1. Openness To, and Restrictions Upon, Foreign Investment
The government of Armenia officially welcomes foreign investment. The Ministry of Economy is the main government body responsible for the development of investment policy in Armenia. Armenia has achieved respectable rankings on some global indices measuring the country’s business climate. Armenia’s investment and trade policy is relatively open; foreign companies are entitled by law to the same treatment as Armenian companies. Armenia has strong human capital and a well-educated population, particularly in the science, technology, engineering, and mathematics fields, leading to significant investment in the high-tech and information technology sectors. Many international companies have established branches or subsidiaries in Armenia to take advantage of the country’s pool of qualified specialists and position within the Eurasian Economic Union (EAEU). However, many businesses have identified challenges with Armenia’s investment climate in terms of the country’s small market (with a population of less than three million), limited consumer buying power, relative geographic isolation due to closed borders with Turkey and Azerbaijan, and concerns related to weaknesses in the rule of law.
Following a peaceful revolution in 2018 fueled in large measure by popular frustration with endemic corruption, Armenia’s government launched a high-profile anti-corruption campaign. The fight against corruption needs to be institutionalized in the long term, especially in critical areas such as the judiciary, tax and customs operations, and health, education, military, and law enforcement sectors. Foreign investors remain concerned about the rule of law, equal treatment, and ethical conduct by government officials. U.S companies have reported that the investment climate is tainted by a failure to enforce intellectual property rights. There have been concerns regarding the lack of an independent and strong judiciary, which undermines the government’s assurances of equal treatment and transparency and reduces access to effective recourse in instances of investment or commercial disputes. Representatives of U.S. entities have raised concerns about the quality of stakeholder consultation by the government with the private sector and government responsiveness in addressing concerns among the business community.
Government officials have publicly responded to private sector concerns about perceptions of slow movement in the government bureaucracy as a function of needing to guard against corruption-related risks. The Armenian National Interests Fund and Investment Support Center (Enterprise Armenia) are responsible for attracting and facilitating foreign direct investment.
There are generally very few restrictions on foreign ownership or control of commercial enterprises. There are some restrictions on foreign ownership within the media and commercial aviation sectors. Local incorporation is required to obtain a license for the provision of auditing services.
The Armenian government does not maintain investment screening mechanisms in general, and for foreign direct investment, in particular. Government approval is required to take advantage of certain tax and customs privileges, and foreign investors are subject to the same requirements as domestic investors where regulatory approvals may be involved.
An Armenian ecological NGO recently published an article claiming that many mines in Armenia do not have corporate social responsibility obligations, which are required by law. However, it was unclear from the article if the mines in question were still actively operating.
Link to Global Witness country-specific reports: https://www.globalwitness.org/en/all-countries-and-regions/
Link to conflicts listed on Environmental Justice Atlas, under “basic data,” select country: https://ejatlas.org/
In 2019, the U.N. Conference on Trade and Development (UNCTAD) published its first investment policy review for Armenia. The World Trade Organization (WTO) published a Trade Policy Review for Armenia in 2018.
Companies can register electronically here. This single window service was launched in 2011 and allows individual entrepreneurs and companies to complete name reservation, business registration, and tax identification processes all at once. The application can be completed in one day. An electronic signature is needed in order to be able to register online. Foreign citizens can obtain an e-signature and more detailed information from the e-signature portal. In 2019, the government launched an e-regulations platform that provides a step-by-step guide for business and investment procedures. The platform is available at https://armenia.eregulations.org/ . According to the latest estimates, it takes four days to complete the company registration process in Armenia.
The Armenian government does not restrict domestic investors from investing abroad.
6. Financial Sector
The banking system in Armenia is sound and well-regulated, but the financial sector is not highly developed, according to investors. Banking sector assets account for over 80 percent of total financial sector assets. Financial intermediation tends to be poor. Nearly all banks require collateral located in Armenia, and large collateral requirements often prevent potential borrowers from entering the market. U.S. businesses have noted that this creates a significant barrier for small- and medium-sized enterprises and start-up companies.
The Armenian government welcomes foreign portfolio investment and there is a supporting system and legal framework in place. Armenia’s securities market is not well developed and has only minimal trading activity through the Armenia Securities Exchange, though efforts to grow capital markets are underway. Liquidity sufficient for the entry and exit of sizeable positions is often difficult to achieve due to the small size of the Armenian market. The Armenian government hopes that as a result of pension reforms in 2014, which brought two international asset managers to Armenia, capital markets will play a more prominent role in the country’s financial sector. Armenia adheres to its IMF Article VIII commitments by refraining from restrictions on payments and transfers for current international transactions. Credit is allocated on market terms and foreign investors are able to access credit locally.
Since 2020, the banking sector has withstood the twin shocks created by COVID-19 and the Nagorno-Karabakh conflict. Indicators of financial soundness, including capital adequacy and non-performing loan ratios, have remained broadly strong. The sector is well capitalized and liquid. Non-performing loans have ticked upward slightly from rates of around five percent of all loans. Dollarization, historically high for deposits and lending, has been falling in recent years. Seventeen commercial banks operate in Armenia. In 2021, all commercial banks in Armenia generated net profits and all had a positive return on average equity (the financial ratio that measures the performance of a bank based on its average shareholders’ equity outstanding). Total bank assets in Armenia at the end of 2021 were $14 billion; Armenia’s 2021 GDP was approximately $13.6 billion. As such, the ratio of banks’ total assets to GDP – approximately one-to-one – is average compared to peer countries. Concentration of banks’ assets is considered to be very low, with the three largest banks holding less than fifty percent of total banking sector assets. Market share of the largest five banks was 56 percent in 2021. Overall, Armenia’s banking sector is viewed by international financial institutions (IFIs) as relatively healthy.
The minimum capital requirement for banks is 30 billion AMD (around $59 million). There are no restrictions on foreigners to open bank accounts. Residents and foreign nationals can hold foreign currency accounts and import, export, and exchange foreign currency relatively freely in accordance with the Law on Currency Regulation and Currency Control. Foreign banks may establish a subsidiary, branch, or representative office, and subsidiaries of foreign banks are allowed to provide the same types of services as domestically owned banks.
The CBA is responsible for the regulation and supervision of the financial sector. The authority and responsibilities of the CBA are established under the Law on the Central Bank of Armenia. Numerous other articles of legislation and supporting regulations provide for financial sector oversight and supervision.
Armenia does not have a sovereign wealth fund.
8. Responsible Business Conduct
Comprehension of responsible business conduct (RBC) in Armenia is still developing, but several larger companies with foreign ownership or management have been operating under the concept in recent years. Initiatives, where they do exist, are primarily limited to corporate social responsibility efforts. However, RBC programs that do exist are viewed favorably. Some civil society groups and business associations are playing a more active role to promote RBC and develop awareness. Major pillars of corporate governance in Armenia include the Law on Joint Stock Companies, the Law on Banks and Banking Activity, the Law on Securities Market, and a Corporate Governance Code. International observers note inconsistencies in this legislation and generally rate corporate governance practices as weak to fair. Specific areas for potential improvement cited by the local business community include improving internal and external auditing for firms, enhancing the powers of independent directors on company boards, and boosting shareholders’ rights. Armenia has outlined commitments to corporate governance reforms, including with regard to mandatory audit, accounting, and financial reporting, within the context of an ongoing Stand-By Arrangement with the International Monetary Fund.
Armenia joined the Extractive Industries Transparency Initiative (EITI) in March 2017 as a candidate country. The first EITI national report for Armenia was published in January 2019. As part of its EITI membership aspirations, the government in March 2018 adopted a roadmap to disclose beneficial owners in the metal ore mining industry. Relevant implementing legislation, including for beneficial ownership disclosure, was adopted in 2019.
Armenia is not a signatory to the Montreux Document on Private Military and Security Companies, and no Armenian party is a member of the International Code of Conduct for Private Security Providers’ Association.
Domestic laws and regulations related to labor, employment rights, consumer protection, and environmental protection are not always enforced effectively. These laws and regulations cannot be waived to attract foreign investment.
Department of State
- Country Reports on Human Rights Practices;
- Trafficking in Persons Report;
- Guidance on Implementing the “UN Guiding Principles” for Transactions Linked to Foreign Government End-Users for Products or Services with Surveillance Capabilities;
- U.S. National Contact Point for the OECD Guidelines for Multinational Enterprises; and
- Xinjiang Supply Chain Business Advisory.
Department of the Treasury
Department of Labor
Contact at the government agency or agencies that are responsible for combating corruption:
Anti-Corruption Committee (ACC)
13A Vagharsh Vagharshyan Street Yerevan, Armenia
+374 11 900 002
Contact at a “watchdog” organization: Sona Ayvazyan Executive Director
Anti-Corruption Center 12 Saryan Street Yerevan, Armenia
+374 10 569 589
Following 2021 parliamentary elections that international monitors assessed as upholding fundamental rights and freedoms, the Armenian government’s commitment to eradicating corruption continues. Policy action and systemic change remain strong, and the government has pressed forward with legislative actions to establish investigative, prosecutorial and judicial anti-corruption institutions. The government’s anti-corruption agenda is outlined in a 2019–2022 strategy and action plan. These documents establish a new anti-corruption institutional framework with separate entities tasked with preventive, investigative, and prosecutorial functions as well as the Specialized Anti-Corruption Court. Established in 2019, the Corruption Prevention Commission (CPC) is the main entity responsible for preventing corruption and building integrity across government and society. CPC continued to make progress in the areas of asset declaration and integrity checks but has yet to fulfill its mandates for oversight of political party financing and prevention of conflicts of interest. The Anti-Corruption Committee, as an investigative body, was established in September 2021 to lead pre-trial criminal proceedings on alleged corruption crimes by carrying out both investigative and operative intelligence activities. The amendments to the Judicial Code on establishing the Specialized Anti-Corruption Court (SACC) were adopted on April 14, 2021, thus marking the completion of the creation of the government’s new institutional framework to fight corruption. The SACC is the first instance court, and the judges specialized in anti-corruption cases will sit at the Criminal Court of Appeals and the Anti-Corruption Chamber of the Cassation Court. As a follow-up to the passage of the Law “On Civil Forfeiture of Illegal Assets,” the department dealing with cases of civil forfeiture of illegal assets was established in September 2020 within the General Prosecutor’s Office.
Civil society actors are divided in their opinions about the effectiveness of the government’s anti-corruption measures. Some assess the implementation of the anti-corruption program is on track, while others contend that the work of law enforcement and judiciary on corruption cases is not effective enough, citing already opened criminal cases on corruption and embezzlement that do not reach completion.
Corruption remains an obstacle to U.S. investment in Armenia, particularly as it relates to critical areas such as the justice system and concerns related to the rule of law, enforcement of existing legislation and regulations, and equal treatment. Investors claim that the health, education, military, corrections, and law enforcement sectors lack transparency in procurement and have in the past used selective enforcement to elicit bribes. Judges who specialize in civil cases are still widely perceived by the public to be corrupt and under the influence of former authorities. The effectiveness and independence of newly formed anti-corruption institutions remains to be seen. Some individuals have voiced concerns around whether certain judicial representatives and law enforcement leaders have been selected objectively. The potential for politically motivated, outside influence on these anti-corruption institutions, as well as law enforcement bodies and prosecutorial services, also remains a concern.
Transparency International released its Corruption Perception Index (CPI) 2021, ranking Armenia 58th among 180 countries. According to the report, Armenia’s CPI score in 2021 remained unchanged compared to 2020 (score of 49). Armenia’s rating is higher than the CPI global average of 43, indicating Armenia’s public sector was perceived by experts and businesspeople to be less corrupt than the global average. Among 19 countries in Eastern Europe and Central Asia, Armenia ranked the second highest. The report cited Armenia as among the countries which has registered significant progress in the last decade. (In his December 2021 Summit for Democracy speech, Prime Minister Pashinyan noted Armenia aims to rise from a score of 49 to 60 in Transparency International’s Corruption Perception Index by 2026.)
Various laws prohibit the participation of civil and municipal servants, as well as local government elected officials such as mayors and councilors, in commercial activities. However, powerful officials at the national, district, and local levels often acquire direct, partial, or indirect control over private firms. Such control is often exercised through a hidden partner or majority ownership of fully private parent companies. This involvement can occur through close relatives and friends. According to foreign investors, these practices reinforce protectionism, hinder competition, and undermine the image of the government as a facilitator of private sector growth. Because of the historically strong interconnectedness of the political and economic spheres, Armenia has often struggled to introduce legislation to encourage strict ethical codes of conduct and the prevention of bribery in business transactions. In 2016, Armenia adopted legislation on criminal penalties for illicit enrichment and noncompliance or fraud in filing declarations.
Armenia is a member of the UN Convention against Corruption. While not a party to the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, Armenia is a member of the OECD Anti-Corruption Network for Eastern Europe and Central Asia and has signed the Istanbul Action Plan. Armenia is also a member of the global Open Government Partnership initiative.
No specific law exists to protect NGOs dealing with anti-corruption investigations.
11. Labor Policies and Practices
Armenia’s human capital is one of its strongest resources. The labor force is generally well educated, particularly in the science, technology, engineering, and mathematics fields. Nearly 100 percent of Armenia’s adult population is literate. According to official data, enrollment in secondary school is over 90 percent, and enrollment in senior school (essentially equivalent to American high school) is approximately 85 percent. Despite this, official statistics indicate a high rate of unemployment, at around 20 percent. Unemployment is particularly pronounced among women and youth, and significant underemployment is also a problem.
Considerable foreign investment in Armenia has occurred in the high-tech sector. High-tech companies have established branches or subsidiaries in Armenia to take advantage of the country’s pool of qualified specialists in electrical and computer engineering, optical engineering, and software design. There is a shortage of workers with vocational training. About 20 percent of the non-agricultural workforce is employed in the informal economy, primarily in the services sector. Armenian law protects the rights of workers in the formal sector to form and to join independent unions, with exceptions for personnel of the armed forces and law enforcement agencies. The law also provides for the right to strike, with the same exceptions, and permits collective bargaining. The law stipulates that workers’ rights cannot be restricted because of membership in a union. It also differentiates between layoffs and firing with severance. According to some reports, labor organizations remain weak because of employer resistance, high unemployment, and unfavorable economic conditions; collective bargaining is not common in Armenia. Experts observe that the right to strike, although enshrined in the constitution, is difficult to realize due to mediation and voting requirements. Labor unions are generally inactive with the exception of those connected with the mining and chemical industries, and a few small grassroot movements to create unions in the fields of education and public health have sprung up over the last few years. Labor laws cannot be waived to retain or attract investment.
The current Labor Code is considered to be largely consistent with international standards. The law sets a standard 40-hour workweek, with 20 days of mandatory annual paid leave. However, there are consistent reports that many private sector employees, particularly in the service sector, are unable to obtain paid leave and are required to work more than eight hours a day without additional compensation. The treatment of labor in FEZs is no different than elsewhere in the country. Employers are generally able to adjust employment in light of fluctuating market conditions. Severance in general does not exceed 60 working days. Benefits for workers laid off for economic reasons are mostly limited to receiving qualification trainings and job search assistance.
Individual labor disputes can usually be resolved through courts; however, the courts are often overburdened, causing significant delays. Collective labor disputes should be resolved through collective bargaining.
Since 2019, Armenia’s Health and Labor Inspection Body (HLIB) has gradually begun to exercise more robust enforcement of labor legislation and fulfill its oversight function. Its full mandate came into force in July 2021. Throughout 2021, the government continued to adopt inspection checklists and risk assessment methodologies in various sectors to enable HLIB to carry out inspections. HLIB also continued to add new inspectors throughout the year.
Amendments to the Labor Code that entered into force in 2015 clarified the procedures for making changes in labor contracts and further specified the provisions required in labor contracts, notably those relating to probationary periods, vacation, and wage calculations.
The current legal minimum wage is AMD 68,000 (approximately $135) per month. Most companies pay an unofficial extra-month bonus for the New Year’s holiday. Wages in the public sector are often significantly lower than those in the private sector.