Foreign direct investment (FDI) in Armenia

FDI in Figures

According to UNCTAD’s World Investment Report 2022, FDI inflows to Armenia stood at USD 379 million in 2021, above the levels recorded before the pandemic. In the same year, the total stock of FDI was estimated at USD 5.6 billion, around 40.4% of the country’s GDP. Russia, Greece, Cyprus and Germany are the four major investors in Armenia, although significant investments are also made by the members of the Armenian diaspora (nearly 6 million people). The main FDI sectors include energy, telecommunications, metallurgy, hotel services and air transportation. According to data from the Ministry of the Economy, in the first nine months of 2022, FDI inflows grew significantly to about USD 700 million. In the first half of 2022, foreign investors announced a record 14 FDI projects in Armenia, which represents a seven-fold increase from the two projects recorded over the same period of 2019, according to fDi Markets. Furthermore, following the conflict in Ukraine, some of the multinationals with operations in Russia have moved their offices to Armenia, while an influx of Russian émigrés to the country has brought in new qualified workforce.

Armenia has made great progress towards the liberalisation of its economy. According to the World Bank, Armenia ranks first among CIS (Commonwealth of Independent States) countries in terms of FDI appeal. The Government has recently introduced conditions and laws favourable to foreign investment and, because of its economic dynamism, the country has earned the nickname 'The Caucasian Tiger'. These measures include free economic zones for high-tech industries that provide companies with preferential treatment on corporate profit tax, VAT, property tax, and customs duties (UNCTAD). Armenia has strong human capital and a well-educated workforce. It does not impose restrictions on foreign control and rights to private ownership and establishment (except for the media and commercial aviation sectors), and business registration procedures are fast. FDI is also promoted through the EU-Armenia Comprehensive and Enhanced Partnership Agreement. However, the country remains strongly dependent on the economic health of the Russian and EU economies for FDI, it has a small domestic market and corruption is still widespread. The country ranks 80th out of 132 in the 2022 Global Innovation Index and 63rd out of 180 in the Corruption Perception Index.

What to consider if you invest in Armenia

Strong Points

The attractiveness of the country is linked to its sustained economic growth over the last ten years and a series of reforms. We can also mention the following elements:

• Political stability
• Its geographical position, allowing access to the former Soviet republics
• Good integration into the world economic order: regional (a member state of the European Union and Eurasian Economic Union) and intercontinental
• A skilled and relatively inexpensive labour force
• A developing economy with sectors requiring foreign investment (such as telecommunications)
• Controlled inflation at a low level
• A desire to normalise relations with Turkey, suggesting a possible opening of the border
• A safe and advanced financial and banking sector
• Significant mineral resources (molybdenum, copper, gold)

Weak Points

The main obstacles to Armenia's economic development are:

• A small domestic market
• High transport costs (all goods must transit through Georgia because of the embargo imposed by Turkey and Azerbaijan)
• High risk of nepotism and interferences at the State authority level
• Strong dependence on the economic situation in Germany and Russia
• High public debt slowing down necessary investments, particularly in infrastructure
• Risk related to natural disasters (earthquakes)
• The poverty of the population is also a negative factor, especially in times of crisis, because the social climate and domestic consumption can be undermined.
• High external debt (USD 11.9 billion in 2019 - World Bank, latest data available)

Government Measures to Motivate or Restrict FDI

The Armenian government is conscious of the need to create a more inviting business environment and has made targeted efforts to encourage foreign investment, required for the development of the economy. The law on the reduction of poverty and corruption, as well as other reforms specifically linked to the business environment, have come into force. In particular, we can name:

• Equal treatment for foreigners
• No limitation on foreign ownership
• Freedom to repatriate profits
• Limited state intervention and deregulation

The high-tech and information and communication technologies sectors have attracted foreign investment in recent years. Many international companies have established offices in Armenia to recruit qualified human resources and experts in these disciplines. Finally, in 2015, the government created the Development Foundation of Armenia to encourage foreign investment, promote tourism and develop exports, and which has been functioning under the new name Doing Business Armenia.