As Russia reorients its foreign trade from its previous close ties with the European Union, its ally Armenia is set to benefit most acting as the most convenient actor for re-export. Armenia also features as a major destination where Russians have been relocating in their thousands and creating businesses of varying sizes. All trends and various official estimates indicate that growth in bilateral commerce and investments will continue especially given the fact that Russia’s estrangement from the collective West will remain in place for foreseeable future.
Trade
In 2022 trade between Armenia and Russia almost doubled to US$5.3 billion, which is nearly double than the two countries had in 2021. Armenia’s imports from Russia in 2022 grew by 1.5 times (reaching US$2.8 billion mark), while exports – grew 3 times from about US$850 million to US$2.5 billion. But this is not solely associated with Armenia’s growing re-export capacity. The withdrawal of Western companies from the Russian market made it possible for Armenian suppliers to expand their businesses across Russia.
Armenia’s re-export capabilities have proved significant in supplying Russian consumers with products and brands no longer sold directly in Russia, and are well reflected in the changing structure of bilateral trade. Prior to 2022, Armenian exported mainly agricultural products, raw resources, and a limited amount of technologies, however in 2022 the situation drastically changed. Exports of mechanical and electronic equipment from Armenia increased more than ten fold: from about US$60 million to US$695 million. A significant part of this re-export was sent to Russia and to a limited extent Belarus, a similarly sanctioned market.
This is causing frictions between Armenia and the collective West. Pressure has come from the United States and the EU to curb the re-export of sensitive products which could be used for other purposes than civil consumerism. To tighten controls Yerevan announced that Armenian exporters would be required government permission for exporting microchips and other technology items to Russia. Suspicions directed at Armenia caused James O’Brien’s, the sanctions coordinator at the U.S. State Department, visit to Yerevan to monitor the implementation of the sanctions.
In the longer term, Armenia is cleverly using to its benefit the close ties it has with Russia. As the conflict in Ukraine is likely to continue, so will the tempo behind Armenia-Russia trade ties. Yet Yerevan will have to walk a fine line as it wants to avoid incurring Western sanctions. So far only few Armenian entities have been sanctioned for re-exporting to Russia, among which are “TACO LLC”, and “Areximbank-Gazprombank”, Gazprom’s Armenia bank branch.
At the present, despite Western sanctions, from a technical point of view, there are no major problems with conducting trade between Armenia and Russia. After Russian banks were disconnected from SWIFT, Armenian commercial organizations began to connect to a similar tool for transfers espoused by the Bank of Russia. What constitutes a major issue though is the difficulty to find a correct rate at which trade should be conducted. Russia and Armenia have almost completely abandoned settlements in US dollars and euros, which makes the ratio of ruble-dram an important and quite challenging issue often causing disagreements between Moscow and Yerevan.
Positive trends in Armenia-Russia trade continue in 2023 as well. For example, according to Russian Prime Minister Mikhail Mishustin, mutual trade has grown by almost 100% since January. Between January and April 2023, bilateral trade amounted to almost ₽140 billion, or 660 billion Armenian drams (about US$1.56 billion). The Armenian officials are more circumspect in their forecasts, but the suggested figures are nevertheless impressive. According to Armenia’s minister of economy Vahan Kerobyan, trade between Armenia and Russia may see a 60% growth at the end of this year. Another set of numbers indicates that Armenia’s trade with Russia in the period of January-May 2023 has already totaled US$2.5 billion.
Armenia’s expanding economic ties with Russia have largely contributed to the country’s overall economic growth in 2022 which amounted to 12.6%. High inflation and the strengthening of the Armenian dram against the US dollar by almost 18% led to a 40% increase in GDP per capita from US$4,627 to US$6,540. Armenia’s economy is expected to grow by 7% in 2023, which will be one of the highest figures in the region. This is a direct result of Armenia taking a slice of what was previously direct EU trade with Russia. Armenia is now a key link in the Russia consumer supply chain, sourcing from Europe and supplying Russia.
The growth in trade between Russia and Armenia fits into Armenia’s growing trade level with all countries within the Eurasian Economic Union (EAEU), of which Armenia, along with Belarus, Kazakhstan, Kyrgyzstan, and Russia is a member. This trend runs parallel with Russia likewise significantly increasing its trade with all EAEU countries. This was also facilitated by Western sanctions. In addition, the share of mutual settlements in rubles between the EAEU states and Russia is increasing, reducing the share in US dollar trade.
Beyond Armenia’s growing trade with the EAEU, the country’s overall export capacity has significantly widened. The volume of Armenia’s foreign trade in 2022 reached US$14.1 billion, 68.8% higher than in 2021. Compared to the same period in 2021, in 2022 exports from Armenia increased by 77.7%, amounting to US$5.36 billion, while imports amounted to US$8.76 billion – this constituted an increase of some 63.5% compared to the figures registered in 2021.
As to the structure of Armenia’s export to Russia, the country exports various food and agricultural products, textiles, precious metals and stones, machinery, equipment, and chemical products. Particular products from Armenia to Russia have seen an exponential export growth. For instance, the total export of diamonds from Armenia grew by about 4 times, to about US$418 million. Exports of clothes and shoes from Armenia increased by about 10% last year reaching US$210 million mark. Another particular item is cars, the export of which soared from US$800,000 worth of vehicles in early 2022 to just over US$180 million this year. This trade involves both newly manufactured European models, used cars, and wrecked cars which are then salvaged for spare parts.
Beyond trade, what also propels Armenia’s economy is the migration of approximately 110,000 Russian citizens who have left Russia since February 2022 and settled in Armenia seeking permanent residence. This resulted in increased money transfers between Russian and Armenian banks over the past year by more than 4 times totalling a staggering US$3.6 billion.
Investments
According to the official data of the Ministry of Economy of Armenia, the volume of foreign direct investment in the country’s economy in 2022 reached a historic high of US$1 billion. Among Armenia’s major investors are the members of the Commonwealth of Independent States (CIS) and the EAEU. Yet it is Russia which has a dominating role with its more than 40 large corporations operating in the South Caucasian republic.
Russian Prime Minister Mishustin has stated that about 4,500 Russian capitalized companies now operate within Armenia. Russian investments equal nearly 46% of the total volume of foreign investments made into the Armenian economy. Other figures show a slight difference but nevertheless indicate nearly 40% of the total volume of foreign investments in the Armenian economy are from Russia.
However, there are issues. One of the problems that hinders an even greater Russian economic involvement in Armenia is its still closed borders with Turkiye and Azerbaijan. Russia’s Deputy Prime Minister, Alexey Overchuk has stated that Russian investments in Armenia may amount to US$5 billion into the projects related to the fields of energy, logistics, as well as heavy industry. Russia is especially interested in investing in Armenia’s natural resources and transport infrastructure development. The latter is vital for Moscow as it seeks greater connectivity on its southern border beyond the International North-South Transport Corridor, and this means connecting with Turkiye and further south to Iran and the Persian Gulf.
The Armenian side too sees greater potential in bilateral investments. In June this year, Vahagn Khachaturian, the President of Armenia, met with representatives of the local Armenian community in St. Petersburg. There, he noted the importance of implementing joint industrial technological projects with Russia. Similar positive statements are made by other high-ranking Armenian officials. Yet geopolitical situation in the region remains tense as long as Armenia-Azerbaijan relations are locked in the present uncompromising situation. Russia will remain hesitant to commit greater financial resources to Armenia until this conflict can be satisfactorily resolved. It is in Yerevan’s greater trade interests to make sure it is.
Source : RUSSIA BRIEFING
