Armenian economic model

[Boghos]

Armenian is a small country without access to the sea and with few natural resources, on the other hand it has an educated population and a number of interesting attractions. It has a large diaspora.

 

The economic model that has the best chances of rapidly improving the standards of living in the republic is based on the development of services and light industry.

 

Service encompass a large array of possibilities. An obvious one is tourism, that has been developing already. Yerevan has a few Western standards hotels, and soon will have a new one when the Marriott Armenia is redone. Outside of Yerevan things look different, but it is reasonable to expect that will change. Jermug for example is totally awful, but a very nice destinatons for elderly people. There are countless other destinations within the republic that will accomodate a nice small hotel or pension. It is already happening in small scale.

 

Another possibility is banking, that will only flourish if peace is achieved in the region. Then Armenia could become a financial regional centre of sorts. This would be accompanied by consultancies, accounting firms, etc all the services that revolve around finance. Which country can import people that speak Russian, English and a local language ? Only Armenia in a meaningful scale (I can already imagine Naira running McKinsey´s Yerevan office .

 

Light industry: there is so much that can be manufactured an exported to neighbouring countries and even further, from clothing, shoes to microelectronics.

 

Fortunately Armenia has been able to maintain monetary stability. I have a feeling that once an agreement on Karabagh s reached things will start to move in a major way. It is true this peace dividend may disappoint a bit, but expectations are so low that any improvement will be perceived as a major victory. But we need peace and reform of the bureaucracy, other things will fall into place.

 

[ June 20, 2001: Message edited by: Boghos ]

[Berj]

Switzerland with software production, ha, Boghos? Nice, I like it.

 

Speaking seriously, I think we should invest in anything that has a market. Isn't it natural?

 

I think we should also invest in foundamental sciences and relevant industries. We have the best foundamental science in the region. People from Georgia, Iran and even from Azerbaijan come for medical treatment in Yerevan's hospitals.

[Boghos]

You are absolutey right, hospitals and also education.

[Berj]

Boghos,

 

What about millitary industry technology education?

[alpha]

Interesting analogy Boghos, but allow me to give my outlook on Armenia business plan.

 

Armenia lacks the climate, or world significant historic sites in order to attract tourists. Tourism industry will be limited to Diaspora Armenians. That figure does not increase 6 million.

 

The government of Hrant Bagratyan unsuccessfully tried to promote the idea of Armenia becoming a financial center of our region. Armenia is too close to volatile Middle East and it has always had shaky relations with its neighbors. Even if Artsax conflict is solved, there will still be too much uncertainty in the region (Islamic fundamentalism in Iran, Arab-Israeli conflict, Kurdish problem). The only competitive advantage over its regional competitors Armenia has is the financial resources of Diaspora. If other businessman like Vache Manougian have enough confidence in Armenian economy and will bring credible names of the West to our country then development of financial sector is possible. Yet I don’t think it has a chance of becoming significant part of economy. The region is too undeveloped, and banking sectors usually thrive in developed and stable regions.

 

I think Armenia has a great future in gem cutting and development of successful jewelry industry. It has the human resources and the capacity, which regional competitors lack. Also it can utilize the distribution networks developed by Diaspora Armenians.

 

Another sector that I think has a great chance of development is the software development and telecommunication equipment industries. Despite the drainage of human resources Armenia still retains the educational institutions to replace the loss of human capital. The interest shown by companies like, Cisco, Nokia, Ericson and etc. is an indication for a bright future for this sector. The government should expand or at least retain funding to educational institutions in order to maintain the competitive advantage. The development of successful technology industry in Ireland through spending on technical schools should be a great example for Armenia.

 

Development of energy sector looks promising. Armenia has the necessary infrastructure to become a significant player in regional energy market.

 

I don’t think manufacturing has a great future in Armenia, whether it’s light or heavy industry. Transportation costs price Armenian products out of the market.

 

If Naira is getting the McKensey office, then I want to get the Ernst & Young Cap Gemini group.

[nairakev]

Common guys, dream more...!

BTW, I'm not at all McKinsey or Ernst & Young stuff. I'd rather participate in development Armenia's Media Infrastructure.

TV, Publishing, Audiovision, Toursim and Entertainment industry.

 

I don't agry that Armenia does not have historic sites to attract tourists.

 

First we should understand that tourism lies not between historic attractions or western hotels, but between large scale developed infrastructure (hotels, transport, telecommunications) and the new ideas for attracting tourists.

 

Armenia's almost lunary paysages (landscapes) can serve as a magnificent decor for developing sports resorts and sports toursim (alpinism, ski, snowskate, skydiving). Lake Sevan has a very impressive surrounding. Just imagine how would it work if it has all the infrastructure arround.

 

I dream to buy a house over there, not because it's in Armenia (my historic homeland), but because it is a beautiful place.

 

I travelled a lot around the world. And I've seen many really cool places. I'm confident Armenia has a lot to offer to tourists.

 

On the other hand Armenia attracts many tourists by its historic sites.

 

Alpha, sorry!

I can't agree that Armenia will attract only diaspora. What Armenia needs is a well-established tourism sites and services. And finally, a big advertising and promoting campaign. People do not know tha Armenia exists. How do you want to attract tourists.

 

I know some French guys here in Paris, who a year and half ago went to walk all around Armenia by visiting the churches and ruins of historic monuments. They should me the pictures they had captured : it was fantastic! Very impressive shots. And they were very excited about telling me all this because they got attached so closely to our nature and culture.

It's not the only example.

 

Recently many Israelis have discovered that in Armenia there existed very old jewish sites. Not far from old Armenian Education centers (Tatev, Gladzor) there have been discovered jewish cemeteries. It made an academic sensation in Israel.

If it was in Israel, they would have restored this cemeteries and build hotels not far from there to bring tourists to that site.

 

Who in Armenia will have such an idea, when most of Armenian historic sites are forgotten and not included in touristic guides?

 

I think, Armenia should avoid building economy based on heavy industry. The best lot is to build economy on supplying chain principle. The Software development and telecom sector are one of the vitals. And I think that Government should make more efforts in supporting these sectors.

 

Talking about financial center. I think without strong economy, one cannot become a financial center.

 

The first sectors in economy that started to get shape in Armenia, after declaration of independence, were: Banking and Real Estate.

I'm glad that Armenian currency (though poor rate) is one of the most stable currencies among the ex-USSR republics.

 

But again, banking and real estate are the most classic sectors of economy, they get developed easily in every society.

 

The toughest thing is to build real ambiance where the small and medium business will prosper. Mostly small and medium businesses are moving the economy in all sectors.

 

Do we have in Armenia a favourable climate, backed by Government, for the development of SMEs. I don't think so!

 

The last thing, I'd like to talk about the WAR and ECONOMY issue also. The war is not a reason, is a pretext to justify the "bad" situation in economy.

 

Besides Armenia obtained ceasefire since 1994, right?

 

It means the big war had stopped 7 years ago.

And now let's make a resume of what did Armenia achive during this 7 crucial years of relative peace?

Bad results, but not desperate. It's time to move I think. And the government needs some more initiatives to boost the economy. TAlks are cheap. Actions!

We need actions from this damn stoupid government of corupted idiots, that armenians did elect!!!!

 

LOL...

[Boghos]

Banking and all its satellite activities do not necessary require a strong locl economy, they need a stable regulatory and geopoltical environment. Armenia should develop its banking system with its eyes on the neighbours, not in the local economy.

 

I agree with Naira on tourism, there is plenty to be exploited, but the infrastructure needs to be there. There is great interest in "exotic" destinations in Europe and the US.

 

Alpha, I think manufacturing, light industry can exist and prosper in Armenia, wages are really low and you can sell to the local market and neighbours. Furthermore, Armenia could have assembly plants for some sorts of durable goods, such as the airconditioning factory that the Koreans were interested in setting up. Even in small scale you could do that with cars, Uruguay does it, why not Armenia.

 

I think that peace is necessary. It is true that only that will not solve the problems but it will help tremendously. Especially if regional trade gets a boost.

[alpha]

Peace is crucial to attract investment. Who’d want to invest in a country where neighbors are hostile and can be in war at any second? Let’s take a look at examples of small countries like Armenia who are in hostile environment and have a wealthy Diaspora. Naturally Israel comes to picture. Israeli economy grew in double digits only after the Oslo Accords in 92. Prior to that Oslo Accords Israel was mainly sustained through American aid. Now it has it’s own Silicon Valley around Tel Aviv. The analogy of Israeli example leads one to the following conclusion: Investors need to have faith in a future of a country. Without that no country will attract any sizable investment.

 

What target market do you think advertising of Armenian tourism industry should be geared towards? Name one single sphere of tourism that Armenian can offer advantage over others. There is no single architectural structure that has a global significance. What should attract masses of tourists to Armenia? I am not talking about few tourist enthusiasts; I am talking about developing tourism industry. If one looks at countries that have successfully developed tourism industries, Italy, Greece, Egypt or Israel, the common denominator in all these countries is the existence of historical sites of global significance. Armenia does not have the natural resources to become a resort site. May be you see something I fail to notice.

 

Boghos, local Armenian market is extremely small, and transportation costs price Armenian products out of world markets. Armenia should capitalize on resources it has a competitive advantage or can develop industries where it can sustain competitive advantage. I think Armenia can sustain long-term competitive advantage only when the transportation costs in that industry are minimal. Although Korean model of development gets bashed lately, but I am a big fan of choebols. Government should find industries, nurture them and prepare them for global competition. Local markets should be shielded from foreign competition at least temporarily. The fixed cost of establishing business is high in emerging countries, and they cannot successfully compete with established western counterparts, who do not have a lot of fixed costs and have developed distribution channels.

[Boghos]

Dear Alpha,

 

Indeed the Armenian market is small and transportation costs are high. But if we take into accou the Caucasian market, plus Northern Iran and Northeastern Turkey I am quite confident that we light industry can be quite succesful. It is an issue o quality, marketing etc. There are many examples of even high wage countries that are able to manufacture and export goods, such as Sweden, Canada,...Of course it needs to be efficient and have the right incentives.

[alpha]

European Bank of Research and Development (EBRD) provides a great overview of Armenian economy and promising industry sectors. Below is the link to the EBRD study pertaining to Armenia.

http://www.ebrd.com/annualmeeting/cp2000/arme.pdf

[Boghos]

Thanks for the link, very informative reading indeed.