19 January 2019

Saturday, 11:05



Why should investors invest to a country from which the local population escapes?



“Armenia can become attractive for Swiss business,” said the Armenian Prime Minister Karen Karapetyan at the meeting with the Swiss Ambassador to Yerevan Lukas Gasser. Usually such routine official statements sound not surprising. However, the keyword of the above statement is ‘can’. After more than two decades since the independence, Armenian authorities still cannot answer a simple question: why has Armenia failed to turn into an attractive country for foreign investors of at least Armenian origin over the years?!

Certainly, the Swiss ambassador would refrain from asking this question, which the Armenian leadership is unlikely to answer anyway. In fact, the answer is quite simple.


"Public Interests" against foreign investments

Just two days before Karapetyan’s meeting with Ambassador Gasser, the Armenian media revealed that the government was going to amend the Law on Foreign Investments. The main difference of the new bill from the existing one is that it provides wider opportunities for the nationalization of enterprises, including those with foreign capital. For comparison, the text of the old article reads: "Foreign investments in the Republic of Armenia are not subject to nationalization. Authorized bodies cannot confiscate foreign investments either. Confiscation, as an exceptional measure, is allowed only in conditions of a state of emergency, in accordance with the procedure established by the legislation of the Republic of Armenia, i.e. by a court decision and with full compensation."

Over the 23 years since the adoption of the current Law on Foreign Investments, investors, and mostly representatives of the Armenian diaspora, have lost not only their business but even their property in Armenia. No state of emergency has been announced during these years and all the property of businessmen has been confiscated without trial or investigation. Nobody would even recall the immunity of foreign investors according to the law. The updated draft law will make this immunity void. Thus, the new version of the law reads: "nationalization is possible on the basis of public interests, and not discrimination, and in cases carried out in accordance with the procedure established by law". In other words, no longer a state of emergency or even a court verdict is required: investor’s destiny is determined by the so-called ‘public interests’.

Pro-Western Armenian media comment on this bill with enthusiasm hoping that in the future this will allow nationalizing Russian investments. Ironically, they seem to fail considering the levers that Russia has over Armenia. But the question is different: how may Armenia become attractive after the adoption of such a law?

Finally, it is enough to evaluate the real capacity of the Investors' Club of Armenia founded in March 2017 by Prime Minister Karapetyan. About thirty very rich Russian businessmen of Armenian origin became members of the new club. However, the Club has not implemented any more or less realistic investment program. Only the founder of Tashir Group of Companies, Samvel Karapetyan, announced his intention to invest one billion dollars in ten years into the Armenian energy sector.

Incidentally, the former American ambassador to Armenia, John Heffern, once hinted at the investment unattractiveness of Armenia for American business, as there was no example of Armenian-American investments.

"Armenia still suffers from a difficult economic situation. I do not want to pretend that this is not so. The more economic reforms are implemented in Armenia, the less is the number of people leaving the country," said the acting U.S. Ambassador to Armenia Richard Mills. "In fact, the U.S. Ambassador has made two negative statements: Armenia has a difficult economic situation and the reforms do not work and people leave Armenia," writes the First Information web portal.


Blighted prospects

The draft state budget of Armenia for 2018 demonstrated the real state of affairs in the national economy: budget deficit grows together with public debt, which is going to reach 60% of national GDP next year.

The opposition (in particular, MPs Nairi Zohrabyan and Mane Tandilyan) called the discussed draft budget ‘antisocial’. It is planned to reduce the financing of medical and educational institutions, while the size of minimum wage, pensions and benefits remains unchanged. The experts believe that given the inflation rate, this is simply unacceptable. Deputies of the Armenian parliament believe that the budget for 2018 will contribute to the growth of poverty. Almost 30% of Armenian population lives below the poverty line, whereas in 2007 this figure was only 12%.

On the other hand, military expenditures have been sharply increased in the budget draft: by more than 17% compared to 2016. Armenian authorities explain this increase simply and traditionally: by exploiting the patriotic feelings and fear of the local population before the threat of renewed war with Azerbaijan. At the same time, the ruling regime does not mention that the increase concerns other law enforcement agencies as well, the financing of which has increased significantly under the Sargsyan's regime. For example, deductions for the needs of intelligence services have grown by 60%, and the Ministry of Internal Affairs - by as much as 94%. According to Armenian analysts, the main objective of the leadership is not to strengthen the army but to preserve its own power through strengthening support: Armenian army was actually disgraced before its people during the four-day April war in 2016.

Amidst economic stagnation, Armenia is becoming a militarized and police state. This fact is reflected in prestigious international reports as well. The country has been ranked the third in the Global Militarization Index report for six consecutive years. According to the newspaper Zhohovurd, this is one of the main reasons of Armenia's economic backwardness. The newspaper quotes from another document, Report on the National Competitiveness of Armenia - 2017, according to which militarization exhausts national economic resources of Armenia.

Most analysts believe that after implementing the "Nation - Army" program adopted in Armenia last year, the country will be able to compete even with Israel in terms of the level of militarization per capita. Apparently, Yerevan adopted new laws On Defense and Military Service and the Status of Serviceman to secure the implementation of this program, despite the public protests. The students of the Yerevan State University heavily protested the adoption of these laws. They took to the streets demanding not to accept amendments that completely cancel the postponement of military service for the duration of their studies.


Fleeing from the army will lead to fleeing from the country

Armenian Defense Minister Vigen Sargsyan said that the draftees have no right to evade military service because of their studies. "According to our experience, only 16 percent of those who receive the first academic postponement return to military service. In other words, the academic postponement becomes a door to evading military service at all," said the Defense Minister in fact recognizing that Armenian youth are largely evading military service.

At the same time, minister Sargsyan is constantly accused of evading military service. Answering to uncomfortable questions about where and when he passed his military service, he usually says that he served in the army but his documents proving this fact were mysteriously destroyed.

Protesting students believe that the adoption of this law is a blow to the scientific potential of Armenia. To prevent the protests, the authorities decided to accept members of the student organization For the Development of Science. But the meeting ended in vain, and the students decided to continue the action. The law was adopted anyway.

Practically, the adoption of this law will perhaps help the Sargsyan regime in the future. Strategically, it can deepen the demographic crisis in Armenia.

It is no secret that almost all families in Armenia have relatives in other parts of the globe. Given the existing state of the Armenian army and the long-term war with Azerbaijan, many families do not want their children to serve in the army. If the admission to the university guaranteed a temporary postponement of the military service and the complete avoidance of service on legal grounds in 84% of cases, now there is no such chance for Armenian youth. The only way to evade the military service, and possibly even death in the occupied Azerbaijani lands, will be escape from Armenia. In other words, the adoption of the law will also make the traditional Armenian problem – the outflow of local population from the country – worse.

Sociological scientists also make similar predictions. The Institute of Philosophy, Sociology and Law of the National Academy of Sciences of Armenia published a monograph titled Migration and Depopulation in Armenia. According to one of the authors, academician Gevorg Poghosyan, migration is the most urgent problem in terms of Armenian national security. Over the last quarter century, the local population has decreased by one third. Moreover, thinks the academician, the outflow of local population is an extremely stable process.

What can the residents of the country do when the legislation is changed in order to rob the property and business of investors, when education and health expenses are reduced in favour of increasing the military expenditures, when the desert minister of defense forces young recruits to get into trenches and perish on foreign, occupied lands? The only option is to run away not to be sandwiched between a police baton and a soldier's boot.