Armenia at the beginning of the twenty-first century was a small republic of Transcaucasia, located in the interfluve of the Kura and Araks. 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
The features of the Armenian economy in recent decades depend on several factors:
- The Soviet economy, with its weaknesses and strengths, continues to have a great influence. In 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 is still very difficult to affect the country's welfare.
- Ambiguous development in recent times (since 1992) has failed to make the economy stable and highly developed.
- Geographical component. Most of Armenia is mountains. There is relatively little agricultural land in the country, and the food issue remains quite acute.
- Difficult geopolitical situation. Armenia does not have free access to the sea, although it is located between the Black and Caspian Seas. Neighboring countries are either hostile (Azerbaijan, Turkey), or there are no good transport arteries to them (Iran). Because of this, export-import relations are difficult and may even be interrupted.
Economic problems
Various reasons lead to the fact that the modern economy of Armenia (a development feature) is poorly provided with its own raw materials, only 20%, with the predominance of industries in the industry that process raw materials (the legacy of the Soviet past). Despite the presence of various ores, marble, rock salt, the country cannot supply its industry and is mainly based on imported raw materials. There is a shortage of food resources due to insufficient land, it has to be covered by imports, selling industry products in return. The geopolitical position leads to complete dependence on external freight ties, which are expressed in the form of 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), a significant development of the economy is taking place - almost fifteen times (up to $ 10 billion). However, such impressive numbers 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 amounted to more than one billion dollars, which amounted to half the state budget. Moreover, almost all the money came from the Russian Federation.
Foreign investments in the Armenian economy by 2009 amounted to $ 4703.2 million. 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 specific gravity of the directions of the Armenian economy. In the post-Soviet era, the industrial share in GDP decreased from 44% to 15%, and the share of the service sector increased from 25% to 42% (the general dynamics of GDP is lower on 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 the receipt of independence was in a phase of 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, and for most types of products it has been interrupted altogether. The total number of workers and engineers decreased by five times, and the use of electricity in industrial sectors by almost three times.
Unregulated adaptation to difficult circumstances led to painful structural changes and simplification of the sectoral structure of industry. The share of the major engineering and light industries in the past 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
Conducted 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 formed 340 thousand small private agricultural holdings, mainly with land plots of 1.4 hectares. Significant damage was caused to the production structure of agriculture.
Due to the narrow possibilities of patchwork villages by the XXI century. almost 40% of cultural soils were excluded from the field of agricultural work, and the areas of ordinary cultures for Armenia were greatly reduced. Irrigation agriculture decreased by almost 50%. The use of mineral fertilizers and pesticides decreased several times, crop rotation is not used. Recently, as a result of the sale, large bands of land have formed, which completely fall out of circulation, and for the next owners they have turned into commercial goods.
Expensive loans, weak state aid reduce the effectiveness of the agricultural sector, which is becoming more and more a relic of subsistence farming. Given Armenia’s poor domestic supplies of some products and a large import from abroad, increasing the productivity of the agricultural sector will be the main task of the near future.
International trade
This sector of the economy is an important part of the Armenian economy. In the early years of the twenty-first century, trade amounted to almost $ 5.5 billion per year, but the 2008 crisis significantly worsened the situation. Turnover fell by nearly $ 1 billion. Among more than 60 trading partner countries, the leading commercial associates are Russia and Germany (39% and 21.5% each respectively). The United States remains another partner, although they are of much less importance.
The main problem of foreign trade is the high trade deficit. Imports are growing at a faster pace than exports 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 latest era is characterized by a sharp increase in the external public debt of Armenia. Over 15 years, from 1995 to 2010, it grew by about 10 times, up to $ 3,495 million and makes up 44% of GDP. A narrow export base and the constant need for additional financing make us constantly increase external debt. The fixed cost of paying the debt is an additional burden on the budget.
The social value of the development of Armenia
The social value of development seems very significant. In the early years of independence, most people found themselves in a difficult situation. Only at this time, due to a difficult 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 per person, pensions - $ 80. 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 large number of problems, the population of Armenia is declining, which is clearly seen in the graph below.
Armenian economy in subsequent years
The future of the Armenian economy is rather 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 caused by great dangers and increasing cargo losses. The Armenian-Iranian cooperation in the field of freight routes and energy is of great importance. Along with Iran, a shorter route is being built linking Iran with Georgian ports. A gas pipeline and an oil product pipeline are launched between the two countries.
The strengthening of the Armenian economy is hindered by the constant increase in the foreign trade deficit. In order 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 productivity.
It is necessary to carry out activities relating to domestic sources of accelerating the economy, to establish the production of agricultural products, to rely on environmental and alternative opportunities for energy. All directions of development of the Armenian economy should develop dynamically, otherwise the country will decline.