Many would guess Russia, but it is actually Argentina. Data on direct foreign investment shows that Argentina now ranks as the largest foreign spender in this South Caucasus country, better known for its politically prohibitive economic reliance on Moscow.
The official stats, reported by Hetq Online, suggest that Armenia’s trade, development, and even foreign policy options may not be as limited as its long dependence on Russia may suggest.
For years, Russia has been the single largest foreign investor in Armenia until France took over the title in 2012. A year later, Russia got pushed further down the list, below France and Argentina, which is now in the lead with just just under $118 million.
One man could be behind the seemingly unlikely Armenian-Argentinian connection. The full detail of Argentina’s investment projects in Armenia is not readily available, but Argentinian billionaire Eduardo Eurnekian, an ethnic Armenian by descent, could be behind the hike.
Argentina’s second richest man, Eurnekian is committed to turning Armenia into paradise on earth and has called on fellow members of the far-flung Armenian Diaspora to shoulder the task. The octogenarian airport and investment magnate has invested in upgrading and expanding Yerevan’s international airport, Zvartnots, and gifted an airplane to the new airport in Nagorno-Karabkh, the ethnic-Armenian-controlled breakaway territory.
When Russia banned many Western agricultural products last week in response to Western sanctions, it created a $9.5 billion hole for other countries to fill. Immediately, officials across Central Asia optimistically announced plans to help plug the gap.
But sudden shortages created by the ban have all but guaranteed to increase inflation in Russia, a major food importer. And Central Asians will suffer likewise because their expected jump in exports will leave fewer products available to local consumers, thus driving up prices at home.
All this highlights a paradoxical mix of opportunities and risks for Kazakhstan, a member of the Moscow-led Customs Union whose economy often feels ripple effects from Russia. Aside from the immediate pros and cons of the food ban, Kazakhstan is clearly spooked by Russia’s deepening confrontation with the West over its support for rebels in Ukraine, concerned about the fallout from a slowing Russian economy.
Kazakhstan’s response to the food ban paints a picture of a junior partner struggling to navigate the shoals between an increasingly isolationist Kremlin and its own ambitions of greater global integration.
Russia has promised Kyrgyzstan $500 million in assistance to help the reluctant country’s preparations to join the Moscow-led Customs Union, an economic bloc that currently includes Belarus and Kazakhstan. As usual when numbers fly between Russian and Kyrgyz officials, details are scarce.
Russian Foreign Minister Sergei Lavrov said on August 11 that the funds (“details to be agreed upon”) will ensure “maximum comfort” for Bishkek during its journey into the common economic space. Few believe that Kyrgyzstan, which has long served as a conduit for cheap Chinese goods through Central Asia into Russia, has much to offer the protectionist trade bloc. But always eager to please Moscow, Kyrgyz President Almazbek Atambayev has been talking about membership since his inauguration in December 2011.
Lavrov’s announcement came while Atambayev was visiting Russia for a meeting with President Vladimir Putin.
Atambayev told Putin that Kyrgyzstan would enter the Customs Union by the end of the year (and the Eurasian Economic Union, when it is born in January), but noted the “difficulties” the country will face integrating with the more industrialized economies already in the bloc.
For almost a year now, Kyrgyz policymakers, notably Economics Minister Temir Sariev, have been putting figures on those “difficulties”—expected inflation and a rise in unemployment stemming from the decline in lucrative re-export trade from China. Last November, Sariev said Kyrgyzstan would require $200 million a year over six or seven years in the form of a “fund” to help readjust its re-export-dependent economy to the demands of the Customs Union.
As international sanctions pile up against Russia, Armenia, a country literally powered by the Russian economy, expects to get hit, too.
Armenian officials and economy-wonks are not certain about the size and scope of the impact, but they are positive there is going to be one. Russia is Armenia’s single largest investor, export-outlet and energy supplier, so the lateral effects of the sanctions could be potentially felt in all those directions. “At this stage it is hard to make expert conclusions. Even the Russian experts do not yet have precise calculations,” Economy Minister Karen Chshmatirian was quoted as saying by Regnum news agency.
The latest round of US sanctions targeted, among others, Russia’s VTB Bank, which happens to be the largest private lender in Armenia. “The measures taken by the US Government to restrict VTB’s access to the capital market do not impact the bank’s operational performance and creditworthiness,” asserted VTB, which is majority-owned by the Russian government. Bloomberg, however, reported that major international lenders to the VTB Group already have put on hold a $1.5-billion loan to the bank.
Another target of the sanctions, Gazprombank, also has a presence in Armenia. It is owned by Russia’s state energy giant Gazprom, which essentially is the sole supplier of natural gas to Armenia.
Taking its Eurasian-Union dreams into the Western Hemisphere, Armenia has offered itself to Argentina as a conduit for trade with the Russia-led economic club, even though Yerevan is still knocking on the Union’s door for entry.
At a July 7 lunch-reception in Buenos Aires, Armenian President Serzh Sargsyan raised a glass to the Argentine city, “the world capital of tango, [a city] filled with the melody and spirit of that dance,” and thanked Argentina, home to one of the world’s largest Armenian Diasporas, for supporting the pan-Armenian cause of international recognition of Ottoman Turkey’s World-War-I-era massacre of ethnic Armenians as genocide. A day later, he attended the opening of an Armenian Genocide Museum in Buenos Aires.
Sargsyan, though, had more than 1915 and tangos on his mind. In a pointed nod to Argentina’s status as Armenia’s fifth-largest foreign direct investor, Armenia encouraged this “football superpower” to pass some trade via Armenia into the Eurasian-Union-market of Russia, Belarus and Kazakhstan. Argentina’s official response could not be found.
But President Sargsyan could be getting ahead of himself here. Armenia’s own entrance into the Eurasian Union has been repeatedly delayed, with the latest prospective join-date now “by the end of the year,” according to Prime Minister Hovik Abrahamian.
If Armenians want to feel safe, they have got to speak Russian, Moscow’s propagandist-in-chief, Russian media-personality Dmitry Kiselyov, has instructed Russia’s somewhat reluctant Caucasus ally, Armenia.
While the line may sound like an ignorant tourist's throwaway complaint, the comments, in the context of Russian-Armenian relations, chafed a sensitive nerve. Many Armenians think that their country already has compromised much of its sovereignty by becoming increasingly dependent on Russian money, energy and defense. Criticism delivered in the style of a colonial master does nothing to correct that view.
By July 1 (after a few delays), Armenia is expected to enter the Eurasian Union, essentially Moscow’s response to the European Union. It already is part of the Collective Security Treaty Organization (CSTO), the Moscow-led counterweight to NATO. The country has effectively surrendered much of its energy supply system to Russian energy monolith Gazprom and much of its income generation depends on what migrants send home from Russia.
Armenia may now sign on to the Moscow-led Eurasian Union by the end of April, roughly a month before neighboring Georgia is slated to enter a free-trade and political pact with the European Union. The signings of both agreements have been expedited as the competition for the South Caucasus picks up speed between Russia and Europe.
Armenian President Serzh Sargsyan is scheduled to travel to Belarus on April 29 for a meeting of the council of the Eurasian Union, an economic bloc roughly modeled by Moscow after (and against) the European Union. Armenian officials say that Sargsyan will sign an agreement in Minsk on Armenia’s joining the Customs Union, the flagship project of the Eurasian Union meant to create a shared economic space for Russia, Belarus, Kazakhstan and, Moscow hopes, more ex-Soviet states.
The new sign-on date is not a huge difference from the earlier deadline of May, but, apparently, as East-West ties deteriorate over Ukraine, someone feels the need to pick up the pace.
Wary of Ukraine-style pressure from Russia, the EU chiefs have been trying to fast-forward their plans with Georgia and Moldova. José Manuel Borroso, the president of the European Commission, the executive body of the EU, is expected in Tbilisi in June to sign an association agreement, which includes a free trade deal, with Georgia.
With Ukraine now a lost cause for the Customs Union, Russia’s Vladimir Putin has checked in with Armenian Prime Minister Tigran Sarkisian to see how Armenia's plans to join the Customs Union are coming along.
For Russia, Armenia is a poor substitute for Ukraine, but still a victory in Moscow's efforts to assert its broader economic clout through the trade bloc.
Prime Minister Sarkisian seems to have seized on that status to lodge a request with Moscow to keep the investments coming and to underwrite some of the legal and institutional changes that Armenia needs to meet the upcoming trade club’s membership rules by 2015. Yerevan also needs resources to keep selling Armenians on the idea of pushing the country into what many claim will be an economic throwback to the USSR.
How far Kocharian could go with this is unclear. Memories of the 2008 bloodshed under his administration do not endear him uniformly to Armenian voters. But his choice of topic could add at least some fuel to the fire.
The Russia-led Customs Union has never hid its protectionist mandate. It’s been called Vladimir Putin’s Soviet Union-lite for a reason: Formerly Soviet states that don’t sign up will be isolated or pushed around until they do. Just look at Ukraine.
Now, new regulations on car imports that came into effect last month will protect the car manufacturing industries in all three members – Belarus, Kazakhstan and Russia. But they will specifically hurt one of Uzbekistan’s few successful joint ventures, a GM plant in the Fergana Valley that has thrived off exports to Russia and Kazakhstan.
Uzbekistan has previously expressed only the most tepid interest in the Customs Union. For Tashkent, the new rules show that staying out can hurt.
Kazakhstan's Kolesa.kz online car-sales platform reported on February 20 that Customs Union technical regulations have banned imports of some of the bestselling cars in Kazakhstan, including the Uzbek-made Chevrolet Nexia and Matiz.
The regulations, which came into force on January 5, require imported cars to have at least one air bag, an anti-lock braking system, specific attachment points for child-safety seats, and daytime headlights, among other things. GM Uzbekistan’s Nexia and Matiz have none of these features, Kolesa.kz said.
Cars produced by Customs Union members are exempt from the regulations until 2015.
"We are now selling leftovers in warehouses,” Kolesa.kz quoted an unnamed Kazakh dealer of Uzbek cars as saying. “The [Uzbek] plant will hardly be able to reequip these models [to meet] these technical requirements."
The Kremlin wheeled out its soft power machine this week to make the pitch for Kyrgyzstan to join its Customs Union trade bloc. But if a recent talk by Kremlin evangelists at the American University of Central Asia in Bishkek was anything to go by, the machine could use some grease.
The main speaker at the February 19 event was Semyon Uralov, editor of a website close to United Russia, Vladimir Putin’s political party. While Putin has tried to assure potential members that the Customs Union – Belarus, Kazakhstan and Russia – is not a Soviet Union redux, Uralov seemed to do the opposite. Quoting Engels, Marx and Lenin during a forthright speech in which he extolled the virtues of state-sponsored industry, Uralov responded to a complaint about his tone: “I don’t hide it. I am an imperialist.”
And like Customs Union officials, he did little to address economic questions.
Moral and social degradation was a key theme in Uralov’s presentation. He described seeing people bribe a customs official at Bishkek’s airport for the privilege of flouting the building’s non-smoking policy. “Now tell me,” Uralov asked, “would it be possible to reach that kind of an agreement with a Belarusian customs official? A Russian customs official?” The assembled students murmured that it probably would be. “Well, clearly not for 20-30 soms [40 to 60 cents],” Uralov retorted. (Curiously, Belarus, with its highly inefficient command economy centered on manufacturing stood as something of a role model for the Russia-born, Ukraine-educated Uralov. In Transparency International’s latest Corruption Perceptions Index, Belarus ranks 123th, Russia 127th and Kyrgyzstan 150th out of 177 countries.)