Armenia

GDP (US$ Billion)

11.55 (2017)

World Ranking 132/192

GDP Per Capita (US$)

3,861 (2017)

World Ranking 119/192

Economic Structure

(in terms of GDP composition, 2017)

Services
(51.32%)
Industry
(25.29%)
Agriculture
(14.94%)

External Trade (% of GDP)

75.7 (2016)

Currency (Period Average)

Armenian Dram

482.72 per US$ (2017)

Political System

Unitary multiparty republic

Overview

Armenia's economy has experienced a profound transformation since independence. Continued growth, ambitious reforms, as well as inflows of capital and remittances have created a market-oriented environment. However, the global financial crisis of 2007-2008 has had a considerable impact on its economy. Armenia's future economic development is promising; the Armenia-European Union (EU) Comprehensive and Enhanced Partnership Agreement has created a significant increase in trade flows, having opened the door to trade with EU member states. The successful December-2018 transition of government is likely to result in several political and economic reforms, boosting investment and consumption.

Sources: World Bank, Fitch Solutions

 

Major Economic/Political Events and Upcoming Elections

April 2018
President Serzh Sargsyan of the ruling Republican Party briefly assumed the premiership, which outranks the presidency in terms of political power, after Armenia became a parliamentary republic in March 2018. He later resigned.

May 2018
Nikol Pashinyan, founder and member of the Civil Contract Party and leader of the Way Out alliance, was elected prime minister by a vote in parliament.

October 2018
The Armenian Cabinet approved ratification of an agreement between Armenia and Japan on liberalising, encouraging and protecting investments. Minister of Economic Development and Investments Tigran Khachatryan said that the agreement would boost the development of bilateral economic relations.

November 2018
Ural Airlines announced that it is restoring direct flights between Volgograd and Yerevan after an absence of three years.

In a meeting between Mainland China's ambassador to Armenia and Armenia's Minister of Transportation, Communication and Information, the possibility of direct air transportation between the two countries was discussed, as well as the creation of a business arena.

December 2018
After Prime Minister Pashinyan dissolved parliament, snap elections took place on December 9, 2018. Pashinyan won a convincing victory.

The Armenian Tourism Federation announced that the number of tourists who visited Armenia in the first nine months of 2018 had increased by nearly 9% compared with 2017.

December 2019 
A United Arab Emirates energy firm, Masdar, signed a joint development agreement with the Armenian National Interests Fund (ANIF) to develop 400MW of solar power projects in Armenia. The projects will require an investment between USD300 million and USD320 million. Under the deal, a 200MW solar photovoltaic plant will initially be installed in western Armenia. The government of Armenia aims to have a 30% renewable share in its energy mix by 2025.

Sources: BBC Country Profile – Timeline, Fitch Solutions, Al Jazeera, Select Armenia, ARKA News Agency, Reuters, ANIF, ArmenPress

Major Economic Indicators
Graph: Armenia real GDP and inflation
 
Graph: Armenia real GDP and inflation
 
Graph: Armenia GDP by sector (2018)
 
Graph: Armenia GDP by sector (2018)
 
Graph: Armenia unemployment rate
 
Graph: Armenia unemployment rate
 
Graph: Armenia current account balance
 
Graph: Armenia current account balance
 

e = estimate, f = forecast
Sources: IMF, World Bank, Fitch Solutions
Date last reviewed: December 9, 2019

External Trade

Merchandise Trade

Graph: Armenia merchandise trade
 
Graph: Armenia merchandise trade
 
 

Source: WTO
Date last reviewed: December 9, 2019

Graph: Armenia major export commodities (2018)
 
Graph: Armenia major export commodities (2018)
 
Graph: Armenia major export markets (2018)
 
Graph: Armenia major export markets (2018)
 
Graph: Armenia major import commodities (2018)
 
Graph: Armenia major import commodities (2018)
 
Graph: Armenia major import markets (2018)
 
Graph: Armenia major import markets (2018)
 

Sources: Trade Map, Fitch Solutions
Date last reviewed: December 9, 2019

 

Trade in Services

Graph: Armenia trade in services
 
Graph: Armenia trade in services
 

 

Source: WTO
Date last reviewed: December 9, 2019

Trade Policies
  • Armenia joined the World Trade Organization (WTO) in February 2003. It has also been a member of the Eurasian Economic Union (EAEU) since January 2, 2015, which requires the Armenian Customs Code to be in line with WTO requirements.

  • As a member of the EAEU, Armenia is forced to apply stricter standardisation, sanitary, and phyto-sanitary requirements in line with Russia's requirements. As of January 2018, companies have to comply with EAEU technical regulations. For some products, such as wheeled vehicles, the new requirements will go into effect in 2022.

  • Improper implementation of the Customs Code remains a barrier to trade. There is still a lack of clarity in Armenia in many areas, such as import licensing, customs procedures and intellectual property rights enforcement, which now fall under the jurisdiction of the EAEU. Due to this, international firms may face several tariff and non-tariff trade barriers, including reference pricing on customs duties when exporting to Armenia. Another potential problem is the EAEU's complex system of standardisation. International businesses are encouraged to obtain appropriate legal advice or assistance from experienced distributors or consultants on all aspects of EAEU requirements.

  • Armenia has made trading easier by introducing self-declaration desks at customs houses and warehouses, investing in new equipment to improve border operations and introducing a risk-management system. The country has also reduced the time and cost for documentary and border compliance for trade with Russia by joining the EAEU. More recently, the country has also made exporting faster by allowing online submission of customs declarations. Almost all imports are subject to 20% value-added tax (VAT), while tobacco products, fuels and alcoholic beverages are also subject to excise duties. Exported goods are zero-rated for VAT purposes and are exempt from excise tax.

  • Some import restrictions exist for health, security and environmental reasons. Authorisation is required for pharmaceutical products and medicines, phyto-protection chemicals, weapons, components used in the production of weapons, explosives, nuclear materials, poison, drugs, strong psychotropic substances, devices for use in opium smoking, and pornographic materials.

  • In June 2017, the members of the EAEU suspended import tariffs on lead ores from September 2017 until May 2019.

  • The EAEU reduced import duties on certain types of paper and paperboard from March 2017.

  • Armenia's average tariff rate is 2.4%, the fourth lowest in the Caucasus and Central Asia region (out of eight countries). The common external tariff for the EAEU largely corresponds with Russian tariff rates.

  • The Customs Code facilitates export transactions with much less documentation than for customs clearance of imports, and most exporters report minor issues in the customs houses.

Sources: WTO – Trade Policy Review, Fitch Solutions, Ministry of Economy and Investments of the Republic of Armenia

Trade Agreements

Trade Updates

  • In April 2018, Armenia's National Assembly voted unanimously to ratify the Armenia-EU Comprehensive and Enhanced Partnership Agreement. Although the new deal aims to deepen ties between Brussels and Yerevan, it will replace the 'Partnership and Cooperation Agreement', which was abandoned in 2013.

  • Armenia is a member of the EAEU. The EAEU is currently in free trade talks with a number of countries, including Egypt, Iran, India, Turkey and Singapore. The EAEU signed its first free trade agreement (FTA) with Vietnam in 2016.

 

Multinational Trade Agreements

Active

  1. The EAEU: The EAEU is a Plurilateral Customs Union and Economic Integration Agreement for trade in goods and services, which entered into force in January 2015. Its member states are Armenia (which joined on January 2, 2015), Belarus, Kazakhstan, Kyrgyzstan and Russia. The Agreement covers over 180 million people and a combined GDP of about USD4 trillion. Between 2016 and 2017, intra-EAEU trade grew by over 30%. The implementation period ends in 2025. Russia is Armenia’s largest single trade partner, purchasing 26.9% of exports and supplying 26.2% of imports in 2018.

  2. Armenia-Kazakhstan FTA: The FTA entered into force on December 25, 2001 and covers trade in goods. As of 2018, Kazakhstan was Armenia's 20th-largest export partner, where Armenia exported 0.4% of its total exports to Kazakhstan, with the majority of products being beverages, spirits and vinegar.

  3. Armenia-Turkmenistan FTA: The FTA entered into force on July 7, 1996 and covers trade in goods. As of 2018, Turkmenistan was Armenia's 29th-largest export partner, where Armenia exported 0.1% of its total exports to Turkmenistan, with the majority of products being natural or cultured pearls, precious or semi-precious stones and precious metals.

  4. Armenia-Moldova FTA: The FTA entered into force on December 21, 1995 and covers trade in goods. As of 2018, Moldova was Armenia's 37th-largest export partner, with pharmaceutical products being the majority of products exported from Armenia to Moldova.

  5. Armenia-Ukraine FTA: The FTA entered into force on December 18, 1996, and covers trade in goods. As of 2018, Ukraine was Armenia's seventh-largest import partner, where Armenia imported 3.2% of its total imports from the Ukraine, with the majority of products being tobacco and manufactured tobacco substitutes.

Signed But Not Yet In Effect

  1. Mainland China-EAEU FTA: A non-preferential agreement on trade and economic cooperation was signed between Mainland China and the EAEU in May 2018 within the framework of the Astana Economic Forum. Emphasis has been placed on parties' cooperation in the sphere of e-commerce, as the digital economy era will create favourable conditions for future trade between Mainland China and the EAEU members. The FTA will make it easier to improve market access for goods between the EAEU and Mainland China in the future. In 2018, Mainland China was Armenia’s seventh-largest export market, accounting for 4.5% of total exports and the country’s second-largest import partner, supplying 13.8% of total imports.

  2. Armenia-EU Comprehensive and Enhanced Partnership Agreement (CEPA): In April 2018, Armenia ratified the CEPA, which has been provisionally applied since June 2018, and in July 2018 the European Parliament voted overwhelmingly for its ratification. CEPA aims to strengthen cooperation between Armenia and the EU on matters of trade, politics and other areas of mutual interest. The EU is Armenia’s largest trading partner. CEPA is expected to become fully effective by mid-2019.

Sources: WTO Regional Trade Agreements database, European Commission, Silk Road Briefing

Investment Policy

Foreign Direct Investment

Graph: Armenia FDI stock
 
Graph: Armenia FDI stock
 
Graph: Armenia FDI flow
 
Graph: Armenia FDI flow
 

Source: UNCTAD
Date last reviewed: December 9, 2019

 

Foreign Direct Investment Policy

  1. The Development Foundation of Armenia (DFA) is Armenia's national authority for investment, export and tourism promotion. The DFA provides services and information to foreign investors on business climate, investment opportunities and legislation, support for investors' visits, as well as liaison with governmental institutions.

  2. Armenia officially welcomes foreign investment, and investment and trade policy is relatively open. Foreign companies are assured of a legal regime that entitles them to the same treatment under the law as Armenian companies. A stabilisation clause guarantees against changes of legislation on investments for five years. There are no restrictions on remittances or on any sector or geographic location. Foreign citizens can have long-term lease contracts, and companies registered by a foreigner in Armenia can buy land.

  3. The high-tech and information technology sectors, in particular, have attracted foreign investment; many foreign firms have established branches or subsidiaries in Armenia to take advantage of the country's pool of qualified specialists.

  4. Some barriers exist that prevent a level playing field for all investors. Foreign entities must frequently contend with non-transparent tax and customs procedures that increase costs, and there are frequent applications of reference prices and misclassification of imported goods during customs clearance.

  5. Armenia has 38 bilateral investment treaties (BITs) in force, with three others signed but not yet in force. On May 7, 2015, a trade and investment framework agreement was signed with the United States. Armenia also has 46 international treaties on double taxation and the prevention of fiscal evasion.

Sources: WTO – Trade Policy Review, ITA, US Department of Commerce, Investment Policy Hub UNCTAD

 

Free Trade Zones and Investment Incentives

Free Trade Zone/Incentive Programme Main Incentives Available
Armenia currently has three Free Economic Zones (FEZs): Alliance and Meridian in Yerevan and Meghri at the border with Iran. A fourth FEZ was approved in late August 2018, to be established in Hrazdan and organised by ECOS company, with a focus on innovative technology ventures, including products based on blockchain. Armenia adopted a Law on FEZ on May 25, 2011, and developed several important regulations at the end of 2011 to attract foreign investments in FEZs: exemptions from VAT, corporate tax, customs duties and property tax.

Alliance FEZ opened in August 2013 and currently has nine businesses using its facilities. The focus of Alliance FEZ is on high-tech industries such as information and communication technologies, electronics, pharmaceuticals and biotechnology, architecture and engineering, industrial design and alternative energy. In 2014, the government expanded operations in the Alliance FEZ to include industrial production as long as there is no similar production already occurring in Armenia.

Meridian FEZ was launched in March 2015. The focus is on jewellery production, watchmaking and diamond-cutting, with six businesses operating in it.

Meghri FEZ was inaugurated in December 2017 in the southernmost city of Meghri on Armenia's border with Iran. The border location is intended to intensify trade relations with Iran, potentially providing an economic bridge to the EAEU and EU. Companies operating in the Meghri FEZ will be exempt from corporation tax, VAT, excise tax and customs fees, paying only income tax.

Sources: US Department of Commerce, Fitch Solutions, Armenia's Ministry of Economic Development and Investments, ARKA News Agency

Taxation – 2019
  • Value Added Tax: 20%
  • Corporate Income Tax: 20%

Source: Tax Service of the Republic of Armenia

 

Important Updates to Taxation Information

  • The new Tax Code of Armenia entered into force on January 1, 2018, consolidating all the separate tax laws into a single Tax Code alongside major changes in tax rates, policies and administration.

  • The most significant changes effective from January 1, 2018 include transfer pricing regulations entering into force; fixed and intangible assets being depreciated using the straight-line method (replacing previously applicable depreciation by pools); some expense deductibility limits being changed or removed; and the introduction of a definition for permanent establishment of a non-resident entity.

 

Business Taxes

Type of Tax Tax Rate and Base
Corporate Income Tax (CIT) Standard 20%
Resident company: Capital Gains Tax Capital gains are included in taxable income
Withholding Taxes The rate for non-residents (inidividuals) is 10% each on dividend income, royalties and interest, which may be reduced if a double taxation agreement exists.

Payments made to non-resident companies for other types of income are subject to a 20% withholding tax.
Social security contributions Pension fund contributions are mandatory for foreign and local residents born after January 1, 1974. Monthly gross income up to AMD500,000 results in 5% withheld by employers for pension purposes - with 2.5% payable by employers. A further AMD25,000 (maximum) is contributed by the state.

If the monthly gross income is more than AMD500,000, the employer withholds a contribution in the amount of the difference of 10% of the income and AMD25,000. The maximum amount of monthly social payment is capped at AMD25,000 by July 1, 2020.
VAT - Standard rate of 20%
- Exported goods and related services are zero-rated
- Advertising, consulting, marketing, design, engineering, legal, accounting, auditing, data processing and other related services provided to non-residents are zero-rated if the non-resident's place of business is outside Armenia.
- Various supplies, including most financial and education services, are VAT-exempt
Turnover Tax This tax is payable by commercial organisations and individuals (entrepreneurs) in place of VAT and/or CIT obligations (for SMEs). Rates vary according to acitivity: trading 5%, production 3.5%, newspaper sales 1.5%, rental income 10%, notary income 10%, organising a lottery 25%, 'other type of activities' 5%.
Property Tax - 0.3% (paid on cadastral value)
- Assessed and collected at the municipal level
- Applicable to buildings, motor vehicles and means of water transport
Land Tax - Assessed and collected at the municipal level
- Paid by landowners and the permanent users of state-owned land
- Land tax for agricultural land is calculated at 15% of the net income determined by cadastral evaluation.
- Non-agricultural land is taxed at a rate ranging 0.5-1.0% of the cadastral value of the land.

Source: Tax Service of the Republic of Armenia
Date last reviewed: December 9, 2019

Foreign Worker Requirements

Foreign Worker Permits

There are several work-related classes of visitor visas: V-5 for attending cultural, athletic, scientific or other events; V-6 for participating in humanitarian, charitable, technical assistance and similar programmes; V-7 for business, investment or work; and V-8 for crew members. These are not for the long term. Anyone needing to stay in Armenia for a longer period will need to obtain a residence permit: 1-year, 5-year and 10-year residence permits are available, and are only issued in Armenia. Armenia does not yet have a system of work permits. An employer will need to ensure that the employee has a proper residence permit. Investment, business ownership and work are all applicable circumstances for a residence permit.

 

Localisation Requirements

There are no performance requirements for foreign businesses in terms of mandating local employment. The processes for obtaining visas and residence or work permits are quite simple.

 

Visa/Travel Restrictions

Holders of all types of passports from 56 countries are not required to obtain a visa for entry to Armenia for up to 180 days a year. As of March 3, 2019, citizens of Hong Kong may visit Armenia without a visa for stays up to 180 days under the Belt and Road Initiative.

Sources: Ministry of Foreign Affairs of the Republic of Armenia, Government of Hong Kong, Fitch Solutions

Risks

Sovereign Credit Ratings

  Rating (Outlook) Rating Date
Moody's Ba3 (Stable) 27/08/2019
Standard & Poor's Not Rated N/A
Fitch Ratings BB- (Stable) 22/11/2019

Sources: Moody's, Standard & Poor's, Fitch Ratings

 

Competitiveness and Efficiency Indicators

  World Ranking
2018 2019 2020
Ease of Doing Business Index 47/190 41/190 47/190
Ease of Paying Taxes Index 87/190 82/190 52/190
Logistics Performance Index 92/160 N/A N/A
Corruption Perception Index 105/180 N/A N/A
IMD World Competitiveness N/A N/A N/A

Sources: World Bank, Transparency International

 

Fitch Solutions Risk Indices

  World Ranking
2017 2018 2019
Economic Risk Index Rank N/A 175/202 153/201
Short-Term Economic Risk Score 38.5 40.0

44.0

Long-Term Economic Risk Score 37.4 38.2 43.9
Political Risk Index Rank N/A 104/202 102/201
Short-Term Political Risk Score 52.7 47.7 59.0
Long-Term Political Risk Score 61.5 61.5 61.5
Operational Risk Index Rank N/A 71/201 69/201
Operational Risk Score 56.6 55.1 56.2

Source: Fitch Solutions
Date last reviewed: December 9, 2019

 

Fitch Solutions Risk Summary

ECONOMIC RISK

Economic growth accelerated to 7.9% year-on-year in the third quarter of 2019, marking the fastest expansion since the first quarter of 2018. Domestic activity rebounded strongly in the second half of 2019, largely supported by a rise in fixed investment. In addition, the external sector contributed positively to growth as exports of goods and services jumped in the third quarter of 2019, defying the weak global backdrop and logging the fastest expansion in nearly two years. Meanwhile, private consumption remained robust amid rising household incomes. On the supply side, the third quarter’s acceleration largely reflected swifter growth in the industrial and construction sectors compared to the previous quarter. Looking ahead, economic activity is expected to moderate in 2020; however, it should remain strong amid rising wages, relatively contained inflationary pressures and loose monetary policy. Downside risks include the large current account deficit, elevated levels of external debt and the risk of commodity price slumps. Armenia's long-term growth outlook remains reliant on Russian support and external demand, especially in light of Armenia's accession to the EAEU in 2015. EAEU membership will provide some benefit to Armenian exporters when Russian growth starts to accelerate on the back of higher oil prices.

OPERATIONAL RISK

According to the World Bank's Doing Business 2020 Armenia ranks 47th out of 190 countries, well above even some members of the EU, such as Bulgaria and Croatia. The country remains very competitive when it comes to starting a business, in terms of the number of procedures, time, cost and paid-in minimum capital requirement for a small- to medium-sized limited liability company to start up and formally operate in the largest business city.

Source: Fitch Solutions
Date last reviewed: November 14, 2019

 

Fitch Solutions Political and Economic Risk Indicies

Graph: Armenia short term political risk index
 
Graph: Armenia short term political risk index
 
Graph: Armenia long term political risk index
 
Graph: Armenia long term political risk index
 
Graph: Armenia short term economic risk index
 
Graph: Armenia short term economic risk index
 
Graph: Armenia long term economic risk index
 
Graph: Armenia long term economic risk index
 

100 = Lowest risk; 0 = Highest risk
Source: Fitch Solutions Political and Economic Risk Indices
Date last reviewed: May 2019

 

Fitch Solutions Operational Risk Index

  Operational Risk Labour Market Risk Trade and Investment Risk Logistics Risk Crime and Security Risk
Armenia Score 56.2 58.2 58.6 53.9 54.2
Caucasus and Central Asia Average 51.4 56.7 53.4 50.4 44.9
Caucasus and Central Asia Position (out of 8) 4 4 4 4 2
Emerging Europe Average 57.9 55.9 59.1 60.6 55.9
Emerging Europe Position (out of 31) 21 15 20 24 17
Global Average 49.7 50.3 49.8 49.3 49.2
Global Position (out of 201) 69 54 70 78 82

100 = Lowest risk; 0 = Highest risk
Source: Fitch Solutions Operational Risk Index

Graph: Armenia vs global and regional averages
 
Graph: Armenia vs global and regional averages
 
Country/Region Operational Risk Index Labour Market Risk Index Trade and Investment Risk Index Logistics Risk Index Crime and Security Risk Index
Georgia 62.4 64.1 71.4 55.9 58.3
Azerbaijan 60.8 61.1 62.5 66.4 53.2
Kazakhstan 59.3 70.2 58.9 56.9 51.5
Armenia 56.2 58.2 58.6 53.9 54.2
Kyrgyzstan 44.8 54.2 44.6 42.9 37.7
Tajikistan 44.3 53.8 39.1 41.2 43.2
Uzbekistan 44.3 53.3 53.1 39.1 31.7
Turkmenistan 38.6 38.7 39.3 47.1 29.4
Regional Averages 51.4 56.7 53.4 50.4 44.9
Emerging Markets Averages 46.9 48.5

47.4

45.8 45.9
Global Markets Averages 49.7 50.3 49.8 49.3 49.2

100 = Lowest risk; 0 = Highest risk
Source: Fitch Solutions Operational Risk Index
Date last reviewed: December 9, 2019

Hong Kong Connection

Hong Kong’s Trade with Armenia

Graph: Major export commodities to Armenia (2018)
 
Graph: Major export commodities to Armenia (2018)
 
Graph: Major import commodities from Armenia (2018)
 
Graph: Major import commodities from Armenia (2018)
 

Note: Graph shows the main Hong Kong exports to/imports from Armenia (by consignment)
Date last reviewed: December 9, 2019

Graph: Merchandise exports to Armenia
 
Graph: Merchandise exports to Armenia
 
Graph: Merchandise imports from Armenia
 
Graph: Merchandise imports from Armenia
 

Note: Graph shows Hong Kong exports to/imports from Armenia (by consignment)
Exchange Rate HK$/US$, average
7.75 (2014)
7.75 (2015)
7.76 (2016)
7.79 (2017)
7.83 (2018)
Sources: Hong Kong Trade Statistics, Census and Statistics Department, Fitch Solutions
Date last reviewed: December 9, 2019

  2018 Growth rate (%)
Number of Armenian residents visiting Hong Kong 560 0.5
Number of European residents visiting Hong Kong 1,961,448 1.7

Sources: Hong Kong Tourism Board, United Nations Department of Economic and Social Affairs – Population Division, Fitch Solutions
Date last reviewed: December 9, 2019

  2017 Growth rate (%)
Number of emerging European citizens residing in Hong Kong 89 1.1

Sources: Hong Kong Tourism Board, United Nations Department of Economic and Social Affairs – Population Division, Fitch Solutions
Date last reviewed: December 9, 2019

 

Commercial Presence in Hong Kong

  2018 Growth rate (%)
Number of Armenian companies in Hong Kong N/A
 
N/A
- Regional headquarters
- Regional offices
- Local offices

 

Treaties and Agreements between Hong Kong and Armenia

  • Armenia has a BIT with Mainland China that entered into force on March 18, 1995.
  • A double taxation agreement between Armenia and Mainland China was signed on May 5, 1996 and has been in force since January 1, 1997.

Source: UNCTAD

 

Visa Requirements for Hong Kong Residents

Starting from March 3, 2019, HKSAR passport holders are not required to provide a visa when visiting the Republic of Armenia for a period up to 180 days. For a stay extending this period a residence permit card needs to be acquired.

Sources: Visa on Demand
Date last reviewed: December 9, 2019

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