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Western Think-Tank Says Armenia Unattractive For Foreign Investment


By Emil Danielyan

One of Europe's most famous think-tanks has painted a bleak picture of Armenia's economic outlook, saying that regional instability and a poor business environment make the country unattractive to foreign investors.

"Few foreign companies casting their eyes across Eastern Europe stop to think about Armenia for long," the London-based Economist Intelligence Unit (EIU) concluded in a brief country report which is part of its global business climate overview.

"A small population and low purchasing power make the country unattractive for FMCG firms, while a trade blockade with Turkey and Azerbaijan largely rules it out as an export base," says the report released on Wednesday.

The report says the Nagorno-Karabakh conflict is a serious hindrance to a greater influx of foreign capital into the South Caucasus and is unlikely to be resolved anytime soon, with the presidents of both Armenia and Azerbaijan facing reelection in 2003.

The EIU forecasts that Armenia will attract $130 million a year in foreign direct investments (FDI) until 2005, saying that this modest figure "reflects political risk and also an unattractive business climate." "Although Armenia has a liberal investment policy, it also has red tape, an inconsistent legal framework, arbitrary tax inspections and widespread corruption," its report says.

The report by the world's leading provider of country intelligence reports could complicate the efforts of the Armenian government to attract badly needed foreign investments into its struggling economy. But Foreign Minister Vartan Oskanian downplayed its significance on Thursday.

Oskanian pointed to a joint study last November by the Wall Street Journal and the U.S. Heritage Foundation which said Armenia has the most open and investor-friendly economy in the Commonwealth of Independent States. The study ranked 156 countries of the world on ten different economic factors. Armenia and six other states, including France, share the 45th place in the rankings of the latest WSJ/Heritage "index of economic freedom."

"So I think that [economic] conditions in Armenia are quite favorable," Oskanian argued. "The most attractive factor is our domestic political stability."

However, the EIU report claims that political stability is "proving elusive after gunmen ran amok in the parliament less than three years ago." "[President Robert] Kocharian lacks a solid support base, and parliamentary opponents recently tried to start impeachment proceedings against him," it adds.

The analysis does see "positive signs" as well, saying that Armenia had a strong macroeconomic performance last year and is close to signing a debt-for-equity deal with Russia. "Real GDP growth, which hit a post-independence high of 9.6 percent in 2001 on the back of strong agricultural performance, will be a still-decent 5-5.5 percent this year and next. And average inflation will stay in the 3-3.5 percent range," it says.

The EIU, nonetheless, believes that the overall FDI outlook for Armenia is "not favorable."
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