MARKET OPPORTUNITIES

Because of Armenia's small dimensions and the presence of a large Diaspora in the world, the Armenian economy has always been, since the proclamation of indipendence in 1991, very sensitive to international relations. This feature, which is peculiar to more globalized economies, can be historically ascribed to the national traditions of the Armenian people, famous for their enterprising and mercantile spirit since the times of Italian maritime republics when the Armenians of Cilicia, a region on the northeastern coast of the Mediterranean Sea, had established fruitful trade relations with the West.

Armenia is a country without exit to the sea, situated on the crossroad between Europe. Asia and the Middle East. Its borders with Turkey to the west and with Azerbaijan to the east are closed as a result of the Nagorno Karabakh conflict. The trade with Iran (another country, together with Georgia, whith which Armenia has direct commercial links) is rather cheap but, besides some difficulties with customs, there exists another problem as some of Armenia's commercial partners still impose embargo against Teheran. According to recent studies carried out by the Armenian European Policy and Legal Advice centre, the costs of transports in Armenia are twice as high as the average in the world.

However, it's worth mentioning that the greatest part of turnover, which forms the backbone of the country's foreign trade, (such as precious stones and microchip business) does not depend on land based commerce and can count on the relation of unit rate to transport ( especially convenient for businessmen). Besides, numerous commercial contracts with Turkey are realized overland via Georgia: despite the formal embargo, bilateral trade has reached 34,5 million dollars during the first 11 months of 2004 (even 120 million dollars according to the Turkish Armenian Business Development Council, a pressure group for the smoothing of contrasts between the two countries with residence both in Yerevan and in Istanbul).

Significant progress has been registered in the business climaqte even if the situation is not yet optimal: despite the normative picture is quite satisfactory, there is still a great need for concrete application of laws in the light of corruption and imperfections in administration and infrastructure, obstacles difficult to overcome especially for small and medium -sized enterprises. Nevertheless, the international observers state the positive trend in the liberalization of economy in international relations. according to the recent classification of economic liberty in 161 countries published by Wall Street Journal and Heritage Foundation, Armenia is on the 42nd place (in 2003 it occupied the 44th place), figuring smong the states considered as "most free". This is quite encouraging if compared with a rather skeptic placement as regards not only Georgia (100th place accompanied by Mozambique) and Azerbaijan (the 103th place together with Chad and Egypt) but also France (44th) and South Korea (45th). Italy occupies the 26th place in this classification. 
The juridical picture in Armenia is outlined for its maximal liberalization. There are no export taxes, there exists a simplified tariff system with only two aliquots and it is possible to transfer any sum of money abroad and from abroad. There are no liceness and quantitative restrictions.
The whole export from Armenia is duty free. The import taxes go from 0% up to 10% tariffs are applied mainly to consumer goods and luxuries.

As regards the tenders, in the last years the situation has considerably improved, particulary for public ones since local authorities provided all nesessary instruments to secure transparency. Less transparence is the situation with other tenders, particulary those financed by the funds of the Armenian Diaspora.

The Intellectual property is defined by Article 140 of the Civil Code. The law on Trademarks and Geographic Designations was signed by RA President on March 31, 2000. Accordig to this law, a trademark is protected for 10 sucessive years. In general, the normscorrespond to those on "TRIPS" ("Trade Related Intellectual property Rights"). The Law on patents entered in force in August 1993 and protects both inventions (for 20 years). the Law on Copyright was adopted in May 1996 and fully corresponds to the norms of the Bern Convention.

Thus, in this sector Armenia has made every effort to stick to international norms, however the concrete application of these norms still presents many problems, which can harm the activity of of exporters of goods with registered trademarks. Another problem is the widespread counterfeiting and piracy of compact discs, video cassettes, DVD, which are sold legally as the government collects fiscal revenues by the VAT.The cases of counterfeit clothes and accessories (bags, shoes, etc) are also widespread  in Armenia though not so easily prosecuted as commercial counterfeiting takes place informally. As far as this last phenomenon is concerned, as Made in Italy is particulary and appreciated, this provokes violations and abuses counterfeiting, whose victims will be Italian businessmen and italian trade marks. It's worth mentioning that this issue has often been in the centre of the  EU Commission's criticism.


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According to the Index of economic Freedom (www.heritage.org) drawn by Heritage Foundation and the Wall Street Journal, Armenia is among the first 50 countries in the world with the highest level of economic liberty. Thus, despite the fact that the business climate in Armenia can be considered very good, there still exist certain difficulties for the foreign investors.

According to Article 14 of the Law on Foreign Investments, a company may conduct any kind of economic activity provided that the latter does not contravene the Constitution of the Republic of Armenia. An individual may set up any kind of business, there are no limitations as regards foreign participation, and foreign businessmen are free to establish, independently or together with other partners, a company with total foreign capital. The equalization of the rights of foreign and local subjects also includes participation in the process of privatization and acquisition of shares, stocks and different types of securities. However, investors do not have the right to take part in activities such as production, repair and sale of arms and ammunition, prerogative of state-run enterprises. The rule guarantees investors the right of repatriation of profits without any impediment. In cases when the respective legislation is modified after the realization of the investment, the investor has the right to be exempted from measures that can result unfavourable for him for a period of 5 years. Article 16 of the Law on Foreign Investments authorizes the companies with foreign participation to re-export the whole production and services without any restrictions, with the excepition of cases defined by international treaties (liceses for exportation of textile production are demanded). 
In general, despite the fact that the legal framework is mostly favourable, there is still much to be done for a concrete application of legal norms.


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As to goods turnover, in the period January-November 2004 Italy has imported goods from Armenia to the amount of 26,2 million US dollars and exported goods to the amount of 36,5 million US dollars. it should be taken into consideration that for some countries like Israel, Belgium and Switzerland the goods turnover, being rather consistent concentrates on one type of goods, in this case on diamonds trade. Smaller is the role of Italian investments.

The exponential growth of real estate and construction market has certainly favoured the made in Italy distributed from different sales agencies, which increased the export of building manufactures such as ceramic tiles, majolocas, sanitary fittings, etc. A network of small and medium-sized enterprises (about 40 per cent of GDP) is developing in the Armenians construction sector mainly due to IFI financial support, which has considerably increased. For the enterprises Italy can serve not only as point of reference but also as an attracting market for the import of machinery and for products for retail trade. With regards to the Memorandum of Understanding signed in January 2005 during Mr. Kocharian's official visit to Italy, envisaging the setting up of an intergovernmental commission, is a useful instrument for the intensification of bilateral contacts especially in the SME sector.

The formation of an Italian financial sector in Armenia, which would grant credits to importers of Italian products in Armenia and support the maximal penentration of made in Italy to this country, would be very useful. As far as the issue is concerned, in terms of intermediary financing the IFI implement programmes aimed at supporting the activity of banks operating in Armenia and at the setting up of other institutions in this country.

Despite the fact that the positive trends in Armenian economy attract many foreign investors, on the Italian business circles still fail to use the whole spectrum of opportunities offered by this country. There are only few names, although very notorious: "Renko S.p.A" from Pesaro in the construction field ( it has built and manages two of the best hotels in Yerevan; it has also built the residence of the italian Embassy in Yerevan), "Loveable Italia" for lingerie (whith two factories for assemblage of products, which for their completition are re-exported to Italy and their further distribution) and "Anti Grafic Pagani" in the sphere of industrial typography. There is also "Omniafiltra Cartiera del Torano", which has provided a local company with equipment for the production of industrial filters. According to preliminary data, the factory will begin functioning in the course of 2005 and will sell its productions to CIS and especially to Russia in proof of Armenia's geograthic situation, which can be considered strategic. These are all examples of successful presence of Italian business in Armenia, but it didn't go without some negative experience too, like that of "Grandi Molini", which after having made considerable investments for the acquisition of several factories for the production of flour, withdrew from the Armenian market (but still remaining shareholder) because of disagreements with its Armenian partner with whom it had set up a joint venture.

Judging the experience accumulated from the activity of Italian companies in Armenia it can be stated that the most preferable investments are those which presuppose full Italian ownership and management, while one less avisable  joint ventures as they always demand assessment of local partner's reliability. However, the moment is still favourable for making investments in Armenia, though the "opportunity window" is becoming narrower and narrower because of numerous foreign investors who are rapidly occupying the most attractive sectors of Armenian market, which has no possibilities of further absorption because of its small dimensions.

The sectors or enterprises where to boost investments coincide with those in relation to commercial penetration: agricultural and processing equipment; conservation and packaging of agricultural production, hothouse technology; metal, wood and stone processing equipment; construction and sanitary materials; furnishing and interior design; tourism; services. Still, there are no cases of direct Armenian investments in Italy.

There is also big potential for commercial and industrial cooperation in such sectors, as for istance technologies, which develop rather rapidly and positively. Armenia was one of the main technological centers still in the times of the Soviet Union: an inclination that has finally developed after the proclamation of indipendence also due to the contribution of the Armenian Diaspora of the United States, which ia mainly concentrated in California and is mostly engaged in the field of high technologies. This sector has also been boosted by the circumstance that the embargo imposed against Armenia by Azerbaijan and Turkey, having incredibly increased the cost of ground transportation, has promoted the industries (such as high tecnologies), which do not depend on land-based commerce and can count on the relation of unit rate to transport (particulary convenient for businessmen).

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