Department of State: Armenia’s investment environment improves, but there are still problems

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YEREVAN, September 12, / ARKA/. The US Department of State has published an extensive 2020 Investment Climate Statements. In the section devoted to Armenia, the Statement says after a dramatic change of government in April/May 2018, major sectors of Armenia’s economy have ostensibly become more open to competition.

Large businesses backed by oligarchic interests are notionally less able to draw on government support to prop up their market positions. An anti-corruption campaign was launched after the 2018 change of government, and a series of high-profile cases have resulted as part of efforts to eliminate systemic corruption.

These developments serve to improve Armenia’s investment climate and competitive environment, though the fight against corruption needs to be institutionalized in the long term, especially in critical areas such as the judiciary, tax and customs operations, and health, education, military, and law enforcement sectors. Foreign investors are still concerned about the rule of law and equal treatment. U.S companies have also reported that the investment climate is tainted by a failure to enforce intellectual property rights.

There have been concerns regarding the lack of an independent and strong judiciary, which undermines the government’s assurances of equal treatment and transparency and reduces access to effective recourse in instances of investment or commercial disputes.

Representatives of U.S. entities have raised concerns about the quality of stakeholder consultation by the government with the private sector and government responsiveness in addressing concerns among the business community. The Armenian National Interests Fund and Investment Support Center are responsible for attracting and facilitating inward foreign direct investment.

It also says that Armenia has traditionally fared well in the World Bank’s Ease of Doing Business report. The government has announced its commitment to addressing deficiencies that prevent Armenia from obtaining a higher ranking. It says Armenia has achieved respectable rankings on some global indices measuring the country’s business climate. Armenia’s investment and trade policy is relatively open; foreign companies are entitled by law to the same treatment as Armenian companies.

Armenia has strong human capital and a well-educated population, particularly in the science, technology, engineering, and mathematics fields, leading to significant investment in the high-tech and information technology sectors. Many international companies have established branches or subsidiaries in Armenia to take advantage of the country’s pool of qualified specialists and position within the Eurasian Economic Union (EAEU). However, many businesses have identified challenges with Armenia’s investment climate in terms of the country’s small market (with a population of less than three million), relative geographic isolation due to closed borders with Turkey and Azerbaijan, per capita gross national income of $4,230, and concerns related to weaknesses in the rule of law.

It also says that corruption remains a significant obstacle to U.S. investment in Armenia, particularly as it relates to critical areas such as the justice system and concerns related to the rule of law, enforcement of existing legislation and regulations, and equal treatment. Investors claim that the health, education, military, corrections, and law enforcement sectors lack transparency in procurement and have in the past used selective enforcement to elicit bribes. Judges presiding over civil matters are still widely perceived by the public to be corrupt and under the influence of former authorities. Although bribery is illegal in Armenia, the government does not actively encourage private companies to establish internal codes of conduct.

Several multinational companies, select local companies, and foreign and local companies working with international financial institutions have implemented corporate governance mechanisms to tackle corruption internally. However, such corporate governance principles are not widely implemented among local companies.

According to Transparency International’s 2019 Corruption Perceptions Index, Armenia received a score of 42 out of 100, ranking it 77th among 180 countries. This reflects an improvement by 28 places over 2018.

Armenia’s ability to counter, deter, and prosecute corruption is noted to be hindered by the lack of robust enforcement of official disclosure laws meant to prevent corrupt officials from entering and retaining positions of authority and influence. The objective and systematic scrutiny of declarations by government officials has historically been lacking due to dysfunction within the Commission on Ethics of High-Ranking Officials and the delayed establishment of the Corruption Prevention Commission, which inherited this responsibility. According to international evaluations, Armenian authorities have limited capacities to investigate money laundering and bring such cases to prosecution.

It also says that Armenia became a member of the EAEU in January 2015, together with Belarus, Kazakhstan, Kyrgyzstan, and Russia. Armenia also entered into a Comprehensive and Enhanced Partnership Agreement (CEPA) with the European Union (EU) in November 2017. While CEPA will not affect customs or tax rates, it will, over time, align Armenia’s regulatory system and standards with those of the EU as much as possible in the context of Armenia’s EAEU obligations.
There is no free trade agreement between the United States and Armenia, through Armenian exports to the United States may be eligible for preferential treatment under the Generalized System of Preferences program.

The Armenian government nominally uses transparent policies and laws to foster competition. Some report that Armenia’s new government has pursued a more consistent execution of these laws and policies in an effort to improve market competition and remove informal barriers to market entry, especially for small- and medium-sized enterprises.
Armenia’s legislation on the protection of competition has been improved with clear definitions and newly introduced concepts on issues such as price manipulation, imposition of fines as a percentage of revenue versus fixed amounts, and penalties for state officials.

However, companies regard the efforts of the State Commission for the Protection of Economic Competition (SCPEC) alone as insufficient to ensure a level playing field. They indicate that improvements in other state institutions and authorities that support competition, like the courts, tax and customs, public procurement, and law enforcement, are necessary.

Numerous studies observe a continuing lack of contestability in local markets, many of which are dominated by a few incumbents. Banking supervision is relatively well developed and largely consistent with the Basel Core Principles.
The Central Bank of Armenia is the primary regulator of the financial sector and exercises oversight over banking, securities, insurance, and pensions. Armenia has adopted IFRS as the accounting standard for enterprises. Data on Armenia’s public finances and debt obligations are broadly transparent, and the Ministry of Finance publishes periodic reports that are available online. -0-

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