Tag Archives: armenian economy

In 2012, Armenia Must Innovate, Not Devastate

A dense forest in upper Lori (Photo Christian Garbis)
A dense forest in upper Lori (Photo Christian Garbis)

Last night while out for a stroll with my dog I met my friend Haik who lives next door. We were talking about the advantage of having a garage to keep a car away from gasoline thieves. who love to ravage my Niva’s fuel supply.

While we chatted the upstairs neighbor, who along with his wife and kids has snubbed me for the last five years despite the number of times I’ve said hello, stopped to great Haik and exchange New Years greetings. As they were parting I overheard him telling Haik that he had taken his family to Moscow for the holidays, since staying in Armenia was “meaningless.”

The neighbor, purportedly a banker by profession, is one of these nouveau riche Yerevanites who suddenly found himself with a lap full of cash overnight. Within the span of only a couple of months I recall he purchased two brand new Hyundais and remodeled his home. And now that he has the money to burn, it’s “meaningless” for him and his family to celebrate the holiday season in their own country.  Like it’s all some big joke.

Vacationing outside Armenia for New Years and Christmas is a trendy thing to do nowadays. But this sentiment of meaninglessness is permanent, particularly amongst the wealthy. A glance of the daily headlines will make this obvious — government officials trying to push through deals to excavate hundreds of hectares of land for mining projects, or displacing hundreds of homes for urban development projects, cutting forests to sell the wood, and so on and so forth. For these people, it appears it is “meaningless” to take pride in your country, since as the old ludicrous saying goes, “the country is not a country” to begin with. And since the world is going to end this year as many the naive believe, it’s better to take advantage while you still can. Yet the nouveau riche appears to have been living by this mindset on a daily basis, and I am convinced they have no love for country, only what they can reap from it for fattening their purses. An imprudent generalization, I admit, but there it is.

I can’t say what this New Year will bring for Armenia. But there’s one thing I always hope for — when people with the means to benefit their nation will come to their senses, reset their jaded attitudes and begin to innovate rather than devastate.

Protest for Syunik’s Environmental Sustainability

Today my wife Anushik attended a protest held opposing the plans for a massive copper mining project. It was held in front of the Government Building on Republic Square in late morning, then the protesters marched to the Presidential Palace. I covered the controversy surrounding this project in my two previous posts, so read them for more details.

An estimated 608 hectares of precious land in Syunik is slated to be turned into a massive open mining pit so that a handful of government officials can make countless millions at the expense of Armenia’s long-term environmental sustainability. But not if these activists can help it.

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Continue reading Protest for Syunik’s Environmental Sustainability

Syunik village mayor resigns over mining project

Upper Syunik, Armenia
Upper Syunik, Armenia (photo Christian Garbis)

Reading yesterday’s headlines I came across a major news story of a Kajaran mayor in Syunik, Rafik Atayan, resigning from his position and from the Republican party in protest to the government’s decision to confiscate 181 hectares of land in the area. The land will be turned over to the German-owned mining company, Zangezur Copper-Molybdenum Combine (ZCMC). The lands will become an “open-pit mine,” meaning that all the dust created in the excavation process will drift and pollute the surrounding areas. Water supplies and agricultural lands will be ruined as well. The Armenian MP living the village, a former executive of the mining company, is obstinately indifferent.

The mayor’s protest is admirable but will ultimately prove nothing since his replacement will obligatorily sign the paperwork formalizing the new mining initiative.

Land has already been given to the Chinese in Syunik in a different government-backed plan, ironically nit to far from Tatev, which was anticipated to be Armenia’s top tourist attraction when it opened just over a year ago. There are still other controversial projects that are stalled or about to get underway in Teghut and Hrazdan.

The justification for opening the mine (and others) is the following, quoted from an article published by RFE/RL:

The German group [Cronimet, the parent company] insisted that the planned expansion of the ZCMC’s mining operations stems from “a number of agreements” with the Armenian government. That will also boost Armenian exports and “economic stability in the country, it said.

These types of statements have become totally laughable and even insulting. The monthly minimum wage in Armenia is absurdly low at 32,500 dram ($83) and a bill introduced by the ARF last month to nearly double it was shot down by the Republican controlled National Assembly. In other words, most people in Armenia — factory or mining workers being no exception — live hand to mouth. Most people can’t save up and have little or no pocket money to spend to benefit the economy.  ZCMC prides itself as supposedly being the top tax paying corporate institution in Armenia (untold sums of collected taxes are, in turn, eaten), but that doesn’t mean government officials will not reap the benefits of kickbacks from profits. The money made in this deal (and others) will not be vested in the Armenian economy realistically simply because it will end up in several peoples’ pockets and foreign bank accounts instead at the expense of Armenia’s fragile environment. That’s the way things work in capitalist Armenia.

So let’s stop kidding ourselves that high exports in metals are good for the economy. When rural areas are still underdeveloped in and around Armenia, with some new settlements in Armenian-controlled territories doing without roads, running water and electricity as I wrote in a previous post, these statements from government officials are paradoxical. Mining businesses benefit the elite, while the rest of the country’s potential along with its ecological longevity suffer.

Time to wake up.

Will the New Tax Plan in Armenia Work?

Yesterday just over a month after the government revealed its $2.5 million budget plan for 2012 Prime Minister Tigran Sarkisian explained just where the $268 million in tax revenues was to be generated. There are three primary sources it seems: from a tax on luxury automobiles, a tax hike on the upper class, and high excise taxes on expensive alcoholic beverages.

First let’s look at the car tax. He proposed that the owner of a car estimated to be worth $90,000 or more be taxed, estimating the collected amount to reach around $2.6 million (1 billion dram). This expectation is a bit naïve thinking, however, since the number of cars priced that high is so infinitesimal that it will be hard to believe so much will be collected in taxes. There are ways around paying that “luxury tax” of course. Since the customs department determines the value of automobiles entering the country and the customs fees required to be paid using whatever mind-numbing algorithms they employ, it certainly wouldn’t be difficult to pay an official a bribe to set the worth of the car at $89,000, thereby avoiding the luxury tax.

Then there’s the expensive alcohol tax – amounting to a 50 percent increase in excise duties. Fancy drinks like high-priced Cognac, haughty French wines and the like have a niche market, although the PM claims sales make up a 15 percent share of alcohol sold (naturally there’s no way of knowing where he got that number from). I’ve only seen expensive liquors and wines at SAS supermarket, which caters to Yerevan’s nouveau riche as well as foreigners working in the country. It’s hard to believe anyone – a visitor or a local – would be willing to pay several hundred dollars for wine when a five-buck bottle of Areni will suffice most tastes. In other words, the PM shouldn’t expect much tax revenue from the food and drink business sector.

The proposed tax hike from 20 to 25 percent of income for anyone making at least $5300 a month is intriguing. It’s safe to say that anyone making a salary that much or higher is not properly reporting their annual worth to the tax authorities anyway(if at all), and again, paying them a bribe to avoid paying higher taxes will not be difficult.

Even if he decides to crack down even more on small and medium-sized businesses (a.k.a., ordinary people trying to make a buck) than he already has, it’s hard to believe he’ll be able to collect very much additional tax revenue from them since they’ve been squeezed to the breaking point. I’ve been seeing many vacant stores recently in Yerevan, and low sales may not be the only determining factor in the decision to close shop.

The head of the State Revenue Committee Gagik Khachatrian has yet to be convinced that the funds can be raised with the PM’s plan. He’s been expressing his concerns about the new budget and the government’s anticipated ability to hit its target since the 2012 budget was unveiled on September 29, claiming that there was no way it could collect so much in tax revenues with its current focus.

What’s strange is that there’s really no intent in store to properly tax the oligarchs. Why doesn’t he simply go after the multimillionaires? Probably because that will mean he will ultimately have to tax himself.

Perhaps the Prime Minister really expects to collect the $268 million through the established system of bribery in place. Khachatrian is certainly right – on the surface of things the expected numbers just don’t add up.

Reflecting on twenty years of independence

Armenian coat of armsTwenty years ago when Armenia declared itself independent from Soviet rule it was not only claiming statehood, it was calling for a restoration of values.  The Armenian people would be able to think and create freely in a fledgling democracy that was both naïve yet highly optimistic. Many people believed that prosperity was on the horizon, jobs would be created, and a bright future awaited them. Little did they know that both war and unchecked entrepreneurship would set them back several years.  Some have never seen any kind of prosperity after independence, whether financial or spiritual.

Armenia today is ruled by a handful of wealthy families competing for prominence, similar to what you would find in a Hollywood film about the mafia, but without all the gory violence. The common people are subjects to the nepotistic society these leaders, or oligarchs, have created. Citizens who speak out against government decisions are cruelly suppressed by this system. Others are victims to bad policies and lose their livelihoods in the process. Civil society is weak, and initiatives to bring about change in the form of grassroots movements are often supported by outside special interest groups, mainly from the US or Europe. Narcissism has long become a virtue of the nepotists, with general disregard for law and order and respect for neighborhood peace violated day and night. Society is increasingly polarized with the dividing line between the haves and have nots all the more obvious. The social equality of Armenia’s soviet past is long gone.

Although the president is quite aware of the dire economic and societal issues that most Armenians face day to day, he either plays them down or fails to address them. For instance, he recently discounted the somber fact that entire villages have been relocating to remote parts of Russia as part of a controversial resettlement program promoted by the Russian government. Judging from the headlines in the Armenian press, it is clear that the president is often out of sync with what is transpiring in the country he supposedly rules.

Below is a list of problems that the president needs to contend with to ensure Armenia’s democratic and economic progress in the years to come:

Create jobs. In the wake of independence countless factories that were prosperous during the soviet era closed either overnight or during the course of several years. Although some like chemical plants and sugar processing facilities have reopened in recent years, Armenia’s industrial output is nowhere near what it was just before the Soviet Union began to crumble. The permanent closure of key factories in rural areas, like Sisian in the southern Syunik region and Charentsavan to the north of the capital, not to mention scores of other towns throughout the country, have resulted in a depopulation, with many people once living in small towns and villages flocking to Yerevan or leaving the country, most of them for Russia, in search of work. The president needs to create an environment whereby new factories can be built by wealthy Armenian citizens or foreign businessmen weary of doing business in Armenia. Eradicating corruption in the tax and customs departments and simplifying the business registration process would be an excellent start.

Promote small business. Yerevan mayor Karen Karapetyan made himself public enemy by sweeping traders off the streets (oddly only florists are allowed to sell roses from sidewalk stands) and destroying inconspicuous kiosks where cobblers, tailors, and cigarette sellers set up shop. Shopkeepers are harassed by taxmen and some are even forced to close for days on end while they scramble to clear up minute discrepancies found as a result of loopholes purposely left open by the tax authorities to extort bribes.  Although Prime Minister Tigran Sarkisian has often talked about encouraging the growth of small businesses, he has been reluctant to disclose the details of policies his government plans to implement. Tax breaks coupled with guaranteed interest-free government loans would encourage small businesses to open and help nurture an environment of trust.

Encourage civil society. In flourishing, deep-rooted democracies dissent and opposition to government policy are tolerated, and public advocacy is allowed to function. Initiatives to promote civil society need to be implemented, mainly by immediately stopping police confrontations or crackdowns on peaceful demonstrators. Society cannot be built while oppression and fear looms overhead Armenian citizens.

Tax the wealthy and give tax breaks to the lower classes. Hundreds of millions of dollars in revenue can be generated if only oligarchs were taxed, the sums of which could be funneled to important social programs. By 2006 estimates 26.5 percent of the population lives below the poverty line. Free housing could be provided to impoverished citizens still living in shacks, temporary housing, or on the street. Also, pensioners could finally receive monthly stipends that are in line with the current standard of living, which is continually on the rise with food prices often skyrocketing, especially in the period leading up to the holiday season. The government should aim to eradicate poverty nationwide, and it can easily do so if and when taxes are properly collected.

Prevent emigration and promote immigration. President Sarkisian desperately needs to draft a plan for slowing down the exodus from Armenia. That should include job creation through promoting foreign investment in the manufacturing and IT sectors, an increase in the minimum wage, and equal opportunity, particularly in government agencies. He also needs to address the relatively low birthrate, with 12 children born for every 1,000 people and on average one child born per household, according to 2011 figures. He also needs to ensure that infrastructure is modernized even in the most remote villages of the republic.  Several areas of Artsakh along with the Armenian controlled territories surrounding it must be populated, and that again can only come about with increased investment and the vital infrastructure in place.  When Armenians worldwide feel confident that the Armenian government is able to provide the means and conditions for promoting growth throughout the regions, they will begin to immigrate.

These are only a handful of issues that loom over Armenia’s destiny.  There are just as many if not more challenges related to Armenian foreign policy that must be addressed, the most important being the resolution of the Nagorno-Karabakh conflict, which seems to be floating in an eternal stalemate.

In his Independence Day remarks, President Sarkisian hailed the new generation of the republic recognizing its “concerns and demands” of a better society.  He also stated that “… in the next twenty years we will be able to build a country which will come close to our ideals. I believe in that because I believe in our collective power.”

Now the pressure is on the president. He alone can muster the support of both an apathetic public and the oligarchic society backing him by making the right policy decisions that would benefit all, not just a select few. That is a difficult balancing act, but the means to accomplish such a feat simply need implementing and the vision to do so. Having said that, it is up to Armenian society as a collective whole to ensure he aspires to the same ideals to which he alludes, the same that all citizens expect to live by.