From dram appreciation to logistic issues: What problems Armenian exporters face?
09:51,
YEREVAN, JULY 22, ARMENPRESS. Companies exporting from Armenia complain over the recent appreciation of the dram. They say they greatly suffer, plus inflation is also creating difficulties because the price of raw material purchased for a good prepared for export has also increased. In addition, they also mention logistic problems.
The dram appreciation and the dollar depreciation in Armenia are impacting exporters as the contracts for export are mostly signed in dollars.
The main export destination of Armavir Fruit processing agricultural goods is the United States. The company is exporting canned fruits and vegetables, dried fruits and other products to the USA. The company founder Hayk Manukyan told Armenpress that at this moment their main problem is the fluctuation of the foreign currency and the appreciation of the dram. Thanks to state assistance programs, people have started to build orchards, greenhouse farms, and the volumes have increased.
“But when have a problem, it is automatically transferred to rural people. Under dram appreciation we are not able to process that volume. In terms of price, our agreement with our foreign partners has a history of years, it changes very little over the years. For instance, 8-9 years were required for positioning in the US market and selling a product. And now, if we change, increase the price, we will lose a market”, he said.
He says they cannot raise the price of exported good, even if they raise the price, they will lose competitiveness in that market. Under the conditions of dollar decrease by around 20%, exporting some goods is even not beneficial for a company now, however, this year, they continue exporting in order not to lose a market, but the company founder emphasizes that they are losing financial resources.
Logistic company Spinnaker Group co-founder Norayr Gevorgyan states that the fluctuation of the foreign currency is a problem for all exporters. “At this moment absolutely all exporters suffer from the fluctuation of the foreign currency and the appreciation of the dram. The dram appreciation, of course, is not something bad. But when it happens immediately, it is a problem”, he said.
He said that the prices in the field of cargo transportation are calculated in dollars, adding that this leads to price increase as most of the expenditures in Armenia is in drams.
The Central Bank, however, believes that the artificial depreciation of the dram will cause serious problems. CBA Governor Martin Galstyan earlier commented on the proposals to artificially depreciate the dram and stated that in that case they will create a new inflationary wave that will impact all citizens of Armenia, including exporters.
As for the logistic problems, the Upper Lars border checkpoint is also a problem for exporters as the checkpoint is regularly shutting down because of bad weather and there are major queues there, particularly Armenian cargo trucks were greatly suffering.
Armavir Fruit is also exporting goods to Russia, but not in a bigger scale. “We will soon have major agreements with the partners of the Russian market. So, the problem of Lars checkpoint is going to be very relevant for us. We also make imports for reprocessing, and face problems in this sense as well”, Hayk Manukyan said.
He says that Lars is very important for each exporter because they have contracts. “If the problem of Lars is not solved, it means we should have reserves in Russia in order not to violate the contract”, he said.
Spinnaker Group co-founder Norayr Gevorgyan also mentioned the problem of Lars. “The problem of Lars is not something new. Everyone, who has worked in this direction, knows that it is always problematic, there are problems both in winter and summer. But this year this problem was supplemented by the major flow of vehicles from other countries which cannot travel to Russia via Europe, therefore, Lars served as an alternative route for them. But Lars doesn’t have that capacity to serve so many cars”, he said.
The company has not exported apricot this year. “We knew that we won’t be able to quickly pass Georgia as there are queues. There were other reasons as well”, he added.
In order to mitigate the problem of Lars, a ferry communication is expected to launch. Its launch was expected to be on June 15th, but it is being delayed because the Dutch company, the Poti port operator, has not granted permission yet and this company has also imposed sanctions against Russia.
Both companies believe that the ferry transfer will mitigate the problem, but note that this is not a solution because much more goods are exported from Armenia and it’s impossible to transfer all of them via a ferry.
Many countries, including Armenia, are facing inflation. Hayk Manukyan states that despite the decline of foreign currency the prices are not falling. He says that the dram depreciation could negatively affect the economy from inflation perspective. He proposes to provide support to exporting companies, particularly compensation.
Meanwhile, Spinnaker Group founder Norayr Gevorgyan says that the fluctuation of a foreign currency is a global problem and does not depend on Armenia only. However, he states that exporters suffer from this, and a respective approach should be provided to them.
“If there is no compensation for suffering sectors, they will appear in a very difficult situation. There should be a sectoral assistance to exporting companies, to those which have contracts in dollar”, he said.
Reporting by Anna Grigoryan