Armenian economy: features of development

2024 Author: Henry Conors | [email protected]. Last modified: 2024-02-12 02:41

Armenia at the beginning of the twenty-first century was a small republic of Transcaucasia, located between the Kura and Araks rivers. The area of the state is less than 30 thousand square meters. m., and the population is about 3 million people.

Specific features of the Armenian economy

Features of the Armenian economy in recent decades depend on several factors:

1. The Soviet economy, with its strengths and weaknesses, continues to have a great impact. During these decades, the republic significantly increased its economic level, but at the same time it absorbed the negative components of the USSR economy and became part of the general mechanism, which still has a very heavy impact on the country's well-being.
2. Ambiguous development in recent times (since 1992) has failed to make the economy stable and highly developed.
3. Geographic component. Most of Armenia is mountains. There are relatively few agricultural lands in the country, and the food issue remains quite acute.
4. Difficult geopolitical situation. Armenia does not have free access to the sea, although it is located between the Black and Caspian Seas. Neighbouring countrieseither hostile (Azerbaijan, Turkey), or there are no good transport arteries to them (Iran). Because of this, export-import ties are difficult and may even be interrupted.

Economic problems

Various reasons lead to the fact that the modern economy of Armenia (a feature of development) is poorly provided with its own raw materials, by only 20%, with the predominance of industries processing raw materials in industry (a legacy of the Soviet past). Despite the presence of various ores, marble, rock s alt, the country cannot supply its industry and is mainly based on imported raw materials. There is a shortage of food resources due to the lack of land, it has to be covered by imports, selling industrial products in return. The geopolitical position leads to complete dependence on external cargo links, which have resulted in energy and transport isolation due to conflict conditions in the Caucasus.

Growth rates in the early years of the twenty-first century

In recent times (in 1994-2017) there is a significant development of the economy - almost fifteen times (up to 10 billion dollars). However, such impressive figures grew, first of all, with the help of loans from international financial associations, foreign investments in the Armenian economy. Only private transfers to Armenia in 2010 came to the amount of more than one billion dollars, which accounted for half of the state budget. At the same time, almost all the money came from the Russian Federation.

Foreign investments in the Armenian economy by 2009 amounted to 4,703.2 million dollars. The leading investor (half of the amount of investments) and the external owner was and remains Russia. The main areas for investing Russian money are related to industry, finance, and the media.

At the same time, there is a change in the share of directions of the Armenian economy. In the post-Soviet era, the industrial share in GDP decreased from 44% to 15%, while the share of the service sector increased from 25% to 42% (general GDP dynamics - below in the graph). This trend is confirmed by stable electricity consumption of 5.5-6.3 billion kWh, although the economy of the Republic of Armenia is constantly growing. That is, the energy consumption of manufacturing industries has been steadily declining in recent decades.

Industry

The industry of Armenia, like most of the former Soviet republics, with independence, was in a phase of a sharp decline. And although after some time there was a rise in industrial production, but this was obvious only in comparison with the previous crisis years. Production in absolute terms has decreased many times over, and for most types of products it has been completely interrupted. The total number of workers and engineers has decreased by five times, and the use of electricity in industrial sectors by almost three times.

Unregulated adjustment to difficult circumstances led to painful structural changes and simplification of the industry structure. Specific gravitythe main industries in the past, machine building and light industry fell from 34% and 24% to 1.6% and 1.2%. The share of the food industry rose from 16.3% to 52.9%. The percentage of the metallurgical industry (mainly semi-finished products - copper and molybdenum concentrates) increased from 2.8% to 19.9%.

Agricultural production

Carried out in the early 1990s. transformations in agriculture had rather negative consequences, at least in the short term. Large collective farms and state farms were disbanded, in their place 340 thousand small private agricultural enterprises were formed, mainly with land plots of 1.4 hectares. Significant damage was done to the production structure of agriculture.

Due to the narrow possibilities of patchwork village farms, by the 21st century. almost 40% of cultivated soils were excluded from the field of agricultural work, the areas of crops common to Armenia were greatly curtailed. Irrigated agriculture has decreased by almost 50%. The use of mineral fertilizers and pesticides has decreased several times, crop rotation is not used. Recently, as a result of the sale and purchase, large tracts of land have formed, which completely fall out of circulation, and for the next owners they have turned into a commercial product.

Expensive loans, weak government assistance reduce the productivity of the agricultural sector, which is increasingly becoming a relic of subsistence farming. Given the poor domestic supplies of Armenia for some products and large imports due toborders, increasing the productivity of the agricultural sector will be the main task of the near future.

Foreign trade

This branch of the economy is an important part of the Armenian economy. In the early years of the twenty-first century, trade was almost $5.5 billion a year, but the 2008 crisis made things worse. Trade turnover fell by almost $1 billion. Among more than 60 trading partner countries, the leading commercial partners are Russia and Germany (39% and 21.5% respectively). The US remains another partner, although it is of much lesser importance.

The main problem of foreign trade is the high trade deficit. Imports are growing faster than exports by several times. The desire to change the situation is one of the main favorable options for the economic strengthening of the country.

External debt

The newest era is characterized by a sharp increase in Armenia's external public debt. For 15 years, from 1995 to 2010, it grew by about 10 times, up to 3495 million dollars and is 44% of GDP. The narrow export base and the constant need for additional financing make it necessary to constantly increase external debt. The fixed costs of paying the debt are an additional burden on the budget.

The social cost of Armenia's development

The social cost of development appears to be quite significant. In the first years of independence, most people found themselves in a difficult situation. Only at this time due todifficult life and lack of opportunities, about 700-750 thousand people, or a fifth of the population, left Armenia.

By the mid-2010s. average payments reach 270 dollars per person, pensions - 80 dollars. 34% of the population have a monthly income of less than $85. Modern Armenia is characterized by a divided society, where at one extreme there is a poor majority, and at the other – an oligarchic minority.

Due to the presence of a large number of problems, the population of Armenia is declining, which is clearly seen in the graph below.

Armenia's economy in subsequent years

The future of the Armenian economy is quite uncertain due to an excessively significant number of diverse realities.

A major obstacle to the economic strengthening of Armenia is its isolation from the outside world, it is due to great dangers and increasing cargo losses. The Armenian-Iranian cooperation in the field of cargo routes and energy is of great importance. Together with Iran, an abbreviated route is being built linking Iran with Georgian ports. The gas pipeline and oil product pipeline between the two countries are being launched.

Strengthening of the Armenian economy is hindered by the constant increase in the foreign trade deficit. To gradually reduce the trade deficit, it is necessary to determine the rise of economic policy aimed at accelerating industrial exports and import substitution, as well as the direction of agricultural policy to improve agricultural performance.

It is necessary to carry out activities related to internal sources of accelerating the economy, to establish agricultural production, to rely on environmental and alternative energy sources. All directions of the development of the Armenian economy must develop dynamically, otherwise the country will fall into decay.