The question posed in the title of this article is important because the wealth created from a strong economy is vital for the well-being and prosperity for any nation, particularly for its defense and security. Security is the paramount concern for Armenia, and wealth is a necessary but not sufficient condition for assuring it. The issue of security and defense is complex and separate from this discussion. 

By “economy,” I mean the word in its simplest sense, which is the creation of wealth in an open market-based system because that is what Armenia’s economy is trending toward. 

There are probably as many ideas, opinions, measures and wish lists that can answer the question of the Diaspora’s role in assisting Armenia’s economy as there are Diasporans arriving at Zvartnots International Airport. Many of these solutions may include the use of capital in the form of investment or charity applied directly by the holder of the capital or indirectly through a third person or organization. Another resource which is abundant in the Diaspora is human capital in the form of knowledge and expertise which may still be in short supply in Armenia, though that gap is narrowing. These are simple and obvious solutions readily available in an introductory macroeconomics course. It is also fair to say that the Diaspora has seemingly been generous with both resources for the past three decades. 

If this is so simple, why is the Armenian economy still so small and weak. There are multiple metrics which can readily attest to this, but the most painful, and perhaps the one that energizes Diasporans most (notably those who visit Armenia), is the high rate of poverty. 

Following are some thoughts and answers to the question of what the Diaspora can do to improve the economy of Armenia.

We may be overestimating the Diaspora’s capacity to make a transformational difference like the one brought about by the massive repatriation following World War II. The resources in the Diaspora may be vast, but what counts is whether they are available. The most striking evidence of stinginess is the trivial amount that was raised in the Diaspora during the 44-day war, which was nothing short of an existential threat. An estimated total of $180 million was raised. This represents less than one-percent of Armenia’s GDP, which is approaching $20 billion and growing nicely, but still very small and impoverished on a per capita basis. The estimates for the number of Armenians in the United States varies, but the U.S. Census captures about 500,000. With low estimates and U.S. GDP per capita of about $70,000 (though for Armenians it’s surely higher), approximately $35 billion of income is created annually by these self-identified Armenians. These very rough but conservative estimates answer both questions. There is enormous potential but it’s not available.

Human capital in the form of knowledge and expertise is a much softer resource and far more difficult to quantify, both in terms of investment and return. Arguably, such investment in the form of Diaspora assistance was more valuable in the immediate aftermath of the collapse of the Soviet Union. Thanks to a vast network of training, education, experience and simple Armenian entrepreneurship, the gap between home grown talent and that from abroad has narrowed significantly, particularly in Science, Technology, Engineering and Math (STEM). The role of women in this realm is enormous, and in many ways, offsets the demographic trends and the ever-present brain drain. Despite these advances, the value of Diasporan human capital should not be underestimated. 

Although this personal experience is from three decades ago, it still illustrates the point. When the U.S. Department of Treasury sent me to Armenia in 1995 to advise the country on establishing a Treasury debt program, I arrived with little knowledge of the inner workings of a Central Bank, a Ministry of Finance, or a Treasury, which Armenia did not yet have. Even mid-level officials of the Central Bank could run circles around me when it came to the quantitative fine points of central banking. I was a seasoned analyst at a major Wall Street bond rating agency and not a banker. Within four months of my arrival, we issued our first series of Armenian Treasury (Government) Bonds. We had no Treasury but did have a well-functioning government; hence the term in the parentheses to make the securities legal and enforceable. They were 28-day discount bonds sold through an auction held at the Central Bank. As such, the interest yield on the bonds was the difference between the bid price of the purchaser and the par value of the bond. The auction was oversubscribed; as such, we could place the entire series. But the effective interest was about 45-percent. The Minister of Finance, who had the authority to reject all the bids, was appalled with the results and was seriously considering nullifying the entire auction. This would have been catastrophic. It would send exactly the wrong message to the market, since in banking trust and predictability are indispensable. The network of bankers would never again trust the system and the government’s credibility would take years to recover. Convincing the minister to accept the bids was perhaps my most important contribution in my two-and-a-half years of service, even though it was not based on my technical expertise but on more of a banking “cultural” experience. The fact that the most recent Russian auction at the time had yields twice as high also helped my case. In the following months, the interest rates continued a steady decline, and Armenia went on to have a highly successful Treasury Bond program. This is a simple but instructive example of how the Diaspora can contribute in simple ways that can make a huge difference in the long run. 

So, with these vast resources, why is the Diaspora not making a larger contribution to the Armenian economy? As an observer, I believe that the relationship is dysfunctional and both sides are to blame. But, based on my purely anecdotal experience and observation, there is fundamental disagreement on approach and a lack of understanding of one another. For too many Diasporans with good intentions, the fault lies in being oblivious to the ever-changing investment climate in Armenia and lacking the humility needed to learn and adapt.

None of this is to disparage the countless Diasporans who have made enormous sacrifices for decades and have made notable contributions to the economy with their financial and human capital. I’m only suggesting that the success rate would have been much higher but for these shortcomings. And the success stories are usually the results of efforts which avoided the aforementioned pitfalls, as the two examples that follow will suggest.

Armenia also has a great responsibility to shoulder in the general failure to attract more lasting and meaningful investment from the Diaspora. Its most benign failure is the lack of capacity to absorb the proposed investment or assistance. Sometimes an investment just does not fit for all sorts of reasons, and it falls by the wayside. But too often the Diaspora is viewed as an ATM. The expectation is to bring as much capital as possible and simply spend it without asking any questions or expecting anything in return. The privilege of simply being in Armenia is deemed sufficient reward, and any reasonable expectation of accountability is met with scorn. The shortcomings of the Diaspora previously mentioned are overstated, and too often good opportunities are dismissed, even if there was real benefit to be reaped. 

By all accounts, in the Diaspora or locally, corruption has been the single most damaging force to obstruct investment, foreign or domestic. Two points can be readily made. Corruption is a common problem throughout the developing world, but in Armenia the current government has done a decent job in reducing it with tangible results. But as they say, perception is reality, and, still too often, reality is reality. Corruption in some form or another persists. But just as damaging is the perception of corruption, which also persists because transparency is still in short supply, and legal and judicial reform continue to lag other reforms.    

All is not lost. There is a great deal that the Diaspora can do for the benefit of the Armenian economy. And a strong economy is vital for meeting all sorts of national needs, including a meaningful national defense. But what is the most effective path, in terms of efficiency and outcomes? The theoretical answer is the path that avoids, overcomes and navigates the pitfalls discussed above. 

To answer the question more specifically, and with the discussion above, the optimal path is direct private investment and perseverance.

Fortunately, we have been at this for thirty years and have the benefit of some real data. Following are two notable examples which share common characteristics. These entrepreneurs made a large direct private investment in Armenia years ago with a long-term commitment and have the results to show for it. They do not view their work as charity but as business investment. They are sensitive to cultural differences. They do not take obstacles, even irrational ones, personally but view them as a course of doing business. They are also tenacious and patient. They employ hundreds with good, living wages and pay their share of taxes. 

Digital Pomegranate is a software development company located in Gyumri. Its founder and CEO is Todd Fabacher, a Louisianian married to an Armenian, who saw opportunities in Gyumri a decade ago when no one else did. Now, his company is the largest private employer in Gyumri with more than 100 high-paying jobs. Digital Pomegranate’s applications have a global reach, which has put the city on the map. Fabacher rejects the notion of investing for any reason other than meaningful return on investment. He chose Gyumri over Yerevan because of the lower cost of operating. According to Fabacher, Yerevan is quickly losing its competitiveness in many IT sectors due to rising costs (perhaps a sign of growing economy), and in the long run he believes only some clusters like chip design will maintain their advantage because of their size and entrenchment. He sees the lower cost of living in Gyumri as an opportunity to attract talent to fuel his growth plans. As a true entrepreneur, he speaks about all the difficulties which he has encountered over the years as opportunities on which to capitalize.    

Tufenkian Hospitality LLC Is the holding company for Tufenkian Heritage Hotels in Armenia. The chain of unique hotels is currently its founder James Tufenkian’s most recognizable endeavor in Armenia. Tufenkian was one of the first Diasporan investors in Armenia. His enormous capital commitment is matched only by his tenacity and unwavering dedication to the growth of the Armenian economy, from both the actual enterprises that bear his name and the ancillary benefits of his long-term presence in Armenia, such is being an example of excellence and developing expertise for the entire hospitality industry in Armenia. Tufenkian is perhaps best known, especially in the West for his unique artisan carpets, which was also his initial foray into the business world of Armenia; but his adaptability and commitment have allowed him to recognize and capitalize on emerging opportunities. Tufenkian’s companies now offer more than 300 well-paying jobs, and the company is among the largest corporate taxpayers in the country.

These are just two of the many private companies who are making measurable contributions to the economy, one representing the increasingly important tech industry and the other, the hospitality industry. The former represents the highest value addition to the economy on a per capita basis, and the latter, though not as high a value, contributes heavily to the brand of the country, whose indirect benefit to the economy is no less important.   

But what about smaller investors who lack the means for such bold interventions? For that, I have proposed and presented to the government of Armenia a plan which would allow smaller investors to invest in a fund with the purchase of securities. With these proceeds, the fund would extend loans to small Armenian enterprises which would otherwise be priced out of the capital markets. With the plan, Armenian companies would be able to borrow in Armenian drams at hard currency interest rates, which are typically several hundred basis points lower than domestic currency rates because of currency risk. But in this scenario, all the currency risk is shifted to the Diaspora investors, as they are required to make their investment in the fund in Armenian drams, and they are repaid, principal and interest, also in Armenian drams. In many ways, this plan is a substitute for the much-discussed Diaspora bonds, which may not be feasible for Armenia. There is only one example of a successful Diaspora bond program, and that is Israel’s. But that program has many unique features which are difficult to duplicate, most notably the United States guarantee for those bonds, which requires an Act of Congress.  

To conclude, the Armenian Diaspora has great potential to help grow the Armenian economy. But the Diaspora’s financial wealth and human capital have been largely unavailable or unproductive in making a difference relative to its potential. We should certainly analyze and think of ways to improve the existing paths and come up with new ones. But as things stand, direct private investment seems to be the most effective path.