Discusses key economic indicators and trade statistics, which countries are dominant in the market, and other issues that affect trade.
Armenia is a small market that has faced long-term geographical and geopolitical challenges that have resulted in the closure of two of its four international borders. Entering 2022, Armenia’s economy began to exhibit signs of a strong recovery following a retraction in 2020/2021 due to the dual shocks of COVID-19 and the 2020 Nagorno-Karabakh hostilities. Following Russia’s February 2022 further invasion of Ukraine, tens of thousands of highly educated Russian IT workers and hundreds of companies relocated to Armenia, further bolstering the already rapidly growing high-tech sector. The arrival of these new expatriates contributed to an economic boom in the tourism and services sectors. Driven by strong economic momentum in the first quarter of the year, the IMF projects real GDP to grow by about five percent in 2022.
In May 2015, the United States and Armenia signed a Trade and Investment Framework Agreement (TIFA). The TIFA provides strategic principles for dialogue on trade and investment issues. The agreement creates a platform for high-level engagement to discuss issues of mutual interest with the objective of improving cooperation and enhancing opportunities for trade and investment between Armenia and the United States.
Armenia also became a member of the Russian-led Eurasian Economic Union (EAEU) in 2015. This membership provides Armenian products direct access to the Russian, Belarusian, Kazakh, and Kyrgyz markets with a combined population of about 190 million and a combined gross domestic product of nearly $2 trillion. Accession to the EAEU implies Armenia is obligated to harmonize its tariffs with the bloc’s common external tariff, which will substantially raise average tariffs over time.
In November 2017, the European Union and Armenia signed a Comprehensive and Enhanced Partnership Agreement aimed at deepening relations. The agreement is expected to improve the investment climate, stimulating growth, creating jobs, and building a better environment in which businesses can grow.
With international donor assistance, the Armenian government has been implementing a program of reforms aimed at attracting trade and foreign investment by improving the business environment and streamlining tax and customs administration. Armenia has the most liberal investment regime among EAEU countries, making it an attractive location from which to base international and regional operations focused on EAEU markets. The country has benefited from Generalized System of Preferences access to the United States, EU, Canada, and Japan, and a free trade agreement with neighboring Georgia that remains in effect even after Armenia’s accession to the EAEU. Legal authorization for duty-free treatment under the GSP program expired for all participating countries on January 1, 2021. Congress will make any decisions on whether or when to extend authorization of GSP.
Despite an expected five percent GDP growth rate in 2022, the regional and global spillovers from Russia’s war in Ukraine are having a notable impact on Armenia in several areas. The wide-ranging sanctions on Russia, higher food and fuel prices, lower remittances, and increased global financial market volatility are expected to widen the current account deficit and increase the inflation rate. Nevertheless, Armenia has maintained overall macroeconomic stability and healthy external buffers throughout the crisis.
Armenia is classified as an upper middle-income country by the World Bank, with a per capita GDP of approximately $4,670. The average monthly salary in Armenia was about $446 in 2021. Unemployment is 15.3 percent. According to the Statistical Committee of Armenia, the poverty rate in 2020—the latest published data—was 27 percent. Experts expect that number to climb as high as 43 percent as a result of the combined impacts of the expected low agricultural production in Armenia in 2022, lower than expected remittances from Russia, and challenges the government will have mitigating the effects of inflation on vulnerable Armenians. The government has aggressively pursued strategies to improve tax administration, reduce the size of the shadow economy, and put the government’s stock of debt on a downward trajectory. Tax reforms have aimed at lowering rates, broadening the base, and improving administration. At the same time, the government has committed to greater social spending and capital expenditures that can provide a basis for continued economic growth.
In 2021 Armenian imports grew by nearly 17 percent to $5.4 billion and consisted mainly of petrochemicals, precious stones, consumer goods, vehicles, equipment, and machinery. The top sources of Armenia’s imports are Russia, China, Iran, Germany, Italy, Ukraine, Georgia, France, and the United States. Armenia imported approximately $137 million from the United States in 2021. Top U.S. imports to Armenia were electrical machinery, vehicles, precious metals, and poultry.
In 2021, Armenia exported more than $3 billion worth of goods, a 19 percent increase from 2020. Exports were concentrated in metals (especially copper, gold, and iron), tobacco, and alcoholic beverages. The leading export destinations for Armenian goods in 2021 were Russia, China, Switzerland, Bulgaria, and Iraq, which combined accounted for approximately two-thirds of all exports. Russia is the leading export destination, accounting for nearly a quarter of all merchandise trade from Armenia. Armenian exports to the United States totaled $82 million in 2021. Armenia’s top imports to the United States were aluminum, precious metals, apparel, and beverages.