ArmInfo. The US Department of State has presented an overview of the state of the investment climate in Armenia ''2020 Investment Climate Statements: Armenia''. Analysts of the Department of State in addition to the achievements aimed at improving this area, a review of the legal economic framework, have identified the weaknesses of the investment climate that do not facilitate the foreign direct investment (FDI).
As the report notes, Armenia imposes few restrictions on foreign control and rights to private ownership and establishment. There are no restrictions on the rights of foreign nationals to acquire, establish, or dispose of business interests in Armenia. Business registration procedures are straightforward. According to foreign companies, otherwise sound regulations, policies, and laws are sometimes undermined by problems such as the lack of independence, capacity, or professionalism in key institutions, most critically the judiciary. Armenia does not limit the conversion and transfer of money or the repatriation of capital and earnings. The banking system in Armenia is sound and well-regulated, but investors note that the financial sector is not highly developed.
Overall, the competitive environment in Armenia is improving, but several businesses have reported that broader reforms across judicial, tax, customs, health, education, military, and law enforcement institutions will be necessary to shore up these gains. Despite progress in the fight against corruption and improvements in some areas that raise Armenia's attractiveness as an investment destination, investors claim that numerous concerns remain and must be addressed to ensure a transparent, fair, and predictable business climate. An investment dispute in the country's mining sector (related to Lydian Armenia company- ed. note) has attracted significant international attention and remains outstanding after several years.
Armenia has strong human capital and a well-educated population, particularly in the science, technology, engineering, and mathematics fields, leading to significant investment in the high-tech and information technology sectors. Many international companies have established branches or subsidiaries in Armenia to take advantage of the country's pool of qualified specialists and position within the Eurasian Economic Union (EAEU). However, many businesses have identified challenges with Armenia's investment climate in terms of the country's small market (with a population of less than three million), relative geographic isolation due to closed borders with Turkey and Azerbaijan, per capita gross national income of $4,230, and concerns related to weaknesses in the rule of law.
As the report notes, after a dramatic change of government in April/May 2018, major sectors of Armenia's economy have ostensibly become more open to competition. Large businesses backed by oligarchic interests are notionally less able to draw on government support to prop up their market positions. An anti- corruption campaign was launched after the 2018 change of government, and a series of high-profile cases have resulted as part of efforts to eliminate systemic corruption. These developments serve to improve Armenia's investment climate and competitive environment, though the fight against corruption needs to be institutionalized in the long term, especially in critical areas such as the judiciary, tax and customs operations, and health, education, military, and law enforcement sectors. Foreign investors are still concerned about the rule of law and equal treatment.
There have been concerns regarding the lack of an independent and strong judiciary, which undermines the government's assurances of equal treatment and transparency and reduces access to effective recourse in instances of investment or commercial disputes. Representatives of U.S. entities have raised concerns about the quality of stakeholder consultation by the government with the private sector and government responsiveness in addressing concerns among the business community.
The Armenian government nominally uses transparent policies and laws to foster competition. Some report that Armenia's new government has pursued a more consistent execution of these laws and policies in an effort to improve market competition and remove informal barriers to market entry, especially for small- and medium-sized enterprises. Armenia's legislation on the protection of competition has been improved with clear definitions and newly introduced concepts on issues such as price manipulation, imposition of fines as a percentage of revenue versus fixed amounts, and penalties for state officials. However, companies regard the efforts of the State Commission for the Protection of Economic Competition (SCPEC) alone as insufficient to ensure a level playing field. They indicate that improvements in other state institutions and authorities that support competition, like the courts, tax and customs, public procurement, and law enforcement, are necessary. Numerous studies observe a continuing lack of contestability in local markets, many of which are dominated by a few incumbents.
Businesses tend to perceive that many Armenian courts suffer from low levels of efficiency, independence, and professionalism, which drives a need to strengthen the judiciary. According to UNCTAD, rent seeking and inefficiencies are among the key constraints on investing and doing business in Armenia. Very often in proceedings when additional forensic expertise is requested, the court may suspend a case until the forensic opinion is received, a process that can take several months. Businesses have noted that many judges at courts of general jurisdiction may be reluctant to make decisions without getting advice from higher court judges.
There are also problems related to Intellectual Property Right (IPR). Despite the existence of relevant legislation and executive government structures, the concept of IPR remains unrecognized by a large part of the local population. The onus for IPR complaints rests with the offended party. The police assert that the majority of cases are settled through out-of-court proceedings. While the Armenian government has made some progress on IPR issues, strengthening enforcement mechanisms remains necessary. UNCTAD reports that low awareness and poor monitoring of IPR violations harm the business climate.
Financial intermediation tends to be poor. Banking sector assets account for over 80 percent of total financial sector assets. Nearly all banks require collateral located in Armenia, and large collateral requirements often prevent potential borrowers from entering the market. U.S. businesses have noted that this creates a significant barrier for small- and medium-sized enterprises and start-up companies.
There is not a widespread understanding of responsible business conduct (RBC) in Armenia, but several larger companies with foreign ownership or management are introducing the concept. Initiatives, where they do exist, are primarily limited to corporate social responsibility efforts. However, RBC programs that do exist are viewed favorably. Some civil society groups and business associations are playing a more active role to promote RBC and develop awareness.
Corruption remains a significant obstacle to U.S. investment in Armenia, particularly as it relates to critical areas such as the justice system and concerns related to the rule of law, enforcement of existing legislation and regulations, and equal treatment. Investors claim that the health, education, military, corrections, and law enforcement sectors lack transparency in procurement and have in the past used selective enforcement to elicit bribes.
https://www.state.gov/reports/2020-investment-climatestatements/armenia /?fbclid=IwAR06sq6AZ6m- BaRJuLXn_K4HlrjxQ4mzHJVc1PfRSCOP3XCSw7IIZPYRBXw
