In recent months, geopolitical tensions between the West and Russia have led to a full-scale war, which will undoubtedly have a serious impact on the world economy as well.
Armenia will not be left behind either.
Armenia has been a member of the Eurasian Economic Union since 2014, at the core of which is Russia. The economic crisis caused by the epidemic has hurt all EAEU member states: the economic decline in Russia was 3%, Armenia 7.4%, Belarus 0.9%, Kazakhstan 2.5% and Kyrgyzstan 8.6%. For the Russian economy 2021 was a year of recovery. Economic growth amounted to 4.4%, helped by an increase in the price of natural gas on the world market and increased exports to EU countries.
Notably, the Russian economy fully recovered in 2021, while Armenia did not.
2021 was a year of achievements in terms of Armenian-Russian economic relations: exports from Armenia to Russia amounted to $847 million, an increase of 24.5% compared to the previous year. At the same time, imports from Russia increased, amounting to USD 1.9 billion in 2021, an increase of 19.2% compared to the previous year.
Armenia’s exports to Russia account for 28% and imports for 33.3%. Russia exports mainly finished final consumption goods (canned goods, wine, cognac, agricultural products, jewellery, etc.), which further benefit the Armenian economy. Russia, on the other hand, imports energy, metals, construction materials and consumer goods.
Economic sanctions imposed by the West will slow down the development of the Russian economy. Reduced investment and negative expectations will lead to a sharp devaluation of the Russian ruble, resulting in higher prices for imported goods, including Armenian goods, all in the face of falling incomes in the Russian market. That is, the continued devaluation of the Russian ruble may lead to a reduction in exports from Armenia.
Since Armenia’s independence, Russia has been and remains the main destination for those who go to work. Every year, tens of thousands of Armenian citizens go there to work, which allows them to receive large remittances. Particularly, during 2021 individuals, through banks, transferred money from Russia to Armenia amounted to $865 million, which is about 41% of all transfers. Some people living in Armenia simply cannot exist without this money (aid).
In addition, Russia is considered the largest investor in Armenia’s economy. In particular, in January-September 2021, the net inflow of investments from Russia amounted to 52.4 billion drams, which is almost twice as much as last year. Many large Armenian companies operate with Russian capital, some of which are subsidiaries of Russian companies, such as Gazprom Armenia. The direct sanctions imposed by Western countries on Russian companies may also affect subsidiaries operating in Armenia. Five out of 10 Armenian companies, which pay the highest taxes, operate with Russia. They create thousands of jobs and pay billions of drams to the state budget.
Possible restrictions for Russian companies will seriously affect the investment climate in Armenia. At the moment, it is impossible to stop the steep fall in the value of Russian companies’ shares, and foreign investors are rushing to get rid of them.
Economic risks in Armenia are quite high, and to counter all this, the Armenian government should show a comprehensive approach, without waiting for losses to be identified.