Armenia's shadow economy sparks scepticism of exaggerated figures

By Elnur Enveroglu

Various opinions about Armenia's economy have already become the hot topic of the day. Local and foreign media often report exaggerated figures on the country's economy and the dazzling results of the rapidly growing shadow economy in the country, increasing the lack of confidence in the country's economic future in the domestic audience.

Although landlocked Armenia shares a land border with 4 countries, the country's international strategic capabilities are very limited. The main reason for this is that Armenia occupied the territories of Azerbaijan starting in 1993, and because of this, the borders with Turkiye and Azerbaijan remain closed to this day.

The Armenian authorities have repeatedly appealed to the Turkish leadership regarding the opening of the border, however, the issue is still pending.

Nevertheless, Armenia has relations with Georgia and Iran, and although these relations are used for commercial purposes, they are not able to bring further surpluses to the economy of this country.

For example, if we just look at the statistical figures for 2022, we can say that the volume of exports from Armenia to Iran was approximately 111 million US dollars. About 59.6 percent of this was electric energy, 20 percent was rolled tobacco products, and the remaining 20 percent was made up of non-ferrous metal, glass, and other products. In addition, in Armenia, the internal market of the country has not been formed due to the fact that factories and companies bringing large-scale investments do not operate.

The information provided recently states that Armenia plans to increase the annual trade turnover with Iran to 3 billion US dollars. Although there is no detailed information about the agreements, the information mentions Armenia's "cooperation in 19 fields" with Iran.

At the same time, there is an increase in Armenia's trade turnover with Russia. But before looking at the numbers in Armenia's statistical data, let's think about the political side of the issue.

Where does Armenia get a large amount of income from? Why is the shadow economy criticised in Armenia, and the figures are said to be exaggerated?

About a year ago, despite the Western sanctions on Russia, information about more than 20 Armenian companies establishing secret trade relations with Russia spread rapidly. The West even imposed an embargo on some of those companies. On the one hand, Armenia is increasing political tension with Russia, on the other hand, it is strengthening its economic ties with the West's foe. While this trend may not be to the West's liking, it is true and literally a cause for concern for some organisations in Western countries today.

The fact is that after the official Western sanctions on Moscow, Armenia's exports to Russia increased three times in 2022 alone. Armenia, which joined the Eurasian Economic Union led by Russia in 2014, for some reason began to strengthen its trade with Russia precisely after the Ukrainian war.

For example, the trade turnover between Armenia and Russia in 2023 has grown by 43 percent, reaching $7 billion and 306 million, according to data from the National Statistical Committee of Armenia for 2023.

The specific weight of Russia in Armenia's total foreign trade remained at about the same level (decreased from 35.6 percent to 35.3 percent) compared to 2022, according to the statistics.

Exports from Armenia are up by almost 39 percent to a total of $3 billion and 418 million. This means that the share of exports and imports in trade with Russia is almost the same (47 percent to 53 percent).

Now let's get back to the answer to the main question. According to the indicators of the International Monetary Fund for 2024, the GDP of Armenia is 8.58 thousand US dollars. Of course, since the country prefers more exports, the latest indicators of the country's GDP have fluctuated with a growth rate of about 3% to 5%.

But what has not changed is the general living conditions of the population in Armenia. Experts emphasise that Armenia either overestimates the economic figures or that the country's income is used for different purposes. One of them is the rapid armament policy of Armenia, especially after its defeat in the Second Garabagh War in 2020.

According to the latest statistics of this year, the Armenian government even increased the defence budget and allocated 557 billion drams (approximately $1.38 billion). In addition, in 2021, Yerevan allocated about $600 million from the state budget for military purposes, and in 2022, the country increased military spending by more than 10%, reaching $750 million. As regards Armenia's 2023 national budget for military expenditures, this reached a record $1.28 billion, and this number was around a 46% increase in military expenditures in comparison with a year ago.

Despite all this, Armenia does not have the potential to wage war in the next ten years. Today, according to the indicators, although the country's income is moving upwards, results still remain murky, and no progress is tangible in people's welfare living in Armenia.

The transparency of Armenia's economy seems to be possible only with the normalisation of neighbouring relations and its inclusion in the list of economic partners within the region. In the last few months, the positive steps taken by the Armenian government regarding the establishment of borders with Azerbaijan have led to high predictions about the complete security of the region in the near future. In addition, the restoration of relations between Armenia, Azerbaijan, and Turkiye increases confidence in the economic future of the South Caucasus.