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Armenia

Executive Summary

Over the past several years, Armenia has received consistently respectable rankings in international indices that review country business environments and investment climates. Projects representing significant U.S. investment are present in Armenia, most notably ContourGlobal’s Vorotan Hydroelectric Cascade and Lydian’s efforts to develop a major gold mine. U.S. investors in the banking, energy, pharmaceutical, information technology, and mining sectors, among others, have entered or acquired assets in Armenia. Armenia presents a variety of opportunities for investors, and the country’s legal framework and government policy aim to attract investment, but the investment climate is not without challenges. Obstacles include Armenia’s small market size, relative geographic isolation due to closed borders with Turkey and Azerbaijan, weaknesses in the rule of law and judiciary, and a legacy of corruption. Net foreign direct investment inflows are low.  Armenia had commenced a robust recovery from a deep 2020 recession prior to the introduction of new sanctions against Russia.  GDP growth reached five percent in 2021 and had been expected to continue to grow in 2022 by at least five percent.  As a result of the war and sanctions imposed on Russia, Armenia’s 2022 GDP growth forecast is now just above one percent.

In May 2015, Armenia signed a Trade and Investment Framework Agreement with the United States. This agreement established a United States-Armenia Council on Trade and Investment to discuss bilateral trade and investment and related issues. Since 2015, Armenia has been a member of the Eurasian Economic Union, a customs union that brings Armenia, Belarus, Kazakhstan, Kyrgyzstan, and Russia into a single integrated market. In November 2017, Armenia signed a Comprehensive and Enhanced Partnership Agreement with the European Union, which aimed in part to improve Armenia’s investment climate and business environment.

Armenia imposes few restrictions on foreign control and rights to private ownership and establishment. There are no restrictions on the rights of foreign nationals to acquire, establish, or dispose of business interests in Armenia. Business registration procedures are generally straightforward. According to foreign companies, otherwise sound regulations, policies, and laws are sometimes undermined by problems such as the lack of independence, capacity, or professionalism in key institutions, most critically the judiciary. Armenia does not limit the conversion and transfer of money or the repatriation of capital and earnings. The banking system in Armenia is sound and well-regulated, but investors note that the financial sector is not highly developed. The U.S.-Armenia Bilateral Investment Treaty provides U.S. investors with a variety of protections. Although Armenian legislation offers protection for intellectual property rights, enforcement efforts and recourse through the courts are in need of improvement.

Armenia experienced a dramatic change of government in 2018, when a democratically elected leader came to power on an anti-corruption platform after street protests toppled the old regime. Following the 2020 NK hostilities, in June 2021, the incumbent retained power in snap parliamentary election that met most international democracy standards.  The government continues to push forth with economic and anti-corruption reforms that have improved the business climate.  Overall, the competitive environment in Armenia is improving, but several businesses have reported that broader reforms across judicial, tax, customs, health, education, military, and law enforcement institutions will be necessary to shore up these gains.

Despite improvements in some areas that raise Armenia’s attractiveness as an investment destination, investors claim that numerous issues remain and must be addressed to ensure a transparent, fair, and predictable business climate. A number of investors have raised concerns about the quality of dialogue between the private sector and government. Investors have also flagged issues regarding government officials’ ability to resolve problems they face in an expeditious manner. An investment dispute in the country’s mining sector has attracted significant international attention and remains outstanding after several years.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2021 58 of 180 http://www.transparency.org/research/cpi/overview 
Global Innovation Index 2021 69 of 132 https://www.globalinnovationindex.org/analysis-indicator 
U.S. FDI in partner country ($M USD, historical stock positions) 2019 USD 6 million https://apps.bea.gov/international/factsheet/ 
World Bank GNI per capita 2020 USD 4,220 https://data.worldbank.org/indicator/NY.GNP.PCAP.CD 

1. Openness To, and Restrictions Upon, Foreign Investment

3. Legal Regime

4. Industrial Policies

5. Protection of Property Rights

6. Financial Sector

7. State-Owned Enterprises

Most of Armenia’s state-owned enterprises (SOEs) were privatized in the 1990s and early 2000s, but SOEs are still active in a number of sectors. SOEs in Armenia operate as state-owned closed joint stock companies that are managed by the Department of State Property Management and state non-commercial organizations. There are no laws or rules that ensure a primary or leading role for SOEs in any specific industry. Armenia is party to the WTO Government Procurement Agreement, and SOEs are covered under that agreement. SOEs in Armenia are subject to the same tax regime as their private competitors, and private enterprises in Armenia can compete with SOEs under the same terms and conditions. The Department of State Property Management maintains a public list of state-owned closed joint stock companies on its website.

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.

9. Corruption

10. Political and Security Environment

Armenia has a history of political demonstrations, most of which have remained peaceful. There have been some instances, however, of violent confrontations between police and protesters, or of attacks on government officials. The last major violent protest occurred in November 2020 following the release of a tripartite ceasefire statement by Armenia, Azerbaijan, and Russia, which brought an end to the fall 2020 intensive fighting in and around NK. Individuals and groups displeased with the announcement stormed government buildings and destroyed property. Protestors assaulted the speaker of parliament in the streets of Yerevan and broke into the prime minister’s residence. Since the release of the tripartite statement, groups opposed to the government have organized regular marches and rallies in Yerevan that have remained largely peaceful and caused minimal disruption to ordinary business. Pro-government groups have also organized peaceful rallies, although less frequently. Throughout Armenia, protestors use road blockades as a common tactic to register discontent, most often with the government over community-level issues. The disruption created by such road blockades is usually minimal. Protests have not resulted in any damage to projects of installations of international businesses. It is unlikely that civil disturbances, should they occur, would be directed against U.S. businesses or the U.S. community.

During 44 days of intensive fighting from September 27 to November 10 in 2020 involving Azerbaijan, Armenia, and Armenia-supported separatists, significant casualties and atrocities were reported by all sides. After Azerbaijan, with Turkish support, reestablished control over four surrounding territories controlled by separatists since 1994, a Russian-brokered ceasefire arrangement announced by Azerbaijan and Armenia on November 9 resulted in the peaceful transfer of control over three additional territories to Azerbaijan, as well as the introduction of Russian peacekeepers to the region. The ceasefire has largely held, with frequent but localized violations. Tensions remain high, particularly along the international border, which has not been fully demarcated.

Russian forces have played a role in controlling access along highways near the border and into the Nagorno-Karabakh region from Armenia and Azerbaijan. The Azerbaijani government has suspended or threatened to suspend the operations of U.S. companies in Azerbaijan whose products or services are provided in the area of Nagorno-Karabakh currently under the administration of the Russian peacekeepers and has banned the entry into Azerbaijan of some persons who have visited NK. The U.S. government is unable to provide emergency services to U.S. citizens in and around NK as access is restricted.

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.

14. Contact for More Information

Economic & Commercial Officer
U.S. Embassy Yerevan
American Avenue 1 Yerevan, Armenia
+374 10 494 200
YerevanBusiness@state.gov

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