Investment Policy
Content
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Investment policy
The regulatory framework for foreign investments
Bilateral and multilateral investment agreements
Settlement of investment disputes
Trade regime WTO accession benefits
WTO accession benefits
Evaluation of Armenia's institutional and investment performance by internationalorganizations
8. The state of foreign investment in Armenia
9. Improving of the investment environment
10. Institutions (agencies) responsible for the investment promotion
1. Investment Policy
The Government of Armenia considers the investment policy as one of the key aspects of
its economic development course. The Government highly prioritizes the attraction ofprivate investments, including FDI, which will stimulate economic development in theindustrial and other sectors of economy. As a result of successful implementation of thispolicy, stable economic growth is achieved for the last 10 years. The growth rate inaverage during 2001-2005 was 12% and it is reflected in steady growth in GDP (2001 9.6%, 2002- 12.9%, 2003 - 13.9%, 2004 – 10.1%, 2005 – 13.9%, 2006-13.4%, 2007 –13.7%) and in drastic quantitative and qualitative increase in export volumes (200028.4%, 2001-14.1%, 2002-48.5%, 2003 - 30.5%, 2004 - 4.3%, 2005-31.5%, 20063.1%, 2007 – 17.5%). To sustain these trends and promote further economic
development, the Government of Armenia signifies the role of private investments and has
adopted a five-dimensional approach:
1. To create favorable environment for investors in all sectors of economy by ensuring
stable and predictable conditions for business operations and proper legal
protection of investments.
2. To mitigate the investment risk for inward and domestic investments by removing
fiscal and other regulatory and administrative constraints.
3. To attract transnational corporations (TNC-s) to enhance the role of Armenia in
globalizing world economy.
4. To accomplish privatization process more efficiently (case by case) by attracting
successful investors.
5. To maintain high export rates for coming years, the Government of Armenia will
make an effort to diversify the export structure, because the current structure isconfined to some commodity groups. The way to develop and maintain high export
rates is the identification and development of innovation clusters such as scientificresearch and commercialization of education services by attracting export oriented
investments, particularly investments by TNC-s.
Based on these approaches Armenia has declared an "Open Door" investment policy
and this liberal approach was incorporated into legislation by adoption of the Law "On
Foreign Investments" in 1994 and in other investment relevant provisions of economic
laws. Signifying the role of the "Foreign Investment Law" in attracting foreign capital ineconomic development, the Government has emphasized the decisive role of FDI inaccelerating the economic growth and necessity to efficiently utilize FDI benefits forArmenian economy.
The Government approaches combined with the following institutional and economic
factors makes Armenia attractive for FDI:
Advantages for Investing in Armenia
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Favorable investment legislation;
Investment guarantees;
Government active involvement in economic and structural reforms;
Fast growing economy;
Easy access to CIS and Middle East Markets;
Well educated, skilled and easily trainable workforce;
No restrictions on staff recruitment;
Profit tax exemptions for companies engaged in agricultural production;
100% ownership permission for foreigners;
No restrictions on remittances;
Stable banking system and local currency;
Competitive energy cost;
Worldwide Diaspora
Membership in the World Trade Organization
liberal trade regime, no quotas and licenses on imports;
No export duties & VAT refund on goods and services exported;
Free conversion of foreign exchange;
Free repatriation of profit;
Political & economic stability

Profitable Sectors for Investment
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High-tech electronics projection
Mining and Metallurgy
Financial intermediation (Banking services)
Business services
Health and Education services
Computer software engineering
Food production and packaging
Tourism
Renewable energy
Chemical industry
Light industry

2. The Regulatory Framework for Foreign investments
Armenia has shown sustainable growth in its main economic figures in last 10 years and,more over, the Government has a clear vision of economic development strategies andcurrently develops its economic strategy policy for the next decade. In this regard,
Armenia has recognized the importance of protecting investments and investors anddeveloped such a legal framework that makes Armenia attractive for foreign investments.
According to the assessment by American Bar Association (Report "On Investigation of
Factors Inhibiting Foreign Direct Investment in Armenia", September, 1998), the Law of
the RA "On Foreign Investments" proves to be the most progressive and liberal foreign
investments law in existence among other transitional economies and it:••••

guarantees equal treatment of foreign and domestic investments
considerably restricts the government's ability to confiscate the property
requires full compensation in case of nationalization or confiscation by government
allows foreign investments in wide sectors of economy and in various forms

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protects investments for a period of five years from adverse legislative changes(grandfather clause)
provides access to the Armenian and international courts to resolve the commercial
disputesallows for full repatriation of profits and property
protects intellectual property
provides a set of other rights and privileges that are regarded as important, if notessential, to foreign investors.

By establishing of fully foreign-owned companies, affiliates, branches, representative
offices, new joint venture companies and purchasing different types of securities inArmenia, foreign investors are free to make such types of investments as real estate,securities, world currencies, including the Armenian dram, money orders or other orders
for implementation of obligations, any form of intellectual property rights or any othereconomic activity specified by legislation or by an agreement with the Republic of
Armenia.
3. Investment agreements
In addition to its legislation, Armenia has signed bilateral treaties on reciprocal promotion
and protection of investments with 37 countries.
Favorable conditions have been created for foreign investors in the RA, in particular, theinviolability of investments, the possibility of settlement of emerged disputes ininternational tribunal courts and the free transfer of money have been stipulated according
to the principles and norms of international law.

The List of signed bilateral treaties on Reciprocal Promotion
and Protection of Investments

N

State

Date of
Signing

Date of
Ratification

Date ofCome into
effect1.

Argentina

16.04.1993

27.09.1993

10.10.1994

2.

Austria17.10.2001

09.10.2002

01.02.2003

3.

USA

23.09.1992

26.09.1995

29.03.1996

4.

Bulgaria

10.04.1995

29.08.1995

27.03.1996

5.

Belgium-Luxemburg

07.06.2001

20.02.2002

19.12.2003

6.

Germany

21.12.1995

23.06.1997

04.08.2000

7.

Iran

06.05.1995

14.11.1995

26.02.1997

8.

Lebanon01.05.1995

29.08.1995

01.10.1998

9.

Canada08.05.1997

17.03.1999

29.03.1999

10. Cyprus

18.01.1995

12.06.1996

03.08.1998

11. India

23.05.2003

27.04.2004

30.05.2006

12. Greece

25.05.1993

13.10.1993

28.04.1995

13. Kyrgyzstan

04.07.1994

29.08.1995

26.11.1995

14. United Kingdom

27.05.1993

13.10.1993

11.07.1996

15. China

04.07.1992

06.10.1992

17.03.1993

16. Romania

20.09.1994

11.10.1995

24.12.1995

17. Vietnam

01.02.1993

28.04.1993

18. Georgia

04.06.1996

18.02.1997

18.01.1999

19. Ukraine

07.10.1994

16.01.1996

07.03.1996

20. France

04.11.1995

05.08.1996

21.06.1997

21. Italy

23.07.1998

11.10.2000

12.12.2000

22. Switzerland

19.11.1998

09.10.2002

04.11.2002

23. Israel

19.01.2000

21.03.2001

25.06.2003

24. Qatar

22.04.2002

23.10.2002

08.10.2007

25. Tajikistan

03.04.2002

04.11.2002

18.11.2002

26. Russian Federation

15.09.2001

02.12.2005

08.02.2006

27. Belarus

26.05.2001

21.11.2001

10.02.2002

28. U.A.E.

20.04.2002

04.11.2002

29. Uruguay

06.05.2002

25.03.2003

30. Finland

05.10.2004

27.02.2007

20.04.2007

31. Turkmenistan

19.03.1996

32. Egypt

09.06.1996

08.12.2005

21.02.2006

33. The Netherlands

10.06.2005

02.12.2005

01.08.2006

34. Latvia

07.10.2005

27.02.2007

21.04.2007

35. Sweden

08.02.2006

25.02.2008

36. Lithuania

25.04.2006

27.02.2007

37. Kazakhstan

06.11.2006

25.02.2008

Total

37

36

16.03.2007

31

4. Settlement of Investment Disputes
A serious achievement is that Economic Courts were separated and now are specializing in
adjudicating on economic cases. What is more, Armenia is a signatory to the International
Convention on Investment Disputes and a member of the International Center for the
Settlement of Investment Disputes (ICSID). It gives additional confidence to foreign
investors by providing quick, effective and qualified settlement of the investment disputes.
5. Trade regime
Armenia has a liberal foreign trade regime, which consists of a simple two-band importtariff (at 0% and 10%), no taxes on exports, and no quantitative trade restrictions.

Import, export, and domestic production licenses are required only for health, security,and environmental reasons. There are no limits on hard currency imports.
The new Customs Code, in force since 1 January, 2001, streamlines customs procedures
and complies with WTO rules. The main features of the customs regulations are:
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All exports from Armenia are duty free.
The import tariff rates are 0 or 10%. The 10% tariff is levied mainly on consumer
and luxury goods.
Tariffs are in ad valorem terms and levied on CIF values.
No import customs duties are payable in the following circumstances:o Imported capital goods (included in the list defined by the Government of
Armenia) forming a part of an investment in a business;o Transit goods transported across the territory of Armenia;
o The means of transport (e.g. truck) used for regular interstate transport of
freight;o Currency and stocks;
o Goods temporarily imported into Armenia and temporarily exported fromArmenia for the purpose of processing or reprocessing.
All payments must be made in the currency of Armenia

Armenia has concluded Free Trade Agreements with Russia, Belarus, Georgia, Kazakhstan,
Kyrgyzstan, Moldova, Tajikistan, Turkmenistan, and Ukraine. Under the terms of these
agreements, export and import of goods between Armenia and that states is free of customs
duties or equivalent taxes and fees.
Excise taxes are charged at various rates on the import or production of some goods, including
alcohol, tobacco and petrol.
According to analysis conducted by the Heritage Foundation/The Wall Street Journal, Armenia
has the most liberal investment and trade regime among CIS countries (see below).
6. WTO accession benefits
Republic of Armenia joined the WTO in February 2003. Fulfillment of its WTO obligations
involves substantial trade and investment liberalization, which will have an impact on its
inward and outward FDI. Accession to the WTO will make the economy of Armenia more
attractive to foreign investors. Armenia has committed to liberalizing the regulatory
framework for a number of industries, including business services, communications,education, financial services, health and social services, air transport services. Joining the
WTO will not only attract new investors, but also enable foreign joint-venture partners toincrease their equity shares in exiting affiliates. However, accession to WTO may not
immediately have substantial FDI-generating effects. Nevertheless, over time, freer accessto the import of production inputs could help to improve the cost-quality conditions of
manufacturing, and increase the attractiveness of economy as a place for efficiencyoriented manufacturing FDI. In brief, accession to the WTO will make economy of Armenia
more attractive. The services sector will replace manufacturing as the engine of growth for
inward FDI. In the manufacturing sector, FDI will play a more crucial role in the process ofrestructuring and consolidation in response to a new and more competitive landscape. As
the FDI regime will be gradually liberalized, both inflows and outflows are likely to reachnew and higher levels.

7. Evaluation of Armenia’s
international organizations

institutionalandinvestment

performancebySince 1995, the “Wall Street Journal” and Heritage foundation has been conducting anannual in-depth examination of the factors that contribute most directly to economic
freedom and prosperity (the Index of Economic Freedom). Following factors are analyzed
to determine the overall economic freedom: trade, fiscal burden, government intervention
in the economy, monetary policy, black market, banking and finance, foreign investments,
regulation, etc. (Table 1). In this survey Armenia is ranked as “mostly free”. According to
the review Government Intervention in the Economy described as stable (moderate level).
Trade policy evaluated as stable (very low protection): most imports are free ofprohibitions, quotas or licensing. Capital Flows and Foreign Investment described as stable(low barriers). Armenia offers equal official treatment to foreign investors, who have thesame right to establish business as citizens of Armenia in most sectors of economy.
Privatization is proceeding and it is open to foreigners. According to IMF, Armenia has norestrictions or controls on the holding of foreign exchange accounts, invisible transactions,current transfers, repatriation of profits, or outward and inward direct investments byeither residents or non-residents.
Table 1: Economic Freedom Index for 2002-2008
FreedoOverall rank
FreedomBusineMonet Invest Financ
for
m
Labor
Trade Fiscal
ProperfromOveral
ss
ary
ment
ial
the year
FreedoFreedo Freedo fromty
corrupl score Freedo
Freedo Freedo Freedo
among
m
m
m
Rights
Gover
tion
m
m
m
m
162 countries
nment
28th place fore
the year 2008
32nd place fore
the year 2007
27th place fore
the year 2006
42nd place fore
the year 2005
44th place fore
the year 2004
44th place fore
the year 2003
45th place fore
the year 2002

70.34 81.28

85.0

89.0

86.39 84.59

70.0

70.0

35.0

29.0

73.1

69.36 80.82

85.6

89.7

90.81 80.29

60.0

70.0

30.0

29.0

77.38

75.02 77.59

80.6

90.0

90.71 80.63

90.0

90.0

50.0

31.0

69.62

70.07

55.0

80.0

89.9

88.94 81.97

70.0

90.0

50.0

30.0

64.94

70.35

55.0

80.0

90.0

88.71 84.47

70.0

90.0

50.0

25.0

-

67.32

55.0

81.2

88.9

84.13

81.7

70.0

70.0

50.0

25.0

-

68.0

55.0

81.4

88.3

81.25 91.05

70.0

70.0

50.0

25.0

-

* The methodology of determination of Index of Economic Freedom of Heritage Foundation
was changed and, according to that, was changed classification of countries determined in previous
years. In particular, were changed or were grouped 10 sub indexes, according to which a total index
was estimated, and the mechanism of their valuation (5-1 is scale mechanism, 1 is the best index,
was replaced on 0-100, 100 is the best index and can be used in percentage terms of freedom ofadjusting branch) was replaced with aim to get more exact valuation.

database: http://www.heritage.org/index
Doing Business
Doing business provides objective measures of business regulations and theirenforcement. Periodic studying from the World Bank provides the studying of real businessregulation and measures on their realization, in other words the classification expresses
the facility degree of doing business in given economy. The Doing Business indicators arecomparable in economies of 178 countries. They express regulating parameters ofbusiness and can be used for the analysis of different regulations which interfere withinvestments, productivity and to growth. Classification of each country is determined by
the results of research of the following 10 components: company establishment,
construction permissions, labour regulation, property registration, getting credit,
investors` protection, payment of taxes, cross border trade, enforcement of contracts,
closure of company (bankruptcy).
In 2008 Armenia’s rank was 39th in a number of 178 countries in classification of
Doing Business.
8. The state of foreign investment in Armenia
Since 1991 the inflow of foreign investments increased and dynamics of growth isencouraging. From 2000 to 2007 in Armenia total sum of foreign investments made morethan 2.9 billion US dollars.

A c c u m u la te d v o lu m e o f fo re ig n in v e s tm e n ts
(m illio n U S D )2939
3 0 0 0 .0
2 5 0 0 .0
2 0 0 0 .0
1 5 0 0 .0

7 5 9 .8
5 2 0 .3

1 0 0 0 .0
5 0 0 .00 .0

1 9 9 1 -1 9 9 9

2 0 0 0 -2 0 0 3

2 0 0 0 -2 0 0 7

The major foreign investment origin countries are:N

Country

1991- 2007 (mln USD)

1

Russia1 387.8

2

Lebanon

270.0

3

USA

269.5

4

Germany

241.9

5Greece214.0

6France191.9

7

Canada155.0

8Argentina

141.4

9

United Kingdom

90.8

10

Cyprus72.7

Since 1991 the number of companies with foreign capital participation has increased.
According to official statistics 3698 companies with foreign investment have been
established during 1991 to 2007 and the largest number of them registered in the lastyears.

Companies with foreign capital participation established in
Armenia (2000-2007)

3698

4000
3500
3000

2449

2500
2000

1682

1500
1000
500
0
2000

2003

2007

In 1991-1997, the majority of joint ventures and private foreign companies were involved
primarily in import-export trade, but since 1998 there is a trend toward investing in local
production and services.
From 1998 to 2007 structural considerable changes in FDI volume have been noticed. In
this time period when the process of privatization basically has been finished, and FDI-s
have not an essential share in the privatization process, the volume FDI-s includes thecapital of the new small and average enterprises as well as re-investment.
During 2007 the volume of total foreign investment flows in Armenia economy of real
sector made 845.4 million USD (exclude state control and bank system incomes)
exceeding value of the same period of 2006 by 34.6%, from which direct investments
582.3 million USD (growth was 34%).

Total foreign investments(million USD)
900

845.4 853.7*

800
700

628.1

600
500

400.4

400
300

190.1

200

217.5

229.6 305.6

2002

2003

122.5

100
0
2000

•

2001

2004

2005

2006

2007

2008

Forecast for 2008

Without privatization means in real sector during 2007 the overall volume of theforeign investments increased in compare to 2006 on 33.9%, and direct investments
volume increased on 32.9%.
During 2007 there was more diversification in a structure of investments, in particular
in real sector large investments into the following spheres have been made:
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The sphere of communication – 261.2 million US dollars (competition incommunication sphere promoted growth of investments in this sphere)
El. Power, gas, hot water and steam production and distribution - 233.2 million US
dollars,
Mining industry – 86.6 million US dollars
Metallurgical industry – 50.9 million US dollars
Real estate transactions - 29.9 million US dollars
Air transport activity – 24.3 million US dollars
Foods and drinks production – 21.3 million US dollars
Hotel services – 19.3 million US dollars
Information technologies and electronics –13.8 million US dollars
High Technology - 18.1 million US dollars.

The volume of the foreign investments which have been carried out in Armenia from2000 to 2007 made 2939.1 million US dollars, from which direct investments –1978.5 million US dollars.
From 1991 to 2007 the total foreign investments, which have been carried out inArmenia, made 3469.1 million US dollars, from which direct foreign investments
2476.5 million US dollars.
9. Improving investment and business climate
The Multi-donor Investment Climate Advisory Service of the World Bank Group, by therequest of Ministry of Trade and Economic Development of RA, in December 2007 have
prepared and presented Reform memorandum on “Doing Business in Armenia”.

In the Reform memorandum the “Doing Business” suggested short-term and long-term
recommendations on existing business climate obstacles.
With this regard in January 2008 at Prime Minister's office was held meeting concerning
improvement of business climate, where were presented all interested bodies. Instructions
to relevant bodies to make suggestions with aim of overcoming obstacles of businessclimate, as a result of that meeting have been given.
As realization of these instructions and with the aim of substantial improvement of theposition of Armenia at the “Doing Business” ranking, is now in the process of drafting anddiscussions

comprehensive

program“Onmeasuresfor

improvementofbusiness

environment” (establishment of the business support centers, which will operate by “Onestop shop” principle, unification of several taxes, introduction of electronic system of
acceptance of tax and financial statements and declarations, improvement of customs
administration, development of corporate governance system, elimination of obligatory
requirement of charter, minimal charter capital and requirements on seal permission).

10. Institutions (agencies) responsible for Investment Promotion
Following are some of the institutions
implementation of the investment policy:

which

are

responsibleforsupportandThe Ministry of Trade and Economic Development (see the Charter of the Ministry at
http://www.minted.am/am/structure.html).
The Armenian Development Agency (ADA), established by the Government provides
basis for investment promotion and protection, institutional infrastructure, andimplements Government investment and export development policies. It acts as a "onestop shop" for investors and exporters, and promotes Armenian economy as an attractive
place for investments. The Government envisions that ADA will have a worldwide networkof representations and agencies in markets attractive for Armenia. The government
envisions that ADA will have the international network of agencies and representations in
the markets attractive to Armenia.
The High level Business Support Council, chaired by Prime Minister is a structure close
to business community. The Business Support Council consists of 50 representatives ofGovernment and business community and it is a structure, which addresses problems ofbusiness community and accelerates the improvement of business climate.
The Chamber of Commerce of Armenia established to facilitate development of
Armenia's economy, integration to world economy and to strengthen commercial, scientificand technical links between domestic and foreign investors. The Chamber of Commerce ofArmenia also supports creation of market infrastructure for entrepreneurship.