ARMENIA: IS YEREVAN CAUGHT IN A TRADE TRAP?
Marianna Grigoryan
nsightb/articles/eav100509.shtml
10/05/09
With less than a week to go before Armenian Foreign Minister Eduard
Nalbandian signs protocols to normalize Yerevan’s relations with
longtime foe Turkey, attention is focusing on what an open Turkish
border will mean for Armenian businesses. Many entrepreneurs worry
that the prognosis is unsettling.
Turkey has pledged that it will lift its economic blockade against
Armenia within two months after the protocols win legislative
ratification in both Ankara and Yerevan. The protocols are scheduled
to be signed on October 10. [For background see the Eurasia Insight
archive]. The Armenian economy has long struggled in the face of a lack
of trade routes. [For background see the Eurasia Insight archive]. But
these days, some entrepreneurs and economists in Yerevan believe
domestic producers could go into trade shock if they are exposed too
rapidly and haphazardly to competition with Turkey.
In 2008, despite a closed border and lack of diplomatic ties, Armenia
conducted some $269 million in trade with Turkey, according to the
National Statistical Service. This is twice the level of trade with
Georgia ($131.3 million), the current transit country for Turkish
goods to Armenia. Turkish trade volume is projected to rapidly rise
if the border is opened.
At a September 16 news conference in Yerevan, Mark Lewis, the head
of a visiting International Monetary Fund delegation, expressed the
belief that the Armenian economy "would significantly benefit" from
an open border with Turkey, with Armenian exporters gaining access to
"a new and lucrative market."
But local opinions differ about how far those benefits will actually
go. Thirty-three-year-old Yerevan resident Lusine Harutiunian has been
importing jeans from Turkey via Georgia for the past several years.
Although Harutiunian describes the Georgia route as "expensive" and
time-consuming, she remains uncertain about how an open border with
Turkey could improve things. "I don’t know what our situation will
be like in case the border opens," Harutiunian said.
Tatoul Manasserian, a professor of international business and economics
at Yerevan State University, worries that the Armenian economy could
be swamped by a trade imbalance with Turkey. Manasserian argued
that Armenia "has no competitive goods to offer Turkey" apart from
electricity. In March 2010, Armenia is expected to begin delivering
annual power supplies of 1.5 billion kilowatts per hour to Turkey.
But in other sectors, there exists a belief that Armenian firms
are not ready to compete against their more experienced Turkish
counterparts. Manasserian explained that production costs within
Armenia tend to be higher than in Turkey, and rates of foreign
investment lower. The global economic crisis could also play a role
— the Armenian economy is expected to shrink by roughly 15 percent
by year’s end, according to the IMF. [For background see the Eurasia
Insight archive].
"[I]f the government does not demonstrate a special attitude and have
a clear strategic program, local producers will have ? difficult time,"
Manasserian said.
Vazgen Safarian, chairman of the Union of Domestic Manufacturers of
Armenia, an association of some 500 Armenian companies, agrees. Armenia
exported about $1.8 million in fur, ferrous scrap metal, aluminum and
foil to Turkey in 2008, according to the group’s data. That amount
is just a fraction of the value of goods that Turkey exports to
Armenia. "On the one hand, our consumers will benefit from the cheap
goods, but on the other hand, this will doom our local producers to
having to shut down or to suspend operations," Safarian said. Armenia
last year imported mostly bitumen, fuels and knitted fabrics from
Turkey, Safarian’s organization reports.
To help Armenian manufacturers survive amid Turkish competition, the
manufacturer’s union has proposed that the government give discounted
loans to domestic producers and erect trade barriers. The proposals
will be submitted for consideration this month to President Serzh
Sargsyan’s Public Council, a 1,200-member advisory body.
One lobbyist for expanded business ties with Turkey disagrees with
the union’s tactics, however. Once the border opens, Armenia could
again become a crossroads for trading routes between Europe and
Asia, contends Arsen Ghazarian, a co-chairman of the Armenian-Turkish
Business Development Council, which promotes trade between Armenia and
Turkey. Lingering "psychological" issues among Armenian consumers mean
that Turkish goods will have a tough time making inroads in Armenian
markets for the time being, Ghazarian added.
Instead, the heightened competition could help Armenia’s agricultural,
healthcare and science sectors, he told reporters on September
11. Ghazarian did not specify how these sectors in particular would
benefit from increased competition. Chances for "serious joint
projects" in the manufacture of clothing, one of the most popular
areas for Turkish imports, also exist, he continued.
But one Yerevan businessman who imports fabrics from Turkey is
skeptical about the potential benefits of an open border. Lernik
Yesaian says that his business has picked up considerably in the last
seven to eight years. But he now worries that when an open border
causes import costs to fall, other Armenian firms will be induced to
join the trade, and his own company’s profits stand to shrink. "Then,
many people will start importing goods, maybe the prices will go down,"
said Yesaian. "[T]his will hit everyone, [but] I think my business
will suffer."
Economist Manasserian similarly cautions that Armenian businesses
should expect the worst and be prepared. "We should understand that
the opening of borders will not resolve problems, but, rather, mark
the beginning of new problems," said Manasserian.
Editor’s Note: Marianna Grigoryan is a freelance reporter based
in Yerevan.
From: Emil Lazarian | Ararat NewsPress
