Risk: Why Has Capital Flow Increased?

    • Interview - 09 September 2016, 20:33
Interview with the economist Ashot Yeghiazaryan on the situation with investments

Mr. Yeghiazaryan, in the first half of this year the net flows of investments in Armenia totaled 16, 919,100,000 AMD which means that the investors are taking increasingly more money out of Armenia. What is happening in this sphere?

The problem is that investors do not see Armenia as a favorable country for investments. In fact, this negative index is noticed only in offshore companies. In other words, capital is flowing out of Armenia, it can already be fixed. Seeing the information about investments, it becomes clear that the Russian companies which are represented in our infrastructures – communication, electricity – prefer taking out their money. Perhaps, the situation in their parent companies is not good, therefore they prefer taking out the money to reinvesting.

In fact, these companies are taking their profit out of Armenia?

Yes, they are taking out their profits. They could reinvest that money, hence expand their business in Armenia, not get their dividends and take them out. However, apparently they do not believe that Armenia has no prospects. Therefore, there is no reinvesting, and it turns out that not only there are no new investments but also reinvesting is shrinking. It is not ruled out that their financial situation is not good, and they have to limit their business, step back and take the money to their parent companies.

At the same time, direct investments halved.  Why is it that Armenia is not attractive for investments?

There is a risky situation. Sanctions are applied against Russia, it is not an attractive country, the loop is tightening, a new wave of sanctions is awaiting Russia. Armenia is an economic area attached to Russia, and the same risks cover Armenia. In this situation, investing in Armenia means investing in the area of Russia’s influence. If there is not even free movement of people in an economic area, it is the same that there is no freedom of movement of labor for business. I would like to remind what happened to the political scientist Stepan Grigoryan. The same person could be doing some business. What do his political views have to do with it? Moreover, when foreign investments are concerned, Russia may not like these investors with their ideology. In other words, what are they going to do here?

Armenia was allegedly supposed to become a bridge between investors and the EEU market but these investors initially come to an area with political risks where their activities can be prohibited altogether. In every respect, as a country with a small market, problems with transport, a lot of other problems for investors make Armenia unattractive.

What are your prospects for the future? Will the investment crisis continue as long as Armenia is in the EEU?

While Russia is facing an economic collapse, Armenia is not become Armenia gets some assistance from the West in the form of loans and other. However, it is for survival. In qualitative terms – economic structure, export markets – there are no positive impulses and cannot be. I think these negative signals will continue, the Eurasian nightmare will get worse every day. This is a general tendency.