By Shant Mirzaians
In a report by the World Bank comparing business regulations in 190 economies, Armenia ranked 47 with a score of 74.5. Although there are areas that could be improved, Armenia is considered to be business friendly, especially in respect to the ease of starting a new one.
Small and medium sized businesses are a significant driving force in Armenia’s economy. Micro-businesses, enterprises that employ 1-9 people, make up a significant portion of Armenia’s small to medium businesses at over 23,000. Meanwhile small enterprises that employ 10-49 people make up a little over 3,000. Small and medium enterprises make up 97.9% of all businesses in Armenia. They also account for 19% of all employment and 25% of the country’s GDP.
For businesses involved in retail trade, shipping to customers outside of Armenia is a common challenge. Haypost, the national mailing service for Armenia, currently does not have an effective method for registering small companies that want to export. The registration process is bureaucratically difficult, and many small businesses instead opt to declare their exports under an individual name instead of their company. Although taxes are still paid through this method, there is a loss of potential revenue and more importantly, statistics on the businesses and exported products are not properly recorded. Without proper data, both the government and private entities cannot make informed economic decisions.
There is also a lack of an easy to use electronic money moving method in Armenia. Paypal is widely used across the world, but it is not available in Armenia. Instead, there is a domestic internet payment system called Idram. Idram operates within Armenia, but it is not commonly used by clients outside of the country. The lack of Paypal’s availability in Armenia is due to a business decision by Paypal.
Paypal currently does not find it economically viable to make their services available within Armenia. There have been meetings in the past between the government and Paypal representatives, but one way to make a strong case for Armenia is to present the correct statistics on business operations. These statistics are not wholly accurate when Small-Medium Enterprises (SME) are not properly registering their international sales due to the bureaucratic registration process.
A sentiment from most SMEs is that the government is not a major roadblock for businesses. Taxes are not particularly intrusive and basic business registration is readily available. If a business is not doing well, it is likely an internal problem than one imposed by the government.
“I don’t think that the issue is necessarily legal framework or the practice of legal framework. I think it’s more marketing skills, and supply chain management generally. You have to have a good product at the right price. You have to have good communication. You have to have access to the materials you need to make your product in quantity,” notes Tim Straight.
“If you look at Guatemala, India, Kenya, and you look at the percentage of GDP in those countries that is based on cottage industries, small production units in villages, in kitchens around the country and then sold locally or exported. This is what Armenia needs to understand it can do as well,” he adds.
By recognizing and focusing on SMEs, the government can address their concerns and promote further growth for the economy.
“A year after creating Aylkerp, our games began to fill the stores, and people understood that it could be profitable. Now there are so many games that we can’t even find our games,” Sofya remembers.
She adds that, “There are positive points to this, it creates competition. Everyone tries to create a good product. But it has it’s negative effects because they try to copy each other. For example, if you put out a game, someone may make small changes and basically put out the same product.”
This prompted Aylkerp to adapt and continue to innovate new game types in order to keep up with competition.
Pes-Pes products can now be found in local bookstores and children’s toy stores. They also service businesses internationally as well as local companies that provide gifts for their employee’s families during holidays.
Given the challenges small and medium sized businesses face, the economy continues to grow. SMEs are an important contributing factor to that growth. Cooperation between the public and private sectors to address key issues can help encourage further growth and development within Armenia.