Overseas business risk for Armenia

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The overseas business risk report provides information on security and political risks UK businesses may face when operating in Armenia

1.Political

Armenia transitioned to a parliamentary system of governance in 2018. The National Assembly has legislative authority and is elected for a five-year term. The President is the head of state elected by the parliament and has a largely ceremonial role. The Constitution, amended in 2015, provides for a strong executive led by the Prime Minister and his Cabinet. The current government was formed as a result of popular non-violent protests in 2018 known as the Velvet Revolution. With two rounds of free and fair elections and a democratically elected government, Armenia improved its position by 20 points in the Economist Intelligence Unit’s annual Democracy Index (compared to 2018). Ranked 82nd, Armenia is ahead of its regional neighbours and is classified as a “hybrid regime”. Armenia is also a regional leader in the World Press Freedom Index. Political parties and groups operate in a free environment which is evidenced by the unprecedented number of parties who took part in the 2021 elections.

2.Economics

Armenia is classified as an upper middle-income country by the World Bank, with a per capita GDP of approximately $7,000.

It is a small market with a 2.9 million population that has faced long-term geographical and geopolitical challenges, which have resulted in the closure of borders with Azerbaijan and Turkey – two of its four international borders. Trade with another neighbour, Iran, is restricted by international sanctions, poor transportation infrastructure and protective Iranian market practices.

Russia is the leading export destination, accounting for more than 30% of all merchandise trade from Armenia. Local companies reach Russia through Georgia, but the transport costs are high and frequent delays at the sole border crossing point between Georgia and Russia cause challenges for Armenia’s trade.

Largely due to these factors, the Armenian economy has a narrow export base and export destinations and an undiversified economic structure.

While the mining sector accounts for only 3% of Armenia’s GDP, the sector accounts for over half of merchandise exports. The extraction and export of copper and associated molybdenum reserves dominates Armenia’s mining landscape, followed by gold. Armenia possesses some minerals which are either included in the UK Critical Minerals List, or are listed as candidate materials.

Approximately 30% of workers in Armenia are employed in the agricultural sector. Within the agricultural space, food production dominates in terms of volumes and makes up more than a fifth of Armenia’s goods exports annually. Armenia has traditionally had a good reputation for brandy. The product of Yerevan Brady Company, which has been producing internationally renowned brandies since 1887, was Sir Winston Churchill’s favourite. Armenian wine has developed remarkably in recent years, spurred by increasing recognition of Armenia as a birthplace of winemaking and several large foreign investments aimed at producing high-quality wines.

Once the innovation hub of the Soviet Union, Armenia accounted for 30% of scientific and military electronics research and development. For example, the first computer in the Soviet Union was developed in Armenia. Armenians around the world have been responsible for such cutting-edge inventions as magnetic resonance imaging (MRI) , automated teller machine (ATM), positron emission tomography scan (PET scan), the hand-held hair dryer, colour TV, automatic transmission, and the green colour of the US Dollar. After the collapse of the Soviet Union, Armenia maintained its competitive advantages, and the tech is currently the fastest growing sector in the economy with the biggest presence of foreign companies, many of which are multinational firms. The sector has marked 20%+ consistent annual growth for the last two decades yielding more than one billion dollars annually and accounting for over 7.5% of the GDP. Armenia has hosted several major industry events that drew international attention. This includes the 2019 World Congress on Information Technology and the 2022 STARMUS Festival.

From 2010-2022, Armenia registered an annual tourism growth rate of nearly 15%, making it one of the world’s fastest growing tourist destinations, which is partially enabled by the safe environment. According to the independent international organisation World Population Review, Armenia is among the top ten countries in the world with the lowest crime rate. Armenia provides opportunities for many kinds of tourism, including religious.

Armenia had commenced a robust recovery from a deep 2020 recession, when it was hit by the twin shocks of the COVID-19 pandemic and the Nagorno-Karabakh armed conflict. According to the World Bank, conditioned by spillovers from Russia’s war in Ukraine, Armenia’s economic performance in 2022 was unexpectedly strong, with real GDP growth reaching 12.6%, the highest in the region.Armenia absorbed a significant inflow of Russian migrants, businesses, and capital, which fuelled domestic demand and led to an appreciation of the currency. Receipts both from tourism-related services and money transfers, fuelled by exceptionally high inflows of people and funds from Russia, tripled in 2022.

As a result, the unemployment rate fell to 11.6% in 2022 down from 15.5% in 2021, and this is expected to reduce poverty rate from 51.7% to 41.8% against UMIC poverty line. Real wages recorded 10% growth. Driven by robust economic and fiscal performance and the appreciation of the local currency, government debt to GDP declined sharply from 60.3% to 46.7%.Inflation averaged 8.6% in 2022 compared to 7.2% in 2021.

However, these positive developments magnified Armenia’s exposure to the Russian economy and increased the risk of overheating and capital flow reversal, which raises uncertainty in the economy outlook. A possible extension of sanctions to Russia’s main trade partners as well as geopolitical developments are another source of downside risks.

3.Opportunities for UK firms

3.1 Mining

A London stock exchange listed company is set to become the largest shareholder in the flagship gold mine project, Amulsar, which is Armenia’s biggest foreign investment project since independence. Another UK company operates one of Armenia’s largest gold mines.

More than half of Armenian mining companies use outdated equipment, with almost all lacking environmentally friendly technologies. With public and government focus on mining and its potential environmental impacts, along with a sector looking to contribute to sustainable economic growth, new opportunities are arising for UK companies. These opportunities include providing solutions to tackle legacy liabilities by reclaiming, rehabilitating, or remediating mines, adjacent areas, and facilities. Such initiatives will help to address adverse impacts and promote environmental sustainability.

The UK Government support ensured Armenia’s accession to Extractive Industries Transparency Initiative (EITI), which helped improve transparency, accountability and corporate governance in the sector.

3.2 Energy

After one of the first competitively tendered solar power plant projects in the region, Armenia has moved into large-scale solar energy integration, with plans to install 1,000 MW of solar power plants by 2030. It pledged to increase the share of solar energy 17-fold to 15% and the share of zero-emission sources in total energy generation to 54% by 2030. Armenia is developing 400MW of solar parks under a partnership project with Masdar, estimated at around £300 million. This opens-up opportunities for UK solar development companies.

The Armenian government is interested in utilising small modular reactors (SMR) to replace Armenia’s aging nuclear power plant, which would give UK firms an opportunity to achieve a significant commercial win and play a transformative role in Armenia’s energy security posture.

The Armenian government drives greater liberalisation of the electricity market. It has signalled interest in replicating the UK’s best standards and practices for addressing institutional issues related to electricity market liberalisation – for example, the introduction of business models for prosumer associations, mini/macro grids.

The capital city is moving in the direction of renewal of their public transport fleet estimated at over £120 million, based on the new public transport plan designed by British firm WYG International. Another British company Mott MacDonald provided strategic and operational recommendations, and preliminary designs to facilitate the implementation of the new network. This should see the full replacement of high-emitting aging minibuses (2,039 units) with zero-emission buses, and the introduction of a smart integrated ticketing system. The project creates opportunities for UK suppliers of electric buses and charging infrastructure.

A UK headquartered company, which owns and operates one of the country’s main hydropower generation complexes, has signalled openness to British commercial involvement for its large-scale upgrade and rehabilitation programme worth around £60 million.

3.3 Infrastructure and commercial real estate

Various UK companies have experience of working on infrastructure development projects in Armenia. The construction of a 470 km-long highway is Armenia’s major infrastructure project. The total project cost is £1.3 billion. The highway is divided into five tranches. As part of Tranche 4, the government plans to announce a two-stage tender for the construction of a 60km road section, including the construction of 4.7km-long bridges and 12.5km-tunnels. There is also a prospective programme as part of the same tranche to build 175km toll roads under public private partnership.

There are commercial real estate and urban development projects estimated at over £200 million, for which there is a strong interest from local companies to engage UK engineering, design and construction companies.

3.4 High-tech

There is a growing appetite among innovation-rich companies in Armenia to scale-up and internationalise through launching an HQ in the UK and accessing the UK’s world-class entrepreneurial ecosystem. The first Armenian Unicorn PicsArt scaled-up in the UK in 2022. A large number of local companies are backed by British venture capital funds, among which is Menu Group, the leading food delivery service provider in Armenia, Georgia and Belarus. A UK-based venture capital firm Granatus Ventures provides investment to start-ups and tech companies that leverage Armenia’s potential. The TUMO Centre for Creative Technologies, which is a unique learning centre for digital education developed in Armenia, is being successfully implemented on an international scale, including in Paris, Berlin, and Moscow. Plans to launch a similar centre in the UK are underway.

As Armenia seeks to move up the value chain, it has the potential to become a more desirable destination for UK companies to contract research and development efforts. Armenia is in a good position to continue to provide such services, including software testing and prototyping, to UK customers. Under a public private partnership contract, the Government is building an Engineering City to provide an ecosystem for engineering and high-tech companies to develop and implement innovative ideas for the local and international markets. The Engineering City already hosts 24 companies, including such multinational firms as National Instruments.

3.5 Financial and professional services

HSBC Bank Armenia, which is the largest British investment in the country, continues to do well. A London-based equity management company, Amber Capital, holds investments across different sectors of the Armenian economy and manages Armenia’s first private equity fund with investments primarily held in renewable energy projects.

UK law firms have a very limited presence in Armenia. This relative under-development ,combined with a firm commitment by national government to introduce international best practices for stricter corporate accountability in Armenia, creates market opportunities for UK law firms to explore.

In 2037 an estimated 30,000 individuals in Armenia will reach the age of 63 and retire. The defined contribution pension plan funds to be reimbursed are expected to surpass $500 million in 2037 and reach $1.3 billion within next 10 years. This will result in a significant increase in demand for life insurance as individuals choose to purchase annuities for their pension repayments. Currently, the assets of the pension funds stand at around $1.2 billion. The Central Bank of Armenia is interested in the transfer of knowledge and expertise from UK FPS providers for developing life insurance market.

The Central Bank of Armenia is also considering developing an institutional framework on open banking and regulatory sandbox, as well as introducing requirements for financial organisations on cyber security with UK input.

4.Business

Armenia ranks 47th in the latest Doing Business Report 2020, but it sets some of the best practices globally on starting a business (10th) and registering property (13th). The 2023 Index of Economic Freedom ranked Armenia as the 2nd freest economy in the Eastern Europe and Central Asia region, after Georgia.

Business registration procedures are generally straightforward. The overall regulatory framework remains efficient, and policies that support open markets are in place. Armenia imposes few restrictions on foreign control and rights to private ownership and establishment. There are no restrictions on the rights of foreign nationals to acquire, establish, or dispose of business interests. Armenia does not limit the conversion and transfer of money or the repatriation of capital and earnings. The banking system is sound and well-regulated, but the capital market is not highly developed. The government economic and anti-corruption reforms have improved the competitive landscape.

However, otherwise sound regulations, policies, and laws are sometimes undermined by problems such as the lack of independence, capacity, or professionalism in key institutions, most critically the judiciary. The quality of dialogue between the private sector and government, as well as state agencies’ ability to resolve businesses’ problems in an expeditious manner could be further improved. The UK Government-funded Investment Council of Armenia provides an effective platform for regular, institutional and constructive public-private dialogue on economic reforms. The Armenian British Business Chamber, one of the largest business associations in Armenia, provides an effective framework for business-to-business dialogue and for discussing market access issues with the greatest strategic importance.

Structural issues such as low investment rates, weak attraction of foreign direct investments, and limited human capital add to challenges. According to the UN Population Fund, Armenia will soon have an aging population, with people aged 65 years and over expected to comprise more than 22% of the population by 2050.

Armenia is a member of the Eurasian Economic Union (EAEU), which provides direct access to the Russian, Belarusian, Kazakh, and Kyrgyz markets with a combined population of about 190 million and a combined gross domestic product of nearly $2 trillion. Armenia, however, doesn’t have a common border with any of the EAEU’s member states. Being the only member of the Eurasian Economic Union, which has a Comprehensive and Enhanced Partnership Agreement with the European Union and a common border with Iran, Armenia positions itself as a regional trade hub. The country’s largest infrastructure project (the North-South Highway) is underway to realise that potential.

The UK-Armenia Bilateral Investment Treaty provides UK investors with a variety of protections. The UK has a Double Taxation Convention with Armenia to avoid double taxation and prevent fiscal evasion with respect to taxes on income and on capital. The UK is in the process of negotiating a Comprehensive and Enhanced Partnership Agreement with Armenia, which will replicate the EU agreement. The overriding objectives are to preserve the preferential conditions relating to trade and to provide a platform for further trade liberalisation and optimisation between the parties.

According to the National Statistical Committee of Armenia, by the end of 2022, the UK’s outward net Foreign Direct Investment stock (the accumulated value of all previous direct investments minus disinvestment) in the financial institutions of Armenia amounted to around £370 million, or 19.41% of total, which is the 2nd largest share after Cyprus (20.14%). This does not include investments by the British Virgin Islands (4.51%) and European Bank for Reconstruction and Development (EBRD) (5.49%). The UK’s outward net Foreign Direct Investment stock in the real economy amounted to around £180 million, or 4.58% of total, making the UK the fifth largest investor after Russia (42.29%), Canada (7.67%), Cyprus (7.28%), and France (5.15%).

In 2022, bilateral trade in goods with the UK more than doubled and amounted to around £76 million - the fastest growth rate in bilateral trade that Armenia recorded compared to other European countries.

UK companies should seek professional legal advice if they have, or are considering entering into, agreements in Armenia. The British Embassy is ready to support UK companies seeking to invest or operate in Armenia.

5.Intellectual property rights

Armenia has a strong legislative and regulatory framework to protect intellectual property rights (IPR), which conforms to international standards. Armenia is a signatory to the most relevant international IP treaties, such as TRIPS, the Berne Convention, the Madrid Agreement, the Patent Cooperation Treaty and others. Armenia’s legislation has been harmonised with the World Trade Organisation’s Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS).

Domestic legislation, including the 2006 law on copyright and related rights, provides for the protection of copyright with respect to literary, scientific, and artistic works (including computer programs and databases), patents and other rights of invention, industrial design, know-how, trade secrets, trademarks, and service marks. A new law on copyright has been drafted and submitted for government’s approval. It includes provisions from new international agreements (Marrakesh and Beijing Treaties).

A new law on patents and law on industrial design entered into force in 2021. The new law on patents strengthens the requirement for substantive examination before rights registration and introduces the concept of a short-term patent. The new law on industrial design includes some procedural changes, including publishing applications for industrial designs and objects during the state registration process. In 2021, Armenia adopted a new law making it the second country in the world, after the United States, to explicitly permit the patenting of software. The law allows for the patenting of computer programmes and algorithms, provided they meet certain criteria, such as being novel and nonobvious. It is significant for Armenia’s tech sector, as it provides greater protection for software developers.

The uniqueness of the Armenian legislative field is in its membership in the Eurasian Economic Union (EAEU). There are both positive and negative impacts from the EAEU membership. For example, the adoption of the regional exhaustion doctrine provides more granular control over the import from non-EAEU countries into the Armenian market for the UK and foreign businesses. The negative impact is the relinquished control for imports from the EAEU countries (Belarus, Kazakhstan, Kyrgyzstan and Russia).

The Intellectual Property Agency (IPA) in the Ministry of Economy is responsible for granting patents and overseeing other IPR-related matters. The collective management organisation ARMAUTHOR manages authors’ economic rights. Trademarks and patents require state registration by the IPA, but copyright does not. There is no special trade secret law in Armenia, but the protection of trade secrets is covered by Armenia’s Civil Code. In 2017, the Criminal Code of Armenia was amended to impose higher fines and longer prison terms for copyright infringement.

Formal registration is straightforward, the database of registered IPR is public, and applications to register IPR are published online for two months for comment by third parties. In 2005, Armenia created an IPR Enforcement Unit in the Organised Crime Department of the Armenian Police, which acts only based on complaints from rights holders and does not exercise ex-officio powers. In 2017, the Criminal Code of Armenia was amended to impose higher fines and longer prison terms for copyright infringement.

Despite the existence of relevant legislation and executive government structures, the concept of IPR remains unrecognised by a large part of the local population. The onus for IPR complaints rests with the offended party. Law enforcement assert that majority of cases are settled through out-of-court proceedings. However, the recent trends of increased usage of the Armenian courts and proceedings in trademarks demonstrates improvement in the trademark enforcement through civil and administrative litigation.

While the Armenian government has made some progress on IPR issues, strengthening enforcement mechanisms remains necessary. UNCTAD reports that low awareness and poor monitoring of IPR violations harm the business climate.

The UK government-funded study provides an objective insight into the current intellectual property rights (IPR) protection in Armenia for the UK and foreign businesses, along with recommendations for the Armenian government to address any gaps identified in the IPR protection. Most of the recommendations were included in the Armenian government’s IPR development strategy. For the UK and foreign right holders to take advantage of the IP enforcements through the Armenian civil and administrative courts, the report also details the procedures for trademark registration and provides details on how to navigate the complex field of IPR enforcement in Armenia utilising the laws and regulations.

6.Human rights

Armenia has not at any point featured as a country of concern in the FCDO’s Annual Human Rights Report. The most recent human rights reports by the US State Department, Human Rights Watch, Amnesty International and others continue to highlight the difficult legacy the Pashinyan government inherited from previous administrations. The government has embarked on an ambitious reform agenda, with a particular focus on constitutional reforms and anti-corruption measures. The COVID-19 pandemic, the conflict in Nagorno-Karabakh and the subsequent political crisis reduced government bandwidth to focus on the reform agenda, delaying progress in addressing remaining human rights deficiencies. Continued investment, legislative amendments, and capacity-building in judicial and law enforcement sectors will be required to fully address the systemic issues highlighted in previous reports.

6.1 Judiciary

Although the law provides for an independent judiciary, the judiciary does not generally exhibit independence and impartiality. Popular trust in the impartiality of judges remains low, while civil society organisations highlighted that the justice sector retains many officials who served the previous authorities and issued rulings consistently favourable to them. Corruption of judges remains a concern.

6.2 Arbitrary killings and disappearances

There are no reports that the government or its agents have committed arbitrary or unlawful killings. Human rights nongovernmental organizations (NGOs) continued to express concerns over noncombat deaths in the army and the failure of law enforcement bodies to conduct credible investigations into those deaths. According to civil society organisations and victims’ families, the practice of qualifying many noncombat deaths as suicides at the onset of investigations made it less likely that abuses would be uncovered and investigated.

6.3 Arrest

The constitution and law prohibit arbitrary arrest and detention and provide for the right of any person to challenge the lawfulness of his or her arrest or detention in court. There have been several reports of arbitrary or selective arrest during the past year. The law provides that an investigative body must either arrest or release individuals within three hours of taking them into custody. Within 72 hours the investigative body must release the arrested person or file charges and obtain a detention warrant from a judge. The law requires police to inform detainees of the reasons for their detention or arrest as well as their rights to remain silent, to legal representation, and to make a telephone call. Bail is a legal option. According to human rights lawyers, there continued to be significant use of pretrial detention, with suspects bearing the burden of proof to demonstrate they did not present a flight risk or would not hamper an investigation. Furthermore, lawyers have said that court detention decisions were increasingly unpredictable, with different detention conditions placed on defendants in similar circumstances.

6.4 Torture

The constitution and law prohibit such practices. Nevertheless, there are reports that members of the security forces continue to torture or otherwise abuse individuals in their custody. According to human rights lawyers, while the criminal code defines and criminalises torture, it does not criminalise other cruel, inhuman, or degrading treatment. The first conviction in a torture case since the 2015 adoption of a new definition of torture in the criminal code occurred on December 28, 2020. Two policemen were found guilty of committing torture in 2019 and sentenced to seven years in prison.

Prison Conditions: While the prison population decreased due to improvements in early release procedures and the release of some prisoners under COVID-19 prevention measures, conditions in some prisons are harsh and marked by poor sanitation, inadequate medical care, and predation by hierarchical criminal structures.

7.Bribery and corruption

Bribery is illegal. It is an offence for British nationals or someone who is ordinarily resident in the UK, a body incorporated in the UK or a Scottish partnership, to bribe anywhere in the world. In addition, a commercial organisation carrying on a business in the UK can be liable for the conduct of a person who is neither a UK national or resident in the UK or a body incorporated or formed in the UK. In this case, it does not matter whether the acts or omissions which form part of the offence take place in the UK or elsewhere. For more, read the information provided on our bribery and corruption page. Bribery is illegal in Armenia.

Armenia experienced a dramatic change of government in 2018, when a democratically elected leader came to power on an anti-corruption platform after street protests toppled the old regime. Compared to 2018, Armenia improved its ranking in Corruption Perception Index by 40 places in 2020, which was the second-best improvement worldwide. The rampant corruption of the old regime and the widespread rejection of this model helped the ruling party to galvanise electoral support even after the devastating defeat in the 2020 Nagorno Karabakh war.

Armenia increased by one point in Transparency International’s Corruption Perception Index for 2023. The score reflects controversy around political appointments, especially to the judiciary, the breakdown in maintaining checks and balances, ensuring integrity in law enforcement, securing judicial independence and protecting civic space.

Despite the rise from 46 to 47 points, Armenia ranks second in the Eastern Europe and Central Asia group, behind leader Georgia (53) and above Montenegro (46) - the only three countries in the region to score above the global average of 43.

The Executive Director of Transparency International local branch downplayed the slight improvement, saying that it is within the CPI survey’s 2.5-point margin of error and only shows continuing “stagnation” in the government’s declared fight against corruption. Most importantly, these results fall short of the ambitious CPI target score of 55 points set out in the government’s Anticorruption Strategy for 2019-2022.

8.Terrorism and security

See the FCDO travel advice for Armenia for the latest information on terrorism threats.

8.1 Safety and security

Military activity

A ceasefire agreement was signed between Armenia and Azerbaijan to end the military action in the Nagorno-Karabakh conflict zone in 2020. As part of the agreement a Russian peacekeeping operation were deployed to the area to monitor Armenian populated areas of Nagorno-Karabakh and the Lachin Corridor.

On 19 September 2023 Azerbaijan carried out military operations which allowed it to take full control of Nagorno-Karabakh and led to the exodus of over 100,000 ethnic Armenians from the territory. Although tensions persist and a peace treaty has not been signed, the number of ceasefire violations since September 2023 has been at historic lows.

The FCDO advises against all travel within 5km of the eastern border between Armenia and Azerbaijan.

Crime

Crime levels in Armenia are low, but there are occasional incidents of pick pocketing, bag snatching, theft from cars and burglary involving British or other foreign nationals. Although tourists and foreigners have not been targeted, there is a risk of being caught up in such events and you should remain vigilant at all times.

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