Report: No Big Gains to Armenia if Turkey Lifts Blockade

A controversial report by an Armenian research and consulting group claims that reopening the Armenian-Turkish border would have a much smaller impact on Armenia's economy than commonly believed.

The report was presented July 13 by the Armenian-European Political Legal Advice Center (AEPLAC), a prominent think tank sponsored by the European Union. It contended that Armenia would see its economy expand by only $20-23 million annually, or just 0.67 percent of its current Gross Domestic Product, if Turkey decided to lift its 12-year blockade of the Armenian border. Over the next five years, Armenia's GDP would see an additional 2.7 percent increase over the country's level in 2004.

The gain, the report maintained, would be almost exclusively the result of lower cargo transportation costs associated with the reopening of the Kars-Gyumri railroad that connects the two countries. Currently, Armenian goods can only reach trade partners via Georgia, which charges relatively high cargo tariffs. Transportation costs account for some 25-30 percent of Armenia's trade costs, according to the report.

The report's findings caught many Armenian academics and journalists by surprise. A widely cited 2000 World Bank study predicted that Armenia would see a 30-percent increase in GDP if both Turkey and Azerbaijan lifted their economic embargos. Since then, the Armenian economy has experienced impressive growth. [For background see the Eurasia Insight archive]. Many observers and economists believed that lifting the blockade would boost those numbers still higher.

Turkey closed its border with Armenia in 1993 in an act of solidarity with Azerbaijan. At the time, Armenian and Azerbaijani forces were battling for control of the Nagorno-Karabakh enclave. [For background see the Eurasia Insight archive]. The blockade cause substantial economic hardship in Armenia for much of the 1990s. In early 2004, Turkey reportedly considered re-opening the border, but eventually decided against it. [For background see the Eurasia Insight archive].

Turkish goods -- worth an estimated $40 million per year, according to the National Statistical Service of Armenia -- manage to enter Armenia via third countries. A general belief exists that if the border were re-opened, Armenia would be able to export a comparable amount of goods and services, namely electricity – to its western neighbor.

Many economists have challenged the report's findings. They note that the analysis contained in the report, which was written by a seven-member team, largely concurs with recent statements made by various government officials, who have downplayed the need for an open Turkish-Armenian border. The daily Azg, for instance, commented on July 7 that the report's argument provided strong support for Foreign Minister Vartan Oskanian's position that Armenia will not make any political concessions to Turkey in return for the lifting of the border blockade. "If the economic impact of lifting the blockade is negligible, then there is no reason to open the border," said a recent editorial published by the Russian-language Delovoi Ekspress. "And this is pure politics."

Others take issue with the report's statistical analysis. Economist Eduard Agajanov, who served as minister of statistics under former President Levon Ter-Petrosian (1991-1998), charged that the report underestimated the economic impact of reopening the Turkish-Armenian border in order to provide political support for President Robert Kocharian's administration. "Its purpose is to preserve the current oligarchic economic system in Armenia, which cannot survive if the borders are opened and competition with Turkish goods becomes tougher," Agajanov said. If Armenia regains access to markets of the Middle East via Turkey, Agajanov argued, it would stimulate a whole range of industries that were active during the Soviet era, when the Middle East and India were major markets.

The AEPLAC authors said they took various factors into account, including the 2000 World Bank study and the potential re-entry of Armenian companies into Middle Eastern markets. Ultimately, however, they decided that Armenian producers do not presently have the resources to meet demand in Turkey and the Middle East for goods, such as electricity and cement. At the same time, the report suggested that reopening the Turkish-Armenian border might stimulate economic growth in eastern regions of Turkey, where GDP per capita is even lower than in Armenia.

Although the authors of the AEPLAC report state that it was commissioned by the Armenian government, Trade and Economic Development Minister Karen Chshmaritian has denied that the government had anything to do with the preparation of the document.

At a July 27 press conference, Chshmairtian criticized the AEPLAC estimates as too conservative. "They have not taken into account the effect of mutual penetration of capital from the two countries. Turkey obviously hinders its businessmen from investing in Armenia, and when this ban is eliminated, growth may be highly accelerated," he stated. To prove the point, Chshmaritian told reporters, the government is conducting its own research into the economic impact of Turkey lifting its border blockade. A report is due out later this year, he said.