Restricting the access of Armenian products, from fruits and vegetables to flowers and mineral water, to the Russian market, the Armenian economy is facing serious challenges.
Former Minister of Finance, economist Vardan Aramyan analyzed the depth of these problems, the risks of hasty decisions and the real prospects of alternative markets.
The “delayed” impact and hit to business
Assessing the scale of the consequences of Russian restrictions, Vardan Aramyan calls to pay attention first of all to the speed of the application of restrictions and their inclusion. The economy reacts to such shocks not instantly, but with a certain time gap (lag).
“It’s another thing when you do it gradually… then the situation becomes more manageable. But when this happens too quickly, serious problems can occur. The economy is an organism, months will pass and we will understand its real impact at least after three to six months.”
Aramyan emphasizes that not only macroeconomic indicators will suffer (where dependence on the Russian Federation is estimated at billions of dollars, including re-export), but also specific enterprises. The crisis chain for business looks like this:
1. Liquidity deficit. Businesses are unable to sell their products and face the problem of lack of cash.
2. Solvency crisis. Problems arise in connection with repayment of credit obligations.
3. Chain reaction. The reduction in production affects related sectors, including agricultural purchases and tax payments to the budget.
Homework first, then diversification
Aramyan supports the idea of searching for new markets, but strongly criticizes the current methods of its implementation. In his opinion, diversification should be the result of planned work, not political demarches.
“You won’t find a single economist who says diversification is a bad thing. […] But what is the problem? First we slap the source from which we are fed and then we think about the consequences. This is a fundamentally wrong approach. First, you have to do your own “homework”, then think about how to get out little by little.”
The economist gives a household example. “Before entering into a conflict with an employer, a prudent person first raises his qualifications, sends out resumes and finds backup options.”
Besides, entering new markets is objectively difficult. Referring to Professor Pankaj Gemawat’s Economic Model of Distances (CAGE), Aramyan notes that trade barriers are measured not only in kilometers. Due to the cultural, administrative and economic proximity, the real trade distance with Russia (conventionally less than 1600 km) is much shorter for Armenian business than, for example, in the case of UAE or EU countries, where there are strong institutional and cultural barriers.
Turkish market risks
Observing Turkey (with which Armenia is in the process of normalizing relations) as a potential alternative, the economist notes that the opening of borders is an objectively positive phenomenon. However, this process contains serious challenges for the Armenian producer.
“When we open the borders, the process must be manageable. We need to understand the capacity of the infrastructure… But most importantly, Turkish products will also enter our market, and we have to take that into account.”
According to the expert, Turkish products (especially agricultural products) can be more competitive. “Therefore, Armenia needs a clear set of tools to protect its own farmers, especially since the agrarian sector is subsidized all over the world. One should not forget about the political conjuncture. Any action of Ankara is inextricably linked to the interests of Baku,” he clarifies.
The inadmissibility of dependence on Azerbaijan
The expert pays special attention to Armenia’s energy dependence on foreign suppliers, primarily Russia, because the country does not have its own reserves. As for the hypothetical possibility of buying energy carriers from Azerbaijan, Vardan Aramyan is very categorical in this matter.
“I am categorically against the idea of importing gas from Azerbaijan in general. It is the same as putting your head under the executioner’s sword. You are handing over all your independence, including energy independence, to a country that declares: “Armenia is Western Azerbaijan.” I can’t imagine a greater stupidity in my life.”
Aramyan is convinced that normal commercial relations cannot precede political settlement. Trade should follow the political tolerance of societies, not the other way around.
“One must be realistic and not indulge in illusions. You can’t put the whole burden on the shoulders of business and society, and only then think about how we will overcome the situation.”
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