Armenian Economic News

Armenian Growth Still In Double Digits By Shakeh Avoyan Armenia's economic growth accelerated to 13.6 percent during the first eight months of this year, according to preliminary statistics released by the government on Thursday. The data presented to government ministers by the National Statistical Service (NSS) show that the booming construction and services sectors remain the driving forces of the high growth rate, which looks set to remain in the double digits for the six consecutive year. The overall volume of construction carried out in Armenia from January-August was up by 19.6 percent year on year. The sector, which generated almost 20 percent of the country's Gross Domestic Product, is continuing to expand rapidly on the back of strong demand for expensive housing and office space in Yerevan. According to the NSS, growth in services other than retail trade stood at 19.7 percent, while the volume of retail trade expanded by almost 11 percent during the eight-month period. By contrast, Armenia's industrial sector, still the single largest contributor to GDP, remained largely stagnant in January-August 2007, with industrial output increasing by only 1.7 percent year on year. The Armenian government's growth target for 2007 was a minimum of 9 percent. In its policy program approved by parliament in June, the government forecast that the Armenian economy will continue to grow by at least 8 percent annually in the next five years. It said the proportion of Armenians living below the official poverty line will drop below 12 percent by 2012. The official poverty rate currently stands at about 30 percent. Government critics and some economists say the real figure is higher. They also point to the uneven distribution of the growth's benefits manifested through widespread tax evasion. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Kocharian Forms New Body To Tackle Tax Fraud By Emil Danielyan Just days after lambasting tax authorities, President Robert Kocharian has set up an ad hoc commission tasked with helping to ensure that the Armenian government's tax revenues reach the level of `civilized countries.' Kocharian's office said late Monday that the inter-agency commission will be headed by the chief of the State Tax Service (STS), Vahram Barseghian, and comprise officials from the presidential administration and the State Customs Committee (SCC). Representatives of the police, the National Security Service and the Prosecutor-General's Office will also sit on the body. A statement by the presidential press service said its main function will be to crack down on widespread tax fraud and curtail the huge informal sector of the Armenian economy. It said the commission held its first meeting, chaired by Kocharian, earlier on Monday. Kocharian was cited as demanding a `serious fight against shadowy economic activities.' He reminded commission members that Armenian tax revenues still make up a disproportionately low share of Gross Domestic Product despite having risen considerably in recent years. They must strive to make sure that Armenia's tax/GDP ratio comes close to that of `civilized countries,' he added, according to the statement. The proportion was below 14 percent last year and will at best reach 15 percent this year, one of the lowest indicators in the former Soviet Union. `The amount of taxes we collect is small,' Prime Minister Serzh Sarkisian said late last week. `To begin with, we must first raise it to the level of medium-income countries. This will be one of my most important tasks.' Kocharian set up the special body five days after accusing the STS and the SCC of failing to combat tax evasion, tolerating corruption within their ranks and giving privileged treatment to some businessmen. He told the two bodies to suggest concrete ways of addressing these problems and instructed law-enforcement authorities to `identify and strictly punish tax and customs officials engaged in favoritism.' Many of Armenia's wealthiest entrepreneurs are believed to grossly underreport their earnings, ranking suspiciously low on the lists of leading corporate taxpayers regularly released by the STS. Some of the so-called `oligarchs' have close ties with Kocharian and Sarkisian. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Russians Buy Another Major Armenian Firm By Astghik Bedevian, Shakeh Avoyan and Ruzanna Khachatrian Armenia's largest mobile phone operator, K-Telecom, announced on Friday its widely anticipated takeover by a Russian telecommunication giant, which will give a further boost to Russia's already strong economic presence in the South Caucasus state. Top executives of the two companies said Mobile TeleSystems (MTS), Russia's number one wireless operator, will pay over $430 million for a commanding 80 percent stake in K-Telecom and have the option of buying the remaining 20 percent of its stock in the next five years. The deal came after weeks of negotiations reportedly involving the governments of the two countries. According to reports in the Armenian press, the authorities in Yerevan have played a large role in convincing K-Telecom's official owner, Lebanese tycoon Pierre Fattouch, to sell his rapidly expanding VivaCell network to MTS. The Armenian government was similarly said to have been a driving force behind last year's sale of the ArmenTel national telecom company, which operates the country's second cellular network, to another Russian wireless firm, Vimpelcom. The $500 million acquisition came shortly after President Robert Kocharian's visit to Moscow. Fattouch denied any political motives behind the latest deal, again comparing his Armenian subsidiary to a young woman courted by suitors. `The bride has come of age,' he said. `It was natural for her to want to marry.' `There were many suitors, but this girl fell in love with this one,' said Ralph Yirikian, the VivaCell chief executive. `This deal has no political motives,' he added. Speaking at a joint news conference, the MTS chairman, Leonid Melamed, likewise insisted that political factors were not at play, but chose to thank the Armenian government. Asked for the reason for the gratitude, he said, `We had the honor of being received by the country's minister of communications and plan to maintain our contacts with the government.' The government picked K-Telecom as Armenia's second mobile operator without a tender in late 2004 after forcing the then Greek-owned ArmenTel to abandon its legal monopoly on mobile telephony. The launch of K-Telecom's network in July 2005 led to an explosion in mobile phone use in the country as fierce competition between ArmenTel and VivaCell dramatically reduced the hitherto high cost of the service. VivaCell currently boasts nearly one million subscribers, compared to ArmenTel's 500,000. As recently as in July, Fattouch declared that he has invested about $340 million in VivaCell, intends to expand it and has no plans to leave Armenia. He said on Friday that he will invest proceeds from the network's sale in the Armenian mining sector. He gave no details. With a market capitalization of $25 billion, MTS is one of the world's biggest mobile phone companies and has subsidiaries in other former Soviet republics like Ukraine, Belarus and Uzbekistan. Its purchase of VivaCell coincided with a meeting in Yerevan of the Russian-Armenian inter-governmental commission on economic cooperation. The commission co-chairs, Prime Minister Serzh Sarkisian and Russian Transport Minister Igor Levitin welcomed the deal, saying that it will further boost Russian-Armenian commercial ties. Levitin said Russian investments in the Armenian economy will total a record-high level of $500 million this year. The figure will likely grow next year because of `a number of other very interesting and big investment projects,' he added without elaborating. `It is very important that business believes in the governments of Russia and Armenia and that investments in our countries are protected,' the Russian minister told reporters. Sarkisian also welcomed `huge progress' in Russian-Armenian ties and described as `extremely important' his upcoming visit to Moscow. `There are problems that must be solved with the governments' intervention,' he said. In Levitin's words, the most serious of those problems is a lack of stable and reliable transport communication between the two countries. The sale of VivaCell is certain to prompt serious concern from opponents of the Armenian government who believe that Russia's rising economic presence is putting their country's security and independence at risk. They strongly condemned a series of Russian-Armenian agreements that left Armenia's energy sector under near total Russian control. Opposition leaders and commentators have alleged that Sarkisian and Kocharian have facilitated the Russian economic expansion into Armenia with the aim of ensuring Moscow's continued support for their joint rule. The two leaders and their political allies have always dismissed such claims. Still, some of them admitted on Friday that they are worried that Armenia is becoming too dependent on its former Soviet master. `We must make calculations. If [Russian-Armenian deals] affect our independence, we must be careful on such issues,' Karen Karapetian, the parliamentary leader of Sarkisian's Republican Party (HHK), told reporters. Asked whether Yerevan has been careful enough, he said: `Not quite.' `We must think about attracting not only Russian but American, European and Asian capital into our economy,' said Artsvi Minasian of the Armenian Revolutionary Federation, the HHK's junior coalition partner.