"Fact" daily writes:
For years, the foreign trade balance of the Armenian economy has been characterized by deep and structural imbalances, where imports significantly exceed exports, creating a growing trade deficit that reaches billions of dollars and threatens the country's economic stability, currency security, sovereignty and long-term development prospects.
This deep imbalance not only indicates the structural problems of the economy, but also reveals the limited production capacity of Armenia, the lack of competitive products, the weakness of positions in foreign markets and, in general, the instability of the economic model, which is based not on production and export, but on consumption and import.
Recent statistics show that Armenia's imports are around $7-8 billion per year, while exports barely reach $3-4 billion, which means the trade deficit is around $3-4 billion or more, depending on the year. This is a huge number for a country with a small economy, whose annual GDP is about 20-30 billion dollars.
The ratio of trade deficit to GDP is significant, which is considered dangerously high by international standards. Economists usually sound an SOS when this indicator exceeds 5-10 percent, because it starts to become a threat to economic stability. In the case of Armenia, we have a significant surplus, which means that the country is more dependent on imports.
The structure of exports reveals another serious problem of the Armenian economy: traditional exports, which include goods manufactured in Armenia, make up a smaller part of total exports than they should. In recent years, re-exporting has taken on an important role in the structure of Armenia's exports, the process when goods are imported into Armenia and then, without significant processing or modification, re-exported to other countries.
This became especially relevant after 2022, when the war between Russia and Ukraine and the expansion of sanctions against Russia by the West created a new situation in the region. Armenia, which maintains economic ties with both Russia and the West, became one of the countries through which some goods could pass.
Western-made electronics, car spare parts, industrial equipment, consumer goods began to be imported into Armenia and then re-exported to Russia or other countries of the Eurasian Economic Union. And in the opposite direction, Russian products or raw materials subject to sanctions or restrictions could pass through Armenia. As a result, re-exports registered a significant increase.
In 2022-2023, the total turnover of Armenia, exports plus imports, increased by tens of percent, largely due to re-exports. This had both positive and negative consequences for the economy. On the positive side, re-exports brought additional profits to companies engaged in transit trade, created some jobs in logistics, customs services, transportation, provided tax revenues to the state budget, strengthened the dram by increasing foreign exchange flows into the country, and generally stimulated economic activity. Many businesses that were not previously involved in exports began to participate in re-export processes, and this created a certain economic dynamism. However, this strong increase in re-exports also contained serious risks and vulnerabilities.
First and foremost is that re-export is mainly a transit activity that does not create significant added value in Armenia. The goods simply pass through the country without being produced or processed in Armenia. This means that the economic benefit is limited, mainly margin and logistics fees, which are significantly lower than if the product were produced in Armenia. Re-exporting does not develop local production, does not create new technologies, does not raise the qualifications of the labor force, does not contribute to long-term economic development. It is more of a spur of the moment rather than a sustainable economic model.
Another danger is the volatility of re-exports. The volume of re-exports largely depends on external factors: the regime of sanctions, political relations between different countries, international legal regulations, access to transit routes. When these conditions change, re-exports may decrease dramatically or cease altogether.
In the case of Armenia, secondary sanctions or restrictions may be imposed on Armenia if the West begins to more closely monitor attempts to circumvent sanctions and identifies Armenia as a country through which sanctioned goods reach Russia. This can block the import of goods from Western companies, make banking transactions difficult, and limit access to international financial systems.
ARTHUR KARAPETIAN
Details in today's issue of "Past" daily
