Aremenian investment climate

Enterprise Development and Foreign Investment Promotion Armenian Agency

Foreign investors expect host governments to create a stable political and economic environment, and that is exactly what has happened in the Republic of Armenia (RA). The country's level of stability, both politically and with regard to rapid liberalisation and privatisation, has no parallel in any other country in the region. Armenian economic reform, launched in 1991, has aimed to re-integrate the national economy with that of the developed world market through privatisation, liberalisation of prices and foreign trade, the establishment of internal currency convertibility, macroeconomic stabilisation, and the attraction of foreign direct investment (FDI).

Political stability

  • With the President of the Republic of Armenia, Levon Ter-Petrossian, able to rely on a strong pro-reform consensus, the Republic of Armenia enjoys a high level of political stability. Mr Ter-Petrossian's Republican Bloc is closely identified with the political and economic reforms of the last four years, and his re-election in the presidential elections in Armenia held on 22 September 1996 showed that this consistently sustains strong support. Mr Ter-Petrossian won the elections with 52 per cent of the vote, keeping his position for a second term. As for the Government, it currently holds a firm 60 per cent majority in the National Assembly, the Armenian Parliament, with the next elections scheduled for July 1999;
  • in a survey of Eastern Europe and the former Soviet Union (FSU) conducted by famous Western experts and presented in the January 1996 issue of the Central European Economic Review periodical, Armenia received one of the middle ratings of the 26 countries surveyed, receiving the second highest score in economic growth. Among the FSU countries, Armenia took the sixth place;
  • Euromoney Magazine's country risk rating for 1996 gave Armenia a total score of 28.52 for September, placing the country in 137th position among the 178 countries rated. Here too, Armenia turned out to be the sixth highest of the FSU countries listed;
  • the June 1996 Issue of the International Monetary Fund (IMF) bulletin World Economic Outlook singled Armenia out among the transition economies as one that demonstrated considerable successes in achieving macroeconomic stabilisation;
  • having already installed the essential legal and institutional frarnework, the Government is now focusing its efforts on reorienting its economy toward the industrial countries' markets, which currently represent about 33 per cent of the country's trade.

Economic stability

  • Armenia's conservative fiscal policies have produced a stable and reliable investment climate with dynamic economic growth, one of the lowest levels of inflation in the FSU countries, strong foreign currency reserves, a low foreign debt per capita, and favorable exchange rates. Strict economic policies have sought to achieve a balanced budget, with an independent central bank controlling the money supply;
  • the major achievement has been the halting of a precipitate decline in GDP which in 1994 grew by just under five per cent and in 1995 by 6.9 per cent. For this year, growth of five per cent is expected. In terms of growth, Armenia takes the lead position amid the FSU countries;
  • inflation rates have continued to decrease after the high 1,800 per cent average inflation rate in 1993 caused by introduction of the national currency, the dram (ARD), in November 1993. Average inflation dropped to 420 per cent in 1994, and 23 per cent in 1995. For eight months of 1996, the inflation rate was 2.4 per cent, compared to 15.1 per cent for the same period last year. The average monthly inflation in the period between January and August of the above years was 0.3 and 1.8 per cent respectively;
  • since mid-1994, the exchange rate, which is free to float, has also stabilised in a narrow range around ARD 400 to the US dollar;
  • for 1995, Armenia's US$110 national debt per capita is the lowest among the FSU countries. In particular, it is much less than that of its nearest competitor, Georgia ($293). This low national debt illustrates the Armenian Government's rejection of short-term measures such as higher borrowing, which have increased national debt in many developing and developed economies;
  • such economic policies have led to improved ratings. Between March and September 1996, Armenia improved its ranking as an attractive investment site by 13 points, shifting from 150th to 137th position in the league table of investment profiles produced by Euromoney magazine. Of the FSU countries, only Lithuania, Latvia and Russia registered higher increases in their investment profile.

Options for FDI

  • The inflow of foreign direct investment (FDI) reached almost $55 million by November 1996. The most common forms of FDI are:
    • joint ventures to date, joint ventures with recently privatised companies have been the dominant form of foreign investment;
    • greenfield investments;
    • participation in the privatisation process;
  • investors can also acquire equity positions through the Yerevan Stock Exchange, banking establishments, insurance companies, and investment exchanges;
  • Armenian legislation enables foreign entrepreneurs to conduct business in the RA under the same conditions as Armenian entrepreneurs. A foreigner may become either the sole or co-founder of a company, and may also join an existing Armenian enterprise. Foreigners who own businesses abroad may also conduct business activities in the RA providing they own a branch office within Armenia;
  • according to the Armenian Company Law, the official forms of business entities accepted by the State Register include: affiliate; consumer co-operative; individual entrepreneur; joint-stock: joint venture: limited liability; non-profit organisation; partnership; production co-operative; public utilities enterprise; small enterprise and state enterprise;
  • there is no upper limit on the level of foreign investment in the RA.

Access to credits

  • Foreign entrepreneurs can make use of credits granted by both Armenian and foreign banks;
  • Armenian banks currently offer credits on a short-term (up to one year) average interest rate of five per cent monthly.

Investment protection

  • The Law 'On Foreign Investments' adopted in July 1994 has established a maximally liberal regime for foreign investors. It provides for unlimited and unconditional participation of foreign capital in Armenian enterprises and ensures its protection;
  • The protection of foreign investments is bilaterally guaranteed through a number of intergovernmental agreements signed by the Republic of Armenia with approximately 15 other countries.

Business authorisation

  • To engage in business, entrepreneurs must apply to the respective business office for authorisation. This may come as a business certificate or a business licence, depending on the nature of the business;
  • persons having a domicile or seat outside the RA must establish a responsible representative.

Foreign exchange regulations

  • In November 1993, simultaneously with the introduction of the national currency, the internal convertibility of the ARD was established by the Central Bank of Armenia;
  • The Armenian Central Bank's exchange rate continues to weight the ARD 0.25 per cent to the US dollar and 0.36 per cent to the Deutschmark, allowing it to fluctuate by three per cent either side of parity. International trade is readily facilitated by a significant foreign currency deposit scheme, with extensive double taxation agreements existing with major developed countries.

Repatriation of profits and capital

  • Armenian foreign exchange regulations and investment protection agreements guarantee the transfer of profits and capital abroad.


  • The current taxation system, introduced in April 1992, includes value-added tax (VAT) of 20 per cent for goods and services, a rate similar to that found in most FSU countries;
  • Luxury products are liable to an excise tax of between 25 and 200 per cent;
  • Businesses in Armenia are subject to a profit tax levied at 12 per cent, 18 per cent, 25 per cent and 30 per cent rates depending on total profits gained;
  • Those living in Armenia for at least 183 days in one calendar year are subject to a personal income tax. Tax rates vary according to annual income, ranging from 12 to 30 per cent;
  • Future tax reform will result in a reduction of direct taxes paid by companies as the Armenian Government aims to shift the tax burden away from enterprises towards more indirect taxation.


  • Prices were liberalised in Armenia on 1 January 1992. Currently, only about five per cent of prices are regulated (ie, on some public utilities).

Import and export of goods

  • Armenia may or may not have already entered the World Trade Organisation in the beginning of 1997. Armenia will thus become the first CIS country to do so. Nevertheless, Armenia applies import duties according to a set of valid and internationally recognised customs tariffs;
  • imports made by a foreign investor to form statutory capital or for processing purposes are custom-free;
  • also exempt from import duties are certain selected types of goods, goods not subject to customs clearance (for personal use by diplomats, members of government, etc, and goods located in customs-free zones and storehouses.

Labour force

  • A significant attraction for foreign investors is the highly cost-effective Armenian labour force. Average wage rates are significantly lower than in Russia (seven times) and most of the CIS countries;
  • employer 'add on costs' (ie, payments for social security) are considerably lower than in most FSU countries;
  • the population of Armenia is highly educated; 90 per cent of the Armenian population is literate with 45 per cent having completed secondary school and 13 per cent having earned a higher education degree. The labor force in Armenia is well trained and resourceful with particular strengths in engineering and technology;
  • foreign citizens may be employed in RA companies provided they acquire a residence permit from either the diplomatic or consular office of the RA abroad, or from the Ministry of the Interior in the RA.

Foreign direct investment in Armenia

  • There were 353 enterprises with foreign investment (EFIs) established in Armenia by the end of 1995; by 1 July 1996 there were 563, of which 340 were joint ventures registered with the State Registry. Between January and July of 1996, 157 EFIs were established, of which 102 were joint ventures and the rest were branches and affiliate companies. The EFIs were established with the participation of investors from 20 countries including Russia (29, of which 17 were joint ventures), Iran (51 enterprises, 17 joint ventures), and the USA (23 enterprises, 19 joint ventures). Among the largest EFIs set up since the beginning of 1996 are Midland-Armenia, CocaCola Bottlers Armenia and ArmenTel;
  • foreign companies and joint ventures dispose of about two per cent of all the entrepreneurial property in Armenia;
  • in 1996 foreign direct investments in Armenia amounted to $30-35 miilion, and the level expected for 1997 is $80 million;
  • the distribution of enterprises with foreign investment by sector of the economy is described in the table below (share in per cent):

Table 1: Share of enterprises with foreign investment in the total number of non-state enterprises (by 01.06.1996)
Aggregate Branch Share of EFI*, % Including
Foreign-owned companiesJoint ventures
State Governance and Defence, Public Social Insurance 15.810.505.30
Health Care and Social Services 9.5 8.30 1.20
Transport, Warehousing and Communication 7.9 4.30 3.60
Financial Intermediary Services 5.3 2.65 2.65
Real Estate Transactions, Renting and Commercial Activities 3.7 1.50 2.20
Construction Industry 3.0 2.40 0.60
Education 2.5 1.91 0.59
Wholesale and Retail Trade, Repairs of Cars, Motor-Cycles, Everyday Goods and Individual Consumption Items 2.3 1.00 1.30
Manufacturing Industry 1.6 0.41 1.19
Hotels and Restaurants 1.3 0.65 0.65
Other Municipal, Social and Individual Services 1.2 0.20 1.00
Agriculture, Hunting and Forestry 0.7 0.24 0.46
Electric Energy, Gas and Water Supply 0.2 0.20 0
TOTAL 2.3 1.10 1.20
  • most EFIs are in the wholesale and retail trade, repairs of cars, motor-cycles, everyday goods and individual consumption items (274), manufacturing industry (73), transport, and warehousing and communications (48). Together these accounted for 76 per cent of the total number of EFIs.

Investment incentives

Foreign investors and indigenous investors are treated equally in the establishment and development of companies in Armenia. The Government believes that sound economic and political management are the most powerful incentives that any government can give to industry. A balanced state budget, a stable currency and a low inflation rate are all results of the Government's prudent economic policies.

Nevertheless, some specific limited investment incentives are in place. The topics in which the foreign investor will be mostly interested from this point of view are listed below (in no specific order):

  • non-discrimination: domestic law requires that foreign investors be treated equally with local investors and among themselves; the Government or other state bodies are not in a position to make any concessions to individual investors which might lead to unfair competitive advantages;
  • tax holiday: enterprises with foreign investment (EFIs) are not subject to profit tax in the first two years of establishment. Furthermore, from the 3rd to the 10th year, EFIs are subject to the deduction of tax payable (a) in 50 per cent, while a foreign investor's share in the statutory capital exceeds 50 per cent and is greater than $100,000; (b) in 30 per cent, when the above share is equal to 30-50 per cent and is between $40,000 and $100,000;
  • dividends: profits and dividends received by foreign owned and joint venture companies may be freely repatriated;
  • deposits: deposits of foreign citizens in Armenian banks, whether national or foreign in origin, are tax-exempt;
  • Inward Processing Relief is available in respect of materials, components and sub-assemblies imported for processing;
  • value added tax: the VAT regime is comparable to that of the other CIS countries. The nature of the tax is such that it should not represent any significant cost to a manufacturing organisation since the majority of the tax is recoverable;
  • EDIPA: in recognition of the importance of attracting mobile manufacturing investment to Armenia, the Ministry of Economy in the name of the Government established the Enterprise Development and Foreign Direct Investment Promotion Armenian Agency in January 1996. The agency was created with the express purpose of assisting foreign investors to establish their operations as quickly and as painlessly as possible in Armenia. Such assistance can bring welcome relief to already over-burdened managers seeking to establish a presence in Armenia. In saving valuable executive time, EDlPA's assistance equates to a monetary value for the companies that work with it. The service, however, is currently provided free of charge.