Armenia Loses Foreign Investment: Debt Burden Increases

Armenia is losing credibility among foreign investors as high debt and mismanagement scare away members of the business community, according to AzerNews. Armenia relies on foreign investment, Russian remittances, and loans to sustain the economy, but authorities squandered most of the loan money, and investment projects have failed to spur economic growth thus far. Armenia is a poor nation that struggles with high rural poverty and increasing unemployment rates.

Armenia is losing credibility among foreign investors as high debt and mismanagement scare away members of the business community, according to AzerNews. Armenia relies on foreign investment, Russian remittances, and loans to sustain the economy, but authorities squandered most of the loan money, and investment projects have failed to spur economic growth thus far. Armenia is a poor nation that struggles with high rural poverty and increasing unemployment rates.

Armenia has no solid income base to speak of due to its lack of natural resources, hostile agricultural landscape, and overall poorly developed economy. Armenia relies on agriculture and has a sizeable manufacturing sector, but not enough to boost living standards for its people.

Authorities promised that foreign investment and loan assistance would bolster certain sectors of the economy, but such promises have yet to happen, and the state has failed to promote economic innovation. The Western Asian country has had ample time to improve economic prospects, but a primary factor holding back development is financial mismanagement.\

Critics cite that the government wasted $3 billion in loans since 2009. In regards to debt, the government amassed $576 million in debt in Q1 adding to a total external debt burden of $5.2 billion in 2016. Foreign reserves dropped 10% in Q1, and experts see no chance of a comeback in the short-term.

Tainted Rule

Another problem that explains Armenia’s woes is corruption. Leaders have deliberately misused loan money in the past, and although anti-corruption measures have been passed, little enforcement has followed.

Corruption not only hampers economic advancement in Yerevan, the capital of Armenia, but social development as well, notes Transparency International. A former U.S. Ambassador said in a 2015 interview that corruption is a direct impediment to expanded foreign investment in Armenia.

Foreign Policy

Armenia’s conflict with Azerbaijan is another reason why some foreign investors grow nervous about setting up operations in Armenia. Tensions flared between Armenia and Azerbaijan this year as leaders fought over the Nagorno-Karabakh region in southern Azerbaijan, and the Azerbaijani government has accused Armenian leaders of supporting Armenian separatists in the region.

Further, Yerevan is surrounded by other nations hostile to Armenian interests, and even though Armenians can depend on Moscow, the Russians have sold weaponry to Azerbaijan in the past while failing to support much-needed growth in the Eurasian country.

Positive News

The good news is that Armenia is skilled at reaching out to companies across the world. Some U.S. business leaders became interested in Armenia after Yerevan hosted a business conference in May. U.S. business, however, will not solve Armenia’s problems overnight, and the solution starts with leadership revamping Armenia’s image on the world stage.