As the Turkish economy continues to grow at an impressive rate, Turkey’s tiny neighbor, Armenia, is also starting to make a comeback from the global financial crisis.
With two closed borders and excluded from regional energy and transport projects because of its continuing dispute with Azerbaijan over the Azerbaijani province of Nagorno-Karabakh, this is no small feat. However, as I have pointed out in previous columns Armenia is a nation of fighters and survivors; therefore, efforts from within the country itself as well as from Armenia’s global diaspora have helped get the Armenian economy back on track.
Armenia has passed through some pretty dark days as the crisis struck a hard blow. After several “glorious” years of double-digit economic growth, Armenia was faced with economic meltdown with gross domestic product (GDP) contracting by around 15 percent in 2009, despite large loans from multinational institutions. Unemployment soared, which pushed up Armenia’s official poverty rate from 25 percent to about 29 percent. Sharp declines in the previously very profitable construction sector and workers’ remittances, particularly from Russia, were also significant factors for such a sharp downturn.
Only one-third of Armenians live in the homeland, and private remittances made up around 15 percent of Armenian GDP. The remittances had not only benefited individual families but also large-scale projects in the IT sector and elsewhere. Frankly, the crisis would have been even worse if it were not for the large-scale anti-crisis loans obtained by Yerevan from Moscow, the International Monetary Fund (IMF), the World Bank and other international lending institutions. These have certainly saved Yerevan from total economic collapse.
Nowadays Armenia’s economy is beginning to make a faster recovery than previously expected even with the fall in agricultural production during the summer months. Because of bad weather conditions the usually lucrative apricot sector was particularly hard hit. Official figures now show that the economy grew by some 7 percent in the first half of 2010, surpassing even the most optimistic government expectations, with growth for yearend expected to be around 9 percent. Of course a significant factor in this impressive pickup was the renewed growth in cash transfers from Armenian migrant workers abroad. According to figures from the Armenian Central Bank the total amount of non-commercial remittances rose by over 10 percent -- to some $490 million for the first half of 2010. This was mainly from Russia, which is the main destination of Armenian migrant workers abroad but also from the US, which contributed 7 percent. This led to the government declaring that Armenia’s economic crisis was officially over -- perhaps a little is too over-optimistically. Not bad for a nation, which according to some other leadership, is moving ever closer to economic collapse; where no one wants to live and where you have to queue up for basic staples such as bread and milk.
However, while Armenia’s economy may have stabilized for the present, in the long run Armenia’s economic situation is always going to remain precarious because of its ongoing conflict with Azerbaijan and its closed border with Turkey. With Armenia’s borders with both Azerbaijan and Turkey closed since the early 1990s this has resulted in making Armenia highly dependent on Moscow and remittances. Nowadays most key Armenian infrastructure is either owned or managed by the Russians, particularly in the energy sector. The electricity distribution system was privatized in 2002 and bought by Russia’s RAO-UES in 2005. This is a very dangerous situation to be in, and Armenia desperately needs to reduce its reliance on the Kremlin.
Efforts to normalize relations with Turkey including reopening the border ran aground earlier this year with the failure of either Turkey or Armenia to ratify protocols which were agreed earlier in the year. While not specifically mentioned in the protocols, Turkey, under the pressure of Azerbaijan, made Armenian withdrawal from the Azerbaijani territories that it currently occupies a precondition for ratification. Azerbaijan strongly believes that the opening of the border without any progress on the conflict would only result in Armenia adopting an even more hard-line position.
Nevertheless, there may be an opportunity to reheat the rapprochement after Turkey’s general elections in June 2011. In the meantime Armenia is looking in other directions to diversify and improve its economic situation. With an upgrading of Armenia-EU relations through the European Neighborhood Policy and the Eastern Partnership, Yerevan is developing increasingly closer ties with Brussels and more diplomatic traffic is taking place. Armenia is now negotiating an Association Agreement with the EU that will include a Deep Free Trade Agreement. Once completed it will offer Armenia a bigger stake in the EU market. Of course this is not comparable to having its Turkey and Azerbaijani borders reopened. With the vast investments which one could expect from Turkey, including cross-border trade (Turkey would also get a direct doorway into Central Asia and beyond), as well as Armenia being able to take part in the regional projects, Armenia, Turkey and the whole South Caucasus region would benefit.
Amanda Paul
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