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Executive Summary

Over the past several years, Armenia has received respectable rankings in international indices that review country business environments and investment climates.  Significant U.S. investments are increasingly present in Armenia, most notably ContourGlobal’s acquisition of the Vorotan Hydroelectric Cascade and Lydian International’s efforts to develop a major gold mine.  New U.S. investors in the banking, energy, pharmaceutical, information technology, and mining sectors 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 legacy of corruption. Armenia is a member of the Eurasian Economic Union, an association that brings Armenia, Belarus, Kazakhstan, Kyrgyzstan, and Russia together in an integrated single market.  In May 2015, Armenia signed a Trade and Investment Framework Agreement (TIFA) with the United States. The TIFA establishes a United States-Armenia Council on Trade and Investment to discuss bilateral trade and investment and related issues. In November 2017, Armenia signed a Comprehensive and Enhanced Partnership Agreement with the European Union, which aims 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 straightforward. According to foreign companies, regulations, policies, and laws that are otherwise sound 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, including branch profits, dividends, interest, royalties, and management or technical service fees. The banking system in Armenia is sound and well-regulated, but investors have notes that Armenia’s 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 complies with the Trade Related Aspects of Intellectual Properties Agreement and offers protection for intellectual property, enforcement efforts and recourse through the courts require improvement.

Armenia experienced a dramatic change of government in April/May 2018.  Parliamentary elections in December 2018 led to the exit from power of numerous parliamentarians known to hold significant business holdings in Armenia and exercise outsized sway over large sections of the economy.  A massive anti-corruption campaign is underway as part of efforts to eliminate systemic corruption. Overall, the competitive environment in Armenia is improving, but several businesses have reported that broader reforms across the judiciary, tax and customs, health, education, military, and law enforcement sectors will be necessary to shore up these gains.  Despite progress in the fight against corruption and improvements in some areas that influence the attractiveness of Armenia’s investment climate, investors claim that numerous concerns remain and must be addressed to ensure a transparent, fair, and predictable business climate. The emergence of a dispute in June 2018 connected with the actions of protestors to halt Lydian International’s mining project has attracted significant attention from international investors as they evaluate Armenia as an investment destination.

Table 1: Key Metrics and Rankings

Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2018 105 of 180 http://www.transparency.org/research/cpi/overview 
World Bank’s Doing Business Report 2019 41 of 190 http://www.doingbusiness.org/en/rankings
Global Innovation Index 2018 68 of 126 https://www.globalinnovationindex.org/analysis-indicator 
U.S. FDI in partner country ($M USD, stock positions) 2018 $7 http://www.bea.gov/international/factsheet/ 
World Bank GNI per capita 2017 $3,990 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD 

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

The government of Armenia officially welcomes foreign investment.  The Ministry of Economic Development and Investments 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 trade preferences with Russia and the Eurasian Economic Union (EAEU).  However, many businesses have identified the challenges to Armenia’s investment climate as the country’s small market (with a population of less than three million), relative geographic isolation due to closed borders with Turkey and Azerbaijan, per capita gross national income of USD 3,990, and concerns related to weaknesses in the rule of law.

After a dramatic change in government in April/May 2018, major sectors of Armenia’s economy have presumably become more open to competition.  According to third parties, large businesses backed by oligarchic interests are less able to draw on government support to prop up their market positions.  A massive anti-corruption campaign was launched after the 2018 change of government, and a series of high-profile cases have resulted as part of efforts to eliminate systemic corruption.  These developments serve to improve Armenia’s investment climate and competitive environment; however, some report that the fight against corruption needs to be ongoing and institutionalized in the long term in critical areas such as the judiciary, tax and customs operations, health, education, military, and law enforcement sectors.  Moreover, foreign investors are still concerned about the rule of law and equal treatment. U.S companies have also reported that the investment climate is tainted by a failure to protect intellectual property rights. There have been concerns of lack of an independent and strong judiciary, which have undermined the government’s assurances of equal treatment and transparency and reduced businesses’ recourse in the instances of contract or tax disputes.

Limits on Foreign Control and Right to Private Ownership and Establishment

There are no limitations on foreign ownership or control of commercial enterprises.  There are also no sector-specific restrictions.

The Armenian government does not screen foreign direct investment.

Other Investment Policy Reviews

As of the end of 2018, Armenia has not undergone investment policy reviews by either the Organization of Economic Cooperation and Development (OECD) or U.N. Conference on Trade and Development (UNCTAD).  The World Trade Organization (WTO) conducted a Trade Policy Review in 2018, which can be found at https://www.wto.org/english/tratop_e/tpr_e/tp479_e.htm.

Business Facilitation

Armenia has traditionally fared well in the World Bank’s Ease of Doing Business report.  Companies can register electronically at http://www.e-register.am/en/  .  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 legal time limit for the process is two working days, but the application may be completed in one day. However, 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 at https://www.ekeng.am/en/  .  A foreign partner is not required to obtain approval to invest.

Outward Investment

The Armenian government does not restrict domestic investors from investing abroad.

2. Bilateral Investment Agreements and Taxation Treaties

Basic provisions covering U.S. investments are set by the U.S.-Armenia Bilateral Investment Treaty (BIT), in force since 1996.  The U.S.–Armenia BIT stipulates that conditions for investors of each party be no less favorable than for the party’s own national investors or for investors from any third state.  It provides for the option of international arbitration in the case of investment disputes. Armenia has BITs in force with the following additional countries: Argentina, Austria, Belarus, Belgium, Bulgaria, Canada, China, Cyprus, Egypt, Finland, France, Georgia, Germany, Greece, Iran, Israel, Kuwait, Kyrgyzstan, Latvia, Lebanon, Lithuania, the Netherlands, Luxembourg, Romania, Russia, Spain, Sweden, Switzerland, Syria, Ukraine, the United Kingdom, Uruguay, and Vietnam.  According to UNCTAD, Armenia has also signed BITs with Iraq, Japan, Jordan, Kazakhstan, Qatar, Tajikistan, Turkmenistan, and the United Arab Emirates, but these agreements have not yet entered into force. Armenia is signatory to the Commonwealth of Independent States Multilateral Convention on the Protection of Investor Rights.

Armenia became a member of the EAEU in January 2015, together with Russia, Belarus, Kyrgyzstan, and Kazakhstan.  Armenia also entered into a Comprehensive and Enhanced Partnership Agreement (CEPA) with the EU in November 2017.  While CEPA will not affect customs or tax rates, it will, over time, align Armenia’s regulatory system and standards with those of the EU, as much as is possible under Armenia’s EAEU obligations.

There is no free trade agreement between the United States and Armenia, through Armenian exports to the United States may be eligible for preferential treatment under the Generalized System of Preferences program.  In May 2015, Armenia signed a Trade and Investment Framework Agreement (TIFA) with the United States. The TIFA establishes a United States-Armenia Council on Trade and Investment to discuss bilateral trade, investment, and related issues and examine ways to strengthen the trade and investment relationship between the two countries.

Armenia does not issue foreign tax credits and does not recognize the existing 1973 double taxation treaty signed by the Union of Soviet Socialist Republics (USSR) and the United States.  The United States considers Armenia to be party to this treaty by virtue of state succession to treaties and Armenia’s declaration of its commitment to fulfill the international treaty obligations of the former USSR as expressed in the Alma Ata Declaration of 1991.  The government of Armenia has expressed interest in negotiating a new double taxation treaty with the United States, but there is no strong evidence at this time that the lack of such an agreement deters new investments.

3. Legal Regime

Transparency of the Regulatory System

The Armenian government nominally uses transparent policies and laws to foster competition.  Some report that Armenia’s new government has pursued a more consistent execution of these laws and policies in an effort to improve market competition and remove informal barriers to market entry, especially for small- and medium-sized businesses.  Armenia’s legislation on the protection of competition has been improved with clear definitions and newly introduced concepts on issues such as price manipulation, imposition of fines as a percentage of revenue versus fixed amounts, and penalties for state officials.  This has generated a gradual improvement of Armenia’s ranking according to international indices. However, companies regard the efforts of the State Commission for the Protection of Economic Competition (SCPEC) alone not to be enough to ensure a level playing field. They indicate that improvements in other state institutions and authorities that support competition, like the courts, tax and customs, public procurement, and law enforcement, are necessary.  Banking supervision is relatively well developed and largely consistent with the Basel Core Principles. The Central Bank of Armenia is the primary regulator of the financial sector and exercises oversight over banking, securities, insurance, and pensions. Data on Armenia’s public finances and debt obligations are broadly transparent, and the Ministry of Finance publishes periodic reports that are available online.

Safety and health requirements, most of them holdovers from the Soviet period, generally do not impede investment activities.  Nevertheless, investors consider bureaucratic procedures to be sometime burdensome, and discretionary decisions by individual officials may present opportunities for petty corruption.  A unified online platform for publishing draft legislation was launched in March 2017, and is available at https://www.e-draft.am/eng  .  Proposed legislation is available for the public to view.  Registered users can submit feedback and see a summary of comments on draft legislation.  However, the time period devoted to public comments is often regarded not sufficient to solicit proper feedback.  The results of consultations have not been reported by the government in the past. The government maintains other portals, including http://www.e-gov.am   and http://www.arlis.am  ,that make legislation and regulations available to the public.

International Regulatory Considerations

Armenia is a member of the EAEU and adheres to relevant technical regulations.  Armenia’s entry into CEPA will lead it to pursue harmonization efforts with the EU on laws, regulations, and policies relevant to economic affairs.  Armenia is also a member of the WTO, and the Armenian government notifies draft technical regulations to the WTO Committee on Technical Barriers to Trade.  Armenia is a signatory to the Trade Facilitation Agreement and had already sent category “A”, “B,” and “C” notifications to the WTO.

Legal System and Judicial Independence

Armenia has a hybrid legal system that includes elements of both civil and common law.  Although Armenia is developing an international commercial code, the laws regarding commercial and contractual matters are currently set forth in the civil code.  Thus, because Armenia lacks a commercial court, all disputes involving contracts, ownership of property, or commercial matters are resolved by litigants in courts of general jurisdiction, which handle both civil and criminal cases.  However, some report that the courts that handle civil matters are overwhelmed by the volume of cases before them and are frequently seen by the public as corrupt.  Despite the ability of courts to use the precedential authority of the Court of Cassation and the European Court of Human Rights, many judges do not do so, making civil court decisions that investors consider as unpredictable.

According to several businesses, many Armenian courts suffer from low levels of efficiency, independence, and professionalism, which drives a need to strengthen the judiciary.  Very often in proceedings when additional forensic expertise is requested, the court may suspend a case until the forensic opinion is received, which it has been reported to take months.  Litigants are feeling distrustful aboutturning to Armenian courts for redress because of the lack of judicial independence.  Companies have noted that many judges at courts of general jurisdiction are reluctant to make decisions without getting advice from higher court judges.  Thus, the public opinion is that decisions may be influenced by factors other than the law and merits of cases at hand.  In general, the government honors judgments from both arbitration and Armenian national courts.

Due to the nature and complexity of commercial and contractual issues and the caseload of the civil courts, many matters involving investment or commercial disputes take months or years to work their way through the civil courts.  In addition, companies have complained of the inherent inefficiencies and institutional corruption of the courts, which lead to matters to be often delayed and outcomes not to be predictable. Even though the Armenian constitution provides investors the tools to enforce awards and their property rights, investors claim that there is little predictability in what a court may do.

Laws and Regulations on Foreign Direct Investment

Basic legal provisions covering foreign investment are specified in the 1994 Law on Foreign Investment.  Foreign companies are entitled by law to the same treatment as Armenian companies (national treatment). The Armenian government has submitted to parliament a new draft Law on Foreign Investment, to replace the 1994 law.  This new law would strengthen protections for foreign investors. A Law on Public-Private Partnership (PPP) has been drafted and is awaiting approval by the parliament. The PPP law establishes the framework for the government to attract private capital for joint projects focused on infrastructure.

Business Armenia is Armenia’s national authority for investment and export promotion.  It provides information to foreign investors on Armenia’s business climate, investment opportunities, and legislation; supports investor visits; and serves as a liaison for government institutions.  More information is available via Business Armenia’s website (https://www.businessarmenia.am/).

Competition and Anti-Trust Laws

SCPEC reviews transactions for competition-related concerns.  Relevant laws, regulations, commission decisions, and more information can be found on SCPEC’s website (http://www.competition.am/?lng=2  ).  Concentrations, including mergers, acquisitions of shares or assets, amalgamations, and incorporations are subject to ex ante control by SCPEC under conditions established by law.  Whenever a concentration gives rise to concerns about harm to competition, including the creation of a dominant position or strengthening the dominant position, SCPEC can prohibit such a transaction or impose certain remedies.  However, SCPEC’s investigative powers have been reported to be limited, forcing SCPEC to rely primarily on document studies. Armenia’s Law on Protection of Economic Competition has been amended several times in recent years to bring Armenia’s competition legal framework into alignment with EAEU and CEPA requirements.

Expropriation and Compensation

Under Armenian law, foreign investments cannot be confiscated or expropriated except in extreme cases of natural or state emergency, upon obtaining an order from a domestic court.  According to the Armenian constitution, equivalent compensation is owed prior to expropriation.

Dispute Settlement

ICSID Convention and New York Convention

Armenia is party to the ICSID Convention and Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention).

Under Article 5 of the Armenian constitution, international treaties are a constituent part of Armenia’s legal system.  When an international treaty is ratified, if it stipulates norms other than those present in domestic law, the guidelines of the treaty shall prevail.

Investor-State Dispute Settlement

According to the 1994 Foreign Investment Law, all disputes that arise between a foreign investor and the Republic of Armenia must be settled in Armenian courts.  A Law on Commercial Arbitration was enacted in 2007, which provides a wider range of options for resolving commercial disputes. The U.S.–Armenia BIT provides that in the event of a dispute between an American investor and the Republic of Armenia, the investor may take the case to international arbitration.  As an international treaty, the BIT supersedes Armenian law, a point which Armenia’s constitution acknowledges and which holds in actual practice. As of January 2019, two investment disputes brought against Armenia under the U.S.–Armenia BIT were pending with the International Center for Settlement of Investment Disputes.

International Commercial Arbitration and Foreign Courts

Commercial disputes may be brought before an Armenian or any other competent court, as provided by law or in accordance with party agreements.  Commercial disputes are heard in courts of general jurisdiction.  Specialized administrative courts adjudicate cases brought against state entities.  Final judgments may be appealed to the Court of Appeal and Court of Cassation, the highest judicial authority in Armenia.

The Law on Arbitration Courts and Arbitration Procedures provides rules governing the settlement of disputes by arbitration.  In accordance with the New York Convention and Article 5 of the Armenian constitution, domestic courts must recognize foreign arbitral awards.

Armenia intends to develop an alternative dispute resolution (ADR) mechanism that will include mediation and arbitration.  ADR could be used not only in commercial matters, including those involving mobile property and secured transactions, but also in cases involving family and labor disputes.   While ADR options are available to those who seek alternatives to litigation, they currently are not widely used or trusted.  

Bankruptcy Regulations

According to the Law on Bankruptcy adopted in 2006, creditors, equity, and contract holders (including foreign entities) have the right to participate and defend their interests in bankruptcy cases.  Armenia decided in 2018 to adopt a new, specialized bankruptcy court to begin operations in 2019.  Creditors have the right to access all materials relevant to cases, submit claims to court, participate in meetings of creditors, and nominate candidates to administer cases.  Monetary judgments are usually made in local currency.  The Armenian Criminal Code defines penalties for false and deliberate bankruptcy, concealment of property or other assets of the bankrupt party, or other illegal activities during the bankruptcy process.  Armenia amended its bankruptcy law in 2012 to clarify procedures for appointing insolvency administrators, reducing the processing time for bankruptcy proceedings, and conducting asset sales by auction.

According to the World Bank’s 2019 Ease of Doing Business Index, Armenia stands at 95 in the ranking of 190 economies on the ease of resolving insolvency (http://www.doingbusiness.org/rankings  ; http://www.doingbusiness.org/data/exploreeconomies/armenia#resolving-insolvency  ).  Resolving insolvency takes 1.9 years on average and costs 11 percent of the debtor’s estate, with the most likely outcome being that the company will be broken up and sold.  The average recovery rate is 38.2 cents on the dollar.

4. Industrial Policies

Investment Incentives

Armenia offers incentives for exporters (e.g. no export duty, VAT refund on goods and services exported) and foreign investors (e.g. income tax holidays, the ability to carry forward losses indefinitely, VAT deferral, and exemptions from customs duties for investment projects).    Starting from January 1, 2018, the Armenian government exempted imports of capital investment-related goods from VAT payments at the border. In 2015, the Armenian government exempted from customs duties investment-related import of equipment and raw materials from non-EAEU member countries.  VAT and customs duties exemptions are implemented based on government decisions made on a case-by-case basis. Also, in accordance with the Law on Foreign Investment, several ad hoc incentives may be negotiated on a case-by-case basis for investments that are targeted at certain sectors of the economy or are of strategic interest.

Foreign Trade Zones/Free Ports/Trade Facilitation

In June 2011, Armenia adopted a Law on Free Economic Zones (FEZ), amended in October 2018, and developed several key regulations to attract foreign investments into FEZs:  exemptions from VAT, profit tax, customs duties, and property tax. The Alliance FEZ was opened in August 2013 and currently hosts sixteen businesses taking advantage of its facilities. The focus of Alliance FEZ is on high-tech industries, which include information and communication technologies, electronics, pharmaceuticals and biotechnology, architecture and engineering, industrial design, and alternative energy.  In 2014, the government expanded operations in the Alliance FEZ to include industrial production. In 2015, the Meridian FEZ, focused on jewelry production, watchmaking, and diamond cutting, opened in Yerevan, with six businesses operating in it. The Meghri FEZ, located on Armenia’s border with Iran, opened in 2017. A new FEZ, located in Hrazdan, opened in late 2018 and is focused on the high-tech and information technology sectors.

Performance and Data Localization Requirements

There are no performance requirements for investment in terms of mandating local employment.  The processes for obtaining visas, residence, or work permits are straightforward. There are no government-imposed conditions on permission to invest, including tariff and non-tariff barriers.

Armenia does not follow any policy that would force foreign investors to use domestic content in goods and technology.  There are no requirements for foreign information technology providers to turn over source code or provide keys for encryption.  There are no requirements to store data within the country.

5. Protection of Property Rights

Real Property

Armenian law protects secured interests in property, both personal and real.  Armenian legislation provides a basic framework for secured lending, collateral, and pledges and provides a mechanism to support modern lending practices and title registration.  According to Armenia’s constitution, foreign citizens are prohibited from owning land, though they may take out long-term leases. In the World Bank’s 2019 Ease of Doing Business report, Armenia ranked 14th among 190 economies for the ease of registering property.  Lack of clear title to land is not an issue in Armenia.

Intellectual Property Rights

Armenia has a strong intellectual property rights (IPR) framework.  Domestic legislation, including the 2006 Law on Copyright and Related Rights, provides for the protection of IPR on literary, scientific, and artistic works (including computer programs and databases), patents and other rights of invention, industrial design, know-how, trade secrets, trademarks, and service marks.  The Intellectual Property Agency (IPA) in the Ministry of Economic Development and Investments is responsible for granting patents and overseeing other IPR-related matters. Armenia requires no state registration for copyright. The collective management organization ARMAUTHOR manages authors’ economic rights. Trademarks and patents require state registration by the IPA.  There is no special trade secret law in Armenia, but protection of trade secrets is partially covered by patent registration. Formal registration is easy and transparent, the database of IPR registrations is public, and applications to register intellectual property are published online for two months for comment by third parties.

Armenia’s legislation is in compliance with the Trade Related Aspects of Intellectual Properties Agreement.  In 2005, Armenia created an IPR Enforcement Unit in the Organized Crime Department of the Armenian Police, which does not, however, exercise ex-officio powers and acts only based on complaints from right holders.

Despite the existence of relevant legislation and executive government structures, the concept of IPR remains unrecognized by a large part of the local population. The onus for IPR complaints remains with the offended party.  The police assert that the majority of cases are settled through out-of-court proceedings. While the Armenian government has made some progress on IPR issues, strengthening enforcement mechanisms remains necessary.

A new Law on Copyright has been drafted and submitted to the government.  It includes provisions from new international agreements and provides additional detail on many of the provisions in the current law.  Copyright contract rights are better defined and examples of contracts between the user and the rights-holder are included. Phonogram producers’ rights are harmonized with copyright holders’ rights and are extended to 70 years.  The new legislation includes specific provisions from the Marrakesh and Beijing Treaties that regulate the rights of disabled artists and orphan works. Two new laws, the Law on Patents and Law on Industrial Design, have also been drafted by the IPA and submitted to the government.

The Armenian customs authorities track statistics related to the seizure of counterfeit goods, but the reports are not regularly updated.  The latest relevant information can be found at http://www.petekamutner.am/Content.aspx?itn=csVLDepFightAgainstSmug  .

Armenia is not listed in USTR’s Special 301 Report or Notorious Markets List.

6. Financial Sector

Capital Markets and Portfolio Investment

The banking system in Armenia is sound and well-regulated, but the financial sector is not highly developed, according to investors.  IMF estimates suggest that banking sector assets account for about 90 percent of total financial sector assets, however, financial intermediation is 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 NASDAQ-OMX exchange, though efforts to develop 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 financial sector of the country.  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.

Money and Banking System

The banking sector is healthy and indicators of financial soundness have increased in recent years.  The sector is well capitalized and liquid, though dollarization is high. Non-performing loans have fallen to below 10 percent of total loans.  There are 17 commercial banks in Armenia and 13 universal credit organizations, and there are extensive branch networks throughout Armenia. As of the end of 2018, the top three Armenian banks by assets are Ameriabank (779.7 billion AMD, or USD 1.59 billion), Ardshinbank (678.6 billion AMD, or USD 1.38 billion,) and Armbusinessbank (642.8 billion AMD, or USD 1.31 billion).  The minimum capital requirement for banks is 30 billion AMD (62.5 million USD). 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, a branch, or representative office, and subsidiaries of foreign banks are allowed to provide the same types of services as domestically-owned banks.

The Central Bank of Armenia (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 Central Bank of Armenia. Numerous other articles of legislation and supporting regulations provide for financial sector oversight and supervision.

Foreign Exchange and Remittances

Foreign Exchange

Armenia has no limitations on the conversion and transfer of money or the repatriation of capital and earnings, including branch profits, dividends, interest, royalties, or management or technical service fees.  Most banks can transfer funds internationally within two to four days. Armenia maintains the Armenian dram (AMD) as a freely convertible currency under a managed float. The AMD/USD exchange rate has proven generally stable in recent years, though it has not been without occasional sharp movements.

According to the Law on Currency Regulation and Currency Control, prices for all goods and services, property, and wages must be set in AMD.  There are exceptions in the law, however, for transactions between resident and non-resident businesses and for certain transactions involving goods traded at world market prices.  The law requires that interest on foreign currency accounts be calculated in that currency, but paid in AMD.

Remittance Policies

Armenia has no limitations on the conversion and transfer of money or the repatriation of capital and earnings, including branch profits, dividends, interest, royalties, lease payments, private foreign debt, or management or technical service fees.

Sovereign Wealth Funds

Armenia does not have a sovereign wealth fund, though the government is considering plans to create one.

7. State-Owned Enterprises

Most of Armenia’s state-owned enterprises (SOEs) were privatized in the 1990s and early 2000s, yet 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 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 a party to the WTO’s 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. A public list of state-owned closed joint stock companies can be found on the website of the Department of State Property (http://spm.am/am/projects/  ).

Privatization Program

Most of Armenia’s state owned enterprises were privatized in the 1990s and early 2000s.  Many of the privatization processes for Armenia’s large assets were reported to be neither competitive nor transparent, and political considerations in some instances prevailed over fair tender processes.  The current law on privatization, the fifth, is the Law on the 2017–2020 Program for State Property Privatization, which lists 47 entities for privatization, of which 24 are new additions and 23 were noted in earlier laws but not privatized.  The Department of State Property Management is responsible for managing the state’s share of the entities in the privatization program.

8. Responsible Business Conduct

There is not a widespread understanding of responsible business conduct (RBC) in Armenia, but several larger companies with foreign ownership or management are introducing the concept.  It is rare to see examples of Armenian companies that contribute to local communities through charity, employee service days, or other similar programs. However, RBC programs that do exist are viewed favorably.  Some NGOs, notably business associations, are playing a more active role to promote responsible business conduct. 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.  Armenia is not an adherent to the OECD Guidelines for Multi-National Enterprises or the UN Guiding Principles for Business and Human Rights.

Some information is available regarding corporate governance, accounting, and internal controls to protect shareholders.  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.

Domestic laws 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 investments.

9. Corruption

Resources to Report Corruption

Armenia experienced a peaceful revolution in April/May 2018 that led to the arrival of a new government with an explicit anti-corruption mandate.  The current government released a new official plan in January 2019 that includes a section on combatting corruption. The government has increased corruption investigations against mid- to high-level government officials since the revolution.  Numerous high-ranking officials have stated publicly that corruption within their respective institutions will no longer be tolerated. Though some report that the government has mainly targeted ex-government officials in corruption investigations, there is no indication that Armenia’s anti-corruption laws are being applied by the post-revolutionary government in a discriminatory manner.  Armenia’s anti-corruption laws extend to all Armenian citizens.

Corruption, particularly in areas that have been reported to be critical such as the justice system, as well as concerns related to the rule of law, enforcement of existing legislation, and equal treatment, remain a significant obstacle to U.S. investment in Armenia.  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. Civil courts are still widely perceived to be corrupt by the general public.  Although bribery is illegal in Armenia for all citizens, the government does not actively encourage private companies to establish internal codes of conduct. Several multinational companies, select local companies, and foreign and local companies working with international financial institutions have implemented corporate governance mechanisms to tackle corruption internally.  However, such corporate governance principles are not widely implemented among local companies.

According to Transparency International’s 2018 Corruption Perceptions Index, Armenia received a score of 35 out of 100, ranking it 105th among 180 countries.

Armenia’s ability to counter, deter, and prosecute corruption is noted to be hindered by the lack of robust enforcement of official disclosure laws to prevent the entrance and retention of corrupt officials in positions of authority and influence.  The objective and systematic scrutiny of declarations by government officials is generally considered to be lacking. According to international evaluations, Armenian authorities have limited capacities to investigate money laundering and bring such cases to prosecution.

The Law on Civil Service, in force since 2002, as well as the Laws on Municipal Service (2005) and on Local Self-Government (2002), 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, or local levels often acquire direct, partial, or indirect control over private firms. Such control is exercised through a hidden partner or through majority ownership of fully private parent companies. This involvement can also be indirect, including through close relatives and friends. According to foreign investors, these practices reinforce protectionism, encourage the creation of monopolies or oligopolies, hinder competition, and undermine the image of the government as a facilitator of private sector growth.  Because of the strong interconnectedness of the political and economic spheres, Armenia has historically struggled to introduce legislation to encourage strict ethical codes of conduct and the prevention of bribery in the business field. In 2016, the Armenia adopted legislation on criminal penalties for noncompliance or filing of false declarations and illicit enrichment.

Armenia is a member of the UN Anticorruption Convention.  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.  A monitoring report released by the OECD in 2018 cited Armenia’s lack of enforcement of anti-corruption laws, together with continued presence of oligopolistic interests in the economy, as points of serious concern. The report contained a series of recommendations, including to take bold measures to ensure judicial and prosecutorial independence and integrity, introduce corporate liability for corruption offenses, investigate and prosecute high-profile and complex corruption cases, and increase transparency and strengthen monitoring in public procurement.  Armenia has also joined the global Open Government Partnership initiative.

No specific law exists to protect NGOs dealing with anti-corruption investigations.  The government, in close coordination with civil society, approved new legislation on public organizations in December 2016.  The new law gives NGOs the right to engage in economic activities.

Resources to Report Corruption

For investigating corruption:

Investigation Department of Corruption, Organized and Official Crimes
Special Investigation Service of Armenia
13A Vagharsh Vagharshyan Street
Yerevan, Armenia
[+374 11] 900 002
press@investigatory.am

For prosecuting corruption:

Arsen Simonyan
Head of Department for Combating Corruption
and Economic Crimes
RA Prosecutor General’s Office
5 V. Sargsyan Street
Yerevan, Armenia
(37410) 511-655
info@prosecutor.am

For financial and asset declarations of high level officials:

Armen Khudaverdyan
Deputy Chairperson
Ethics Commission
26 Baghramyan Street
Yerevan, Armenia
374 10 524689
siranush.sahakyan@president.am

Watchdog organization:

Varuzhan Hoktanyan
Executive Director
Transparency International (Armenia)
164/1 Antarayin Street
Yerevan, Armenia
374 10 569589
varuzh@transparency.am

10. Political and Security Environment

Armenia has a history of political demonstrations, some of which have turned into violent confrontations between the police and protesters.  However, the frequency of violent protests has significantly decreased. The last major violent protest occurred in July 2016, when an armed group, Sasna Tsrer, stormed and occupied a police compound in Yerevan.  Three police officers were killed as a result. During the two-week standoff that followed, Sasna Tsrer took hostage additional police and medical personnel, demanding political changes.  During the standoff, demonstrations in support of Sasna Tsrer took place in Yerevan and clashes between law enforcement officers and protesters occurred.  These clashes did not pose any damage to businesses. In 2018, Armenia experienced a peaceful revolution that led to a change of government.  Acts of peaceful civic disobedience in Yerevan and some other cities led to street closures, including on the road to Yerevan’s international airport, but did not impede the ordinary functioning of business or harm the country’s macroeconomic stability.  These actions did not result in any damage to projects or installations.

The state of conflict between Armenia and Azerbaijan, including the regular exchanges of fire along the international border and the disputed territory of Nagorno-Karabakh, presents some potential political risk, according to investors and businesses.  A cease-fire with Azerbaijan has been in effect since 1994 for the conflict surrounding the disputed region of Nagorno-Karabakh.  However, intermittent gunfire along the cease-fire line and along the border with Azerbaijan continues, often resulting in injuries and/or deaths.  There was an increase in violence along the Line of Contact and Armenian-Azerbaijan international border on April 2-5, 2016.  The heavy clashes led to the highest death toll since the signing of the 1994 cease-fire agreement. There have been no threats to commercial enterprises from skirmishes in the border areas.  It is unlikely that civil disturbances, should they occur, would be directed against U.S. businesses or the U.S. community.  The government of Azerbaijan has suspended the importation and operations of U.S. companies in Azerbaijan if the companies’ products or services are provided in Nagorno-Karabakh and has banned the entry into Azerbaijan of some persons who have visited Nagorno-Karabakh.  Due to the existing state of hostilities, consular services are not available to U.S. citizens in Nagorno-Karabakh.

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.  Almost one hundred percent of Armenia’s population is literate.  According to official information, enrollment in secondary school is over 90 percent, and enrollment in senior school (essentially equivalent to American high school) is about 85 percent.  Despite this, official statistics indicate a high rate of unemployment, at around 18 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 educations.  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 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 poor economic conditions; collective bargaining is not common in Armenia.  However, since the 2018 change of government, there have been consistent reports of grassroots movements to create unions in various spheres, including for doctors, teachers, and academics. Still, traditional labor unions are generally inactive with the exception of those connected with the mining and chemical industries.  Labor laws are not waived to retain or attract investments.

The current Labor Code is considered to be largely consistent with international standards.  The law sets a standard 40-hour work week, 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 free economic zones 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 offering qualification trainings to the unemployed 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.  Armenia’s Health and Labor Inspection Body (HLIB) has a mandate to monitor health and occupational safety issues, but its enforcement powers have been undermined by continuous restructuring of the body and the absence of a legal framework and regulations to guide HLIB functions.  No labor inspections have been completed since 2015.

Amendments to the Labor Code of Armenia 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 55,000 (USD 115) 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.

12. OPIC and Other Investment Insurance Programs

Armenia has an agreement with the Overseas Private Investment Corporation (OPIC), signed in 1992. OPIC mobilizes private capital to help solve critical development challenges, providing investors with financing, guarantees, political risk insurance, and support for private equity investment funds.  OPIC has been involved in several projects in Armenia, including the expansion of the Yerevan Marriott and lending operations at several financial institutions. In 2019, OPIC concluded a deal to extend USD 10 million in financing to First Mortgage Company to expand the origination of long-term home mortgage loans.  Armenia is a member of the World Bank Group’s Multilateral Investment Guarantee Agency (MIGA).

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy

Host Country Statistical Source* USG or International Statistical Source USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
Economic Data Year Amount Year Amount
Host Country Gross Domestic Product (GDP) ($M USD) 2017 $11,537 2017 $11,537 www.worldbank.org/en/country   
Foreign Direct Investment Host Country Statistical Source* USG or International Statistical Source USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions) 2017 $247.7 2017 $7 BEA data available at https://www.bea.gov/international/direct-investment-and-multinational-enterprises-comprehensive-data  
Host country’s FDI in the United States ($M USD, stock positions) N/A N/A 2017 $3 BEA data available at https://www.bea.gov/international/direct-investment-and-multinational-enterprises-comprehensive-data  
Total inbound stock of FDI as % host GDP 2017 42.3% 2016 44.1% UNCTAD data available at https://unctad.org/en/Pages/DIAE/World%20Investment%20Report/Country-Fact-Sheets.aspx  

* Source for Host Country Data:  Statistical Committee of the Republic of Armenia


Table 3: Sources and Destination of FDI

Direct Investment From/in Counterpart Economy Data
From Top Five Sources/To Top Five Destinations (US Dollars, Millions)
Inward Direct Investment Outward Direct Investment
Total Inward $4,323 100% Total Outward $161 100%
Russia $1,374 31.8% Latvia $56 34.8%
Cyprus $410 9.5% Bulgaria $36 22.3%
Jersey $329 7.6% United States $3 1.8%
United Kingdom $295 6.8%
United States $250 5.8%

Source:  IMF Coordinated Direct Investment Survey (CDIS), 2017

A significant portion of outward investment is not disaggregated by destination in the CDIS.


Table 4: Sources of Portfolio Investment

Data not available.

14. Contact for More Information

Economic & Commercial Officer
U.S. Embassy, American Avenue 1, Yerevan 0082, Armenia
+374-10-49-42-00
YerevanBusiness@state.gov

 

2019 Investment Climate Statements: Armenia
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