becomes a challenge in a country of blocked
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
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.