Satik Seyranyan’s “Lessons” program the guest International expert in public finance management, former Minister of Finance of the Republic of Armenia, Master of the University of Illinois, USA This is Vardan Aramyan.

The main theses of the interview are below.

• If this government does not create a war situation, there will be no peace… Now they have initiated an economic war with Russia. Obviously, with this development of events, if the price of gas changes, which we now get from Russia for 177 dollars, heating the house with gas, not to mention keeping greenhouses, will be a problem. We import 550 to 570 million dollars worth of gas from Russia annually. If that price even doubles, it means that Russia is subsidizing us in the amount of half a billion dollars a year. Now let’s compare half a billion dollars a year with the promised European lump sum of $270 million, see: are they comparable?…

• The money that is promised to us from Europe, moreover, if it will reach us, it will not be promises, then it may happen over the years, it is sad because as a result of all this, our losses happen all at once. I don’t believe that we will even have the money promised by the EU until September, while our businessmen already have a cash problem today and it needs to be solved…

• The product that is under phytosanitary must pass certification. And how should it be done? There should be labs that don’t exist. Recently, I was listening to the head of the government (Pashinyan) and I thought, look where we live. When he says that we showed the place where the goods should be exported, what does he think, people didn’t know their place?

• In real business, there are many problems that are not visible to a government official. Entrepreneurs understand very well both the risks and the future. And what is the problem that businessmen do not want to take goods to Europe?: Because there are many problems and it is not beneficial.

• It is strange that the government is now talking about the diversification of the economy, when it was during their time that our economy, particularly exports, became more dependent on Russia. I say this based on the official numbers, and they are very large. Exports to Russia did not increase by percentage, but by times. Even as a member of EAEU, under the previous government of Armenia, the export to the European Union was 440 million dollars, and in 2018 it was already 680 million dollars, an increase of 50%.

• 2017 when CEPA was signed under the previous administration agreement, there was also a provision on visa liberalization, which has not been done by this government until now. And what was the need for a free visa so that the drivers of our exporting vehicles could freely enter the European territory without a visa?:

• The physical distance between Armenia and Russia is 2081 km. When we factor in cultural, geographic, administrative and economic factors, the distance shrinks to 1,598 km. This means that the Russian market is simplified for us. This is without considering the existence of our Diaspora, which helps our businessmen. Armenian buyers in Russia prefer Armenian apricots to Uzbek apricots, which are cheaper. You don’t need to make a marketing plan to introduce the Russian buyer to Armenian brandy, because we are a people of the same territory of the USSR. 

On the contrary, the distance from Armenia to Germany in a straight line is 2934 km. If we consider those 4 factors above, the distance becomes 3550 km. This means that under equal conditions, Armenian businessmen have to spend more in order to enter the German market in order to overcome the mentioned 4 barriers. 

3264 km of the Netherlands becomes 3871 km, 1327 of Ukraine becomes 1335 km. the series can be continued: And in the case of EAEU countries, not only in the case of Russia, but also in the case of all countries, the distance is decreasing: This means that it is more profitable for an Armenian businessman to export to Russia and all other EAEU countries, including former USSR countries.

CAGE Distance Framework by Pankaj Jamawati (Pankaj Ghemawat) is a tool created by , which helps companies and analysts assess the real distance and risks between countries before entering the international market. It shows that distance is not just kilometers. CAGE is an acronym that consists of 4 main dimensions:

1. C- Cultural Distance

Differences between countries’ social norms, values ​​and communication.

What increases the distance? Different languages, religions, ethnic differences and levels of social trust.

The influence. Influences consumer preferences (eg food, media products) and business negotiation style.

2. A- Administrative Distance

Differences or connections between governmental, legal, and political systems.

What shortens the distance? Common history (eg former colonial ties or shared Soviet past), use of the same currency, membership of trading blocs (eg EAEU, EU).

What increases? Political hostility, sanctions, bureaucracy, protectionist (protecting the local producer) policy.

3. G- Geographic Distance

Physical and spatial factors between countries.

What does it include? Physical distance (in kilometers), presence of land borders, landlocked, time zone difference, climate and quality of transport/logistics infrastructure.

The influence. It directly affects transportation costs, speed of supply chains and communication.

4. E- Economic Distance

The discrepancy between countries’ economic development, wealth and resources.

What does it include? Per capita income (GDP), cost and quality of labor, access to infrastructure, technology and natural resources. 

The influence. Determines whether the local market has sufficient purchasing power, or whether it is profitable to establish production there (for example, at the expense of cheap labor). 

The main goal of the CAGE framework is to prevent companies from falling into the “global illusion”. It makes you see the hidden barriers that can fail even international programs that seem perfect on paper.

Thus, when, for example, in the case of exports from Armenia to Germany, the 4 barriers are calculated, the effective distance increases (although it is not so far physically), and in the case of Russia and the EAEU, on the contrary, it “reduces” due to integration and historical-cultural factors, making the market more accessible and profitable for the local exporter.

• Agriculture is a strategic industry all over the world. Therefore, each country first of all develops its own agriculture, and this government first of all closed the Ministry of Agriculture (including the Ministry of Energy and Diaspora, the Institute of Geodesy, and all this was done on purpose, editor.). One should not be naive and think that the Swiss will not give preference to their own farmer and will buy our Armenian products.

• If a country wants to close off another country’s trade, the easiest option is to use the phytosanitary tool. 

• 2024 according to data, more than 90-95% of our total food exports went to Russia:

• If we theoretically think that the customs channels for exports to Europe are cleared, and phytosanitary issues are resolved, the problem of serious business costs will arise. Why should the Austrian consumer prefer expensive Armenian tomatoes after leaving cheap Turkish tomatoes?

• If the Europeans are so kind, instead of giving us money, let them put pressure on Turkey and open the border, because it is not the border of Turkey, but the customs border of the European Union.

• No matter how much they feed us with promises about the establishment of apparent peace, I see what anti-Armenian speech is taking place at the Azerbaijani event held a few kilometers away…

• We will see the most severe consequences of the actions that Russia has taken against Armenian businessmen, especially in September-October. The government cannot fully compensate the expenses of the Armenian businessman. it’s a serious burden. These companies will slowly end up starving for cash and going out of business and going bankrupt. Let’s not be childish. business people will have a very serious problem:

• As a citizen, the decisions of this government that break the backbone of the economy and break the Armenian reality are unacceptable to me. It seems that they are constantly thinking of some kind of trouble to bring upon the country:

• In finance, 50 50 cannot be 150, it is 100. If you increase some part of that 100 and give it in the form of a subsidy to the businessmen who are facing a problem as a result of your absurd policy, you have to reduce it somewhere to finance them.

There is bad news on the national debt. We have a deterioration in the debt-GDP ratio and debt service parts from 2022. Mortgage loans increased 6 times, construction loans – 5 times. Consumer loans also increased by 2.7 times. And a person takes a consumer loan to live. If consumer loans are growing faster than your wages, then middle- and low-income households are actually worse off. And let them not tell us that the people live well. Today, the people invest money in something that will not create new GDP, output, value, income for them in the future. 

• The government has taken on too many current expenditure commitments. Only during the pre-election period, the pension increase put another burden of more than 70 billion on the budget, which we will not pay only this year, but also next year, and the year after that, and so on.

The second is cashless transactions, the third is mandatory health insurance. Yes, insurance is a great thing, but who’s going to pay for it? From 2027, the list of beneficiaries will increase, how will they do it? What are we going to do in the budget to mitigate the effects of these bomb blasts? First, some adjustments in expenses need to be made. Taxes will also increase, in particular, excise taxes have already been increased, some products are becoming more expensive and will become more expensive… The increase in taxes will be inevitable. The current costs I mentioned and others are a heavy fiscal burden, and that’s it business and citizens will bear the burden for the sake of forming the state budget.

• The authorities and quasi-authoritarian forces are doing something dangerous. they do not speak honestly with people, they create expectations and dull people’s vigilance, and the latter cannot see their own head. Before you step into the ring, you need to consider your weight class. You can’t compete with 30kg against 130kg and fall embarrassingly to the ground after the first punch.

• Pashinyan’s vulgar speech is very unpleasant for me. When someone welcomes that vulgar speech, which he directs to his competitors, benefactors, businessmen, he should understand that the businessman provides his income. Investors and businessmen are extremely literate. You don’t have to harm them so that they refuse to do business in your country. They see that a year ago Samvel Karapetyan was a benefactor for the state, but he protected the Church, became an enemy of the authorities and was targeted… This is an alarm. Let no one imagine or think that he is better than Samvel Karapetyan. If they did it to him, they will definitely do it to them too. CP-adjacent reasonable a businessman should always keep in mind that what happened to Samvel Karapetyan can happen to him:

• Samvel Karapetyan’s assets are spread all over the world. it means that in all jurisdictions he has a toolkit. When they simply confiscate the National Energy and Mineral Resources under the allegedly bad management, let them clarify what they mean by that. But there is no such clarification. However, the numbers say otherwise. During the management of Samvel Karapetyan, HEC significantly improved its indicators and became a profitable company. And billions of profits were directed to investments:

• If you don’t have financial security, forget about all the other components. For businessmen, the rules of the game should be transparent and not depend on the will of one person.

• The last Putin-Pashinyan meeting was very telling, and Russia’s attitude today was very expected. Such talk usually occurs during closed meetings. Putin tried to talk about the problems in a public format, to talk to the Armenian people. Maybe if Pashinyan slapped Putin one more time, a group of people here wouldn’t sleep from joy, but then the same group won’t sleep at night from hunger.…

• There is an atmosphere of fear in Armenia, but I don’t think that, for example, a resident of Kapan, Syunik, seeing the Azerbaijani flag and knowing about the atmosphere of anti-Armenianism in that country, will not have negative feelings. I can’t say when it will explode.

Details in the video.

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