Sargsyan L. N. Prospects of Iranian investments in RA // International scientific journal "Internauka". Series: "Economic Sciences". — 2017. — №4.
World Economy and International Economic Relations
УДК 339.92
Sargsyan Lilit Norayr
PhD in Economics, Research Associate
Institute of Economics after M. Kotanyan, NAS RA
Саргсян Лилит Норайровна
к.э.н., научный сотрудник
Институт экономики им. М. Котаняна, НАН РА
PROSPECTS OF IRANIAN INVESTMENTS IN RA
ПЕРСПЕКТИВЫ ИРАНСКИХ ИНВЕСТИЦИЙ В РА
Summary. The base for Armenian-Iran economic relations was laid from the very first days of independence of the Republic of Armenia. Nevertheless, at present the Iranian investments in Armenian economy are quite small due to the small consumer market of RA. In 2015, by becoming a member of EAEU, Armenia opens wide horizons for its investors considering the huge export market of the EAEU. The aim of this article is to identify the sectors of RA economy, which will allow the Iranian investors to make more profitable investments and to enter the EAEU market. For this research is applied the comparative analysis method.
Keywords: Foreign direct investments, investment climat, comparative analysis, revealed comparative advantage, EAEU market.
Аннотация. Основа армяно-иранских экономических отношений была заложена с первых дней независимости Республики Армения. Тем не менее, в настоящее время иранские инвестиции в армянскую экономику довольно малы из-за малого потребительского рынка РА. В 2015 году, став членом ЕАЭС, Армения открывает широкие горизонты для своих инвесторов в виде возможности выхода на огромный рынок ЕАЭС. Целью данной статьи является выявить сектора экономики РА, которые позволят иранским инвесторам сделать более выгодные инвестиции и выйти на рынок ЕАЭС. Для этого исследования применяется метод сравнительного анализа.
Ключевые слова: прямые иностранные инвестиции, инвестиционный климат, сравнительный анализ, выявленные сравнительные преимущества, рынок ЕАЭС.
The Armenian-Iranian economic cooperation was originated from the very first days of Armenia’s independence. The Islamic Republic of Iran (here in after referred to as the IRI) was among the first which on 25 December 1991officially recognized the independence of the Republic of Armenia (here in after referred to as RA), thereby establishing the grounds for diplomatic and economic relations [15].
In 1990 the Republic of Armenia was in an unfavorable economic condition losing their foreign markets because of collapse of USSR. But this was not the only disaster for Armenia. RA suffered losses of human resources and of production capacities because of 1988-th earthquake and 1992-th Artsakh war. In these conditions the good relationships with neighboring Iran was very important for the further development of RA.
Statistical data, however, evidence that up to now the level of the Armenian-Iranian trade and investment cooperation is not satisfactory. As of the end of September 2016, the gross flow of FDI from the IRI to RA made 0.06%[10] of gross flow of total FDI in RA as of the same period, the same indicator did not exceed 0.1% in 1995-2015 [12]. This fact, however, has a number of objective reasons. The consumer market of RA is quite small, RA and the IRI are neighboring countries, therefore, when making investments in Armenia the Iranian businessmen do not resolve the problem of entering more distant markets. Also we can state the fact, that in the small consumer market of RA there are already goods of different countries, both imported and locally produced, thus it is not so easy for the Iranian businessmen to resist the existing competition. This situation was during until 2015, when Armenia became a member of the Eurasian Economic Union (here in after referred to as the EAEU), thus opening the doors to the EAEU multimillion market for the investors in RA. This may serve as a new incentive to the Armenian-Iranian investment cooperation.
The investment climate of RA and the factors impacting on it are analyzed by many economists. In his study Frunzik Voskanyan state that corruption hurts investment: he said that corruption not only affects the budget investments but also reduces the budget revenues by tax evasion and poor tax administration, which can be disastrous for further development of Armenia [11].
Many economists and international organizations have addressed the analysis of the Armenian-Iranian economic relations. European Center for Strategic Studies and Security has presented the possible areas of the Armenian-Iranian economic cooperation, including trade, energy sector, transportation system, etc.[3]. The economist L. Petrosyan has referred to the development of the Armenian-Iranian relations in 1991-2008 [26]. H. Markosyan and A. Minasyan have focused on the comparative analysis of individual sectors of economy of RA and the IRI, as a result of which have concluded that at present there exist a lot of preconditions for Armenian-Iranian economic cooperation[4].
T. Torosyan has addressed the Armenian-Iranian trade relations, indicating key reasons for decline and growth in the Armenian-Iranian commodity circulation[8]. H. Naveh touched upon the analysis of the Armenian-Iranian trade relations, presenting the Armenian-Iranian joint business prospects, as well as analyzing the Armenian-Iranian export and import dynamics in2000-2010 [6].
The analyses by T. Torosyan and M. Afra were directed to disclosing the competitiveness of the Iranian goods in the Armenian market, which revealed that in the Armenian market the Iranian goods were consumed mainly in 1992-2002, after which their competitiveness in the market was sharply declined, driven by the import of similar and more high-quality goods from European and other countries [7].
T. Torosyan and A. Yusefi have referred to the analysis of dynamics of the Armenian-Iranian investments, indicating that these investments are not of a satisfactory character and showing those main sectors of the economy in which investments have been made by the Iranian businessmen[9].
Various Armenian and other foreign authors have addressed the analysis of the Armenian-Iranian economic relations as well.
The problems of this research are presented below:
We have analyzed the factors supporting the investment climate of Armenia and Iran, distinguishing the similarities and differences, aiming to understand whether in new economic conditions there is a prospect for significant increase in the Iranian investments in RA and what reality should the Iranian investors face up when making investments in Armenia.
First, let us refer to the similarities between investment conditions of both countries.
However, RA investment climate has also a number of differences in comparison to the Iranian investment climate, which need to be taken into account by the Iranian businessmen when making investments in Armenia.
Natural and geographical differences
The consumer marketʼs diferences
Differences related to production factors
Differences related to the activities of enterprises
Differences related to the foreign trade
Among the above differences there are such that argument in favor of making investments in the IRI, whereas some other points evidence in favor of investing in RA. Therefore, the investors of both countries considering the above stated circumstances will be able to calculate gains and losses on the investments in each country, based on which the decision on making the investments shall be reached.
It is clear, however, that investments made in various sectors of RA economy will ensure different results for the Iranian businessmen. Thus, the question arises as to which sector can be more promising for the Iranian businessmen to make investments.
Naturally, both in RA and the IRI there are sectors of economy where the operating entities are able to ensure competitiveness in foreign markets, considering the environmental, cultural, organizational, technical and technological and other factors.
From our side, as an indicator of having advantage in the EAEU market a revealed comparative advantage indicator offered by Bela Balassa is considered [1].
Thus, based on calculations let us identify the presence or absence of a revealed comparative advantage in each sector of economy of RA and the IRI. The sectors where both countries will have a revealed comparative advantage will be considered by us as an option for creation of an efficient investment cooperation through the establishment of joint ventures. The sectors where RA will and the IRI will not have a revealed comparative advantage will be regarded as promising sectors for investment in RA by the IRI. Calculations were made based on the information of the World Bank [25] for2010-2015. As a result we can state that the most efficient sector of RA and the IRI economy for establishment of joint ventures is the mining sector where both countries have revealed comparative advantage in exports. Moreover, in this case it will not be effective to establish a joint venture in the near border free trade zone. This is one of unique areas where it would be desirable to make cluster-based investments in the same area where the relevant ore mines are located.
In addition, in RA the effective sectors for the Iranian investments can be food industry, production of stones, plaster and cement, precious stones and metals and also base metals and items of metal origin. At the same time, in some cases production of items of metal origin can be a logical continuation of activities of an entity established in the area of extraction of the given metal ore.
The analysis conducted shows that RA investment climate has many advantages in comparison to the IRI investment climate from the point of view of public literacy, use of innovations, ease of doing business, business evaluation period, number of taxes paid by the entities and other factors. The sectorial analysis evidences that for the Iranian businessmen the best sector for establishment of joint ventures with Armenian partners is the mining sector, and in the food industry, production of stones and glass and items of metal origin the Iranian businessmen can make profitable investments both jointly with Armenian partners and alone. The investments made by this principle will enable the Iranian businessmen to enter the EAEU market on favorable terms by making investments in Armenia.
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