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_____________________________ Notes:
(1) Figures in this table are current as of 31 January 2015. (2) The value of exports is recorded on a FOB basis, i.e., the value of goods to the port of shipment, and includes goods of domestic origin and re-exported goods of foreign origin. Figures in this table do not reflect unregistered trade volumes. (3) Includes sales of electricity pursuant to Armenia’s barter arrangements with Iran. See “Economy of Armenia—Energy—Electricity.” Source: Armstat. Exports increased year-on-year by 46.6% in 2010, 28.2% in 2011, 3.4% in 2012, 7.1% in 2013 and 2.7% in 2014. From 2010 to 2014, the value of exports of goods increased by 45.9% from U.S.$1,041.1 million in 2010 to U.S.$1,519.3 million in 2014, driven mainly by growth in the export value of mineral products (including electricity) (28.4%), prepared foodstuffs (157.7%) and precious stones and metals (71.9%). Partially offsetting this increase in the overall value of exports was a 9.0% decline in base metals exports. International Trade Agreements Armenia has signed a number of multilateral and bilateral economic cooperation agreements. Since 1991, Armenia has been a member of the CIS, and, since 2003, a member of the WTO. Upon signing the Protocol on Accession to the Marrakesh Agreement (the “Marrakesh Protocol”) establishing the WTO, Armenia joined several WTO agreements and made commitments under the annexes to the Marrakesh Protocol. Armenia is accordingly bound by WTO maximum customs tariff rates allowed on imports, and it is currently compliant with WTO tariff rules. Since accession, Armenia has been improving its customs and tariff practices, replacing ad valorem customs fees with good-specific duties. The trade-weighted average tariff of imports to Armenia for most-favoured-nations was 3.4% in 2014, one of the lowest rates among WTO member countries. Armenia has most-favoured-nation trading relationships with all WTO members. Together with Albania, Azerbaijan, Bulgaria, Georgia, Greece, Moldova, Romania, Russia, Serbia, Turkey and Ukraine, Armenia is also a member of the Organisation of Black Sea Economic Cooperation, which is designed to foster closer economic ties among the countries of the Black Sea region. Armenia has bilateral free trade agreements in place with Georgia, Russia, Ukraine, Moldova, Belarus, Kazakhstan, Tajikistan, Turkmenistan and Kyrgyzstan. On 2 January 2015, Armenia joined the EEU, which seeks to integrate the economies of its member states; the other current EEU member-states are Russia, Belarus and Kazakhstan. Accordingly, Armenia is part of the EEU’s customs union. Armenia’s entry into the EEU precluded further pursuit of a deep and comprehensive free trade area with the EU, as had been under consideration. Armenia’s entry into the EEU entails a gradual transition (with scheduled completion by 2022) to the unified tariff system of the EEU (although Armenia is seeking substantial exclusion from the EEU tariff regime), as a result of which some tariffs will increase (according to WTO statistics for 2012, the trade-weighted average of EEU tariffs was 9.1%. In 2015, Armenia expects proceeds from important tariffs to increase on account of entry into the EEU. At the same time Armenia plans to comply with its obligations under WTO rules as a member of the WTO. Armenia’s trade relations with the EU are governed by the PCA. In 2004, Armenia became a member of the ENP and, in 2006, signed the ENP Action Plan. The ENP Action Plan has several objectives, including the harmonisation of Armenian trade-related standards and rules with those of the EU. In 2010, Armenia launched negotiations with the EU on an EU-Armenia Association Agreement; however, negotiations were discontinued in September 2013, following Armenia’s decision to join the EEU. See “Description of Armenia—International Relations” for further discussion of Armenia’s relations with the EU. Since 2009, Armenia has benefited from participation in the Generalised System of Preferences + (“GSP +”) preferential trading regime. The GSP+ programme provides preferential access to the EU market in the form of zero duties and tariffs for approximately 7,200 products. To continue benefiting from this regime, Armenia must ensure effective implementation of 27 core international conventions on sustainable development and good governance. From year to year, approximately 90% of Armenia’s exports to the EU fall under the GSP+ regime. Armenia’s GSP+ plus is valid for 10 years and is subject to discussion every two years; current GSP+ arrangements are valid until 2024. Armenia also benefits from Generalised System of Preferences status with the United States, Canada, Japan, Norway and Switzerland. Barriers to Trade Armenia does not apply quantitative restrictions or non-tariff barriers on trade, except for health, safety and environmental protection considerations. VAT and excise taxes apply equally to imported and local products. See “Public Finance—Armenian Tax System.” Licensing requirements remain in effect for the import of certain medicine, weapons, explosive materials and radioactive products. Pursuant to the Customs Code of Armenia (the “Customs Code”), which was adopted in 2000 and in force through 2014, Armenia had two tariff rates: 0.0% and 10.0%. In most cases, the tariff rate that had applied to imports was 0.0%, with a tariff rate of 10.0% having been imposed only on certain imports, such as luxury cars. See “Public Finance—Armenian Tax System—Tax Structure—Customs Duties.” Following Armenia’s entry into the EEU, the Customs Code was annulled with the exception of certain transitional provisions. Armenia currently does not have any export restrictions in place, such as export quotas, export tariffs or voluntary export restraints. FDI Net FDI in Armenia is supported by the full convertibility of the dram and is an important source of financing for the Armenian economy. Armenia relies on net FDI inflows, together with Government, CBA and commercial bank financing and workers’ remittances, to cover its current account deficit. FDI inflows have been volatile in recent years. They declined by 35.4% to U.S.$535.7 million in 2010, mainly due to lower investments in the power and gas supply and land transport sectors. Then, in 2011, FDI increased to U.S.$703.2 million, or by 31.3%, on account of higher investments in metals manufacturing. In 2012, FDI declined to U.S.$598.4 million, or by 14.9%, due mainly to declines in investments in metals manufacturing, power and gas supply and land transport, and despite a 103.8% increase in FDI in the telecommunications sector. FDI dropped sharply in 2013, falling by 49.1% to U.S.$304.4 million as a result of declines in FDI in the telecommunications and mining sectors. FDI rose sharply in the nine months ended 30 September 2014, reaching U.S.$796.9 million, compared to U.S.$178.3 million in the nine months ended 30 September 2013. This increase was mainly due to FDI inflows of U.S.$556.7 million in the power and gas supply sector, reflecting mainly the gas supply contract with Russia. See “Economy of Armenia—Energy—Petroleum Products and Natural Gas.” Russia has historically been Armenia’s single largest source for FDI, and FDI inflows are likely to fall as a result of the current downtown in the Russian economy. See “Risk Factors—Risk Factors Relating to Armenia—Slowing of the Armenian Economy and Ratings Downgrade.” There are no restrictions on foreign ownership of property or assets in Armenia. There are no restrictions on the repatriation of profits/dividends from Armenia, subject to compliance with applicable tax laws. The following table sets forth the value of FDI inflows into Armenia by product category for the periods indicated: Value of FDI Inflows into Armenia by Product Category in Dollars(1)
_____________________________ Notes:
(1) Figures in this table are current as of 30 January 2015. (2) The methodology for calculating FDI changed in 2014. As a result, figures for the nine months ended 30 September 2014 are not comparable with other historical periods. For this reason, FDI figures for the nine months ended 30 September 2013 have not been included in this table. (3) Excludes insurance and pension funding. (4) Includes FDI used for the construction of transportation infrastructure, including the construction of the gas pipeline to Iran. See “Economy of Armenia—Energy—Oil and Gas.” Source: Armstat. The following table sets forth the value of FDI inflows into Armenia by product category in percentage terms for the periods indicated: Value of FDI Inflows into Armenia by Product Category in Percentages(1)
_____________________________ Notes:
(1) Figures in this table are current as of 30 January 2015. (2) The methodology for calculating FDI changed in 2014. As a result, figures for the nine months ended 30 September 2014 are not comparable with other historical periods. For this reason, FDI figures for the nine months ended 30 September 2013 have not been included in this table. (3) Excludes insurance and pension funding. (4) Includes FDI used for the construction of transportation infrastructure, including the gas pipeline to Iran. See “Economy of Armenia—Energy—Oil and Gas.” Source: Armstat. The following table sets forth the value of FDI inflows into Armenia by country of origin for the periods indicated: Value of FDI Inflows into Armenia by Country of Origin in Dollars(1)
_____________________________ Notes: (1) Figures in this table are current as of 30 January 2015. (2) The methodology for calculating FDI changed in 2014. As a result, figures for the nine months ended 30 September 2014 are not comparable with other historical periods. For this reason, FDI figures for the nine months ended 30 September 2013 have not been included in this table. Source: Armstat. The following table sets forth the value of FDI inflows into Armenia by country of origin in percentage terms for the periods indicated: Value of FDI Inflows into Armenia by Country of Origin in Percentages(1)
_____________________________ Notes: (1) Figures in this table are current as of 30 January 2015. (2) The methodology for calculating FDI changed in 2014. As a result, figures for the nine months ended 30 September 2014 are not comparable with other historical periods. For this reason, FDI figures for the nine months ended 30 September 2013 have not been included in this table. Source: Armstat. Armenian Development Agency/Armenian Development Fund The Armenian Development Agency (the “ADA”) was originally established in 1998 with the dual aim of encouraging FDI in Armenia and promoting Armenian exports abroad. The ADA facilitates FDI in several ways. It provides information on investment opportunities in Armenia, assists foreign investors in setting up local businesses, advises foreign investors on developments in investment-related laws and regulations and liaises with the Government on behalf of foreign investors. One of the ADA’s key priorities is to support the development of the information technology sector in Armenia. The ADA promotes Armenian exports by researching potential markets for Armenian goods and services, locating joint venture partners on behalf of Armenian exporters and organising various kinds of international conferences and trade fairs in support of Armenian products. The ADA is considered the principal intermediary between the Government and investors, both foreign and local. The Ministers of Economy, Finance and Foreign Affairs each sit on ADA’s board, together with leading members of the local business community. The Prime Minister of Armenia serves as the chairman of ADA’s board. At the end of 2014, the Government created the Armenian Development Fund by merging the Industrial Development Foundation and the National Competitiveness Foundation of Armenia. The two foundations were consolidated in an effort to more effectively advance the competitiveness of Armenia’s manufacturing enterprises, boost industrial exports and strengthen cooperation between the Government and private investors. The ADA was formally dissolved, with its responsibilities to be taken over by the Armenian Development Fund. PUBLIC FINANCE Overview The Law on the Budgetary System of Armenia (the “Budgetary System Law”), adopted on 21 July 1997 (and subsequently amended) defines the procedures governing Armenia’s budgetary system and regulates the preparation, adoption, execution and monitoring of the Consolidated Budget (as defined below). The Budgetary System Law also defines the budgetary relations between the Government and the local governments. The consolidated general government budget (the “Consolidated Budget”) comprises (i) the state budget (the “State Budget”) and (ii) the local government budgets. The following table sets out the Consolidated Budget of Armenia for the periods indicated: Consolidated Budget
Source: Ministry of Finance. The Ministry of Finance is centrally involved in each stage of the budgetary process, establishing fiscal policy objectives and coordinating the preparation, adoption, execution and reporting of the State Budget. In addition to the Ministry of Finance, each of the Government, National Assembly and Audit Chamber of Armenia (the “Audit Chamber”) performs certain oversight functions with respect to execution of the State Budget. Budget figures are also discussed with IMF missions in the context of their annual review process. Under the Budgetary System Law, local governments are entitled to a share of the revenues from certain Government-imposed taxes and are permitted to raise revenues directly through limited property tax levies and local duties, as well as through certain fees and other non-tax measures. The Government also allocates funds to local governments by subsidies (to address regional economic disparities) and other transfers. See “—Fiscal Relations with Local Governments.” Fiscal Reforms Modernising the country’s public finance system in an effort to improve the preparation, execution and oversight of the budgetary process is a key priority of the Government. In 1996, the Government initiated a set of reforms, whereby all bank accounts held by State and local budgetary institutions were closed (except for project implementation units (“PIUs”) that were required by donors to operate with commercial bank accounts) and replaced with a single unified treasury account (“UTA”) held at the CBA and controlled by the Ministry of Finance. All budgetary receipts and payments on both the State and community levels are now processed through the UTA. As of 31 December 2014, all PIUs were also transferred to the UTA. As part of these reforms, the Government established an integrated general treasury ledger with sub-accounts for each budgetary institution and began to report all accounts on a cash basis and in accordance with the principle of double-entry accounting. Improved methods for monitoring all stages of the expenditure cycle were also introduced, and contingent liabilities are now recorded. Since 2008, Government financial statistics have been prepared and reported in accordance with the guidelines and definitions set forth in the IMF’s Government Finance Statistics Manual (“GFSM 2001”). In 2010, the Government approved the Public Financial Management Strategy, which sets forth reforms designed to: (i) enhance fiscal discipline; (ii) reform the public procurement process; (iii) improve treasury administration; and (iv) facilitate more effective oversight and accountability concerning the use of public resources. In particular, the Ministry of Finance is in the process of instituting further reforms, which include the introduction of an internal auditing system and new accounting standards based on International Public Sector Accounting Standards (IPSAS) in line ministries and their respective internal budget departments. Furthermore, since 2011, the Government has begun the transition to a programme-based budgetary system, which is a results-oriented budgeting procedure meant to shift focus from managing financial resources to managing results and to strengthen linkages between policy objectives and budgets. Under a programme-based approach to budgeting, non-financial performance indicators, such as the quality of services purchased or delivered by a budgetary institution, in addition to financial performance measures, are taken into consideration when planning appropriations and assessing their use. As part of this transition, public spending is expected to be channeled through programmes tied to specific targets and measurable indicators. Furthermore, the Government plans to continue with measures to improve the presentation of expenditure items in accordance with functional classification spheres. These reforms are expected to grant the ministries more autonomy over the development and management of their respective budgets, to make the budget planning process more detailed and to put greater emphasis on medium-term benchmarking. Since Fall 2013, the Government submits programme budgets to the National Assembly, as required by the revised Budgetary System Law. See “—Armenian Tax System—Reforms,” for a discussion of tax reforms.
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