RUSSIA CONSIDERS ARMENIA’S US$100-MIL. LOAN REQUEST TO BOOST DIAMOND INDUSTRY

World Markets Research Center
Global Insight
January 25, 2010

A Russian Finance Ministry spokesperson confirmed on 23 January
that the Armenian government has asked Russia for a US$100-million
loan to develop its diamond industry. The head of the Ministry’s
loan department, Konstantin Vyshkovsky, said that his agency was
considering the loan request and the decision would be made "within
reasonable time". Armenian Finance Minister Tigran Davtyan made the
request while visiting the Russian capital Moscow on 20 January.

Davtyan had announced earlier that part of the loan will be spent to
buy Russian rough diamonds; US$20 million will be spent to enhance
co-operation between Armenian diamond producers and Russia’s largest
diamond miner Alrosa, which produces 97% of Russian and 25% of global
diamond output. According to Alrosa, in 2009 it sold diamonds worth
US$2.19 billion, including US$2.13-billion-worth of rough diamonds
and US$60-million-worth of cut diamonds.

Significance:Given that the requested loan will benefit both Armenian
and Russian diamond producers, it is likely to be granted. The new cash
flow into diamond business is vital for Armenia, a small landlocked
former Soviet republic in the South Caucasus. Diamond exports made
up to 40% of Armenia’s total exports in the early 2000s.

With the onset of the global economic crisis, Armenian diamond exports
have plummeted. The country was one of the worst hit by the recession
among the former Soviet republics, with an 18% decline in GDP in 2009.

The diamond business’ importance increased largely because of the
realities on the ground. The country has been blockaded since regaining
its independence in 1991. Most of Armenia’s borders are sealed by
two out of its four neighbours, Turkey and Azerbaijan, which makes
exporting goods a nearly impossible task for Armenian producers.

Meanwhile, the low cost of transportation of diamonds combined with
cheap but traditionally highly skilled labour make the business
highly lucrative for the country. Given the bleak prospects of any
border-opening in near future either by Azerbaijan or Turkey, Armenia
is set to continue restructuring its economy by developing products
such as software products, as well as jewellery, including diamonds,
which have low or no transport costs.