation, the highest judicial authority in Armenia. The Law on Arbitration Courts and Arbitration Procedures provides rules governing the settlement of disputes by arbitration. According to Constitutional amendments of 2005, the courts of first instance have undergone a major restructuring; as a result, in January 2008, the GOAM abolished the Economic Court and launched a new specialized administrative court and courts of general jurisdiction to hear civil and criminal cases, in the hope of streamlining these proceedings. Armenia is a party to the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (the Washington Convention) and the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards.


Armenia currently has incentives for exporters (no export duty, VAT refund on goods and services exported) and foreign investors (income tax holidays, and the ability to carry forward losses indefinitely). The GOAM amended the VAT law in November 2005 to allow companies to delay VAT payments for one to two years on certain imported goods used in production and manufacturing. After the 2008 global financial crisis, the GOAM made further amendments to the same law, and VAT payments for capital investment-related imports are delayed for three years if the amount exceeds AMD 300 million (USD 0.8 million), two years for AMD 70-300 million (USD 0.2-0.8 million) and one year if less than AMD 70 million (USD 0.2 million). Also, in accordance with the Law on Foreign Investment, several ad hoc incentives may be negotiated on a case-by-case basis for investments targeted at certain sectors of the economy and/or of strategic importance to the economy.

In the past two years, the Armenian Parliament has amended the Law on Excise tax in an attempt to equalize duties and taxes on gasoline, alcohol and tobacco for local producers and importers, following Armenia’s WTO commitments of non-discrimination. The fuel-related provisions entered into force as of January 1, 2011 and alcohol-related provisions entered into force as of January 1, 2012, but the implementation of tobacco provisions was deferred until 2014, allowing for prolonged protection of domestic producers through lower tariffs.

The GOAM has imposed performance requirements for investors as part of privatization agreements, especially for the privatization of large state assets like mines or the telecommunications network. There are no performance requirements for de novo investment.

The GOAM takes considerable interest in economic activities in the disputed region of Nagorno-Karabakh, which has resulted in the GOAM pushing some foreign companies to agree to operate in Nagorno-Karabakh or face termination of their operations in Armenia.


The Armenian Constitution protects all forms of property and the right of citizens to own and use property. Foreign individuals who do not hold special residence permits cannot own land, but may lease it; companies registered by foreigners in Armenia as Armenian businesses have the right to buy and own land. There are no restrictions on the rights of foreign nationals to acquire, establish or dispose of business interests in Armenia.


Armenian law protects secured interests in property, both moveable and real. Armenian legislation provides a basic framework for secured lending, collateral and pledges, and provides a mechanism to support modern lending practices and title registration.

Domestic legislation, including the 2006 Law on Copyright and Related Rights, provides for the protection of intellectual property rights (IPR) on literary, scientific and artistic works (including computer programs and databases), patents and other rights of invention, industrial design, know-how, trade secrets, trademarks, and service marks. Armenia's legislation is in compliance with the Trade Related Aspects of Intellectual Properties (TRIPS) Agreement. In January 2005, the government created an IPR Enforcement Unit in the Organized Crime Department of the Armenian Police.

Despite the existence of relevant legislation and executive government structures, the IPR concept remains unrecognized by a large part of the local population. While pirated audio and video production is largely available at major entertainment retail shops in Yerevan, some anecdotal evidence suggests tightened measures for computer software piracy. The onus for IPR complaints remains with the offended party. Although exact statistics are unavailable, the police assert the number of court cases involving IPR violations increased in 2011 compared to previous years and note that the majority of cases are settled through out-of-court proceedings. There is also an Intellectual Property Agency in the Armenian Ministry of Economy responsible for granting patents and for overseeing other IPR related matters. While Armenia has made some progress on IPR issues, strengthening enforcement mechanisms remains necessary.


The Armenian regulatory system pertaining to business activities still lacks transparency in implementation. A small group of businesses dominates several sectors and suppresses full competition. The inconsistent application of tax, customs, (especially with respect to valuation) and regulatory rules (especially in the area of trade) undermines fair competition and adds uncertainty for small- and medium-sized businesses and new market entrants. Banking supervision is relatively well developed and largely consistent with the Basel Core Principles. In early 2006, the CBA became the primary regulator for all segments of the financial sector, including banking, securities, insurance and pensions.

Safety and health requirements, most of them holdovers from the Soviet period, generally do not impede investment activities. Bureaucratic procedures can nevertheless be burdensome, and discretionary decisions by individual officials still provide opportunities for petty corruption. Despite persistent problems with corrupt officials, both local and foreign businesses assert that a sound knowledge of tax and customs law and regulations enables business owners to deflect a majority of unlawful bribe requests.


Armenia's financial sector is not highly developed. As of October 2011, total bank assets were USD 5 billion (about 50 percent of GDP), up 33.5 percent from October 2010. The insurance market is very small, with total annual premiums for 2009 amounting to approximately USD 49 million. These numbers have registered more than a twofold increase with the introduction of mandatory third party liability motor insurance since January 1, 2011. IMF estimates suggest that banking sector assets account for about 90 percent of total financial sector assets. Financial intermediation is poor: commercial lending rates in AMD range from 13 to 14 percent for business entities and from 17 to 19 percent for individuals. Because Armenian banks charge service and other fees, the actual interest rate paid by the customer may be higher. Nearly all banks require collateral located in Armenia, and large collateral requirements often prevent potential borrowers from entering the market. This remains the main barrier for SMEs and start-up companies. Commercial lending rates did not register significant fluctuations during 2011. Mortgage rates at the end of November 2011 were 12.5 -12.8 percent, a decline of one percentage point compared to the same period in 2010.

Although there is a system and legal framework in place, Armenia's securities market is not well developed, with minimal trading activity. On November 21, 2007, OMX, a leading expert in the equities exchange industry, and the Government of Armenia signed a Share Purchase Agreement regarding the acquisition of the Armenian Stock Exchange and the Central Depository of Armenia. According to the agreement, OMX became the sole shareholder of the Armenian Stock Exchange and the Central Depository of Armenia. In addition to the Share Purchase Agreement, OMX and the Government of Armenia also signed a Cooperation Agreement outlining joint efforts to support the long-term development of capital markets in Armenia.

Remittances constitute approximately 10-15 percent of Armenia's total GDP, a variable statistic because of the difficulty of tracking cash payments. According to the latest data released by the CBA, the volume of private (non-commercial) remittance inflows for January-September 2011 was USD 1.1 billion, an increase of 25 percent over the same period in 2010. The CBA's 2006 survey states that 37 percent of Armenian households regularly receive remittances. The most recent CBA data indicate that about 85 percent of remittances originate in Russia and the remainder comes primarily from the U.S. (3 percent), Europe and other CIS countries.


There is not a widespread understanding of corporate social responsibility in Armenia, but several larger companies with foreign ownership or management are introducing the concept. It is rare to see examples of Armenian companies that contribute to their local community through charity, employee service days, or other similar programs, but those CSR programs which do exist are viewed favorably.


Political rallies in the aftermath of the 2008 presidential elections turned violent, as clashes between government security forces and opposition demonstrators resulted in dozens of casualties, including 10 fatalities. While the opposition has continued to hold periodic protests, there have been no violent confrontations since 2008. U.S. citizens are urged to avoid the areas of demonstrations if possible, and to exercise caution if within the vicinity of any demonstrations, given that demonstrations intended to be peaceful can turn confrontational. Following the 2008 elections, the GOAM used tax audits and other official mechanisms to retaliate against businesspersons who supported the political opposition.

A cease-fire with Azerbaijan has been in effect since 1994 for the conflict surrounding the disputed region of Nagorno-Karabakh, an unrecognized ethnic-Armenian enclave within Azerbaijan. However, intermittent gunfire along the cease-fire line and along the border with Azerbaijan continues, often resulting in injuries and/or deaths. There have been no threats to commercial enterprises from skirmishes in the border areas. It is unlikely that civil disturbances, should they occur, would be directed against U.S. businesses or the U.S. community. Because of the existing state of hostilities, consular services are not available to U.S. citizens in Nagorno-Karabakh.


Corruption remains a significant obstacle to U.S. investment in Armenia. The GOAM introduced a number of reforms in the last few years, including the simplification of licensing procedures, civil service reform, a new criminal code, privatization in the energy sector, and anti-corruption laws and regulations. Nevertheless, corruption remains a problem in critical areas such as the judiciary, tax and customs operations, health, education and law enforcement. Petty corruption is widespread throughout society.

Armenia is a member of the UN Anticorruption Convention and in November 2003, the GOAM adopted a National Anti-Corruption Strategy paper containing an action plan aimed at the introduction of tax and customs reforms, harmonization of legislation and improvement of public access to information. The plan, completed in 2007, was widely criticized by local and international observers for failing to yield any result. After lengthy discussions initiated at the beginning of 2008, the Armenian Government adopted a new anti-corruption strategy paper and action plan for 2009-2012. Priorities set by the new strategy include improvement of legislation and infrastructure to combat money laundering, increase of transparency of the public sector, enhancement of accountability of all branches of government, etc. In summer 2010, the GOAM passed a new Law on Public Service, which entered into force on January 1, 2012. It requires top government officials to file asset declarations and established an ethics commission responsible for reviewing the asset declarations.

According to the Transparency International (TI) 2011 Corruption Perception Index (CPI) report, Armenia ranked 129th among 182 countries, with a score of 2.6 (on a "10-0" scale, where "10" is the cleanest country and "0" the most corrupt). Armenia's score places it into the category of "mostly corrupt" - and reflects endemic or systemic corruption. Armenia’s score remained unchanged compared to 2010. The most recent findings of the Global Corruption Barometer, a worldwide public opinion survey, identified the Armenian education sector as the most corrupt, followed by the police and judiciary.

Relationships between high-ranking government officials and the emerging private business sector encourage influence peddling. Powerful officials at the federal, district, or local levels acquire direct, partial or indirect control over emerging private firms. Such control is exercised through a hidden partner or through majority ownership of a prosperous private company. This involvement can also be indirect, e.g., through close relatives and friends. These practices promote protectionism, encourage the creation of monopolies or oligopolies, hinder competition, and undermine the image of the government as a facilitator of private sector growth.

The Law on Civil Service, in force since January 1, 2002, restricts participation by civil servants in commercial activities. Corrupt practices exist widely within private companies as well, mostly in the form of tax fraud and unregistered business activities.

In a move to increase transparency and awareness of major tax-dodgers, since 2006 the GOAM has published quarterly lists of the country’s largest business taxpayers. It is not clear whether this has had the intended effect, as companies of some major businesspersons feature prominently on the list, while others remain conspicuous by their absence.

The GOAM has made several attempts to cut back on shadow economic activity and tax evasion, as well as to increase budget revenues, through tax amendments and stricter regulations and enforcement. A recent effort to increase tax compliance by larger companies was legislation permitting the State Revenue Committee (SRC) to place tax inspectors on the premises of large companies (those with annual turnover exceeding USD 10.5 million, and/or those with more than USD 1.3 million in imports in a three-month period) to oversee sales volumes, prices and corresponding documentation, product deliveries, etc. The amendment went into effect as of January 1, 2010 and in 2011 the list of companies with resident tax inspectors increased from 25 to 37.


Armenia has bilateral investment treaties (BITs) in force with 30 countries: the United States, Argentina, Austria, Belarus, Belgium, Bulgaria, Canada, China, Cyprus, Egypt, Finland, France, Germany, Greece, Georgia, India, Iran, Italy, Kyrgyzstan, Latvia, Lebanon, Lithuania, Luxembourg, Romania, Sweden, Switzerland, Syria, Ukraine, the United Kingdom and Vietnam. According to the U.N. Conference on Trade and Development, Armenia has also signed BIT agreements with Israel, the Netherlands, Qatar, Russia, Tajikistan, Turkmenistan and Uruguay, but these agreements have not yet entered into force. Armenia is a signatory of the CIS Multilateral Convention on the Protection of Investor Rights.

The Treaty between the Republic of Armenia and the United States of America Concerning the Reciprocal Encouragement and Protection of Investment (the Bi-lateral Investment Treaty or BIT) was ratified in September 1995. The BIT sets forth investment conditions for investors of each party to be no less favorable than for national investors (national treatment) or for investors from any third state (a Most-Favored-Nation clause).


The "Investment Incentive Agreement between the Government of the Republic of Armenia and the Government of the United States of America," signed in 1992, provides a legal framework for OPIC's operations in Armenia. OPIC offers political violence insurance in Armenia and insures against expropriation. OPIC insures against currency inconvertibility on a case-by-case basis. Armenia is also a member of the Multilateral Investment Guarantee Agency (MIGA).


Armenia's human capital is one of its strongest resources. The labor force is generally well educated, particularly in the sciences. Almost one hundred percent of Armenia's population is literate. Enrollment in secondary school is 92.8 percent, and enrollment in senior school (essentially equivalent to American high school) is 85.6 percent.

Much of the new foreign investment in Armenia has occurred in the high-tech sector. High-tech companies have established branches or subsidiaries in Armenia to take advantage of the country's pool of qualified specialists in electrical and computer engineering, optical engineering, and software design. Pilot training programs have increased the supply of qualified software programmers, and Armenia's IT sector is growing based on its qualified pool of inexpensive labor. Currently there are around 300 IT firms in Armenia, which employ approximately 5,000 local staff.

The amended Labor Code came into force in June 2005, and is considered to be largely consistent with international best practices and the international conventions to which Armenia is a party. The law sets a standard 40-hour work week, with minimum paid leave of 28 calendar days annually. The current legal minimum wage established by the 2012 budget, equals AMD 32,500 (about USD 90) per month. Most companies also pay a non-official extra-month bonus for the New Year's holiday. Entry-level skilled professionals (such as software engineers) command wages of about USD 500 per month. Wages in the public sector are often significantly lower than those in the private sector and, while all wages must be paid in AMD, many private sector companies continue to use a fixed exchange rate to denominate employee salaries.


In June 2011, Armenia adopted a Law on Free Economic Zones (FEZ) and several key regulations were developed at the end of 2011. The GOAM hopes to attract foreign investment and has announced two potential FEZs – one at Zvartnots International Airport and one at the “Mars” CJSC (which includes the premises of formerly well-known “Mergelian Institute” - Yerevan Scientific-Research Institute of Mathematical Machines). The two FEZs will reportedly focus on agribusiness and information technology, respectively, although the private companies who proposed the FEZs will shape the company membership.


The Armenian National Statistical Service reported that total foreign investment in the real sector of the economy for the first nine months of 2011 was USD 586 million, up 24.2 percent from the same period in 2010. Of that foreign investment, USD 462.5 million was foreign direct investment (FDI), up 32.6 percent compared with the previous year.

In 2011, the most significant foreign investments in Armenia came from Russia (USD 267 million) and France (USD 77 million) constituting 46 and 13 percent of the total, respectively. This was due to Russia's continued investment in the energy sector as well as the expansion of services by France Telecom (local telecommunications company Orange), which entered the Armenian market in 2009. The U.S. was Armenia’s third biggest investor, with FDI in the real sector economy of over USD 22 million, or about 5 percent of total FDI in Armenia. U.S. investments were primarily in the IT sector, base metals production, and food industry.

The following is volume of FDI based on Armenia’s Balance of Payments (BoP) data, provided by the Armenian National Statistical Service:

Armenia’s FDI (BoP based data)



Amount (Millions USD)