Armenia’s economic renaissance

Published: Saturday January 19, 2008

The investment climate in Armenia received another major accolade this week in the form of the Index of Economic Freedom prepared by the Heritage Foundation and the Wall Street Journal. Armenia's economy is the 28th freest in the world, up from 32nd last year, according to the index. It is the 15th freest in Europe, and the freest among the members of the Commonwealth of Independent States.

The index measures the extent of government involvement in each country's economy.

Taken alone, this report confirms that Armenia has taken big strides - bigger strides than any other CIS member - to overcome the Soviet Union's legacy of the command economy.

To open a business in Armenia, an investor has to jump through fewer bureaucratic hoops than most other countries require. This is a World Bank finding that the Heritage Foundation report incorporates.

Once the business is open, the tax burden is low. And there are tax incentives for foreign investors. Customs tariffs are low as well. There is a well-regulated private banking system. There is no requirement to keep a portion of the firm's profits in Armenia.

Results

Taken together with Armenia's economic performance in recent years, the picture is nothing short of breathtaking.

t was only a few years ago that Armenian newspapers had headlines like "No Heat, No Water" and had to report on the threat of famine.

With independence in 1991, Soviet subsidies and guaranteed domestic markets in the Soviet Union disappeared. A blockade imposed by Turkey and Azerbaijan cut Armenia off from international transport routes, energy supplies, and markets. Armenia had experienced a devastating earthquake in 1988, and it had closed its nuclear power plant 1989. Add inexperience and corruption to the mix, and you have a recipe for total collapse.

But Armenia had a few things going for it as well: a population that had the will not only to survive but also to prosper; a diaspora that had not only affection but also a deep-seated commitment to the Armenia, and was willing to offer its political clout, financial assistance, expertise, and more to the renascent homeland; generations of bright and motivated Armenians who looked around the world for lessons and ideas and applied them creatively to the situation in Armenia; and timely help from the United States, other governments, and multilateral institutions; to name a few.

And so today Armenia has completed its seventh year of double-digit economic growth. The World Bank can call Armenia the "Caucasian Tiger," in an allusion to the fast-growing economies of Southeast Asia.

Next steps

The report issued by the Heritage Foundation and the Wall Street Journal does point to certain areas in which Armenia increase its economic freedoms. In large part, the advice is well-taken.

One area in which Armenia must improve is judicial independence. Everywhere in the world government agencies make mistakes, companies violate contracts, employees violate labor laws, and crimes are committed. Individuals and businesses in Armenia should have reason to believe that in court they will receive a fair and impartial hearing based on the law and the facts - and not the wealth or connections of the parties.

Another area in which Armenia must improve is corruption. Everyone in government and opposition alike is aware of the problem. Now they must take visible steps to show that corrupt practices will not be tolerated. An independent judiciary can help in this matter, too, of course.
Of course, Armenia need not accept all of the report's advice. Despite the Heritage Foundation's heavy faith in free-market mechanisms, social security, protection of workers' rights, and government regulation of certain areas of the economy are good things. For Armenia, drawing lessons from the experience of countries like Ireland, which rank at the top of the Index of Economic Freedom, is a good idea.

Even as Armenia sets forth to build on its economic achievements, however, it remains a great place to invest. It welcomes American and Armenian-American investors with open arms. Let us embrace a renascent Armenia.