PADLOCKED GATES & WINDFALL MONEY
By Albert Khachatryan
news.am
Nov 25 2009
Armenia
A decrease of as much as 5.1% in the gross domestic product (GDP) was
registered in Armenia this October as compared with this September. So
the present state of affairs has confounded the optimistic expectations
of a fundamental improvement aroused by the earlier published data
for September. We would remind you that, to everyone’s surprise,
4.8% GDP growth was registered this September as compared with the
previous month. That growth gave rise to claims that the "ailing"
economy was recovering, and Armenia would close this year with better
figures. Now that "better figures" have been called in question it is
time to think about the ongoing processes and understand the causes of
the economic collapse. And it is not only the global economic crisis
that has played a role.
The global crisis only exacerbated the negative trends started
many years ago. In its euphoria over the two-digit GDP the Armenian
authorities "overlooked" the fact that the Armenian market was from
year to year getting more and more dependent on the "outer world."
Imports were "snowballing" until they reached U.S. $4bn, a fantastic
amount for a small country like Armenia! Quite a good figure – if
counterbalanced by adequate exports of goods and services. However,
the unfavorable foreign trade balance reached a tremendous amount as
well – round U.S. $3.3bn.
In Soviet times a positive foreign trade balance was registered –
exports exceeded imports. Exports comprised a rather wide range of
products – both industrial and consumer goods. In 1990s, after the
USSR collapsed, the foreign markets were lost, and most of the local
industrial enterprises, faced with insurmountable problems involving
raw materials and energy resources, were closed up. So what is the
reason why, after some economic progress, they were not re-operated?
There exist to diametrically opposite opinions. Some think that the
gates of the enterprise are padlocked, and "should the Government
wish," it can unlock them. The enterprises will be re-operated, with
numerous jobs created and an end put to unemployment – a real idyll!
The illusions even experts are entertaining are obviously naïve,
and we do not have to dispel them. Those holding the opposite opinion
believe that the Armenian industry has no future, and the Government
had better focus on such growth sectors as tourism, IT and so on. So,
in this respect, we will have a bright future! Incidentally, let us
cite the example of India, where the IT industry is showing impressive
results: the industry’s share in the country’s GDP has increased from
1.2% up to 5.8% over the last decade. But, has this "breakthrough"
enabled the country to cope with the centuries-long poverty? One could
hardly say it. It is only "a limited contingent" of intellectuals
and the maintenance staff that are "doing well." Local experts admit
that the recent GDP growth pales in comparison with poverty level in
the country.
Determining Armenia’s growth economic sectors requires a critical
analysis of human resources in the country. The once implemented full
employment policy enabled numerous people without any professional
education to be employed. At present, however, the same people are
either unemployed or running "land-office businesses" at Armenia’s
trade fairs. It cannot be helped – even specialists with higher
education are unable to find jobs for years. No wonder that thousands
of able-bodies citizens are emigrating to the other CIS states or
foreign countries. By their financial aid to their own families in
Armenia, the Armenian guest workers "proved a great help" to Armenia’s
economic recovery. Indeed, the Armenian economy used to be "well
nourished" due to private transfers, which totaled U.S. $1.5bn yearly.
On the other hand, they proved fatal to the country’s industrial
development.
Since early 1990s, about 40% of the Armenian population had received
money transfers from their relatives abroad, which enabled them to
purchase more goods and services than they would have been able to
purchase on their salaries, pensions or allowances alone. A consumer
society was formed in Armenia. In other words, the solvent demand
significantly exceeded the production output in the country. Armenia
had not traditionally manufactured many consumer products – household
appliances, a number of food products, etc… Pursuing easy profit,
shrewd businessmen promptly arranged the import of the products in
question, and the Armenian market was soon flooded with cheap Chinese,
Turkish and Iranian goods. Along with the products not manufactured
in Armenia, they were importing products that were actively competing
with their home-made counterparts. Vodka is a glaring example. Early
in the 21st century the "demon drink" was mainly produced by local
enterprises, its import being merely symbolic. At present, however,
the imports of this "intoxicating liquor" constitute almost 1/3
of the total amount on the market, with dozens of distilleries,
including rather powerful ones, operating throughout Armenia!
As regards habit buying goods (i.e. tobacco), the situation is clear.
The worst of it is that the cheap imports prevent the restoration
of a number of industries, especially the light industry, in
Armenia. A great many reasons can be cited. Among other problems,
such as raw materials, relatively expensive energy carriers and low
labor productivity is the aforementioned loss of foreign markets. As
regards the local market it is too narrow for the giants. Small-scale
production results in a much higher cost of production, which makes
Armenian products noncompetitive with their Chinese and Turkish
counterparts. Could the problems be resolved? We think that many
of the "commercially unviable" enterprises would be re-operated if
the Government showed an adequate approach. True, we cannot dream
of a prospering light industry – it is different times now. It is
the golden mean in the opinions on the development prospects of our
industry. However, what has been an obstacle to at least partial
recovery of the industries?
Trade capital turnover ratio is much higher than that of industrial
capital, with a much larger cleanup. Monopoly over the import of a
number of products yielded profits industrials did not even dream of.
So many Armenian businessmen invested their capital in trade rather
than in industry. The high interest rates set banks producers were
unable to afford contributed to the process as well. The result is
what we have now. Affected by the global crisis, the Armenian economy,
which had to a great extent been based on financial transfers from
abroad, collapsed like house of cards. Experts estimate a decrease
in the financial transfers to Armenia this year at as much as 30%,
which, no doubt, has seriously affected the population’s solvency. The
low rates of increase in retail turnover (0.1% this January-October),
as well as a 1.5% decline in the paid services sector first observed
over the last few years, proved to be the first alarming symptom.