Despite the numerous commercial opportunities in Armenia and increasing gains in international business rankings, several key challenges remain in the business environment. While the government has been successful in pushing through some notable reforms and reducing corruption, the formal reduction of red tape has not yet had a wholly transformative effect. Businesses continue to complain about regulatory processes and general inefficiency and lack of capacity within the government bureaucracy, though companies uniformly note the improved ease of doing business. Businesses frequently highlight the difficulty of approaching the government to engage in substantive discussions. A lack of effective consultation with the business community inhibits the formulation, implementation, and enforcement of investment friendly laws, policies, and regulations.
A longstanding issue in Armenia is an overall lack of market competition, which is the result of vested interests exercising considerable sway over broad swaths of the economy. Despite a welcoming legal framework for foreign investment and straightforward official procedures for starting a business, market entry can be hindered in practice by lingering corruption, weak law enforcement, and collusion between business interests and politically connected individuals. However, the government has made great strides in improving transparency, reducing corruption, and standing up new anti-corruption institutions. Nevertheless, some government interventions, though perhaps well-intentioned, have had the effect of propping up market incumbents to the disadvantage of newcomers. These pose barriers to entry for both domestic and foreign businesses, and harm competition and consumer welfare.
Armenia’s relatively small market size and closed borders with two of its four neighbors (Turkey and Azerbaijan) limit opportunities for merchandise trade and economic growth generally. Transport costs through Georgia, Armenia’s major trade outlet, are high, and frequent delays at the sole border crossing point between Georgia and Russia create a chokepoint for Armenian trade. Internal barriers within the EAEU and uncertainty around the implementation of EAEU standards and regulations merit attention. Trade with Iran is limited, restricted by international sanctions, poor transportation infrastructure, and protective Iranian market practices.
Armenia’s landlocked status and difficult geopolitical circumstances are compounded by problems with customs administration and management that inhibit cross-border trade and deter investment. Corruption and mismanagement within the customs service, as well as inadequate infrastructure, have historically created problems for traders that add to costs and frustrations. The government has prioritized modernization of tax and customs administration systems to improve the efficiency of revenue mobilization and strengthen government service delivery, but unintegrated systems, and the limited use of risk-based screening mechanisms still create delays.
Rule of law and transparency issues are common concerns among the business community in Armenia. Although the government has recorded some impressive gains in the fight against corruption, perception problems persist with respect to the predictability, reliability, and fairness of court decisions. Businesses frequently observe shortcomings in intellectual property rights (IPR) enforcement. Corporate governance and transparency standards often lag those in more developed markets. Businesses often struggle to obtain responses to their inquiries of government bodies.