- Independent Journalism From Today's Armenia
February 13, 2004

Shut Out: Blockade makes Armenia an outsider in its own neighborhood

Trade becomes a challenge in a country of blocked borders.

Step into the socks of the Armenian economy for a moment: Chaos to the north, Axis-of-Evil international pariah to the south, and not-so-neighborly neighbors who blockade borders to the east and west. Now try to participate in international trade and commerce like everyone else.

The country's trade problems started back in 1989, when Azerbaijan sealed its border with Armenia at the beginning of the Nagorno-Karabakh conflict. In a show of support for its Turkic brethren, Turkey similarly closed road and rail links with Armenia. Ten years after cease-fire, the two borders remain closed.

Today, people and goods flow into and from Armenia either by air – the most expensive form of transportation – or over land via its two other neighbors, Georgia and Iran. Earlier this month Transport and Communications Minister Andranik Manukian remarked that an opening of Armenia 's border with Turkey would lessen the country's trade dependence on Georgia.

Indeed, the 90 percent of Armenia 's external trade that flows through Georgia is subject to nosebleed-high levels of corruption and taxation – in addition to sky-high transportation costs. Those candy apple-red tomatoes at the market from Turkey – a source that the vendor will reveal only under his breath, after a furtive glance about – would be a lot cheaper if they didn't have to make it through the Georgian gauntlet.

Armenian producers trying to participate in the global economy by exporting goods from their tiny domestic market face cost and logistical hurdles even higher than those normally faced by small-scale operations in remoteThird World locations. The Turkish and Azerbaijani blockades of Armenia have also put a bit of a crimp on foreign direct investment in Armenia, as cheap labor isn't worth a pile of kebab to potential investors next to the high costs, and uncertainty, associated with getting finished goods out of the country.

Armenia has laudably focused on industries that have a high value relative to weight, and thus a small transportation cost component – like polished diamonds, or computer software and services. But such band-aid investment can't ameliorate the fundamental and deep structural economic distortions created by the blockades. Primary amongst these has been the evolution of import substitution industries, which thrive only until de facto import barriers fall – at which time domestic industry would be swamped by cheap imports. While the thought of truckloads of Turkish goods sold through Ramstores sprinkled throughout the country might make many Armenians cringe, the economic reality is that both consumers and producers would benefit from lower prices that would result from the lifting of the blockades; and the forces of a more free market would give Armenian producers the license to focus on those industries in which the country enjoys a true competitive advantage.

But the most important effect of the blockades may not be their direct economic impact. A recent paper prepared for the Armenian International Policy Group concluded: “The blockade hurts Armenia much less directly (through higher transportation costs and lost volumes of exports) than indirectly – through its overall impact on the depressed investors' expectations, inflated international perceptions of investment risks and depressed levels of Foreign Direct Investment.”

The World Trade Organization, which Armenia joined in February 2003, hasn't been much of a help in resolving the country's trade difficulties. The WTO permits existing members – such as Turkey , which joined in 1995 – to withhold recognition of new members and not extend to them the rights of membership. As the quid pro quo for Turkey allowing Armenia to join the WTO, Yerevan agreed not to veto Azerbaijan 's eventual application for membership.

Turkey 's sympathy blockade of Armenia won't survive the rigors of entry into the European Union – if, that is, Europe ever decides to agree to let Turkey begin the process of entering its hallowed gates. As an economic and monetary union with a common external trade policy, the EU doesn't allow any divergence from union-wide trade policy – and the EU isn't about to join Turkey in its blockade of Armenia .

Arguably, after 10 consecutive years of positive economic growth, including a 13.9 percent jump in 2003, and the tripling of exports since 1998, Armenia is doing fine despite the blockades imposed by Azerbaijan and Turkey . But gaudy growth figures are relatively easy to post when the base from which growth is measured is so low, and as long as plentiful donor money obscures rampant corruption. Meanwhile, 51 percent of Armenia's population continues to subsist in the misery of poverty. The World Bank has estimated that a lifting of the blockades could lead to a 30 percent increase in Armenia 's GDP.

But just as a small number of well-connected individuals are financially motivated to make certain that Russia 's senseless war in Chechnya continues, some forces in Armenia likely benefit from the country's regional isolation. The blockades make an easy scapegoat for domestic politicians for economic mismanagement, thereby heading off unpleasant bigger questions about corrosive corruption and the poor business environment; ruthless Georgian profiteers probably aren't the only parties that profit from Armenia's heavy reliance on transport through the country.

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