Armenian Economy - Main Financial and Economic Data

Armenia

Armenian Economy

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Armenia has a successful record of transition creating a favorable macroeconomic climate based on a market economy. There has been consistent growth since 1994. The country has successfully implemented a comprehensive stabilization and structural reform program. According to the www.heritage.org/index Armenia ranks as the most economically free nation in the CIS.

Nowadays Armenia is characterized by stable macroeconomic situation with a high growth rate and low inflation. In 2007 the economy grew at a rate of 13.7 percent.

The main financial and economic data for the last five years are presented below.

Main Financial and Economic Data	2003	2004	2005	2006	2007
Real GDP growth (%)	13.9	10.1	13.9	13.3	13.7
Inflation Rate (%, average)	4.7	7.0	2.2	2.9	6.6
Total FDI (USD million)	178.0	235.2	276.4	450.1	701.0
Trade Balance (USD million)	-481.9	-635.9	-777.2	-895.9	-1600.3
External Debt (USD million)	1693.6	1884	1860.1	1205.6	1448.9
Unemployment Rate (% of labor force)	10.0	9.4	9.6	7.5	7.1
Exchange Rate (AMD/USD annual average)	578.8	533.4	457.7	415.5	342.1

Gross Domestic Product (GDP)
Since 1994, Armenia has been on the path of economic recovery and growth. From 2003 to 2007 the average GDP growth rate has been 13.0%.

GDP Structure from 2003 to 2007 (%)

Sector	2003	2004	2005	2006	2007
Industry	22%	22%	22%	18%	16%
Agriculture	22%	22%	19%	18%	17.5%
Construction	16%	15%	22%	24.5%	26%
Transport	6%	6%	6%
Trade	10%	11%	11%	18%	17.5%
Other	24%	24%	20%	10%	10%

Inflation
From 1996 onwards, Armenia has successfully reduced inflation towards price stability. As shown below, since 1999 inflation was curtailed significantly. From hyperinflation in 1993, that combined the burden of the inflated Soviet Ruble and the lack of experience in managing the national currency (introduced in 1993), Armenia has reached relative price stability. The following table shows the annual rate of increase of the consumer price index (CPI).

Annual Price Increase, 1996-2007 (in %)

1996	1997	1998	1999	2000	2001	2002	2003	2004	2005	2006	2007
18.7	14.0	8.7	0.6	-0.8	3.1	1.1	4.7	7.0	0.6	2.9	4.4

Balance of Payments
Balance of Payments, 1999-2007 (USD m)

		1999	2000	2001	2002	2003	2004	2005	2006	2007
1	CURRENT ACCOUNT (7+8+9)	-307.0	-278.0	-200.0	-148.0	-189.4	-19.6	-51.7	-117.1	-589.3
2	Current account w/out official transfers (1-10)	-401.0	-381.0	-272.0	-203.0	-251.0	-80.6	-67.2	-197.1	-68.38
3	Trade balance (4-5)	-474.0	-420.0	-559.0	-369.0	-434.0	-627.8	-827.8	-1199.7	-2105.2
4	Export	247.0	353.0	234.0	514.0	696.0	722.9	973.9	992.0	1162.5
5	Import	-721.0	-773.0	-773.0	-883.0	-1,130	1350.7	1801.7	2191.6	3267.8
6	Services (net)	-62.0	-56.0	-18.0	-41.0	-68.0	-98.9	-120.0	-130.4	-212.5
7	Trade and services balance (3+6)	-536.0	-519.0	-438.0.	-409.0	-502.0	-458.0	-587.9	-895.9	-1600.3
8	Income (net)	55.0	53.0	64.0	88.0	93.0	107.4	132.8	215.2	278.8
9	Current transfers (net) (10+11)	174.0	188.0	174.0	173.0	218.0	429.9	523.7	694	944.8
10	Official transfers	94.0	103.0	72.0	55.0	60.0	61.0	66.1	80.0	94.5
11	Private Transfers	80.0	86.0	102.0	119.0	158.0	368.9	457.6	614.0	850.3
12	CAPITAL AND FINANCIAL ACCOUNT	294.0	261.0	189.0	152.0	192.0	25.20	47.91	132.88	591.47

Exchange Rate
As a signatory of Article VIII of the IMF treaty, Armenia has liberalized all current account operations in the balance of payments. Armenia has a fully convertible, managed, floating currency. The exchange rate is usually determined by the market, with the Central Bank of Armenia intervening from time to time to mitigate large fluctuations in the market. The mechanism has evolved from currency auctions to direct participation in the inter-bank currency exchange. The average exchange rate in 2007 was AMD 342.1 for 1 USD.

Government Budget

	2007(in mln AMD)
Expenditures	565.9
Revenues	570.1
of which taxes	505.5
Deficit	4.2

Government Budget (% of GDP)

	2003	2004	2005	2006	2007
Expenditures	19.3%	17.5%	18.6%	17.0%	20.2%
Revenues	18.0%	15.8%	16.7%	16.6%	18.7%
of which taxes	14.0%	14.0%	14.3%	14.5%	16.1%
Deficit	-1.3%	-1.7%	-1.9%	-1.5%	-1.5%

Labour Force
The majority of the Armenian population is between the ages of 17 and 59 (56%). One of the main values in Armenian society is highly qualified labour force - 70% skilled, 26% semi-skilled and 4% unskilled. Today, there are 18 state universities, 8 foreign managed (American University, French University, European University and 5 Russian universities) and the remainder (about 40) are private. There are more than 77,000 students.

Private Income and Consumption

Household Monthly Average Income 1996-2004

	1996	1997	1998	1999	2000	2001	2002	2003	2004
Number of households*	874,812	877,592	878,704	777,718	778,783	778,578	657,872	657,340	658,016
Average monthly income per household (in AMD)*	41,375	47,043	55,124	67,304	74,843	80,693	108,107	147,518	170,106
Rate of nominal income increase*		13.7	17.2	22.1	11.2	7.8	34.0	36.5	15.3
Average annual exchange rate of USD (in AMD)	414	491	505	535	540	555	573	579	533
Average monthly income per household (in USD)*	100	96	110	126	139	145	189	255	319
Rate of nominal income growth (USD)*	Rate of nominal income growth (USD)*	-4.10	11.40	14.35	10.28	4.80	29.70	35.18	25.11

* Data for 1999-2004 are estimated by the Central Bank

Per Capita Consumer Expenditures of tha Households
(monthly average, in percentage)

Consumer Expenses	2004	2005	2006	2007
Food products	56.1%	57.0%	56.5%	53.5%
Tobacco	4.2%	4.0%	4.1%	3.8%
Alcohol	0.8%	0.8%	0.9%	0.9%
Non-food products	14.5%	14.3%	14.0%	15.6%
Services, including	24.4%	23.9%	24.5%	26.2%
- household-communal services,	6.0%	6.5%	7.1%	7.8%
- healthcare services	7.8%	6.8%	4.9%	4.7%

Taxation
Companies with foreign investment are subject to the same tax regime as Armenian companies.

Profit Tax
The annual profit tax rate is 20%.
There are several profit tax exemptions for taxpayers who specialize in agricultural production.

Income Tax

Monthly taxable income (AMD)	Tax rate (%)	Cumulative tax (AMD)
0-80,000	10
More then 80,000	20	8,000 AMD plust 20% of the amount exceeding 80,000 AMD

Value Added Tax (VAT)
The basic rate is 20%.

Social Insurance Payments

Gross salary (AMD per month)	Paid by employer
0-25,000	8,000 AMD
25,000-100,000	15% of amount exceeding 25,000 AMD plus 8,000 AMD
100,000 upwards	5% of the amount exceeding 100,000 AMD plus 19,000 AMD

Free Trade Treaty
Armenia has Free Trade Regimes with Georgia, Kyrgyzstan, Moldova, Russia, Tajikistan, Turkmenistan, and Ukraine. Under the terms of free trade agreements, tariff exemptions are extended to goods traded between Armenia and Belarus, Georgia, Kyrgyzstan, Moldova, Russia, Tajikistan, Turkmenistan and Ukraine. Excise taxes are charged at various rates on the import or production of some goods, including alcohol, tobacco and petrol:

And Most-Favored-Nation Trade Regimes- with Argentina, Bulgaria, Canada, China, Cyprus, EU, Iran, India, Hungary, Lebanon, Poland, Romania, Syria, Switzerland, USA and Vietnam.

Double Taxation Treaties
Double taxation treaties (DTTs) are in force with Belarus, Belgium, Bulgaria, China, France, Georgia, Greece, Holland, India, Iran, Kazakhstan, Latvia, Lebanon, Lithuania, Poland, Romania, Russia, Thailand, Turkmenistan, U.A.E. and Ukraine. Treaties with Canada, Qatar have already been ratified. Treaties with Egypt, Syria and Uzbekistan are subject to ratification. The number of DTTs is rapidly increasing.

Investment Climate
Both foreigners and locals consider Armenia a country where it is safe to live and work. The business climate in Armenia is favorable to both local businesses and foreign corporations. Armenian economy remains most liberal in its region. The annual Index of Economic Freedom, jointly prepared by the Heritage Foundation, a leading conservative think tank in Washington, and the Wall Street Journal, has again placed Armenia well ahead of all of its neighbors in terms of development of its business climate. According to the last research, made by the Heritage Foundation in 2007, Armenia ranks the 28-th among 161 countries by the index of economic freedom. Following significant economic liberalization, the country's Gross Domestic Product (GDP) grew by 13.7 percent in 2007, making it one of the fastest growing economies in the world. Armenia is a member of WTO, having quite liberal foreign commerce policy: the average tariff rate on imported goods comprises 4%, while the weighted tariff rate is only 1,9%. It has to be mentioned that Armenia imposes no tariffs on exports. The country's tax system is favorable to potential investors. Foreign investors enjoy the right to own real estate as well as owning their own business. Exporting goods and services from Armenia are not subject to customs tariffs and VAT.

Setting up a business in Armenia is a relatively straightforward and uncomplicated task. Registering a business can be completed through a simple and short procedure of state registration, which normally takes about five days for legal entities and two days for individual entrepreneurs under the Law on State Registration. There is a small fee for registration. Registration is not centralized, and can be accomplished through regional offices of the State Register. Registration may take about 10 days. Foreigners have the same rights as locals to establish enterprises in Armenia. Some types of businesses are subject to additional licensing for health, safety, security, or environmental purposes under the Law on Licensing. A simple licensing requirement is applied to the production of food products, tobacco, and beverages. The Law on Foreign Investment ensures national treatment and protection of foreign investors' basic rights. It permits foreign investment in almost all spheres of the economy and provides a "grandfather" clause protecting investment against legislative changes for a period of five years. The opportunity for dispute settlement in Armenian and international courts as well as easy exit and full repatriation of revenue and property are guaranteed by law.
However, in some lucrative sectors such as brewing, mineral water bottling, production of soft drinks, tobacco, cognac, ice cream, and sparkling wine (where one or two of the largest producers control over 2/3 of the market) , there is a high level of market concentration, and some important commodity markets such as sugar and wheat are dominated by a few firms.

Armenia has a fully convertible, managed floating currency. As a signatory of Article VIII of the IMF treaty, Armenia has liberalized all current account operations. As Armenia follows the policy of openness and market liberalization, capital account operations are also liberalized. All profits and foreign currency can be freely repatriated from Armenia, if they have been legally entered into Armenia or legally obtained in Armenia.

Since Armenia has adopted an open-door liberal trade and investment policy, many multinational companies have launched operations in Armenia (most of them have registered their representations and delegations). They include Orange, Pernod Ricard, Siemens, Alcatel, ÐœÐ¢Ð¡, Beeline, British Airways, Swissair, Bristol Myers Squibb, KPMG, Coca-Cola, BGI/Castel Group, Caritas, First Dynasty Mines, IBM, Huntsman, Hellascom, Italtel, HSBC Bank, EBRD, Commercial Bank of Greece, Burns & Roe, Macmillan, Synopsys, Sonics, Microsoft, Air France, etc.

Sector	%
Mining	39.9
Telecommunications	22.9
Food (including alcholoc beverages)	10.8
Air transportation	6.1
IT	2.8
Services provided by restourants and hotels	2.7
R&D	2.0
Construction	1.8