ARMENIA LOSES ECONOMIC BATTLE, DOOMED TO LOSE POLITICAL ONE

Today’s Zaman

July 22 2011
Turkey

Armenia as number two in the ranking of “The World’s Worst Economies”
in US business magazine Forbes should ring alarm bells for this
landlocked country in the Southern Caucasus.

It made one thing crystal clear: The continuation of the illegal
occupation of 20 percent of Azerbaijani lands despite four UN Security
Council resolutions is no longer a sustainable policy for Armenia as
it has started to take a heavy toll on the country’s economy.

The lifeline provided to its economy by regional powers Russia and
Iran, as well as money flowing from the diaspora, is not enough to
halt the deterioration of the Armenian economy. Armenia desperately
needs a sustainable long-term economic plan for its people.

The goodwill or shaky strategic assistance secured temporarily from
regional powers alone will not help Armenia stay afloat at a time
when the world is bracing itself for another economic crisis, likely
to originate from a deepening crisis in the eurozone.

You may question the methodology used in Forbes magazine’s
calculations, but in the end the analysis used the data provided to
the International Monetary Fund (IMF) by Armenia itself, compiled over
the last three years and in which the prospects of next year have been
factored in. It looked at several factors, like high inflation, lower
growth, the income per capita and a negative trade balance. Armenian
Finance Minister Vache Gabrielyan may try to put the blame on the
2008-2009 world economic crises as an explanation for his country’s
poor development. But the problem is not just limited to whether or
not the country’s economy was impacted by external shocks. The country
has structural problems and needs to trade more, which looks unlikely
given the military occupation of Azerbaijani lands.

At the expense of preserving the current status quo and hopefully
gaining independence for Nagorno-Karabakh in negotiations with
Azerbaijan, Armenia is losing its vital assets, most importantly its
human capital. The number of people who emigrated from Armenia remains
unclear. Official figures indicate that nearly 80,000 people left
the country for good in the past three years while nongovernmental
organizations estimate the actual number during that same period may
have reached several hundred thousand. It was claimed that 45,000
people fled the country in just the past four months.

No matter how you interpret the different numbers, the important
thing is that there is a clear and identifiable trend pointing to a
mass exodus in the two decades since the conflict started. People are
looking for better opportunities in terms of employment and escaping
from their poor living conditions in Armenia. Most importantly, the
majority of people who left Armenia were highly qualified people,
the crème de la crème, so to speak. This loss of human capital,
which is considered to be part of the national wealth, is not the
only source of concern for Armenia. It is faced with the outflow of
financial capital as well, which, as is to be expected, is transferred
to safe and secure places for investment.

Because of the occupation of neighboring Azerbaijani territories,
Armenia cannot trade with the two economic powerhouses in the region
— Turkey and Azerbaijan, both of whom have booming economies despite
the economic crisis brewing in Europe. Turkey, with record economic
growth in the last quarter, even outpacing China, closed its border
with Armenia in April 1993 in protest of Armenian aggression. It tied
the reopening of the border to a solution of the Nagorno-Karabakh
conflict out of solidarity with Azerbaijan, resisting Western pressure
to open the borders.

To be cut off from lucrative trade with Turkey was not the only price
Armenia had to pay. The Armenian government in Yerevan was also left
out of important regional projects like the Baku-Tbilisi-Ceyhan (BTC)
pipeline and the Baku-Tbilisi-Kars railway. The access to Western
markets via Turkey is a huge loss for the Armenian economy as well.

We all remember when Haydar Aliyev, the father of Ilham Aliyev,
proposed constructing the BTC pipeline through Armenia in exchange
for a return of occupied lands. Both Turkey and Azerbaijan had the
BTC run through Georgia instead, meaning a significant loss for the
Armenian economy.

The same thing happened with the railway. Just to give an example,
Azerbaijan extended a $200 million loan to Georgia as part of the first
stage in the construction of this railway with an additional loan
of $575 million to be allocated for the next stage. This investment
may have easily gone to Armenia had it ended the occupation and
established good relations with Azerbaijan. The project is expected
to be completed by the end of next year and will make both Georgia and
Azerbaijan transportation hubs in the region. The construction of the
biggest Caspian trade seaport in Alat will extend the reach of this
railway to Central Asia, connecting both eastern and western trade
routes. Armenia stands to lose even more in both strategic terms as
well as commercially from other energy and transportation projects
currently being considered in the region.

Because of the conflict, Armenia has lost contact with the most
important economic power in the South Caucasus as well. Azerbaijan
constitutes 75 percent of the South Caucasus economy and gross
product as well as 90 percent of export potential, thanks mainly to
the oil-extracting business. The economy has grown threefold in the
past seven years, while gross domestic product (GDP) has increased 300
percent. As personal income levels have risen dramatically, poverty was
reduced fivefold, according to government statistics. Just last year,
the country received $16 billion in investments. In the first half
of 2011, investments worth $5.7 billion were made in Azerbaijan’s
economy, with more than 70 percent of these funds being directed
to the agricultural sector’s development as part of diversification
policies, which gives priority to the development of sectors of the
economy other than the oil business.

Given the economic dynamics, time is not on Armenia’s side. They have
vested strategic interest in keeping the process of negotiation alive
to find a solution for this long-running conflict with Azerbaijan. It
is a shame that the Kazan talks, held last month between Azerbaijan
and Armenia under Russian stewardship, did not produce any result, but
I do not agree with the premise that the status quo benefits Armenia.

I think having no breakthrough in talks would hurt Armenia more than
ever as it loses out on huge economic opportunities during a time of
crisis in the world economy.