Transport problems restrict trade with Russia, says Armenian PM

Nezavisimaya Gazeta, Moscow
11 Nov 04

The cost and unreliability of road transport are holding back the
expansion of Armenian-Russian trade, Armenian Prime Minister Andranik
Markaryan has said. Talking about the difficulties caused for Armenia
by Russia’s recent closure of the border crossing to Georgia,
Markaryan said that in negotiations “we got the feeling that Russia’s
leadership had a definite appreciation of this problem”. Markaryan
told Russian newspaper Nezavisimaya Gazeta that Russian investment was
now present in almost all sectors of the Armenian economy. He noted
that Armenia had met all its obligations to transfer property to
Russia in repayment of its debts, but that “for a number of technical
reasons connected with domestic procedural issues, the Russian side
has to this day not written off Armenia’s indebtedness for the sum of
the transferred property”. The following is the text of Viktoriya
Panfilova’s interview with Andranik Markaryan in Russian newspaper
Nezavisimaya Gazeta on 11 November headlined “Armenia on list of
debtors: Armenia suffers losses due to Russian fight against
terrorism”; subheadings inserted editorially:

In the last few years, Russia has significantly expanded its
investment presence in Armenia. Prime Minister Andranik Markaryan
spoke to NG [Nezavisimaya Gazeta ] about the dividends Yerevan has
seen from collaboration with Moscow.

Transport restrictions hold back Armenian-Russian trade

[Nezavisimaya Gazeta] Mr Prime Minister, Iran and Belgium lead in the
volume of trade with Armenia, even though in recent years entire
branches of local industry and major enterprises have become Russian
property. What is the reason for this?

[Markaryan] From my point of view, the problem lies in the market’s
accessibility. Today the only type of transport linking Russia and
Armenia is motor vehicle transport, which is expensive and dependent
upon several subjective factors out of our countries’ control.

As for the volume of trade, Russia is one of Armenia’s leading
partners in its foreign economic activity. In the period 2002-03,
Russia came second after Belgium in the export of Armenian output,
although Russian output continues to account for the largest volume of
imports into Armenia. For example, results from the first nine months
of this year show Russia leading in the total trade between our
countries with 12.6 per cent. And among CIS [Commonwealth of
Independent States] countries, this index was 62 per cent. At the same
time, I would like to note that the Armenian enterprises that have
transferred to Russian ownership are still operating only at a
fraction of their production capacities and cannot have a substantial
influence on the level of foreign trade between Russia and Armenia.

Actually, at a recent meeting of the co-chairmen of the international
economic cooperation commission held in Yerevan in mid-October it was
decided to draw up proposals for so-called urgent measures to ensure
the full functioning of enterprises transferred to Russian ownership.

[Nezavisimaya Gazeta] Recently Armenia found itself almost completely
isolated due to the closing of the Russian-Georgian border. And there
are no guarantees that a similar situation won’t recur. Under these
kinds of conditions, can we really talk about prospects for developing
bilateral relations?

[Markaryan] I don’t think we need to draw any far-reaching conclusions
from situations like the closure of the Verkhniy Lars border
crossing. Especially if we bear in mind that the Russian side had not
made a political decision to damage relations with Armenia. We know
that the Russian-Georgian border was closed due to the stepping-up of
the antiterrorist struggle. It remains to be seen how all this will
affect Armenia’s economy and how much the Russian side, having decided
to take this step, took the interests of our republic into
consideration or how the economic losses are being borne and will be
borne by Armenia, which is already under a tough transport
blockade. On this subject I can say that during the negotiations we
got the feeling that Russia’s leadership had a definite appreciation
of this problem. We conducted active negotiations simultaneously with
the Georgian authorities as well as Russia’s leadership in order to
find alternative communication routes. Fortunately, the situation was
settled very quickly and today everything has fallen into place. This
hardly means we are satisfied, though. As we speak, we are continuing
to search, in concert with the region’s states, for mechanisms for
creating new, mutually advantageous, efficient transport schemes.

Conflict settlement key to regional development

[Nezavisimaya Gazeta] What needs to happen to establish lasting peace
and stability in the Caucasus?

[Markaryan] First of all, I would say, the peaceful settlement of all
the conflicts in our region, including the one in Nagornyy
Karabakh. It’s no secret that a fair solution to this problem would
create the prerequisites for opening all communications routes and
lifting the transport blockade around Armenia and Nagornyy
Karabakh. This would allow all the states in the region to establish
normal economic relations among themselves so that they can develop
and allow others to develop as well. I’m convinced that the
restoration of peace and stability in the Caucasus would be
facilitated as well by the implementation of regional programmes in
which all the countries of the region participate equally.

Russian capital has most effect in Armenia’s energy sector

[Nezavisimaya Gazeta] In what branches of the Armenian economy is the
presence of Russian capital most tangible today? Are there spheres
that Russian business would like to invest in but cannot for various
reasons?

[Markaryan] Today Russian investments in Armenia have a very
diversified structure and are present in virtually every branch of the
economy. It’s noteworthy that as of 1 January 2004 there were 589
companies registered in Armenia that had some Russian capital – nearly
24 per cent of the total number. As for any possible subjective
reasons why investments might not be able to be made in specific
spheres of the economy – there aren’t any. The government has an open
door policy with respect to foreign investments. The legislation of
Armenia offers the most favourable conditions possible for all
investors and also ensures the protection of all forms of property. So
that Russian enterprises, just like the enterprises of other
countries, are free in both their economic activity and the
decisionmaking process.

As for the branches in which the presence of Russian capital is felt
the most, this would be primarily enterprises in the fuel and energy
complex, which is strategic from the standpoint of the republic’s
development. In particular, this is the ArmRosgazprom
[Armenian-Russian gas industry] enterprise and the Razdan heat and
power station. The Armenian nuclear power station has been handed over
to the Russian side for safe operation. There is Russian capital as
well in Armenian industry: Mars, the machine-building enterprise; and
Armenal, which produces aluminium. I would point out that our states
have a mutual interest in rapidly restoring those scientific and
production sites which have been transferred to Russian
ownership. Some of them – the scientific research institute of the
military-industrial complex, for example – are functioning actively
today. The problem is to get them operating at full capacity in the
near future – by attracting much more investment and orders and by
increasing the productive potential of these enterprises. Both Armenia
and Russia stand to gain from this, I’m sure.

Armenia seeking to encourage foreign investment

[Nezavisimaya Gazeta] Which Russian financial and economic groups are
most active in Armenia? Do they have problems in their relations with
local authoriti es?

[Markaryan] Through legislation, the government of Armenia is
stimulating foreign investments in all spheres of the country’s
economy, both in the practical and the financial sectors. Thus, of the
20 banks now operating in Armenia, nine involve Russian capital.

As for relations with local authorities, we take a unified approach to
both Armenian and foreign business. Moreover, we are trying to
stimulate foreign investments. In addition, attesting to the
favourable atmosphere for business and the absence of any
differentiated approach is the continuing increase in the presence of
Russian capital in Armenia. In particular, in early 2004, Russia’s
Vneshtorgbank acquired the controlling packet of shares in Armenia’s
Sberbank [Savings Bank]. And if enterprises in their current activity
do run into any problems, then they are the same for everyone,
including Armenian enterprises.

[Nezavisimaya Gazeta] Armenia’s economic legislation is considered to
be fairly liberal. How does this affect foreign investments? Does more
money come to the country from Russia or from the West? And which
investments are given preference?

[Markaryan] Indeed, the economic and especially the financial
legislation of our country is one of the most liberal and, even more
important, one of the most stable in the post-Soviet states. True, the
mere presence of liberal legislation is not enough for foreign
investments. I want to point out that the country’s leadership is
working specifically to support political stability in the country,
develop market infrastructures, and reform the structures that operate
directly with entrepreneurs, as well as on several other efforts
included in the strategic programme to combat corruption and reduce
various risks.

We can judge the favourable investment climate from the increase in
investments in the country’s economy. For example, in the first six
months of this year total investments in Armenia’s economy rose by 41
per cent, while direct foreign investments rose by nearly 80 per
cent. If we compare this to previous years (1997-2003), then among the
10 partner countries making investments in Armenia’s economy, nearly
26 per cent came from Russia. As for the issue of preferences, we
welcome all investments that will stimulate the country’s economic
development.

Armenia has met all obligations to transfer property to Russia

[Nezavisimaya Gazeta] In 2002, an agreement was signed between our
countries on repaying Armenia’s state debt by transferring shares in
Armenian enterprises to Russian Federation ownership. However, the
Russian draft budget for next year once again includes as Armenia’s
debt the same sum that Armenia already repaid when it transferred
those factories to Russia. How are we to interpret this?

[Markaryan] Indeed, Armenia has met all of its obligations to transfer
property (on 5 August 2003, property worth US 63 million US dollars
was transferred to Russian ownership and in January 2004 property
worth 31 million dollars). However, for a number of technical reasons
connected with domestic procedural issues, the Russian side has to
this day not written off Armenia’s indebtedness for the sum of the
transferred property. Before the end of this year, an
intergovernmental commission is supposed to hold joint consultations
during which this issue should be resolved.

Parliament to decide on sending Armenian contingent to Iraq

[Nezavisimaya Gazeta] Recently Yerevan decided to send 50 military
medics and sappers to Iraq to assist the coalition forces. However the
leaders of Iraq’s 20,000-strong Armenian community, concerned that in
that event Armenians would become the next target of international
terrorists, sent an appeal to Yerevan to reject this decision.

[Markaryan] As we know, the final decision on sending an Armenian
military contingent to Iraq will be taken by the National Assembly of
Armenia. The problem is that there was a preliminary agreement with
Poland about our participation in Iraq as part of the military group
of this country. Lately, though, Poland itself seems to have had
doubts about the wisdom of its military presence in Iraq. Naturally,
we will have to keep changes in this and several other conditions in
mind as we make corrections to our position and clarify certain issues
before the matter is submitted to parliament. Of course, in
discussions of this issue, we are also keeping in mind the interests
and security issues of our state and the opinion of Iraq’s Armenian
community of many thousands. In any event, I can say that if such a
decision is taken, then a small number of military drivers, medics and
sappers will be sent to Iraq but will not take part in military
actions.