As Armenia seeks allies in the West, its economic dependence on Russia grows
Armenia's exports to Russia are booming – but the country's producers aren't benefiting.
Economic factors arising from the Ukraine war are binding Armenia ever tighter to its longtime strategic partner and patron, Russia.
Armenia's trade with Russia nearly doubled in 2022, but that growth was mostly re-exports necessitated by the Western sanctions against Moscow.
Armenian producers therefore see little benefit from the increased turnover and instead face growing uncertainty because business is being conducted in the weak and unstable Russian currency.
The trend threatens to undermine Armenia's cautious efforts to reduce its political and security dependence on Russia and build stronger ties with the West.
Ruble trade hurts Armenian exporters
According to Armenian Economy Minister Vahan Kerobyan, as of March 16 Armenia and Russia are using only rubles in mutual trade, and have abandoned the dollar and euro.
Gradual de-dollarization of trade has long been on the agenda of the Russian-led Eurasian Economic Union, which Armenia joined in 2013, but the sanctions against Moscow over the Ukraine war lent urgency to the switch.
The Armenian Central Bank has officially welcomed the move. "The implementation of trade without the intermediation of the currencies of third countries is positive, as it protects trading partners and entrepreneurs from the risks arising from fluctuations in the exchange rates of these third countries," the bank's press service told Eurasianet, while acknowledging that ruble-only trade does entail some "risks."
Those risks to Armenian exporters are substantial, Vardan Aramyan, former Armenian finance minister and current public finance management consultant, told Eurasianet. "This is disturbing news for them."
That's because the ruble has been especially volatile since the start of the war and more recently has been on a downward trajectory against the Armenian dram.
As a rule, an appreciating national currency is bad for a country's exports. And Armenian exporters have already been reeling for the past year because of the dram's surge against the dollar. (That depreciation of the dollar, interestingly, has to a large extent been caused by the influx of dollars from Russians moving their capital to Armenia amid the war and sanctions.)
Businessman Vahe Ghazaryan has been running Noyan, a company that produces soft drinks, jams and canned foods, for more than 20 years. Russia is his company's biggest export market.
He is not happy about the transition to rubles and plans to take measures to protect against its effects.
"It will certainly create discomfort. In any case, our costs are dollar-dependent. We buy part of the raw materials in dollars, we take long-term loans in dollars, so the dollar still looms behind our transactions," he told Eurasianet.
The transition to ruble transactions and the parallel weakening of the Russian currency come at the peak of economic cooperation between Armenia and Russia. Last year, Russia's share in Armenia's trade turnover almost doubled to exceed $5 billion, which is 35 percent of the total. Russia is also the main export market for Armenia. Forty-five percent of Armenia's exports go to Russia.
This growth is a result of the exodus of Western businesses from the Russian market. But while some Armenian suppliers have managed to expand their business in Russia, most Armenian exports to Russia these days are in fact re-exports of goods from Western countries.
Aramyan, the ex-finance minister, said that while there are no precise figures for re-exports, it is clear that the minimal growth in Armenian production is not commensurate with a doubling of exports.
"In 2022 and the first two months of 2023, according to official data, exports from Armenia to Russia increased by two-to-three times. At the same time, agriculture and industry are growing very modestly – by 0.5 percent and 8 percent [in 2022], respectively," said Aramyan.
And Ghazaryan of the Noyan food company is one of many exporters not seeing the benefits of the growth.
"In the current conditions it is very difficult to develop a business. Our main problem is the exchange rate of the Armenian dram, which has greatly increased since last year," he said, adding that he and others in his industry are planning to appeal to the government for help.
Growing economic dependence on Russia also creates political risks for Armenia, which has recently sought closer ties with the West, in particular the EU.
And Moscow has already signaled its willingness to punish Armenia economically for political ends.
After Armenia moved towards ratifying the Rome Statute of the International Criminal Court, which recently issued an arrest warrant for Russian President Vladimir Putin, Russia warned of "extremely negative consequences" for engaging with the ICC.
Days later, Russia's agriculture regulator, Rosselkhoznadzor, suspended dairy imports from Armenia citing safety concerns.
This particular ban narrowly hits Armenia's dairy farmers and is only a hint of the pain Russia could theoretically inflict.
In addition to being the main market for Armenian goods, it is the monopoly supplier of gas and other energy resources, including nuclear fuel for the Metsamor Nuclear Power Plant, which provides 40 percent of domestic electricity generation.
Also, many thousands of Armenian migrant workers reside in Russia; Russia accounts for 70 percent of money transfers from abroad to Armenia, which reached a record $3.5 billion last year.
Economist Armen Ktoyan is among many who say Armenia must reduce its dependence on Russia or face political costs.
"Such an increase in economic dependence, which we have seen over the past year, cannot but affect the politics and the sovereignty of a country. It's natural. In this regard, there is no need to be indignant or fight against it. We must work hard, create alternatives and open other markets for Armenian finished products," Ktoyan said in an interview.
Arshaluis Mgdesyan is a journalist based in Yerevan.
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