Study: Even with small volumes of the market, Armenia is able to  triple the volume of investments

ArmInfo. Even with small volumes of the market, limited infrastructures and a low level of PPP (purchasing power parity), Armenia is able to triple the volume of  investments in GDP. This conclusion was made by the authors of the  study entitled "Investment Environment of Armenia. Legal Field and  Existing Problems", which was conducted with the assistance of Konrad  Adenauer (is the political foundation of the Federal Republic of  Germany) and the Economic Journalists Club of Armenia.

According to the head of the department of statistics, an expert of  the NGO "National Center for Public Policy Research" and the  co-author of the study Armen Kotyan, they tried to find an answer to  two main questions in their work, namely, how basic conditions  created in the republic contribute to attracting investment and,  second, how much effectively use them.

Thus, using the example of 72 countries comparable to the volume of  the market with Armenia, the authors tried to understand whether it  was possible in the current conditions to attract more investment or  whether it was possible to attract them more than was possible in the  last 5-10 years. Based on the regression analysis, factors that  contribute to a greater volume of investments in the same conditions  were identified:  ownership, effective implementation of antitrust  policy, tax incentives for investments, tariff limits and the optimal  ratio of labor productivity and payment for a given labor, export  volumes and domestic and foreign market.

In particular, the authors of the study concluded that if Armenia  uses the starting conditions in such a way as they are used in  countries comparable to the size of the market, the country will be  able to attract foreign investments in the amount of 7.2% of GDP,  from the actual average over the past 5 years at a rate of 2.7%.   That is, experts say, without changing anything - with effective use  of the starting conditions, strengthening the systemic links between  the individual components, the current volume of investments can be  tripled.  Comparing the per capita GDP in Armenia with the same  indicator in 38 countries with the same economic opportunities, the  authors of the study concluded that, using the existing starting  conditions, the minimum investment can be increased to 5.1% of GDP.

As Armen Ktoyan emphasizes, traditionally an important condition for  attracting investments is the availability of appropriate  infrastructures. "We often hear objective criticism that Armenia  lacks relevant infrastructures that impede investments. But,  examining the experience of 47 countries comparable to Armenia in the  quality of infrastructures, we found that with proper management of  the starting conditions and neutralizing the factor of infrastructure  constraints, Armenia can attract investments of 4.95% of GDP or $  400-500 million, "he said. That is, in the conditions of small market  size, limited infrastructures and a low level of PPP, which in turn  is due to low GDP per capita, Armenia is able to increase investment  to 4.9- 7.1% of GDP.

The authors of the study also tried to answer the question - why  should an investor invest in Armenia, and not in any other country in  the region or the world? As Ktoyan pointed out, for several years  there has been a tendency of a decline in foreign direct investment  (FDI) in developing and transition economies. In particular, in  countries with transitional economies, such as Armenia, the level of  investment in 2018 decreased by 27%, which suggests that such  economies are becoming less attractive to investors. And this is  despite the fact that in such countries the rate of return on  investment is one of the highest - 11.8%.  Meanwhile, a survey among  managers of 500-1000 large global companies showed that 29% of  respondents are willing to invest in developed countries, and in  developing countries out of 100 respondents only 15. "Such countries  for business leaders have the same attractiveness as African ones,"  the expert explained.

Having studied the global trends in investment potential in a  particular area, the authors of the work concluded that the situation  inherent in the Armenian economy is not endemic. In developing  countries and countries with economies in transition, the same areas  that today are "leaders" in attracting investment flows in Armenia  have investment attractiveness. These are spheres of agriculture,  food and alcohol industry, telecommunications. Nevertheless, in the  formation of capital, Armenia today lags far behind Azerbaijan,  Georgia, Moldova and Kazakhstan - with an indicator of 19%.

The authors of the study conducted a comparative analysis of the FDI  / GDP indicator. "Comparing the indicator in Armenia, with a similar  indicator in comparable countries, we see that we are ahead of  Russia, Moldova, Iran, but we are far behind Georgia, Tajikistan,  Azerbaijan," the economist said.  It should be noted that the authors  of the study on investment attraction issues in Armenia, Armen  Ktoyan, and the Deputy Chairman of the Standing Committee of the  National Assembly of Armenia on Finance, Credit and Budget Issues,  Artak Manukyan, used the publications of the RA Statistical  Committee, World Bank Indicators and other international reports  development of the business environment, as well as publications of  local and international experts.