AmCham Armenia: “Things will Never be the Same Again”
The global pandemic has made consumers and households more fearful about the future. Consequently, even if the economy fully opens up again, they may not be able or be willing to spend as readily as they did before CՕVID-19. Meanwhile, selective sectors – such as IT and e-commerce – had the possibility to take advantage of opportunities and expand their businesses; as in many other countries, a new wave of start-ups emerged in Armenia.
Armenia annual GDP growth is preliminarily estimated to shrink up to 6 % in 2020 from the robust growth of 7.6 % in 2019, and the recovery is expected already in 2021. “However, a longer-lasting and more intensive Coronavirus outbreak, spreading widely throughout the region would weaken the prospects of recovery considerably,” said Karine Sarkissian, Executive Director at the American Chamber of Commerce in Armenia.
In her interview with Forbes Georgia, Mrs. Sarkissian spoke about the business environment in Armenia during Covid-19 and shared her expectations for the future.
What was the impact of the global pandemic on U.S. businesses in Armenia?
In Armenia, the spread of COVID-19 created overall negative economic expectations for consumers and businesses in general, including businesses with U.S. origins or related to the country in some way. At the American Chamber of Commerce in Armenia, the following sectors are represented by U.S. companies: finance and other services 32%, ICT 21%, tourism and hospitality 15%, FMCG and other consumer and durable goods 17%, education 10% and energy and mining 5%. As per an internal company survey, 46% of the companies are expecting to have a significant revenue reduction in 2020 of more than 20%, and 36% could not give a clear estimation.
There was a relatively strong adverse impact on tourism and hospitality, cafes, restaurants, and related sectors. Most of the players in this space have been shut since mid-March due to quarantine and have not generated any significant revenue. Winemakers lost all their export opportunities and had to hold their liquid assets and take the burden of long-term financial liabilities. Due to increased home consumption, the FMCG sector remained resilient, but the risks associated with supply chains were elevated. The IT sector is in the best position, and it is one of the most developed sectors in Armenia.
To preserve macroeconomic stability, the government of Armenia took several measures to mitigate the near-term impact of COVID-19. How would you assess these measures, did they manage to bring relief to businesses?
The government of Armenia initiated an unprecedented economic package of an initial $300 million to soften the economic and social impact of the current situation and the support continues. Part of the package was directed at targeted aid and a major part was invested in financing opportunities for businesses. The higher spending and the injection of financial resources into the economy by the government, the supportive monetary policy and the grace period on loan repayments in vulnerable sectors are expected to significantly soften the liquidity shortage, thereby mitigating the negative impact on GDP growth and employment. However, it is still too early to evaluate the effectiveness of the measures.
What would you suggest the government do to speed up economic recovery after Covid-19?
I would suggest that the government of Armenia thoroughly evaluates the existing situation, continues the dialogue with the private sector and makes targeted interventions in those sectors that are prioritized as quick wins.
Some say it would be incorrect to assess the impact of Coronavirus on the economy only negatively, as increased demand for IT and communications services have had some positive impact. Can we see the pandemic as an accelerator to the above-mentioned sectors?
The pandemic changed our way of doing things and took us out of our comfort zones and made us more analytical and cautious. At the same time, the crisis created new needs to address and issues to resolve. Selective sectors –such as IT and e-commerce –had the possibility to take advantage of opportunities and expand their businesses. For example, remote working, which was not the best solution for companies before became the only solution to keep business going. As a result, there was a strong need for a wide variety of videoconferencing and workflow systems. A new wave of start-ups came along and offered solutions for remote meetings. More internet usage strained the digital infrastructure, which led to massive new investments in cloud computing, digital processing, and much more.
The world is being transformed, and we can either lead that transformation or wait until it is at our door.
What are your expectations of how the global pandemic will change the culture of businesses?
The global pandemic forced businesses to evaluate their systems and understand their weaknesses and opportunities in a non-standard environment. Then businesses realized that they needed to be more resilient and extremely focused on contingency planning for unexpected situations. Crisis management needs to be exercised consistently, rather than having it only on paper. In the future, businesses will be a lot better prepared for contingency planning and disaster recovery.
Companies have responded to the crisis and mobilized their resources, now they will need to evaluate their workforce capabilities and competencies, their supply chains, the external regulatory framework, and strategize their long-term planning. They will also need to be more innovative in planning, as well as put more focus on their human resources, as in the future, remote working will still partially continue, and it will bring some productivity gains in organizing business meetings and reducing some high travel costs. A good mix of remote and face-to-face interactions will add value to daily routines, in my opinion.
There seems no end to the global pandemic yet, but still every country is trying to get over it with minimum economic impact. What would you suggest to businesses in this regard, what are the main steps that are required to be taken in order to return to pre-pandemic economic conditions soon?
Things will never be the same again... The global pandemic made consumers and households more fearful about the future. Even if the economy fully opens up again, they may not be able or be willing to spend as readily as they did before CՕVID-19.
At the same time, businesses will be reluctant to invest, as they will have a fear about a new wave of the virus. So, consumer and business confidence need some time to recover. It will take time, money, and resilient planning for recovery and to get back to normal. Businesses need to have a strong focus on their core areas and competencies, run an in-depth evaluation of the business and their sector, review their human, financial, and operational resources and come up with the best recovery scenario, taking into consideration the change in household buying behaviour, purchasing power, investment priorities, as well as macroeconomic factors.
What are the main concerns for investors willing to invest in Armenia?
The main concern remains the uncertain pandemic situation. The government of Armenia welcomes foreign investment and investors should not be concerned. The Ministry of Economy Investment Support Centre is the main government body responsible for the development of investment policy in Armenia, as well as serving as a one-stop-shop to assist new and existing investors.
One of the concerns might be Armenia being a small market with a population of less than three million. However, many U.S. and other international companies have established branches or subsidiaries in Armenia to take advantage of the country’s pool of qualified specialists and trade preferences with the Eurasian Economic Union (EAEU). The closed border with Turkey and Azerbaijan could be another reason for concern, as well as the revolutionary changes that the country is undergoing, as businesses need stability.
What are the main advantages of Armenia in comparison with other countries of the Caucasus?
Armenia is located at the crossroads of the Middle East, Europe, and the Caucasus countries. Armenia’s investment and trade policies have favourable legislation for foreign investors. The country has the following benefits: guaranteed and free repatriation of invested capital and profit, property rights, tax benefits for foreign investors, agreements for mutual promotion and protection of foreign investment, no restrictions on the right of foreigners to manage local companies, easy and fast registration of a company at the state register. Armenia is part of the Liberal Trade Regime, isa member of the World Trade Organization and the World Customs Organization, has free trade agreements with CIS countries, and is a member of the Eurasian Economic Union (EEU), which hasaround180 million consumers.
Armenia has achieved respectable rankings on some global indices measuring the country’s business climate. As per the World Bank recent rankings, Armenia is ranked 47thout of 190 countries in terms of ease of doing business. In terms of ease of starting a business, Armenia is 10thand for registering property 13th. According to the Index of Economic Freedom, Armenia is 47th.
Foreign companies are entitled by law to the same treatment as Armenian companies. Armenia has strong human capital and a well-educated and skillful population, particularly in science, technology, engineering, and mathematics; leading to significant investment in the high-tech and information technology sectors.
A massive anti-corruption campaign was launched after the 2018 change of government to eliminate systemic corruption. The fight against corruption continues and needs to be institutionalized in the long-term in critical areas such as the judiciary, tax and customs operations, health, education, military, law enforcement sectors and intellectual property rights.
In Armenia the following companies are examples of successful operations: Armenia Marriott Hotel Yerevan, The Alexander a Luxury Collection Hotel, Cisco Systems INC., Hylink Intellkors, Help systems, Microsoft Armenia, Mentor Graphics Siemens Business, National Instruments; Synergy International Systems Inc., Synopsys Armenia, Coca-Cola HBC, Pepsi-Cola Bottler, Philip Morris, Contour Global, and McCann Erickson.
The economic implications of the Armenia-Azerbaijan conflict is being discussed a lot currently as it has a negative economic impact not only for the two countries but also the whole region. What is your opinion on this issue and what is the cost of the conflict for the region?
The conflict has a long-lasting history and has continued for more than three decades with forgone economic development opportunities in the region. It is hard to give an accurate cost evaluation of the economic impact. The region faces closed borders, limited trade and investment opportunities and little potential for regional cooperation. A resolution to the conflict will yield big economic benefits to both parties, and the region would benefit from development. Savings on defence budgets will massively benefit the population and the region will take a stronger development path with large public investment into the health, education and well-being of the society, as well as infrastructure, to increase productivity and attract more investment. It will have a strong impact on GDP and growth in general, as well as improve standards of living in the region.
The key message from the Prime Minister of Armenia, Mr. Pashinyan, is that the Armenia-Azerbaijan conflict resolution should be acceptable to the people of all the conflicting parties, a message which I fully support.
It’s quite interesting that AmCham Armenia has been led by females for quite a long time. How active are women in business and what are the main obstacles for them in Armenia?
AmCham in Armenia gives equal opportunity to men and women. It just so happens that our executive team is all female, this is purely based on competencies rather than anything about gender. In the AmCham Board we have 33% female presence as well! From 2018-2019, the Government of Armenia has undertaken to re-launch and introduce several effective mechanisms for ensuring gender equality and adopt the Gender Equality Strategy for 2018-2023.
The level of economic activity of women in the labour market of Armenia is 52.8%, which is significantly lower than that of men at 70.7% (Women & Men, Armenia, statistical booklet, 2018). 47.0% of economically inactive women are housewives or 98.5% of those engaged in households are women. Moreover, 42.4% of these women have higher or secondary professional education (Labour Market in the Republic of Armenia, 2018). 79.6% of employers and 54.4% of the self-employed are men, while unpaid women employees are twice as many as men (Women & Men, Armenia statistical booklet). The average salary of women is 32.5% lower than the salary of men (Women & Men, Armenia, statistical booklet, 2018) and the difference in income is even greater, it reaches 40%.
The change will be only possible with the implementation of the Policy on Gender Equality, awareness among the female population about their rights and opportunities, and motivating them to take actions and be active in the society as well as in businesses.
What was the volume of U.S. FDI in Armenia in 2019 and what are expected figures for 2020?
In 2019 the total net U.S. investment in the real sector of the economy of Armenia totals to $2.6 million, of which direct investments were $603,000. As of the end of 2019, the gross foreign exchange inflows into the Armenian economy by the U.S. amounted to $469.6 million, of which $265.6 million was direct investment.
In January-March 2020, the total net investment into the economy of Armenia amounted to $5.6million,of which $705,000 was direct investment. It is hard to forecast for 2020 given the current situation with the pandemic.
What are the most attractive business sectors for U.S. investors in Armenia and how will the picture change after the pandemic?
The most attractive sectors remain ICT, agriculture (both traditional and organic), hospitality, energy, and mining; there won’t be major changes to this after the pandemic.
What makes the U.S. interested in Armenia?
The government of Armenia has as strong political will to make the economy fairer for all, to improve human rights, fight corruption, and improve the business and investment climate in Armenia. The ongoing reforms will create more opportunities, generate high-quality economic growth, and improve livelihoods to increase the wellbeing of all.
Armenia is a great country with a highly educated population, beautiful unspoiled nature, hospitable people, great food, and a pleasant environment to run a business.
Corruption, nepotism, and interferences at the state level are still named weak points of Armenia. Are U.S. businesses affected by the above-listed problems?
Prime Minister Pashinyan claimed that corruption, nepotism, and interference at the state level do not exist anymore. The government has a strong will to fight corruption at all levels and to build an economy where there are equal and fair opportunities for all. U.S. and local businesses are already experiencing these ongoing changes, and with strong-willed determination, the best is yet to come!