2013 Investment Climate Statement - Armenia

2013 Investment Climate Statement
Bureau of Economic and Business Affairs
February 2013

Openness to Foreign Investment

The Armenian government (GOA) officially welcomes foreign investment; the country has received improved and respectable rankings on some global indices measuring the business climate. Armenia's investment and trade policy is relatively open; foreign companies are entitled by law to the same treatment as Armenian companies (national treatment). Armenia has strong human capital and a well educated population, particularly in the sciences. The high-tech and information technology (IT) sectors have attracted foreign investment. International companies have established branches or subsidiaries in Armenia to take advantage of the country’s pool of qualified specialists. However, Armenia’s investment climate poses several challenges: a population of less than three million; relative geographic isolation due to closed borders with Turkey and Azerbaijan; per capita gross domestic product (GDP) of about USD 3,300; and high levels of corruption in both official and commercial spheres. 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, particularly in refund of value-added tax (VAT) payments across the board, the application of reference prices during customs clearance does not ensure a level playing field for all businesses.

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. GOA has also on occasion deployed government agencies, including the tax and customs services, against political or economic opponents.

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.

Basic provisions regulating American investments are set by a bilateral investment treaty in force since 1996, 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.

The seemingly open legislative framework and the government's visible effort to attract more foreign investment are complicated 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.

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.

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).

Key Global Benchmarks



Index or Rank

TI Corruption Index



Heritage Foundation’s Economic Freedom index



World Bank’s Doing Business Report



MCC Government Effectiveness


0.36 (81%)

MCC Rule of Law


0.07 (59%)

MCC Control of Corruption


-0.06 (47%)

MCC Fiscal Policy


-5.1 (23%)

MCC Trade Policy


85.4 (97%)

MCC Regulatory Quality


0.61 (91%)

MCC Business Start-Up


0.991 (97%)

MCC Land Rights and Access


0.96 (100%)

MCC Natural Resource Protection


46.7 (56%)

MCC Access to Credit


48 (88%)

MCC Inflation


7.7 (28%)

Armenia ranked 32nd out of 185 economies in the World Bank's Doing Business 2013 report, up 18 points from 2012. A slight improvement was made in “dealing with construction permits” (46th, up from 49nd in 2012) and “getting credit” (40th compared to 38th in 2012). Armenia made noticeable improvements in the “paying taxes” indicator (108th compared to 152nd in 2012) primarily by reducing the number of forms required. Significant obstacles remain, however, particularly with respect to corruption.

Currency Conversion and Capital Transfers

Armenia has 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. GOA maintains the Armenian dram (AMD) as a freely convertible currency under a managed float, although between September 2008 and March 2009 the Central Bank of Armenia (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.

The current AMD/USD exchange rate is fluctuating around 405-410 drams to the dollar, showing over eight percent devaluation in 2012. 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 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 2.5 percent in January - September 2012, which is below GOA’s original projection of four to five percent, although independent assessments place the inflation rate much higher.

Expropriation and Compensation

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.

Dispute Settlement

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 Robert Kocharian signed a new law on Commercial Arbitration, which provides investors with a wider range of options for resolving their commercial disputes. The U.S.- Armenia BIT 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. Litigants are wary of turning to Armenian courts for redress because of the lack of judicial independence. Judges at the court of common jurisdiction are reluctant to make a decision without checking with their superiors at the appellate court for fear of being disciplined. Thus decisions may be influenced by factors other than the law and merits of the cases. 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 GOA 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. Commercial disputes are tried in courts of general jurisdiction which also adjudicate civil and criminal cases. The specialized administrative courts adjudicate cases brought against state entities. The verdicts 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. 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.

Performance Requirements

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

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


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). GOA 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, GOA 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.

Right to Private Ownership and Establishment

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.

Privatization: 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.

Property Rights Protection

Armenian law protects secured interests in property, both personal 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 2005 GOA 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 still largely available at major entertainment retail shops in Yerevan, starting in April 2013 only licensed products with a special hologram marking will be allowed for sale. A campaign to inform consumers and sellers about stricter enforcement of IPR and increased punishment for violations has been implemented. 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 2012 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 GOA has made some progress on IPR issues, strengthening enforcement mechanisms remains necessary.

Transparency of the Regulatory System

The Armenian regulatory system pertaining to business activities still lacks transparency in implementation. A small cadre of businesses dominate several sectors and suppress 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.

Capital Markets and Portfolio Investment

Armenia's financial sector is not highly developed. As of October 2012, total bank assets were USD 5.76 billion (about 85 percent of GDP), up 15.2 percent from October 2011. The insurance market is very small, with total annual premiums in January-September 2012 amounting to approximately USD 71 million. These numbers have increased threefold since the introduction of mandatory third party liability motor insurance on 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 14 to 15 percent for business entities and from 17 to 20 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 2012. Mortgage rates at the end of November 2012 were 12.6 -12.7 percent.

Although there is a system and legal framework in place, Armenia's securities market is not well developed and has only minimal trading activity. On November 21, 2007, OMX, a leading expert in the equities exchange industry, and GOA 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 GOA 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-October 2012 was USD 1.36 billion, an increase of 10.4 percent over the same period in 2011. The most recent survey by CBA indicates that more than one third of Armenian households regularly receive remittances. About 86 percent of these remittances originate in Russia and the remainder comes primarily from the United States (4 percent), Europe and other CIS countries.

Corporate Social Responsibility

There is not a widespread understanding of corporate social responsibility (CSR) 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 Violence

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 and 10 fatalities. Since then, political demonstrations have occurred mostly without incidents of violence. In the past GOA used tax audits, money laundering investigations, 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. 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. GOA introduced a number of reforms in the last few years, including the simplification of licensing procedures, registration of commercial legal entities, 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. GOA’s most recent anti-corruption strategy paper and action plan for 2009-2012 did not yield any significant results. Priorities set by the new strategy included improvement of legislation and infrastructure to combat money laundering, an increase of transparency in the public sector, and enhancement of the accountability of all branches of government. In July 2012, the President approved a new strategy and action plan for Justice Sector Reforms for 2012-2016 which addresses most of the problems in the judiciary, prosecutors’ office, and civil, criminal, and administrative legislation. In January 2012, pursuant to the law on Public Service adopted in 2011, an Ethics Commission for High-Ranking Officials was established. The Commission collects and monitors the asset declarations of high-level officials. However, there are no criminal penalties for noncompliance or filing of false declarations.

The Law on Civil Service, in force since 2002, restricts participation by civil servants in commercial activities. 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.

Corrupt practices exist widely within private companies as well, mostly in the form of tax fraud and unregistered business activities. GOA 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 in January 2010; in 2012 the list of companies with resident tax inspectors increased from 25 to 37. In another move to increase transparency and awareness of major tax-dodgers, GOA has published quarterly lists of the country’s largest business taxpayers since 2006.

According to the Transparency International (TI) 2012 Corruption Perception Index (CPI) report, Armenia with a score of 34 (on a "100-0" scale, where "100" is the cleanest country and "0" is the most corrupt), tied for rankings 105-112th among 176 countries. Because of the change in methodology of CPI calculation, this year’s results are not comparable to the previous years’ results. 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.

Bilateral Investment Agreements

Armenia has shared a bilateral investment treaty (BIT) with the United States since 1996, which sets forth conditions for investors of each party to be no less favorable than for national investors (“national treatment”) or for investors from any third state (“most favored nation” clause), as well as providing the option of international arbitration in the case of investment disputes. Armenia has BITs in force with 31 countries: the U.S., Argentina, Austria, Belarus, Belgium, Bulgaria, Canada, China, Cyprus, Egypt, Finland, France, Georgia, Germany, Greece, India, Iran, Italy, Kyrgyzstan, Latvia, Lebanon, Lithuania, Luxembourg, Romania, Russia, Sweden, Switzerland, Syria, Ukraine, the United Kingdom and Vietnam. According to the U.N. Conference on Trade and Development (UNCTAD), Armenia has also signed BITs with Israel, The Netherlands, Qatar, 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.

Tax Treaty: Armenia does not issue foreign tax credits and does not recognize the existing 1973 double taxation treaty with the United States to which it is party, as one of the former Soviet Republics which are now covered by the treaty with the Commonwealth of Independent States (CIS), formerly known as the Union of Soviet Socialist Republics (USSR). GOA 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 has shared an Investment Incentives Agreement with the U.S. Overseas Private Investment Corporation (OPIC) since 1992. OPIC mobilizes private capital to help solve critical development challenges, providing investors with financing, guarantees, political risk insurance, and support for private equity investment funds. OPIC currently has two projects in Armenia: one for the expansion of the Yerevan Marriott and the other for FINCA Universal Credit Organization which is part of a multi-country, seven-year $45 million loan to FINCA Microfinance Holding for micro-lending. Armenia is also a member of the World Bank’s 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 over 90 percent, and enrollment in senior school (essentially equivalent to American high school) is about 85 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 350 IT firms in Armenia, which employ approximately 7,800 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 2013 budget is AMD 35,000 (USD 87) 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.

Foreign Trade Zones/ Free Trade Zones

In June 2011, Armenia adopted a Law on Free Economic Zones (FEZ), developing several key regulations at the end of 2011. GOA 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 the well-known “Mergelian Institute” - Yerevan Scientific-Research Institute of Mathematical Machines). The two FEZs respectively focus on agribusiness and information technology.

Foreign Direct Investment Statistics

In 2012, the most significant foreign investments in Armenia came from Canada (USD 102 million) and Russia (USD 82 million) constituting 26 and 20 percent of the total, respectively. This was due to Canada’s investments in the mining sector and Russia's continued investment in the energy and mining sectors. Total investments from the U.S. were about USD 12 million, or about 3 percent of total FDI in Armenia. U.S. investments were primarily in the IT sector, base metals production, wholesale and retail trade and hospitality industry.

The base metal production sector was the largest recipient of FDI from January to September 2012, attracting almost 35 percent of the total. The telecommunications sector accounted for 22 percent of total FDI, and the energy sector attracted around 9 percent. There are currently approximately 35 U.S. IT firms operating in Armenia.

The Armenian National Statistical Service reported USD 221.3 million foreign direct investment (FDI) in the first nine months of 2012, down 53.8 percent from the previous year. For the same period total foreign investment -- all investments coming into the country, including World Bank and IMF loans which enter the banking system and are later transformed into loans to the private sector, thus considered an investment – totaled USD 603 million, a 35.1 percent decrease over the prior year.

GDP grew by 7.1 percent from January to September 2012 and 4.6 percent in 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.

Armenia’s Foreign Direct Investment













millions USD












Armenian National Statistical Service: Balance of Payments data

*first 9 months of 2012