The Basic Features of Export Promotion Policy in Developing Countries 2006 Eng - q2 - 06 Karen Grigoryan Pages 41-47

6
ARMENIAN - EUROPEAN POLICY AND LEGAL ADVICE CENTRE

-

,

(Q2/O6)
`

- (AEPLAC)

,
,
,
`
. 28
-
-. 2006 . - .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
-. 2006 .
- ..............................................................
.............
....
...
12
..........
13
14
...
16
.. 18
./`
(374 10) 55 30 81
19
-` at@aeplac.am
..................................................................................
21
http://www.aeplac.am

AEPLAC-

:

:
`
2006. .............................................................

15- .
...............................................................
29
:

,

-
(AEPLAC)`
,
:
, , ,
....... . .....
36
........................................................
42
-
2006- - ...................
AEPLAC-

:

`
-
/

,
10
15
20

(4 ),
30
50
70

25.12.06
42
- `
............................ . . . . . . ....
` 250
`
-
23
..... . ........
22
43
.................................. . . . .........
44
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
45

................................................................................
45
.................
45
..................... 46

................................................................................. 47
....................................................
55
A r m e n i a n Tr e n d s
Q 2 / O 6 ( # 11 )
.
......................................................................................................................... 58
1. ........................................................................................................................ 59
2. , ...........................................
60
3. , ................................................................ 61
4. ................................................................................................................................................ 62
5. , ..................................................
64
6. .......................................................................................... 65
7. ........................................................................................................ 66
8. .................................................................................................................................. 67
9. ..................................................................................................................................................................... 69
..........................................................................................................................................................
70
.
....................................................................................................... 71
1. .......................................................................................
71
2. , , ....................................................................................................................
73
3. , ................................................................................................................. 75
4. ................................................................................................... 76
5. ............................................... 77
6. - ............................................................................................................................... 78
.....................................................................................................................................................
75
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
(FTA)
/ /
AEPLAC
ITU
KOTRA
TDB

MATRADE

(EBRD)
DEAR READERS,
As you may recall, two years ago the Armenian Trends published a survey analyzing Internet
accessibility and Internet usage in Yerevan. In this issue, we publish a comparative analysis of the
changes that have taken place in this sphere over the past two years.
Also in this issue we are presenting the results of a survey about the recreational preferences of
Yerevan residents: how and where holidaymakers spend their vacations, how much they spend,
and what problems they encounter.
We are also presenting a comparative analysis of the economic development achieved in the last
15 years by the republics of the South Caucasus.
An area of such economic importance as exports can not be ignored, and creation of incentives for
an increase in exports is a major task for any developing economy. We are presenting the experience of various countries in stimulating exports.
As usual, you will also find our traditional analysis of the macroeconomic situation, quarterly projections, an analysis of the performance of the largest enterprises, the exchange rates of the
Armenian dram in relation to major currencies, the prices on basic goods on the Armenian and
international markets, and a schedule of important events, etc.
We wish you enjoyable reading.
Kenneth Munther
European Director, AEPLAC
Tigran Jrbashyan
Armenian Director, AEPLAC
Q 2 / O 6 ( # 11 )
ECONOMY
MAIN SOCIO-ECONOMIC INDICATORS IN ARMENIA:
JANUARY-SEPTEMBER 2006
JanuarySeptember
2006
Population, thousands (average for period)
3 220.0
0.10
1 720 063.0
1 242.2
12.5
105.1 (a)
102.3 (b)
100.7 (b)
102.0 (a)
100.4 (a)
Economically Active Population, thousands

Official Unemployment, thousands
Unemployment Rate (%)
1 209.5
89.8
7.4
0.7
-10.6
Gross Consumption/GDP, %
Gross Investments/GDP, %
96.3 (c)
28.7 (c)
GDP, million AMD, current prices

GDP, per capita, USD
GDP Deflator, %
Consumer Price Index, %
Producers Price Index, %
Current Account Balance, million USD

Current Account Balance/GDP, %
-187.7 (c)
-10.3 (c)
Volumes of Industrial Production, million AMD

Electricity Production, million kWh
Gross Agricultural Product, million AMD
Volumes of Construction, million AMD
Volume of freight turnover of transport of general use, million ton/km
Volumes of Rendered Services, million AMD
468
4
370
393
1
338
010.6
530.6
568.0
803.0
566.2
880.9
Base Money, million AMD (as of 30 September 2006)

Currency Outside the Central Bank, million AMD (as of 30.09.06)
Money Supply, M2X (w/out accrued interest), million AMD (as of 30.09.06)
Money Supply, M2 in dram (w/out accrued interest), million AMD (as of 30.09.06)
231
182
405
276
092.0
931.0
395.0
875.0
Average of less than a year Lending Rate of Commercial Banks

by drams, % (September)
Average of less than a year Deposit Rate of Commercial Banks
by drams, % (September)
External Trade Turnover, million USD
Exports, million USD (FOB)
Imports, million USD (CIF)
Trade Deficit, million USD
Net Investment Position of RA, million USD (as of 30 June 2006)
Assets, million USD (as of 30 June 2006)
Liabilities, million USD (as of 30 June 2006)
-1.6
-5.2
0.0
39.6
-1.4
22.1
16.49
5.92
2 208.2
699.4
1 508.7
-809.3
12.1
-0.9
19.4
44.9
-1 910.0
1 156.2
3 066.2
State External Debt, million USD (as of 30 June 2006)
1 168.1
4.6
AMD/USD Exchange Rate, Period Average

AMD/EUR Exchange Rate, Period Average
AMD/Russian Ruble Exchange Rate, Period Average
430.04
534.23
15.69
-6.4 (d)
-8.1 (d)
-3.9 (d)
a) Index
b) September 2006 to December 2005
c) January-June 2006
d) The decline indicates appreciation of the AMD
January-September
2006 to JanuarySeptember 2005, %
Economy: Macroeconomic Overview
THE MACROECONOMIC SITUATION IN THE REPUBLIC OF ARMENIA: JANUARYJUNE 20061

In the first half of 2006, two-digit GDP growth accompanied by the appreciation of the national currency unit,
the dram, continued in Armenia's economy. Compared
with the first half of the previous year, inflation growth
has been observed. Compared with the end of 2005,
the late June 2006 inflation indicators amounted to
4.3%; the AMD appreciation with respect to the USD
was 7.0%, and with respect to the EUR, 1.4%.
Chart 1. GDP growth in the first half of 2002-2006,

inflation and AMD appreciation with relation to the
USD, %
20
15.5
Prrcent
15
As of January-June 2006, the real value of the produced GDP in this country exceeds the indicator for the
same period in the previous year by 11.9%. The GDP
growth indicator for the first half over the last three
years has been demonstrating an increase tendency,
although the growth indicators are lower than the ones
for 2002-2003. (In the first half of 2004-2006, the average growth was 10.6% while in 2002-2003, 13.9%. See
Chart 1.) It can be seen in the chart that the growth of
the past three years, in contrast with the previous
years, has been accompanied by the appreciation of
the national currency with relation to other currencies
(especially the USD).
12.3
10
6.8
5
0
-5
4.6
2002
-2.7
GDP
4.5
0.0
2003
CPI
11.9
10.3
9.5
9.0
7.0
5.6
4.3
1.4
2004
2005
2006
Appreciation of AMD to USD
Chart 2. GDP growth structure in the first six

months of 2002-2006, %
18
16
14
12
10
8
6
4
2
0
-2
Below we will consider the developments in Armenia's

economy in the first half of 2006 by individual sectors.
Production
In the first six months of 2006, the following distinctive
features determined the GDP production.
If we consider the GDP growth structure, significant differences can be observed in the indicators for the first
six months over the past five years (Chart 2). Thus,
compared with 2005, the weight of net taxes in the
growth structure has increased by eight percentage
points. The net taxes indicator (15.1%) is the highest in
the GDP growth structure for the past five years. The
weight of other sectors contributing to the GDP growth
structure has declined (or other services without trans-
8.0
17.2
13.6
33.0
41.2
53.6
74.5
59.0
2003
2004
7.1
15.1
28.5
19.3
64.2
65.5
2005
2006
-0.4
2002
Basic industries
Other industries
Net taxes on products
port and communication) which in the first half of 2006

accounted for 19.3% of the growth, whereas, in 2003 it
accounted for 41% of the GDP growth. The share of the
Table 1. GDP production in the first six months of 2004-2006 by basic sectors of the economy
Growth rate to the first half
of the previous year
Contribution to GDP
growth, percentage points
2004
2005
2006
109.5
110.3
111.9
9.5
10.3
11.9
100
100
100
Industry
105.2
104.6
98.9
1.3
1.2
-0.3
25.3
25.2
20.8
Agriculture
108.2
110.2
107.2
1.3
1.5
1.0
14.8
14.3
14.4
Construction
111.3
127.8
135.3
1.2
2.9
4.9
10.6
13.7
17.1
Transport and Communications
115.9
109.5
118.5
0.7
0.4
0.8
4.6
4.1
4.6
GDP, market prices
2004
2005
2006
Share in the structure of

GDP, %
2004
2005
2006
Trade and Catering
110.2
104.9
113.8
1.1
0.6
1.4
11.2
10.4
10.4
Total, basic branches
108.5
109.9
111.5
5.6
6.6
7.8
66.5
67.7
67.3
Other branches
118.5
113.3
110.8
3.9
2.9
2.3
22.0
21.2
21.3
99.7
106.4
116.2
0.0
0.7
1.8
11.4
11.1
11.4
Net taxes on products
1 Various parts of the article were prepared by the AEPLAC Economic Team members: Artashes Shaboyan, Lucine Stepanyan, Lilit Yezekyan and
Armen Mirzoyan.
Q 2 / O 6 ( # 11 )
basic sectors of economy contributing to the GDP

growth structure remains relatively stable.
Chart 3. Growth of net taxes on products and GDP

for the first six months and annual results in 19992006, %
Growth to corresponding period of the
previous year, %
Relatively small deviations in the weight of basic sectors in the GDP structure are determined by the fact
that each year the deviations of this or that sector are
neutralized at the expense of the growth in other sectors. This was so in the first half of 2006, as well (Table
1). The 35.3% growth in construction is accompanied
by a 1.1% decline in industry. Despite the 7.2% growth
in agriculture, the latter is lower than the relevant indicator for the same period in the previous year.
Nevertheless, in the first six months of 2006 the general
growth rate of the basic sectors exceeded the indicators
for the previous year by 1.6 percentage points or contributed more to the GDP growth by 1.2 percentage
points. In addition to construction, compared with the previous year, significant growth acceleration is observed in
trade as well as transport and communication.
As for net indirect taxes in the GDP structure (net taxes
on products), here too, growth indicators have varied
significantly over the recent years (Chart 3). These variations are accounted for by numerous reasons, one
being the amount of subsidies granted to organizations
which have a negative impact on the net production tax
indicator and the growth thereof. Another cause may be
disproportionate tax collection during the year, between
quarters. However, if we compare the growth of net
taxes in the first six months over the past eight years,
the 16.2% real growth indicator of 2006 is only inferior
to the one of 2001. However, the 2001 annual growth
indicator is nearly the same as the one observed in the
first six months of 2006. The comparison of growth
rates for the first six months and annual indicators
demonstrates that annual growth is higher than in the
first six months. Hence, if the tendency of the past two
years is maintained, the annual 2006 results for net
taxes on products growth will be the highest for the
eight previous years in Armenia.
Although over the recent years, in the first six months
the growth of net taxes on products has varied significantly, in the last three years (since 2004) specific grav-
30
25
20
15
10
5
0
-5
1999 2000 2001 2002 2003 2004 2005 2006

GDP, 6 months
Net taxes, 6 months
GDP, annual
Net taxes, annual
ity of net taxes on products in the GDP structure is very

stable, 11.0-11.4%. It is inferior to the same 2001-2003
indicator by two percentage points on average. We
believe the stability of net taxes on products in the GDP
structure must become an incentive for the implementers of tax policy to take more decisive steps, mainly for the improvement of tax administration.
The Structure of Aggregate Demand
The GDP analysis in the first six months of 2006 by
expenditure components demonstrates the following
distinctive features.
For the first time, the comparison of the indicators for
the first six months of the past seven years has demonstrated growth in the GDP share of final consumption
expenses (96.3% vs. 95.7% in 2005). The latter means
that in 2006 the economy saved less than in 2005
(3.7% of GDP in 2006 vs. 4.3% in 2005). However, if we
compare this with the ten previous years, the increase
in savings is significant (but the weight declines).
In the first six months of 2000, the weight of final
expenses in the GDP amounted to 119.6% (i.e. in the
Table 2. Total demand structure in the first six months of 2005-2006

Current prices,
billon AMD
2005
2006
Growth to the fist six Contribution to GDP

months of the previ- growth, percentage
ous year, %
points
2005
2006
679.9
779.8
95.7
96.3
8.9
13.3
9.1
12.7
Private final consumption
577.6
652.5
81.3
80.6
6.8
12.1
6.0
9.9
Public final consumption, of which
Final Consumption Expenditures
2005
2006
2005
2006
102.4
127.2
14.4
15.7
22.8
19.6
3.1
2.8
Individual services
37.9
52.9
5.3
6.5
36.0
31.2
1.7
1.7
Collective service
64.5
74.4
9.1
9.2
16.0
12.8
1.4
1.2
184.9
232.7
26.0
28.7
17.9
20.3
3.9
5.3
-131.4
-178.7
-18.5
-22.1
-1.3
32.0
0.3
-5.9
Gross Formation
Export and Import Balance
Share to GDP, %
Statistical Discrepancy
-22.8
-24.2
-3.2
-3.0
-3.0
-0.2
Gross Domestic Products
710.7
809.5
100.0
100.0
110.3
111.9
10.3
11.9
economy, consumption exceeded production by

19.6%). In the first six months of 2006, it was 96.3%.
Compared with 2005, the increase in the weight of final
consumption expenses in the GDP is the result of the
acceleration of the real growth of final consumption.
The growth in the first six months of 2006 compared
with the same period in the previous year amounted to
13.3%, which is the highest indicator over the last ten
years in the comparison of the first six months.
The growth of final consumption expenses is determined by both the increase in private expenses and
public final expenses. Owing to the public sector development, the specific gravity of public expenses grows
only in the final consumption expenses, as well as in
the GDP. In particular, in 1996 the weight of public consumption expenses in final consumption expenses
amounted to 8.9% and 11.1% in the GDP. In first six
months of 2006, it amounted to 16.3% and 15.7%,
respectively.
Acceleration has also been observed in the real growth
of the domestic investment indicator (gross capital formation). In the first half of 2005 this growth amounted
to 17.9%, and in 2006 it was 20.3%. The high increase
in gross formations in the recent years caused
unprecedented high domestic investment in the first
half of 2006 in the GDP: 28.7% (Chart 4).
Expenditure analysis of the GDP components shows
that in the recent years the most disconcerting developments have taken place in export and import. Thus, the
export-import balance indicator for the first half of 2006
increased by 32% compared with the respective period
of 2005, which means that the difference between
import and export has grown by this amount. The latter
fact has deterred by 5.9 percentage points the 11.9%
growth of the GDP in the first half of 2006. The growth
of export in the first half of 2006 was not only lower than
import growth but also the real amount decreased by
4.6%; whereas, the real import growth amounted to
7.4%. We believe these developments should not seem
unexpected since the appreciation of the national cur-
Chart 4. GDP structure by expenditure components in the first six months of 2002-2006
-3.0
-22.1
2006
2005
2003
14.4
81.3
21.9
13.5
88
2.4
-27.0
-40
26
-0.5
-22.9
2002
80.6
-3.2
-18.5
2004
28.7
15.7
13.7
-20.8
21.9
89.1
-5.1
18.3
12.6
-20
20
95
40
60
80
100
Share in GDP, %
Private final consumption
Gross capital formation
Public final consumption
Statistical Discrepancy
Export minus import
rency with respect to basic currencies over the recent

two years has not favored the growth of export.
Industrial output
In the period of January-June 2006, the physical volume of the industrial output in Armenia underwent a
1.0% decline over the same period of the previous year.
This has been the first case of industrial output decline
over the past five years.
As compared to the industrial output growth average
indicator of CIS countries (107.5%), Armenia's indicator
is 8.5 percentage points below. In terms of the indicators for the first half of 2006, Armenia exceeds only
Kyrgyzstan and Moldova by 5.8 and 5.4 percentage
points, respectively. The greatest growth in the volume
of industrial output was demonstrated by Azerbaijan
(over 40%), which is due to the oil industry growth and
the increase of world oil prices.
Table 3. Growth rate of industrial output in the CIS countries in January-June

Countries
Industrial output growth,

%
Difference from RA indicator,

percentage point
Difference from CIS indicator,

percentage point
Azerbaijan
141.1
42.1
33.6
Turkmenistan
122.4
23.4
14.9
Belarus
112.6
13.6
5.1
Uzbekistan
109.7
10.7
2.2
Tajikistan
106.3
7.3
-1.2
Kazakhstan
105.1
6.1
-2.4
Russia
104.4
5.4
-3.1
Ukraine
103.6
4.6
-3.9
Armenia
99.0
0.0
-8.5
Moldova
93.6
-5.4
-13.9
Kyrgyzstan
93.2
-5.8
-14.3
Georgia
Q 2 / O 6 ( # 11 )
The following distinctive development patterns can be

traced when examining Armenia's industrial output patterns across the three key sub-branches (Table 4).
Chart 5. The share of main sub-branches in the

manufacturing for the first half of 2003-2006, % in
total manufacturing
The volume of the mining industry sub-branch has

grown by 1.6% over the previous period.
The manufacturing volume diminished for the first
time over the past five years by 0.8%, as compared
to the same period of previous year.
The sub-branch of electricity, gas and water supply
development is unstable; in 2004 and 2005 there
was a considerable growth in the volume of production of the sub-branch by 2.5% and 10.2%, respectively. In the first half of 2006, it declined by 4.4% as
compared to the same period in 2005 due to a 5.5%
decline in the subdivision of electricity, hot water
and steam supply.
The volume of the manufacture and distribution of
gaseous fuel subdivision continues to grow by
12.8% (as compared to the same period of the previous year), while the volume of the collection,
purification and distribution of water subdivision
declined by 20%.
1.9
Jewelry products
9.7
3.9
Chemical production
1.8
4.1
Tobacco products
5.0
6.8
Other non-metal
minerals
4.3
28.1
Metal processing
16.5
44.1
Food products,
including beverages
50.7
10
2003
20
30
2004
40
2005
50
60
2006
pared to the previous period. 2.8% growth was recorded in the largest subdivision of the manufacturing sector, food products, including beverages, in contrast to
2005 when the same indicator declined by 1.0%.
It should be mentioned that the manufacturing branch

with the biggest share in industry (64% in the first half
of 2006) declined by 0.8% as compared to the same
period of the previous year, which is mainly caused by
a 21% decrease in the volume of the jewelry products
subdivision. The biggest growth of 15% was recorded
in the subdivision of other non-metal minerals as com-
As to the share of main sub-branches in manufacturing,

the biggest growth was recorded in the subdivision of
other non-metal minerals. The 15% growth recorded in
this subdivision brought to the increase in the share of
manufacturing by 2.2 percentage points as compared to
the same period of the previous year. The share of the
Table 4. Development dynamics of industrial output in key sub-branches in January-June

Production volume, current
prices2,
billion drams
Sales volumes,
current prices,
billion drams
2001-2003
average
2006
Industry, total
Mining
Manufacturing
Electricity, gas and water supply
Physical production volume index, to the

corresponding period of previous year, %
2004
2005
2006
300.7
305.2
111.1
104.5
105.3
99.0
52.1
53.3
115.7
104.9
98.1
101.6
192.3
195.7
118.4
104.8
106.1
99.2
56.2
56.2
94.3
102.5
110.2
95.6
Table 5. Development dynamics in the main sub-branches of manufacturing over the recent years (first six
months indicators)
Physical production volume index, to the corresponding period of previous year, %
2001-2003 average
Manufacturing
2005
2006
104.8
106.1
99.2
Food products, including beverages
109.2
110.4
99.0
102.8
Metal processing
133.8
89.8
145.2
107.4
Jewelry products
149.9
89.2
92.8
79.0
Tobacco products
120.3
105.8
129.1
105.0
71.7
3.7 times
100.0
94.6
120.0
145.6
119.8
115.0
Chemical production
Other non-metal minerals
2 Excluding value-added and excise taxes.
10
2004
118.4
Chart 6. Structure of the sub-branch of electricity,

gas and water supply during the first half of 20042006, %
The volume of produced energy in Armenia declined by

4.4% in the first half of 2006 as compared to the same
period of the previous year. However, gas production
and distribution volume increased by 12.8% and the
share in the sub-branch of electricity, gas and water
supply grew by 1.1 percentage points.
7.1
2005
78.0
14.2
7.8
84.9
2004
20
9.9 5.2
40
Electricity
60
Gas
80
100
Water
2001
2002
2003
2004
2005
S
F
N/F
10.2
9.2
8.2
7.2
6.2
5.2
4.2
3.2
2.2
1.2
0.2
-0.8
-1.8
-2.8
S
F
N/F
Chart 7. Increase in food (F), non-food (N/F) and

services (S) prices in 2001-2006, %
S
F
N/F
As of end of June 2006, consumer prices compared with

December 2005 grew by 4.3% which, compared with
the corresponding indicator of the previous year, was
higher by 2.9 percentage points (the period average
indicator compared with that of the previous year
declined by 0.2%). In particular, in the five months of
2006 the continuous growth of consumer prices (the late
May 2006 indicator exceeds that of late December 2005
by 5.6%) was followed by 1.2% decline in June, which
is accounted for by a price decrease on food and services by 2.4% and 0.2%, respectively, caused by seasonal factors (Chart 7). At the same time, it should be noted
that the indicator of food prices as of late June 2006
amounting to about 7.5%, compared with late
December 2005, exceeded the corresponding 2005
indicator by 5.3 percentage points.
15.3
S
F
N/F
Inflation
77.6
S
F
N/F
As to the industrial output by marzes, it should be noted

that the biggest growth was recorded in Tavush marz
(11.2%) and Syunik marz (5.2%). The highest decline
was recorded in Gegharkunik and Kotayk marzes by
34% and 13.4%, respectively. Nationwide, the biggest
contribution to the increase in industrial output was
made by Yerevan and Syunik marz by 2.3 and 1.0 percentage points, respectively. The decline was mostly
caused by industrial output decrease in Kotayk marz,
1.2 percentage points.
2006
F
N/F
food products, including beverages subdivision has also

grown (1.5 percentage points). As to the jewelry products subdivision, its share decreased twice due to its
considerable decline as compared to the same period of
the previous year.
2006
June against December of previous year

June against May
Table 6. Development dynamics of industrial output in marzes in January-June 2006

Marz
Yerevan
Share in the overall industrial

output, %
Growth rate: January-June 2006

to January-June 2005, %
Contribution to growth
(decline), percentage points
44.4
105.0
Aragatsotn
1.1
100.2
0.0
Ararat
7.3
99.3
-0.5
Armavir
5.0
101.5
0.1
Gegharkunik
1.4
66.0
-0.8
Lori
8.0
100.3
0.0
Kotayk
9.8
86.6
-1.2
Shirak
2.1
101.5
0.0
Syunik
19.3
105.2
1.0
0.8
91.6
-0.1
0.6
111.2
0.1
100.0
99.0
-1.0
Vayots Dzor
Tavush
Total, RA
2.3
Source: NSS
11
Q 2 / O 6 ( # 11 )
7
5
3
1
-1
-3
-5
-7
April
May
June
USD/AMD
SPI
Chart 9. Officially registered unemployment, %

11.0
10.5
10.0
9.5
According to NSS estimates, in January-June 2006 the

average number of economically active population
amounted to 1,186,900 people which is by 24,000 less
than the relevant indicator for the same period in the
previous year. 1,096,900 people were engaged in the
economy in the same period. 90,000 people (or 7.6% of
the economically active population) had no jobs, were
registered at the RA State employment service at the
Ministry of Labor and Social Issues, and were granted
the status of unemployed.
9.0
As of June 2006, the indicator of the officially registered

unemployed, compared with 2005, declined in all the
marzes of this country except Tavush marz where,
February March
EUR/AMD
RUB/ AMD
Employment
In the period in question of 2006, the decrease in the

officially registered unemployment continued as in
recent years (Chart 9). Even if we ignore the value of
the indicators,3 the decrease must be considered positive in the context of this country's socio-economic situation.
January
8.5
8.0
2002
2003
2005
6 month
3 month
9 month
12month
6 month
3 month
9 month
2004
12 month
6 month
3 month
9 month
12 month
7.0
6 month
7.5
3 month
When considering the behavior of the Armenian dram

over the first six months of 2006 (Chart 8), we see that
in the first four months the dram depreciated in comparison with the December 2005 exchange rate. In June
there was a 6.3% appreciation of the dram against the
dollar while the euro and ruble exchange rates, due to
the late May appreciation of the dram by 5.2% and
4.2%, respectively, nearly equalized with the average
December 2005 exchange rates. In general, it can be
stated that the dram appreciation tendency, which started in 2003, is still underway.
Chart 8. Changes in consumer prices and the dram

exchange rate in the first half of 2006 with respect
to December 2005, %
12 month
Table 7 presents price changes in other sectors of the

economy in the first half of 2006. Freight transportation
prices have been the most impacted: as of late April,
there was 20.3% price increase compared with March
in this sector caused by a price increase on gas imported to Armenia in April. In the period in question, the
prices on industrial goods have increased by 1.9%
compared with the 4.3% price decline in the first half of
2005. Although sales prices of agricultural products as
of late June 2006 were lower than those of March 2006
and late December 2005 (due to seasonal factors), the
average indicator for the first half of 2006 exceeds the
corresponding indicator of the previous year by 11.3%.
2006
compared with the previous year, unemployment

increased by 30.3%. The unemployment indicators in
Gegharkunik and Aragatsotn marzes remain
unchanged, while the highest decline in the unemployment numbers is observed in Yerevan, 20.1% (Table 8).
As for the individuals looking for jobs by marzes, this
indicator also declined in all the marzes except VayotsDzor and Tavush.
Table 7. Price changes in certain sectors of economy in the first half of 2006, %
Producer price index
of industrial
production
Price index for Freight transportaconstruction

tion tariff index
Sales price index of

agricultural products
June of 2006 against

December of 2005
1.9
January-June of 2006
against that of 2005
-1.2
7.9
10.3
11.3
8.1
1.7
19.8
-15.8
June of 2006 against March of 2006
4.4
19.3
-0.4
3 The officially registered unemployment rate is significantly lower than that obtained as a result of a sample survey of the labor force (31.3% as of
2005) which is determined by differences in the definition of the unemployed and the calculation methodology.
12
Along with the decrease in the unemployment indicator,

the tendency of increase in the average nominal
monthly salary continues. Thus according to the NSS
data, in January-June 2006 in this country the average
nominal monthly salary amounted to 64,821 AMD,
which exceeds the previous year's average indicator by
24.5%. The salary in the budget sector progressively
increased by 22.2% and owing to that the gap between
salaries in budget and non-budgetary organizations
narrowed. In January-June 2004, the salaries in nonbudgetary organizations exceeded the salaries in budget organizations by about 2.0% and in January-June
2005 by 1.8%. Presently (January-June 2006) the gap
declined to 1.7% amounting to 73,331 and 41,939 AMD
respectively.
Chart 10. Structure of money supply as late June

2003-2006, billion AMD
400
350
300
250
200
150
100
50
0
2003
2004
2005
2006
Deposits by foreign currency

Term deposits by dram
Financial/banking sector
Demand deposits by dram
According to the Central Bank data, as of 30 June 30

2006, the monetary base amounted to 199.1 billion
AMD, which in the first half of 2006 declined by 1.5 billion AMD or 0.2%. Over the same period the cash outside the CB decreased by 0.1%. As a result, the share
of cash in the monetary base increased by 0.1 percentage points amounting to 77.5%. Let us note that in the
first six months of 2005, 75.2% of the monetary base
was the cash outside the Central Bank. In fact, as of the
first half of 2006 the share of cash grew which differs
from the cash share decline tendency observed over
the recent years (as of late June 2003 it amounted to
83.8% of the monetary base).
As for the other components of the monetary base,
required dram and foreign currency reserves, their
shares declined compared with end of December 2005.
Thus the share of required dram reserves in the monetary base declined by 0.2 percentage points and
amounted to 10.9%, while the share of required foreign
currency reserves increased by 0.1 percentage points
amounting to 11.2%. In general, the share of required
reserves grew compared with June 2005 by 0.3 percentage points.
Cash money outside banking system
As of 30 June 30 2006, the money supply amounted to

370.8 billion AMD having grown over six months by 5.2
billion AMD or 1.5%. Over the six months, a 0.7%
increase in cash outside the banking system and a
0.6% increase in foreign currency deposits were
observed. At the same time, growth was registered in
dram deposits by about 10.5%, which was determined
by the increase in term deposits by 3.1% and demand
deposits by 7.4%. As a result of the above developments, the share of dram deposits in the structure of
the money supply has grown by 3.0 percentage points,
amounting to 23.0%. The dynamics in the money supply structure over the past four years, as of late June, is
presented in Chart 10.
Over the first six months of 2006, logical changes were
observed in the deposit structure of commercial banks.
The dram deposits grew by 26.7 billion AMD or 43% in
late June 2006, compared with late June 2005. Foreign
currency deposits, conversely, declined by 1.6 billion
AMD or 0.9%. The dram deposits as of late June 2006
Table 8. Officially registered labor force supply by marzes in June 2006

Job seekers
thousand persons
From them unemployed
Growth (decline)
compared to 2005, %
thousand persons
Growth (decline)
compared to 2005, %
Total, RA
113.6
-12.6
90.1
-7.1
Yerevan
22.9
-20.2
19.9
-20.1
Aragatsotn
2.6
-7.1
1.3
0.0
Ararat
4.1
-18.0
2.9
-12.1
Armavir
4.5
-26.2
3.1
-13.9
Gegharkunik
7.7
-0.5
4.8
0.0
23.5
-12.6
20.5
-1.0
Kotayk
5.7
-21.9
4.8
-4.0
Shirak
22.5
-6.4
17.4
-3.9
Syunik
-7.5
Lori
11.8
-9.2
9.8
Vayots Dzor
2.3
4.2
1.3
-7.1
Tavush
6.0
7.1
4.3
30.3
13
In the first half of 2006, 500 million AMD worth of treasury bills were distributed on the primary market for the
3-6 month maturity period with 4% average annual
nominal profitability, 544 million AMD worth for the 6-9
month maturity with 4.7% average annual nominal profitability, and 2.3 billion AMD worth for the 9-12 month
maturity. The average nominal profitability of the 9-12
month maturity treasury bills issued in March was 4.6%,
which is by 0.6 percentage point higher than the profitability of the treasury bills issued in the same period of
the previous year (4.0%). A significant decline is
observed in the profitability of treasury notes with partial repayment coupons. In June 2006 it amounted to
5.2%, and 6 billion AMD worth of treasury notes were
distributed. There was a marked decline in the profitability of medium-term government coupon securities
with partial payments.
21.1
20.2
13.2
12.1
10.3
6.3
-3.6
-3.7
-16
Dram
Foreign
currency
Dram
Loans
2004
2005
Foreign
currency
Deposits
2006
Chart 12. Dynamics of average interest rates for

loans and deposits by AMD during 2003-2006
25
20
15
10
2003
2004
Loans
2005
12
12
2006
Deposits
According to the information provided by RA Ministry of

Finance and Economy, and RA State Social Security
Fund on state, community and social security fund

budgets, in the first half of 2006 the revenues and official transfers of the consolidated budget amounted to
239.3 billion AMD (or 122.3% of this indicator for the
same period in the previous year), and the expenditures equaled 241.3 billion AMD (or 123.5% of this indicator for the same period in the previous year).
Compared with the data for the first half of 2005, the
share of revenues of the RA State social security fund
has grown in the structure of budget revenues by 1.2
percentage points and reached 15.2%. Certain growth
has also been observed in the share of community
budget revenues, 0.1 percentage point, although it is
still low in the structure of the consolidated budget and
amounts to 3.7%. At the same time, the share of state
budget revenues has decreased which in the first half
of 2006 amounted to 81.1%. Such changes in the structure of the consolidated budget are determined by the
4 Including non-residents' deposits.
5 For deposits and loans with a term of 15 days to 1 year.
State budget
14
24
19.2
12
At the same time, a decline is observed in the interest

rates for one-year dram deposits and loans offered by
commercial banks. In June 2005, the average interest
rate5 for dram deposits was 6.08%. In December it was
6.45%, and in June 2006 the average interest rate was
5.57%. The loan interest rates were 18.02% in June
2005, 17.29% in December, and 15.56% in June 2006.
It is also noteworthy that although slow, there is a
decrease in the gap between deposit and loan interest
rates (in 2003, 14.0% on average; in 2004, 13.7%; in
2005, 12.2%; and in the first half 2006, 10.7%).
30
25
20
15
10
5
0
-5
-10
-15
-20
The loans extended by commercial banks as of late

June 2006 amounted to 223.4 billion AMD (of which
59.4% in foreign currency) and, compared with the end
of the previous year, declined by 2.2%. In contrast with
deposits, in the structure of loans there is growth in the
case of both the dram and foreign currency. The
amount of foreign currency loans in June 2006, compared with December 2005, grew by 10.3% and dram
loans by 21.1% (Chart 11).
Chart 11. Changes in volumes of deposits and loan

in the first half of 2004-2006 (June to previous
December), %
amounted to 88.9 billion AMD4 and compared with

December 2005 grew by 3.4% or 4.0%. The amount of
foreign currency deposits as late June 2006 was 172.0
billion AMD and declined by 66.6 billion AMD or 3.7%
compared with December 2005. In fact, under dram
appreciation, there is a tendency towards a decrease in
foreign currency deposits. Thus, as of the end of the
first half of 2006, the deposits made in commercial
banks by residents and non-residents amounted to
260.9 billion AMD of which 65.9% in foreign currency.
This indicator is lower by 1.7 percentage points than in
late December 2005, and compared with June of previous years, it is inferior to 2005 and 2004 indicators by
7.7 percentage points and 11.8 percentage points,
respectively.
Q 2 / O 6 ( # 11 )
The greatest share in the structure of consolidated

budget revenues belongs to current revenues, 79.5%,
although compared with the same period in the previous year, there is a 1.5 percentage point decrease in
the share. The latter is determined by a progressive
increase both in the revenue of the social security fund
and the revenue generated from transactions with capital, 32.4% and 50.5%, respectively, which resulted in
the growth of their shares in total revenues (including
official transfers) by 1.2 and 0.6 percentage points. At
the same time, there is a decline in the share of official
transfers (by 0.3 percentage points), which according to
the data of the first half of 2005 increased by about 69%
and reached 2.1% share.
Most of the consolidated budget revenue was provided
by tax revenue (67.7% of revenue, compared with
69.3% in the same period of the previous year). The
increase in tax revenue amounted to 19.5%, which provided 22.3 percentage points growth of consolidated
budget revenue (including official transfers).
Interestingly, most tax revenue was contributed by
direct tax collection. Thus, the amount generated by
profit tax increased by 41.5% (which can be explained
by the expiration of the period of tax exemption for foreign investment, as well as by the application of the
minimal 1% profit) and revenue by 37.7% (directly
dependent on the increase in social contributions). As a
result of the latter, the share of direct taxes in tax revenue has also increased which amounted to 16.0% in
the first half of 2003 and 29.7% in the same period of
2006 (Chart 14).
The profit tax growth was mainly contributed by the
payments of non-governmental organizations and nonresidents. Profit tax amounts received from other
sources also have grown. In the reporting period, the
profit tax revenue to the state budget amounted to 15.4
billion AMD, which is by 37.7% more than in the same
period of the previous year.
Out of indirect taxes, although an increase has been
observed from the VAT, it is inferior to the relevant indicator for the same period of 2005. Thus, through the
VAT 13.5% growth has been observed (compared with
the relevant indicator for the same period of 2005,
Chart 13. Structure of consolidated budget revenues in the first six months of 2003-2006, % of
GDP
35
2.1
30
% to GDP
25
20
1.9
1.9
1.9
3.3
3.6
20.5
21.1
22.5
23.9
2004
2005
2006
15
10
4.5
3.9
5
0
2003
Communities budget revenues

Social fund budget revenues
State budget revenues
Chart 14. Structure of tax revenue in the consolidated budget in the first half of 2003-2006, % of
total
180
11.5
160
11.9
140
billion AMD
growth rates of the three mentioned budgets. Thus,

compared with the first half of the previous year, the
revenue of the social security budget increased by
32.4%, the community budget revenues increased by
28.0%, and the state budget revenue increased by
20.4%. It is noteworthy that last year's tendency
towards the increase in the share of the consolidated
budget in the GDP has also continued. In the first half
of 2004 this share amounted to 25.8%, in 2005 it was
27.8%, and as of the first half of 2006, the consolidated
budget revenue share in the GDP was 29.6%. Chart 13
presents the structure of consolidated budgets in the
first six months.
120
100
9.3
10.4
80
60
40
69.3
29.7
20
0
58.8
62.8
73.7
16.0
21.4
2003
2004
Direct taxes
indirect taxes
25.3
2005
2006
Other taxes
18.8%). 45.7% of the collected 69.5 billion AMD (or

47.7 billion AMD) were contributed by customs bodies
through duties paid on the border, and 53.3% by tax
bodies from the domestic turnover of goods and services.
In the first half of 2006, growth was observed in terms
of customs duties determined by increased rate of
importation. Over this period, this revenue amounted to
8.2 billion AMD, increasing by 11.8% from the same
period in 2005.
As for excise tax collection, it has increased by 5.2% or
by more than 870 million AMD. (The same indicator for
the first half of 2005 decreased by 11.9%.6) More than
11.2 billion AMD were collected from the taxation of
excise goods, of which 5.0 billion AMD was from the
taxation of tobacco. Excise tax revenues from the
goods produced in this country amounted to about 6.2
billion AMD, of which 2.9 billion was AMD from tobacco
sales.
6 The decline was determined by the decrease of revenue from petrol import and locally produced tobacco.
15
Q 2 / O 6 ( # 11 )
Revenues from other taxes maintain the growth tendency characteristic of the same period in the previous
year. In particular, the budget revenue from simplified
tax amounted to 3.5 billion AMD or has grown by 7.6%,
which is mainly determined by the increase in revenues
from commercial activity.
public servants starting January 1, 2006. In the relevant

period, an increase was observed in terms of capital
expenditure (by 36.1%). The increase was mainly determined by the growth of expenditure on education, science, apartment building, utilities and transport.
The consolidated budget deficit in the first half of 2006
amounted to 2 billion AMD. It is noteworthy that in the
same period of 2005, 230.4 million AMD worth of surplus was observed.
Compared with the first half of the previous year, nontax revenues have grown by more than 33.2%, which is
mainly determined by the budget revenue paid from the
sale of Zangezur copper molybdenum plant as a result
of privatization. Non-tax revenues have also been
impacted by the complete incorporation into the state
budget of extra-budgetary accounts opened for state
institutions by a RA government decree (according to
the 2006 RA Law on State Budget).
External debt
Armenia's gross external debt as of end of June 2006
constituted 1,936.2 billion USD, which was by 0.32%
more compared to the end of the March 2006 indicator.
At the same time, Armenia's gross external assets have
grown by $6.71 million, amounting to about $1,109.6
million; as a result, net external debt decreased by
$0.61 million (Table 10). As can be seen from the table,
the lion's share (over 60%) in the gross external debt
belongs to the public sector, in particular to the public
and monetary administration bodies with 50.2% and
10.0%, respectively. It should be noted that in the second quarter of 2006, the gross external debt of the state
governance grew most (nearly 6%); whereas, in the private sector there was more than a 10% decrease in the
same indicator. In April-June 2006 (second quarter), sig-
The expenditures of the consolidated budget in the first

half of 2006, compared with the same period in the previous year, have grown by 23.5%. The growth was
mainly determined by the increase in current expenditure of 23.3% (contribution to the growth amounted to
13.5 percentage points). Growth has been observed in
the current expenditure structure by all budget items
(Table 9).
A 19.6% increase was observed from payroll, which was
mainly determined by the raise of official salaries for
Table 9. Dynamics of expenditures of consolidated budget in the first half of 2004-2006

The structure of
expenditures, %
2004
TOTAL EXPENDITURES
Current expenditures
2005
Growth rate, %
2006
100.0
100
100
Contribution to growth, %
2004
2005
107.9
121.7
2006
123.5
2004
7.9
2005
21.7
2006
23.5
65.9
63.6
62.5
115.4
117.4
121.3
9.5
11.4
13.5
Wages
8.1
8.9
8.6
185.2
133.2
119.6
4.1
2.7
1.7
Interest payments
2.9
2.3
1.8
74.5
97.0
98.3
-1.1
-0.1
0.0
Subsidies
5.9
4.1
3.4
148.1
83.8
103.5
2.1
-1.0
0.1
Current transfers
6.3
7.9
9.5
125.5
153.6
146.8
1.4
3.4
3.7
Goods and Services
42.7
40.4
39.1
107.1
115.0
119.7
3.0
6.4
7.9
Capital expenditures
12.1.
14.4
15.8
71.6
144.3
136.1
-5.2
5.4
5.2
3.3
3.2
3.6
134.8
119.3
140.8
0.9
0.6
1.3
18.7
18.8
18
115.6
121.9
118.6
2.7
4.1
3.5
Credit minus repayment

Social Security Fund expenditures
Source: NSS data
Table 10. RA gross external debt, gross external assets, and net external debt as late June 2006, million USD
Gross external debt
Sectors
Changes comAs of 30
pared to that of 31
June 2006
March 2006, %
Gross external assets

Share in
total, %
Changes comAs of 30
pared to that of 31
June 2006
March 2006, %
Public administration bodies
971.03
5.87
50.15
63.7
Monetary administration
bodies
193.01
-1.91
9.97
Banks
175.03
-2.72
9.04
Other sectors
373.16
-10.01
19.27
223.92
1.07
11.57
1 936.16
0.32
100.00
Net external debt

Share in
total, %
As of 30
June 2006
-40.30
907.34
11.95
748.94
14.03
-555.93
20.85
189.76
-11.55
-14.73
-57.46
107.18
-14.13
265.98
-8.23
223.92
1.07
1 109.58
0.61
826.58
-0.07
Direct Investment:
Intercompany lending
Total
16
nificant changes took place in state governance bodies

in terms of gross external assets governance: in this
period more than 40% of gross external assets available
as of late March 2006 were sold. In addition, the net
external debt was reduced mostly in the private sector.
As of the end of June 2006, RA gross external debt
constituted 1,158.36 million USD, which exceeds the
same indicator for end of 2005 by 59.2 million USD or
about 5.4%. The increase is determined by the growth
of the external debt of the largest borrower, the RA
Government by about 7.6% (or 70.1 million USD). Let
us note that since the second quarter of 2005, parallel
to the continuous increase in the RA Government's
external debt, the external debt of the Central Bank has
been decreasing (Chart 15). In the same period, RA
state debt in terms of long-term loans guaranteed by
the Government and the CB has decreased twice: from
4.2 million USD to 2.1 million USD, whereas in case of
special loan programs, the state debt in 2002
decreased by more than 80% and has not significantly
changed over the past three years, varying within the
interval of 3-3.5 million USD.
The structure of the RA state external debt, by creditors,
and the dynamics of relevant indicators over the period
from mid-2005 to mid-2006 are presented in Table 11. It
can be seen that in terms of bilateral creditors, the external debt had a sustainable growth tendency in the last
year unlike the external debt in terms of multilateral creditors. The growth mainly took place due to the increase
of Germany's share, which exceeds 62% of the amount
of liabilities in the group of bilateral creditors. The liabilities to multilateral creditors in 2006 had a growth tendency in general, although there was a decrease in the last
two quarters of 2005. Compared with September 2005,
the share of the external debt to the World Bank has
grown by 60.3 million USD. There is a decrease in the
debts to the EBRD and IMF. It should be noted that in
terms of multilateral creditors, the debt increase was
mostly deterred by the fulfillment of commitments of the
CB towards the IMF for 26.7 million USD.
Chart 15. External debt of the Government of RA

and of the Central Bank (as of end of period, million USD)
1200
1000
986.5
932
916.4
914
800
600
400
200
193
173
176.4
166.3
0
2005
June
2005
December
Central Bank
2006
March
2006
June
Government
External trade
In January-June 2006, external trade turnover in
Armenia amounted to 1.4 billion USD representing an
improvement by 12.6% in nominal value over the same
period of the previous year. Expressed in Armenian
dram, the total turnover amount is 614.9 billion AMD,
and the growth is equal to 9.5%.
The increase in the external trade turnover in the first
half of 2006 (12.6%) is notably lower than the indicator
for the same period of the previous year (27.8%) by 15.2
percentage points. The dynamics of changes in export
volumes are considerable. The export volumes declined
by 0.6% as compared to the same period of the previous year, while in 2005 export volumes increased by
29.5%. As to the import volumes, the growth amounted
19.9%, which is lower by 7.0 percentage points as compared to 2005. The decrease in export volumes is due
to the appreciation of the Armenian dram against nearly
all currencies; hence, for exporters the conditions continue to remain unfavorable.
Table 11. RA state external debt structure by creditors as of late June 2006 and quarterly changes

Multilateral creditors
World Bank
As of
30 June 2006,
million USD
Change of debt volume of corresponding period

compared to that of previous quarter, %
2005-Q3
2005-Q4
2006-Q1
2006-Q2
1 033.09
-0.42
-1.79
0.88
4.20
811.42
0.39
-0.42
1.69
6.27
European Bank for Reconstruction and

Development
10.86
-5.58
-16.45
-7.07
-21.20
International Fund for Agricultural Development
44.55
4.45
-1.71
0.93
8.27
166.26
-4.08
-4.70
-1.95
-3.87
125.27
6.34
-0.08
2.18
5.36
78.08
12.28
0.10
4.16
8.11
4.51
-0.42
-2.04
2.60
5.03
International Monetary Fund

Bilateral creditors
Germany
France
USA
Japan
Total
40.37
-1.41
-0.11
-2.80
0.62
2.31
-1.49
-1.89
44.78
2.12
1 158.36
0.24
-1.61
1.01
4.32
17
Q 2 / O 6 ( # 11 )
The biggest decline in trade turnover recorded with

Israel where export volumes have declined by 26.1%.
In import volumes, the biggest decline was recorded
with Great Britain (34.4%).
As to the export-import structure by basic commodity
groups, the increase in the export volumes of the mining production group has significantly contributed to the
export growth. As in the first quarter, the export and
import volumes of the precious and semiprecious
35
30
27.8
29.5
26.9
25
19.9
20
15.8
15
12.6
10
5
9.5
8.8
5.5
-5
0.5
-0.6
2004
2005 2006
by USD
-10
4.1 3.6 4.4
4.1
3.7
-2.2
-1.4
2004
Trade turnover
Export
2005 2006
By AMD
Import
Chart 17. The structure of exports and imports in the

first half of 2003-2006, %
Import
As to the changes in export and import volumes by

countries with the biggest impact on growth, it can be
seen that as in the first quarter, the Netherlands had the
biggest growth in total exports (3.2 percentage points),
while the export volume to this country has grown by
49%. The situation in imports remains unchanged. As in
the first quarter, Russia and Ukraine mostly contributed
to the increase in import volumes, 4.5 and 3.0 percentage points, respectively.
Chart 16. Dynamics of the components of external

trade in the first half of 2004-2006, %
Export
While considering the export and import volumes

according to countries and groups of countries, it can
be seen that the share of EU countries in the export volumes was continuously growing, and in January-June
2006 it amounted to 51.7%, which exceeds the indicator for the previous year by 3.8 percentage points. The
same is not true for import volumes. The share of EU
countries decreased by 4.5 percentage points as compared to the previous year and amounted to 30.5%.
The share of CIS countries also increased both in
export and import volumes as compared to 2005
amounting to 20.3% and 26.8%, respectively. As to the
exports to other countries, nearly no changes have
taken place (as 0.2 percentage point increase) compared to the same period of the previous year, whereas in import there was a 4.9% decrease.
2006
26.8
30.5
42.7
2005
22.5
35.0
42.5
2004
31.3
39.0
39.7
2003
23.8
31.5
44.7
2006
20.3
51.5
28.0
2005
19.2
47.9
32.9
2004
17.7
38.1
44.2
19.3
37.3
43.4
2003
20
40
CIS countries
60
EU
80
100
Other countries
Table 12. External trade data by countries in the first half of 2006
Growth rate
to the first
half of 2005,
%
Exports,
total
99.4
Contribution
to growth,
percentage
points
-0.6
100.0
Countries with higher contribution to growth

Netherlands
Georgia
Ukraine
USA
Canada
Italy
Great Britain
128.4
110.3
133.7
108.7
148.2
112.5
42.8 times
3.2
0.6
0.5
0.5
0.4
0.4
0.4
18
73.9
89.1
96.3
94.5
49.7
87.9
-3.6
-1.6
-0.6
-0.6
-0.6
-0.4
Imports (by trading

countries), total
119.9
Contribution
Structure in
to growth,
the first half
percentage
of 2006
points
19.9
100.0
Countries with higher contribution to growth

14.5
6.2
1.8
5.7
1.2
3.3
0.4
Countries with higher contribution to the slow down of

growth
Israel
Belgium
Germany
Russia
UAE
Iran
Growth rate
to the first
half of 2005,
%
Structure in
the first half
of 2006
Russia
Ukraine
Italy
Greece
Iran
Georgia
China
129.9
177.9
205.3
247.4
138.8
184.1
252.9
4.5
3.0
2.4
2.1
1.9
1.9
1.7
16.5
5.7
4.6
1.2
5.8
3.5
2.3
Countries with higher contribution to the slow down of

growth
10.3
13.2
16.9
10.8
0.6
3.1
Great Britain
Luxemburg
Belgium
Israel
Bulgaria
65. 6
9.2
88.7
83.4
27.3
-2.2
-2.0
-1.3
-1.2
-0.4
3.9
0.3
8.3
5.2
0.1
stones, metals and articles thereof group continue to

decline, by 21.3% and 17.2%, respectively. This commodity group mostly contributed to the slow down of
exports growth by 6.6%, and to imports growth by
5.1%. The machinery, equipment, and mechanisms

commodity group contributed most to the growth in
imports, which amounted to 5.9% and the import volume has grown 1.5 times.
Table 13. External trade data by the most changed commodity groups in the first half of 2006
Growth rate to
Contribution to
Structure in the
the first half of growth, percentage
first half of
2005, %
points
2006
Exports, total
99.4
-0.6
100.0
167.0
7.1 times
329 times
149.8
191.2
186.5
5.2
2.8
0.5
0.5
0.4
0.4
13.1
3.3
0.5
1.4
0.8
0.9
82.8
90.7
89.0
39.8
92.9
-6.6
-3.1
-1.0
-0.5
-0.2
31.7
30.2
8.3
0.3
2.1
119.9
19.9
155.7
2.1 times
128.8
132.0
129.9
139.9
5.9
4.9
4.1
2.7
2.1
1.0
13.7
7.8
15.3
9.2
7.6
3.0
78.7
75.1
94.3
36.4
-5.1
-0.7
-0.3
0.2
15.8
1.7
4.5
0.1
Commodity groups with higher contribution to growth

Mineral production
Plastic, rubber
Oils of animal and vegetable origin
Products of vegetable origin
Stone, plaster, cement
Instruments and devices
Commodity groups with higher contribution to the slow down of growth
Precious and semiprecious stones, metals and articles thereof
Non-precious metals and articles thereof
Finished food products
Paper and articles thereof
Machinery, equipment and mechanisms
Imports, total
100.0
Commodity groups with higher contribution to growth

Machinery, equipment and mechanisms
Non-precious metals and articles thereof
Mineral production
Transport means
Chemical products and preparations of chemical and allied industries
Plastic, rubber
Commodity groups with higher contribution to the slow down of growth
Precious and semiprecious stones, metals and articles thereof
Animals and products of animal origin
Products of vegetable origin
Works of art
SUMMARY
In the first half of 2006, the real growth of the GDP amounted to 11.9%. This growth exceeds that of the same period
in the previous year by 1.6 percentage points and that of 2004 by 2.4 percentage points.
In terms of production in the GDP growth structure, compared with 2005, the weight of other branches of the economy decreased by 9.2 percentage points, and the weight of taxes in the growth structure, compared with January-June
2005, has grown more than twice and amounted to 15.1. The weight of basic branches in the GDP growth is almost
unchanged (65.5% vs. 64.2% in 2005).
Among the branches of economy, the greatest contributor to the GDP growth was construction with 4.9 percentage
points and 35.3% growth. The added value of trade and public catering has grown by 13.8% (1.4 percentage points
contributed) and agriculture by 7.2% (1.0 percentage points contributed). The real growth of net taxes from production amounted to 16.2% and contributed 1.8 percentage points to the GDP growth. Among the basic branches of economy, the added value of industry declined by 1.1%.
The GDP analysis in terms of expenditure demonstrates that compared with the previous years, in the first half of
2006 the growth of final consumption has accelerated which amounted to 13.3% (the growth in the previous year was
8.9%). The real growth of private final consumption in the first half of 2006 amounted to 12.1%, and public consumption, 19.6%. In addition, gross formations have grown by 28.7%. As for net export of goods and services, a negative
balance has grown here by 32.0%, which deterred the GDP growth by 5.9 percentage points.
19
Q 2 / O 6 ( # 11 )
In January-June 2006, the physical amount of industrial output declined by 1.0% compared with the same period in
the previous year. The main cause of the decline was the decrease in the output of the jewelry industry. Among CIS
countries, the physical amount of industrial output also declined in Moldova and Kyrgyzstan.
Consumer prices as of late June 2006, compared with late December 2005, grew by 4.3%, which, although close to
the mean inflation rates of 2002-2004, exceeds the relevant indicator of 2005 by about 3 percentage points.
The AMD exchange rate in the first half of 2006 was relatively stable with respect to the EUR and Russian ruble.
Nevertheless, the tendency towards the devaluation of the USD has continued, which as of late June 2006, compared
with December 2005, and amounted to about 6.3%.
In January-June 2006, the average number of economically active population amounted to 1,186,900; 1,096,900 were
engaged in economy, and 90,000 (or 7.6% of the economically active population) were unemployed and were officially granted the status of unemployed. In January-June 2005, the unemployment rate was 8.6%.
The average nominal monthly salary in January-June 2006 was 64,821 AMD, which exceeds the relative indicator for
the same period in the previous year by 24.5%.
As of 30 June 30 2006, the monetary base amounted to 199.1 billion AMD, having declined in the first half of 2006 by
1.5 billion AMD or 0.2%. In the same period, cash outside the CB dwindled by 0.1%.
The money supply as of 30 June 30 2006 amounted to 370.8 billion AMD, having grown over the half-year by 5.2 billion AMD or 1.5%. The totals of AMD deposits in commercial banks in late June 2006 amounted to 88.9 billion AMD
and compared with late December 2005 have grown by 4.0%. Foreign currency deposits in late June 2006 amounted
to 172.0 billion AMD and decreased by 3.7% compared with December of the previous year.
In the first half of 2006, the revenues and official transfers of the consolidated budget amounted to 239.3 billion AMD
(or 122.3% of the previous year's indicator), and the expenditure amounted to 241.3 billion AMD or 123.5% of the previous year's indicator).
Armenia's gross foreign debt as of late June 2006 was 1,936.2 billion AMD, which, compared with late March 2006
indicator, increased by 0.32%.
In January-June 2006, RA foreign trade turnover was 1.4 billion USD and, compared with the same period in the previous year, the nominal value increased by 12.6%. In AMD the foreign trade turnover amounts to 614.9 billion AMD
and the growth, 9.5%.
In the first six months of 2006, the export of goods in USD declined by 0.6%, whereas the export in the first half of
2005 had grown by 29.5%. Import has grown by 19.9% (compared with a 26.9% increase in 2005).
ARMENIAN TRENDS MACROECONOMIC FORECAST (BY QUARTERS, 2006)

ACTUAL
January December,
2005
January March,
2006
AT FORECAST
January June,
2006
January September,
2006
January December,
2006
Real GDP, % change as compared with the previous

year (1)
13.9
8.0
11.8
12.5
12.7
CPI, % change as compared with the previous

December (2)
-0.2
2.8
4.3
-2.3
6.4
APPLIED ARIMA* MODELS

(1) D(LOG(GDP),0,12) C AR(1) MA(1) MA(16)
(2) D(LOG(CPI),0,12) C AR(1) MA(1) SMA(12)
GDP - Real Gross Domestic Product

CPI - Consumer Price Index
The stationarity of the forecasted series in all models was tested and achieved after adequate transformations (e.g. log transformation, simple/seasonal differencing, etc.). The identification of the models was done on the basis of stationary series. The final selection of the model was made on the
basis of RMSE, AIC and SBC statistics.
_______________________________
* ARIMA in an econometric forecasting method, which combines the autoregressive (AR) and moving average (MA) models.
20
THE ECONOMIC STATUS OF SOUTH

CAUCASUS COUNTRIES IN 15
YEARS OF INDEPENDENCE: COMPARATIVE ANALYSIS
HAROUTIUN KHACHATRIAN
Independent Expert
2005
2004
2003
2002
2001
2000
1994
1993
1992
1991
1990
1989
Average, transition countries
1999
2004
2003
2002
2001
2000
1999
1998
1997
2005
2005
110
100
90
80
70
60
50
40
30
20
10
0
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1 Transition Report, Business in Transition EBRD 2005.
According to the same data, Armenia, at the lowest

point of its economic decline in 1993, had a GDP
Gorgia
1994
1993
1992
1991
1990
110
100
90
80
70
60
50
40
30
20
10
0
1989
Azerbaijan
1996
1995
1994
1993
1992
1991
1990
1989
Armenia
110
100
90
80
70
60
50
40
30
20
10
0
1998
Chart 1. GDP change dynamics in the countries of

the South Caucasus in late Soviet period and 15
post-Soviet years
As can be seen from Chart 1, according to the 2005

EBRD estimate Armenia nearly regained its 1989 GDP
level. Azerbaijan's GDP amounted to 90% of its 1989
GDP. Georgia's economic situation is much worse: its
GDP amounts to approximately half of the 1989 GDP.
These estimates were made in the autumn of 2005
based on the GDP growth rate projections for that year:
10% for Armenia and 20% for Azerbaijan. Actually, it is
known that in 2005 the GDP growth rate in Azerbaijan
was not 20% but 26% and in Armenia, 14%. Moreover,
this year (2006) the GDP growth rate in Azerbaijan was
at least 30%. Hence, one can claim that if not in late
2005, then in 2006, Azerbaijan also regained the 1989
GDP level and, in this respect, is comparable with
Armenia. Therefore, the comparison below, which is not
supposed to contain very accurate data, is justified.
1997
As a basis for the GDP changes, we assumed the estimate made by the European Bank of Reconstruction
and Development (EBRD).1 It is common knowledge
that expert opinions differ as to the GDP estimates in
the Soviet period and early independence years; how-
1996
GDP changes
ever, we believe the estimates of this authoritative

organization is acceptable as a basis. The following two
considerations can support this assumption. First, in all
probability, this institution applies the same criteria to all
countries impartially and without serious deviations.
Second, we do not have access to other comparative
data bases on the economy of the union republics of
the USSR and the newly independent states; the EBRD
is unique in this respect.
1995
The year 2006 was pivotal for the three South

Caucasus countries in two aspects. First, these countries marked the 15th anniversary of their independence, which is a sufficient period to discuss and sum up
the economic performances thereof. Second, according to estimates, in 2005-2006 Armenia and Azerbaijan
regained their GDP levels of the 1980s. This fact
enables us to make a comparison of economic
changes in these countries.
* ` ,
(29 ):
Source: Transition Report, EBRD 2005
21
amounting to 42% of that in 1989. The economic

decline in Azerbaijan and Georgia was deeper: 38% in
1995 and 25% in 1994, respectively. At the same time,
it is noteworthy that in terms of the recovery of its economic growth and GDP Armenia was one of the best
performing among the former Soviet republics.
According to the data in the same publication, by the
end of 2005 only six out of the fifteen former union
republics succeeded in regaining the GDP dating back
to the last Soviet years. In addition to Armenia, these
six republics included Uzbekistan, Estonia,
Turkmenistan, Belarus and Kazakhstan. In these former five republics, the lowest economic decline compared with 1989 did not exceed 63-65% (Belarus and
Estonia, respectively), whereas in the other republics
the decline did not exceed 80-85% of the Soviet level.
Against this backdrop, Armenia's recovery rate is even
more impressive. As it was mentioned above,
Armenia's economy plummeted to 42% of the 1989
level (some researchers believe it was even lower). In
addition, Armenia achieved this recovery rate without
the natural resources possessed by the republics of
Central Asia and without the support enjoyed by
Belarus from Russia and by Estonia from the EU.
Lastly, Armenia is the only country out of these six that
was engaged in an interethnic conflict; moreover, in
war, which has not beet settled to-date and restricts the
development of the country to some extent.
Q 2 / O 6 ( # 11 )
37% to 51%. However, this was not exclusively due to

the growth of oil industry since in 2005 40 percentage
points out of the 51% were contributed by the oil industry (in the Soviet period, the oil industry contributed 11%
of Azerbaijan's GDP). At the same time, it is very important to note that the growth of the industrial share in the
gross output is mostly determined by the growth of oil
prices and not production growth. Indeed, in the surveyed period, although oil production under the
"Contract of the Century" started, in Azerbaijan it even
has not doubled: in 1989 it was 12 million tons; in 2005,
22.2 million tons. At the same time, its share in the GDP
nearly quadrupled, which can be only the result of oil
price growth especially after the 2003 Iraq war. If the oil
contribution to the GDP is withdrawn, we will see that
the remainder of the industry (the official statistics of
Azerbaijan uses a special term, non-extraction industry) has decreased more than twice, from 27% to 11%.
Thus, it can be concluded that over the past 15 years
deindustrialization has taken place in all three South
Caucasus countries; however, this process is less
acute in Armenia than in the neighboring countries.
Table 1 demonstrates the GDP structure in the countries of the South Caucasus during the last of the Soviet
years. They attest that these three republics had a
rather high industrial potential.2
Naturally, the decline of industry must have led to the

growth in other sectors, especially, agriculture and
services in the GDP. In this respect in Armenia, we see
the classical picture: in 2005 agriculture accounted for
19.6% of the gross output, and services 34.6%. In both
cases this was 50% more than in the Soviet period. The
share of construction in 2005 accounted for 23.5% of
output, and the growth compared with 1990 (when it
was 18%) amounted to 30.5%. However, it is characteristic that in 2000-2005 the construction share in
Armenia's GDP doubled.
The first consideration when comparing the GDP structure in 1990-1991 and 2005 (Fig. 2) is that the share of
industry, or to be more exact, the processing industry,
has dramatically declined. Indeed, in the case of
Armenia the share of industry decreased nearly twice,
from 44% to 20% in 2005 (in 2000-2004 this share
sometimes amounted to 22% but not more).
Conversely, the share of agriculture and construction in

Azerbaijan's GDP compared with the Soviet period
decreased from 19% to 9.6% and 17% to 10.8%,
respectively, due to growth in oil production. Over the
past five years there has been absolute output growth
both in agriculture and construction; however, the share
of the latter in the GDP continuously decreased.6
In the case of Georgia, the decline was even lower:

from 30% to 13%. In Azerbaijan, the industry grew from
It can be concluded that owing to the oil factor the share

of the non-oil sector in Azerbaijan will be very variable
Changes in the GDP structure
Table 1. The GDP structure in the South Caucasus countries prior to the demise of the USSR
Armenia3 1990
Azerbaijan4 1991
Georgia5 1990
Industry
44.5
37
30
Agriculture
12.6
19
35.8
18
11
11.5
24.9
27
20
Construction
Services
2 The Georgian data can raise doubts since according to them the share of industrial output in this country was lower than agricultural output. We do
not have a possibility to look into this problem in detail; however, we can just add that at least in late 1970s the share of industry in Georgia was over
40% and agriculture was under 35%. See for example: 1977. , 1978. (People's Economy of
Georgian SSR in 1977, Tbilisi, 1978).
3 Source: Armenia: Economic Trends, January-March 1998, p.17: the 1990 estimate quoted.
4 Source: K. Imanov. Azerbaijan, in: Economic Consequences of Soviet Disintegration, J. Williams, ed.., Washington, 1993, p 415-428. Also compared
with the official Soviet statistical data.
5 Source: the data of the Georgian state tax service given to the author.
6 It could not be otherwise if we take into consideration that Azerbaijan's GDP in 2005 grew by 26.4% while its non-oil sector grew only by 8%.
22
and hardly predictable: small changes in the oil sector

will have large impact on the "weight" of the remaining
sectors.
While the GDP picture in Armenia and Azerbaijan are
more or less predictable, in Georgia the situation can
be described as somewhat paradoxical. In this country
deindustrialization was not accompanied by a growth of
agriculture: in the true sense of the word, it collapsed
from 35% to 15%. A decline, although on a small scale
(from 11.5% to 9.2%), took place in construction. As a
result, the total contribution of the three major sectors
of the economy (industry, agriculture and construction)
in Georgia's GDP amounted to the unprecedented
37.6%. (In Armenia this sum total amounts to 63% and
in Azerbaijan to 72%). Thus, what took place in Georgia
was not classical deindustrialization but an economic
shift from modern technologies to small-scale, homegrown manufacture and services, which can be seen in
Fig 3. under "services". For example, an economic
activity as "processing of material by households" has
a greater contribution to Georgia's GDP than energy
(3.7% and 0.3%, respectively). In 2005 the mining
industry (which is potentially an important sector since
10% of the global manganese resources are in
Georgia, and the latter produced 36% of manganese in
the USSR) contributed 0.8% to the GDP, whereas "real
estate rent and sales" contributed 3.1% to the GDP.
Industrial transformations
The changes in the share of industry in the GDP were
also accompanied by a profound transformation in the
structure of industry. Charts 4 and 5 show the changes
in the structure of industry in Armenia and Azerbaijan
over the 15 post-Soviet years.
As can be seen in Armenia, two major branches of
industry, machine building and light industry (each contributed 20% of output), are presently extinct (their
share does not exceed 1%). The share of chemical
industry declined from 7% to 3% of the total. Instead,
the share of the food industry has grown from 17% in
late 1980s to 36% in 2005. The second major industrial branch in modern Armenia is metallurgy: its share in
the total output has grown from 5% to 25%. Lastly, the
growth of the energy sector is rather characteristic:
from 3.5% to 17%. It is important to emphasize that this
more than quadruple growth means that power generation in monetary terms in 2005 exceeded that of the
Soviet period (the general share of industry in the GDP
decreased only twice). Actually, however, the physical
amount of power generation over the past 15 years did
not grow, but vice versa, and declined more than twice
(see below). This means that the growth of power generation is determined only by the price growth.
In the case of Soviet Azerbaijan, only the contribution of
oil production is known for sure in the total amount of
Azerbaijan's output, 13 million tons. In the reference
Chart 2. Major GDP components in the South

Caucasus countries in the late Soviet period
100
80
60
40
20
0
Armenia
Azerbaijan
Georgia
Industry
Agriculture
Construction
Services
Source, see Table 1
Chart 3. Major GDP components in the South

Caucasus countries in 2005
100
80
60
40
20
0
Armenia
Azerbaijan
Georgia
Industry
Agriculture
Construction
Services
Source: official statistics of the relevant countries
Chart 4. Changes in the structure of Armenia's

industrial output in 1987 and 2005 (output percentages)
2005
1987
20
Machinery
40
60
80
100
Light industry
Food
Chemical
Energy
Metal processing
23
books available to the author, there were no accurate

data on other industrial sectors of Soviet Azerbaijan.7
Under "other" Fig. 5 contains such highly developed
branches as light industry, oil drilling machinery,
domestic appliances, etc. Thereafter, the analysis of
data for 2005 enables us to conclude that most of these
branches collapsed. For example, the production of
steel pipes amounted to 500,000 tons annually in
Soviet times, while in 1993 it decreased to 9,500 tons,
and in 2005, 1,300 tons. The decline of light industry is
similar (which was natural under open markets). The
production of domestic air conditioners is described as
follows: 1,100 in 2005, while in 1987, 428,000. The production of oil drilling machinery also declined, although
not as dramatically. The largest non-extraction branch
was oil processing (contributing 39% of the whole processing industry). Next come the metallurgy, food and
chemical industries (15%, 13% and 8.6%, respectively). It is characteristic that despite the dramatic oil production growth, the physical output of the oil processing
industry has declined. For example, in 2005, 906,000
tons of petrol and 2.1 million tons of fuel oil (mazut)
were produced, whereas, in Soviet times these figures
amounted to 1.4 million and 6.8 million tons, respectively.
In Georgia, like in its neighboring countries, high tonnage production suffered most mainly because the
main client and consumer disappeared: the former
"Soviet center." In Soviet years Georgia annually produced up to 20,000 cars and 120 locomotives; whereas, in 2004 (the 2005 data are still unknown) Georgia
produced five cars and four locomotives. Manganese
mine output declined nine times (218,000 tons in 2004).
The production of fertilizers declined by "only" 36%
amounting to 100,000 tons in 2004. In terms of output,
the largest industrial branch is food production (38%),
followed by the metallurgy and the chemical industries
(15% and 8.2%). Nevertheless, even the physical
amounts produced by food industry give way to the
Soviet outputs; for example, wine production in 2005
amounted to 2.7 million deciliters, which is 2.5 times as
less than in Soviet Georgia, and the production of fruit
Q 2 / O 6 ( # 11 )
Chart 5. Changes in the structure of Azerbaijan's

industrial output in 1987 and 2005 (output percentages)
2005
1987
20
40
Oil and Gas
60
80
100
Oil processing
Metal processing
Food
Chemical
Other
preserves (20 million tins) amounted to 1/40 of the

Soviet time output.
Agriculture
Table 2 presents the changes in the agricultural output
of the three South Caucasus republics in the postSoviet years (averaged figures, since the Soviet data
were taken for various years, 1987-1991).
As can be seen from the table, Armenia managed to
maintain or even increase the output of major agricultural produce. Obviously, the agrarian reform implemented by Armenia earlier than in its neighboring countries contributed to this. The situation is also comparatively favorable in Azerbaijan although two major crops,
grapes and cotton, have had a dramatic decline here.
Evidently, this is not a failure but a thought-out policy
aimed at the displacement thereof as unproductive for
the conditions of this country. This is proven by the fact
that according to official statistics of Azerbaijan, the production of both grapes and cotton has gradually dwindled in the post-Soviet period. Instead, according to the
same source, potato production has grown about ten
Table 2. Changes in the agricultural output in 2005 compared with Soviet times (growth +, decline -)
Armenia
Azerbaijan
Meat
+0%
-15%
Milk
+75%
+-0%
Eggs
+12%
+-0
- 40%
Grain
+44%
+84%
Fruits
+85%
+54%
-2%
- 22 times
- 3 times
--
- 3.6 times
--
+90%
+10 times
+ 20%
--
--
- 3 times
Grapes
Cotton
Potatoes
Citrus
Georgia
- 40%
7 For example, People's Economy of Azerbaijan SSR in 1983 ( 1983). provides data only on physical
amounts of output, but there were no monetary data.
24
times. Lastly, in Georgia the situation leaves much to be

desired as nearly all forms of produce are on the
decline, including the most important one for the country, citrus, which has declined three times.8
same is not true for energy consumption. As can be

seen from Table 3, presently Azerbaijan consumes
nearly as much natural gas and power as in the Soviet
period. As a result, even though it is an oil-producing
country, Azerbaijan, has to import not only gas10 but
also some amount of power. (In 2005, Azerbaijan
imported more than one third of its consumption.) In
addition, Azerbaijan is the only state in the South
Caucasus that commissioned new power generating
capacities, thermoelectric power plants.11 Thus, the
energy consumption of Azerbaijan's economy in the
post-Soviet period remained at least the same; if we
take into consideration that the country's population
decreased by about 2 million compared with the previous years (all the three republics had significant emigration), then per capita power consumption in
Azerbaijan is obviously higher than in the Soviet period.
In general, energy security in Azerbaijan is lower than
in Armenia both in terms of gas supply to the population
and power supply.
Resource consumption
A major shortcoming of the Soviet economy was its
high resource consumption. It was expected that in the
event of the transition to market relations and private
enterprise9 the former Soviet republics would manage
to significantly get rid of this shortcoming. According to
current statistics, (Table 3) in this respect Armenia
undoubtedly surpasses its neighbors.
As can be seen from Table 3, Armenia's economy over
15 years of independence has become much more
sparing. Possessing (as mentioned above) approximately the same GDP as in the late Soviet period,
Armenia now consumes 3.5 times as less natural gas
and half as much power. External cargo turnover has
declined six times, which means that the production in
this country has been dramatically re-oriented towards
the domestic market and became incomparably less
dependent on external factors than in the early years of
independence (which resulted in the crisis in the early
1990s caused by the blockade of communications).
Indeed, the blockade has not lessened since those
years, but the national economy continues to grow in
these conditions.
As for Georgia, as can be seen from Table 3, in postSoviet years gas and power consumption in this country have decreased as much as in Armenia. However,
in Armenia the Soviet-time GDP level has been
regained, while in Georgia it has been regained by half.
As for power supply, it was much worse as 2005: even
in the capital there was no uninterrupted power supply.
To sum up we can conclude that as a result of economic decline and reforms Armenia's economy has become
less vulnerable and more flexible which enables it to be
more optimistic for the future. In this respect Armenia
has achieved more favorable results than its neighbors.
In Azerbaijan there has been no improvement in

resource consumption since independence. If the factor
of external cargo turnover for Azerbaijan (and Georgia)
is unimportant, since they are free from blockade, the
Table 3. Consumption of major resources in the South Caucasus countries

gas consumption
billion m3/year
1987
2005
power billion kW/h/year

1987
2005
External cargo turnover

million ton/year
1987
2005
Armenia
6.3
1.7
15.7
6.3
20
Azerbaijan
9.9
9.2
23.2
22.6
40
2.8
---
Georgia
7.0
1.7
19.0
7.6
40
30
8 Georgia's official statistics insists that its information also incorporates data on Abkhazia and South Ossetia not controlled by the central authorities.
9 According to the EBRD data, (see footnote 1 above) 65-75% of the GDP in the South Caucasus countries was produced by the private sector in
2005.
10 Interestingly, in the Soviet period Azerbaijan, on the contrary, imported oil and exported gas.
11 Caucasus. Yearbook of the Caucasus Media Institute. 2006, pp. 111-128. (. e
. . , 2006, . 111-128).
25
Q 2 / O 6 ( # 11 )
BUSINESS
ARMENIAN BUSINESS AND THE LARGEST COMPANIES
LILIT YEZEKIAN, AEPLAC
ARMEN MIRZOYAN, AEPLAC
Presented for your attention is the analysis of the economic indicators of 14 enterprises working in various
spheres and branches of the Armenian economy as of
January-June 2006.
The survey includes the enterprises working in the
sphere of import and sales of fuel and natural gas, mining, metallurgy, power generation and distribution, processing of precious stones, manufacture and sale of
alcoholic beverages, construction materials, communication, as well as passenger and cargo transportation.
As of the first half of 2006, a major energy sector representative, Electric Networks of Armenia CJSC, heads
the list of the ten largest companies. The sales of this

company amounted to about 39.6 billion AMD and
increased by 5.7% compared with the same period in
the previous year. In US dollars, this indicator equaled
89.2 million USD and has grown by 10.4%.1
Compared with the same period of the previous year,
the total amount of power supplied by the company has
grown by 1.7%, which is mainly determined by the
increase in power supplies to non-basic consumers.
The amount of power supplied to this group of consumers as well as the share in the general amount over
the past three years has grown and in 2006 reached
8.4% and 24%, respectively (Tables 2 and 3).
Table 1. Largest Armenian enterprises by sales volumes of products or services (as of the first half of 2006)
Place
Company
Sector of Activity
Sales volumes as of 2006,

first half
Changes compared to the same

period of the previous year, %
million AMD
million USD
Electric Networks of
Armenia CJSC
Purchase and sales of

electric energy
in AMD
in USD
39 567.0
89.2
5.7
10.4
Armenian Telephone
Company JV CJSC
Communications
36 821.0
83.0
20.3
25.6
ArmRusgasprom CJSC Import and sales of

natural gas
Pure Iron Plant CJSC
32 851.2
74.1
6.0
10.7
Processing of non-ferrous
metals
21 130.0
47.6
-38.0
-35.3
Armenian Copper
Program(ACP) CJSC
Metallurgy industry
17 309.3
39.0
71.5
79.0
Lori LLC
Processing of precious stones
16 891.0
38.1
-18.1
-14.4
Shoghakn CJSC
16 822.0
37.9
-26.7
-23.5
Flash LLC
Import, wholesale and retail

trade of oil products
14 607.9
32.9
18.1
23.3
Armenian Molybdenum
Production (AMP) LLC Metallurgy industry
12 635.9
28.5
-20.1
-16.6
10
Yerevan Brandy
Factory CJSC
Production of alcoholic
beverages
6 907.6
15.6
-33.9
-31.0
11
Apaven LLC
Freight
5 073.3
11.4
16.3
21.5
12
Vorotan HPP
System CJSC
Production and sales

of electric energy
4 592.9
10.4
37.6
43.7
13
Armenian
Railways CJSC
Passenger carriage
and freight
3 675.6
8.3
-2
2 857.6
6.4
114.5
124.0
231 842.3
522.5
14
Mika-Cement CJSC
Cement production and sales

Total
1 Hereinafter, the discrepancy between change indicators denominated in AMD and USD are determined by a 4.2% appreciation of AMD with respect
to the USD (based on average exchange rates of January-June 2005 and 2006: 463.15 and 443.59 AMD per 1 USD, respectively). In this survey,
dollar indicators were calculated based on AMD indicators with respect to the USD average exchange rate in January-June 2006.
2 In this and all other cases, some indicators of the Armenian Railways CJSC are not cited due to the lack of data as of January-June 2005.
26
Business: The Largest Companies
The share of industry has remained nearly unchanged.

Compared with the previous year, the growth of the
share amounted to 0.2 percentage point, and the
amount supplied has increased by 2.4% (Table 3 and
Chart 1).
Chart 1. Amount of power supplied by Electric

Networks of Armenia CJSC by the weight of consumer groups, %
Considering the company's investment policy, we can

observe that in 2006-2007 they plan to invest 20 million
USD for the improvement of the national energy system. The investment made by the company over the
past three years amounted to 11 million USD.
Water supply and

sewerage
As for the developments in the company, it should be

noted that 100% of the company's shares were sold to
Inter RAO UES in 2006 for 70 million USD. Let us note
that in the past the shares of the company belonged to
the British Midland Resources Holding CJSC, which in
2002 purchased 100% of the company's shares for 37
million USD, of which 25 million USD was paid to the
RA state budget and as payroll arrears.
Industry
According to the company, power consumption

declined by 4%, which we believe was caused by
large-scale nationwide gasification. According to the
company's estimates, in 75-80% of Armenia's territory
new subscribers can be connected. There are problems with quality of power supplied and the increase in
the number of subscribers which is determined by poor
power supply of Yerevan's outskirts. To solve this problem, the company plans to build two 110-kWt substations and three 35-kWt substations. According to the
24.0
Others
20.7
4.2
7.1
3.6
Irrigation
4.3
2.6
Transport
3.4
23.5
20.2
5.3
Budgetary organisation
5.9
36.8
Households
38.3
10 15 20 25 30 35 40 45
2003
2004
2005
2006
company, one of the causes of poor power supply is

the installation of outdated substations in newly built
buildings.
As for electricity tariffs, against the backdrop of heated discussions over the recent months on the reduction of
power and gas tariffs, the company believes that 25
AMD/kW is optimal and its reduction is not on the agenda.
Among the largest companies, the leader in national
communications, ArmenTel, occupies the second line.
Table 2. Amount of power supplied by Electric Networks of Armenia CJSC (by aggregated consumer groups),
million kWh
Consumer groups
First half of 2003
First half of 2004
First half of 2005
First half of 2006

766.6
Households
697.7
725.4
769.0
Budgetary organizations
106.9
109.1
111.0
110.7
Industry
368.7
474.1
478.0
489.7
62.0
60.6
56.2
55.1
Transport
Irrigation
Water supply and sewerage
Others
Total
79.0
89.2
77.8
74.4
130.1
106.5
95.5
86.5
377.7
399.2
460.4
499.2
1 822.1
1 964.1
2 047.9
2 082.1
Table 3. Changes in the supplies of power, %

Consumer groups
First half of
2004
First half of
2005
First half of 2006
Contribution to growth,3
percentage points
Households
4.0
6.0
-0.3
-0.1
Budgetary organizations
2.1
1.7
-0.3
0.0
Industry
28.6
0.8
2.4
0.6
Transport
-2.3
-7.3
-2.0
-0.1
Irrigation
12.9
-12.8
-4.4
-0.2
-18.1
-10.3
-9.4
-0.4
Others
5.7
15.3
8.4
1.9
Total
7.8
4.3
1.7
1.7
3 The indicator was calculated based on the changes in the amounts in the relevant period of 2006 and the 2005 weights.
27
Its sales, compared with the relevant period in the previous year, have grown significantly by 20.3%, amounting to 36.8 billion AMD or 83 million USD and have
increased by 25.6% in dollar terms.
In the current year, the owners of the company have
changed. 90% of the company's shares were purchased by the Russian VimpelCom JSC (known on the
market under the BeeLine brand). The deal was worth
437.9 million USD (341.9 million euro); in addition, the
company must pay an additional 51.2 million USD (40
million euro) under ArmenTel's liabilities. The RA
Government is ready to sell its 10% share, provided
VimpelCom foregoes the monopoly over a number of
services, including the Internet. Let us note that in 1997
the Greek OTE company purchased by tender
ArmenTel's 90% share for 142.47 million USD.
According to the statements made previously, in 2006
the company invested 30 billion AMD (81 million USD)
and 80% of the automatic telephone systems will be
digitized by the end of the year. According to the company's estimates, by late 2009 fixed telephone communication will be liberalized which will enable the company to make this domain competitive and repay the
expenditures. Let us note that in 2005 the company
invested 74.3 million USD into telecommunications
development.
ArmenTel's new owner announced that telephone tariffs
would remain unchanged until 1 March 2007. Presently,
the number of fixed telephone communication subscribers in Armenia is 600,000, and the number of
mobile phone subscribers is 400,000. The number of
the subscribers to VivaCell mobile phone services is
600,000.
The company also intends to invest sizable amounts
into the connection of subscribers to digital stations
since only 50% of the telephone lines in Armenia are
digitized.
Let us note that in the second quarter of 2006, the company's net profit compared with the first quarter
increased by 64.1% and amounted to 14 billion AMD
(31.6 million USD), which amounts to 47.7% of the
annual net profit for 2005.
The third major company is the gas import and sale
company, ArmRusgasprom. As of the first quarter, the
company's sales amounted to 32.8 billion AMD (74.1
million USD) and compared with the same period of the
previous year have grown by 6% in AMD and 10.7% in
USD.
Considering the company's activities, let us note that in
2002-2006 they invested 32.9 billion AMD (83.2 million
USD) of which:
28
26.4 billion AMD (66.8 million USD) into gasification projects;

6.5 billion AMD (16.4 million USD) into development projects.
Q 2 / O 6 ( # 11 )
Also from 2002-2006, the company's total payments to

the RA state budget amounted to 54.2 billion AMD, of
which for 2006 the payment totaled 16.7 billion AMD.
The average number of employees is 6,335, and the
average salary is 87,000 AMD.
According to the company, as of the current year about
41 towns and more than 388 rural communities have
been supplied with gas, and an additional 97 previously not supplied towns have been provided with gas.
Presently the number of gas consuming organizations
amounts to 3,890 and the number of gas consuming
household subscribers is 421,661.
According to the company's estimates, by the end of
2006 the number of possible subscribers will be
630,000, which is 84.7% of the 743,500 power consumers in Armenia. The number of actual subscribers
by the end of the year should exceed 450,000.
It should be noted that in November 2006, the RA regulatory commission for public services, based on the
application filed by ArmRusgasprom, reviewed the tariff
for natural gas. According to its decision, starting 1
January 2007, 1000 cubic meters of gas will cost
84,000 AMD for the population (as well as for other consumers that consume up to 10,000 cubic meters
monthly) instead of 90,000 AMD as previously. For
large-scale consumers the tariff will be 153.26 USD
(instead of 146.51 USD).
Considering the amount of imported gas, let us note
that as of 1 November 2006, 1.31 billion cubic meters
were imported to Armenia and over the period mentioned 1.17 billion cubic meters were sold, of which the
energy sector accounted for 33%, industry, 22.6%, and
the residential sector consumed 23.2%.
As mentioned in the previous issue of the Armenian
Trends, the company plans to reconstruct and modernize the Abovian underground gas storage. For this purpose in September of 2006 ArmRusgasprom signed a
contract with Gas de France as represented by its affiliate Fragas. According to this contract, in six months
Fragas will survey the unsafe gas storage areas in the
facility and will present to ArmRusgasprom the technical and financial proposals on the upgrade. If the proposals are competitive, the company will reconstruct
the storage areas and increase its storage volume.
The fourth in the list of the largest Armenian enterprises is the Pure Iron Plant. Compared with the previous
period, the sales of the company decreased by 38%
and amounted to 21.1 billion AMD. In USD, the
decrease amounted to 35.3%.
The main products manufactured by the company are
ferromolybdenum, pure molybdenum, metallic molybdenum, ferrotungsten, and rhenium. In the first half of
2006, the company produced 1,232 tons ferromolybdenum, which is 13% less than the indicator for the same
period in the previous year as ferromolybdenum sales
declined by 7% and amounted to 1,274.8 tons. Pure
molybdenum production increased by 120% to 257.5

tons. Its sales amounted to 43 tons instead of 6.3 tons
in the relevant period of 2005. As for rhenium production, it significantly dwindled to 18% of the amount produced in the same period of the previous year, and, for
this reason, the company stopped selling rhenium.
According to the estimates of the RA Ministry of Trade
and Economic Development, in 2008 Armenia will satisfy 3.5-4% of the molybdenum demand on the global
market (or 130,000 tons). This is possible as a result of
the investment programs that have been implemented
at the two leading molybdenum producers, Armenian
Molybdenum Production and Pure Iron Plant, since
2003. Presently one ton of molybdenum on the international market is worth 50,000 USD, which is half of the
amount for the previous year.
The fifth largest company is ACP whose sales as of the
first half of 2006 amounted to about 17.3 billion AMD
(39 million USD), which in AMD is 71.5% more than in
the same period of the previous year (the sales in USD
increased by 79%). The increase in the sales (in AMD)
in the first half of 2006 is again explained by the continuous increase in the copper prices on the international
market: thus, in the first half of 2006 the average price
of 1 ton of copper was worth 6,070 USD compared with
3,332 USD in the same period of 2005 (Chart 2).
Let us note that in the period in question, compared
with the same period in the previous year, the company produced 5.4% less blister copper (4,916 tons) compared with 5,197 tons in the same period of 2005. The
production of copper concentrate decreased by 7.1%
amounting to 24,880 tons versus 26,778 tons in the first
half of 2005.
Chart 2. Average copper prices on the international market in the first half of 2005-2006, USD/ton
8000
6500
5000
3500
2000
January
February March
2005
April
May
June
2006
20.4%, amounting to 47 billion AMD (101.4 million

USD). The decline was observed both in diamond
sales, by 18.1%, and exports, by 20.2%. Let us note
that in the first half of 2006 raw diamonds were not
imported from Russia due to their comparatively high
cost. Instead, equal amounts of raw diamonds were
imported from Belgium and Israel.
The eighth largest Armenian business is the leader in
fuel import and sales in Armenia, Flash Ltd., which significantly retreated from the previously occupied third
place (in the third quarter). This is mainly explained by
the large sales of the other companies, newcomers in
this issue. Flash Ltd.'s sales grew by 18.1% in AMD
(14.6 billion AMD) and increased by 22.5% in USD
(32.9 million USD).
In the first half-year the net profit amounted to 726.9 million AMD (1.6 million USD) compared with the first quarter of 2006. This indicator increased more than six times.
Presently under the company's mid-term development

project, it is planned to start the exploitation of the
Teghut copper molybdenum deposit in 2011. For this
purpose, the company plans to implement preparatory
work in 2007 and in four years start the exploitation of
the deposit. The company is negotiating a 150 million
USD loan with the Russian Vneshtorgbank to obtain
funds for the implementation of the project.
The ninth largest business is another metallurgy enterprise, Armenian Molybdenum Production, whose sales
exceed 12.5 billion AMD (28.5 million USD). Compared
with the relevant indicator for the previous year, in the
first half of 2006 the results in AMD and USD declined
by 20.1% and 17.2%, respectively. One of the possible
causes of this decline is the decrease in the molybdenum price on the global market.
Among the largest businesses, the sixth and seventh

places belong to the precious stone and diamond processing companies, Lori and Shoghakn, respectively.
As we mentioned in the previous issue, the company

continues to develop science-intensive production,
especially as a result of experimental work, among
other projects. In late 2006 it was planned to mass produce ferrotitanium, which is in great demand on the
international markets.
The income of Lori in the first half of 2006 amounted to

16.9 billion AMD (38.1 million USD). Compared with the
same period in the previous year, the AMD and USD
income declined by 18.1% and 14.4%, respectively.
The sales of Shoghakn in the first half of 2006 amounted to 16.8 billion AMD (37.9 million USD), which is
26.7% and 23.5%, respectively, less than the indicators
for the same period in the previous year.
It should be noted that in the first half of 2006 in
Armenia the amount of diamond production dwindled
compared with the same period in the previous year by
Compared with the previous quarter, the Yerevan

Brandy Factory CJSC retreated to the tenth place. The
sales of the company in AMD decreased by 33.9%
amounting to 6.9 billion AMD, while in USD sales
decreased by 31.0% and amounted to 15.6 million USD.
In 2006 the company invested about 1 million euros
into grape purchasing which enabled the company to
increase grape purchases. The bulk of the investment
was made into the enlargement of the Armavir and
29
Aigavan branches, whose storage capacity has grown

by 33,000 decaliters.
In the current year, the increase in grape purchases in
Armenia has grown by 10.9%. In terms of grape purchases, Yerevan Brandy Factory is a leader in
Armenia. The amount of grape purchases by the company are 28,000 tons, and the purchase price of 1 kg
of grapes was on average 130-145 AMD.
According to the company, the production of 15-20 year
old cognac (super premium) has increased by about
35% or 180,000 liters. The distillery has 15 million liters
of high quality cognac alcohol, which will enable it to produce cognac without interruption for the next 10 years.
Since March 2006, the company has resumed the supplies of Ararat cognac (which incorporates seven titles:
Ararat 3 Stars, Ararat 5 Stars, Ani, Select, Akhtamar,
Festival, and Nairi) to Russia; its suspension was
caused by the introduction of new excise stamps in
Russia. According to the annual data for 2005, the
company exported 71% of its output to Russia (about
2.5 million liters of cognac) and is a major alcohol supplier of Russia.
It should be noted that the company also produces
cognac for the European countries (especially, for
Germany: 30,000 liters; Czech Republic, and Greece)
as well as Israel and Japan. Annually, 100,000 liters of
cognac are exported to the Baltic States and now
negotiations are underway to export the distillery's output to England.
In addition, the owner of the company, Pernod Ricard
SA, is the second largest producer of alcoholic beverages in the world. In FY 2005-20064 the company's
earnings increased by 67.4% amounting to 4.57 billion
euro versus 2.73 billion euro in the previous FY.
The largest cargo and passenger transporters, Apaven
and Armenian Railways, occupy the 11th and 13th
places, respectively. Both companies are newcomers
Q 2 / O 6 ( # 11 )
in this issue. It should be noted that Armenian Railways

is reporting data for the first time, which is why the data
for previous years is lacking. Apaven's sales in AMD
increased by 16.3% and amount to 5.1 billion AMD
(11.4 million USD). As for Armenian Railways, its sales
amount to about 3.7 billion AMD (8.3 million USD). In
January-June 2006, Armenian Railways transported
1.9 million tons of cargo, which exceeds the indicator
for the previous year by 0.2%.
Let us note that cargo export has grown by 13% and
amounted to 371,900 tons, and import increased by
10.2% and amounted to 892,000 tons. However, inside
Armenia cargo shipment declined by 16.1%. As for passenger transportation, the amount also decreased by
10.9% and amounted to 269,300 people.
It should be noted that according to an RA government
decree, Armenian Railways will be granted entrusted
management for 30 years. Under the tender conditions,
the best bidder will commit to invest 170 million USD
over 10-15 years.
In terms of sales, the power generator and seller
Vorotan Hydropower Plant System CJSC retreated to
the 12th place. In the first half of 2006, the sales of the
company in AMD amounted to 4.6 billion AMD (10.4
million USD) and significantly exceeded last year's
results by 37.6% (in USD terms by 43.7%).
Considering the company's output level, compared with
the previous year, it increased by 8.3%. The company's
continuous decline in the total power generation share
in 2003-2005 gave way to an increase in the first half of
2006 by 2.4 percentage points (Tables 4 and 5).
Since July 2006, the tariff for the power generated by
the company was lowered by resolution of the RA
Public Services Regulatory Commission and amounted
to 7.89 AMD per 1 kWt/h (instead 9.46 AMD).
In accordance with the instructions of the RA
Government, it is planned to increase the company's
Table 4. Total power generated by Vorotan Hydropower Plant System

Indicator
Electric power output, million kWt/h
Share in total electric power output in Armenia, %
First half of
2003
First half of
2004
First half of
2005
First half of
2006
611.9
610.1
430.2
466.1
22.3
19.0
12.8
15.0
-0.3
-29.5
8.3
Change, %
Table 5. Useful supply of the power generated by Vorotan Hydropower Plant System
Indicator
Useful supply of electrical power, million kWt/h
Share in Armenia's total, %
First half of
2003
First half of
2004
First half of
2005
First half of
2006
610.5
608.6
427.0
463.0
23.5
20.1
13.6
15.8
-0.3
-29.8
8.4
0.2
0.7
0.7
Change, %
Power generating stations' own needs, %
4 It ends on 31 May of each year.
30
0.2
The position of ArmRusgasprom is also noteworthy: the

share of net profit in sales amounts to 9.1%, and net
profit per employee is 0.5 million AMD. This discrepancy is probably caused by the fact that the company is
the second largest in terms of the number of employees.
This time the performance of Vorotan Hydropower
Plant System was not as good. By the first quarter
results, the company was a leader in terms of economic efficiency, now the picture is different. This dramatic
change is determined by the losses incurred by the
company in the second quarter that amounted to 481.3
million AMD.
Let us also note that Electric Networks of Armenia and
Armenian Railways also suffered losses in the first half
of this year.
To sum up the performance of the largest Armenian
enterprises in the first half of 2006, let us note that in
the period in question the total sales of the surveyed
companies amounted to about 232 billion AMD (523
Pure Iron
15
10
Apaven
AMP
5
0
-5
Flash
ACP
ENA
Vorotan HPS
ArmenTel
ArmRusgasprom
ArmReilways
10
10
20
30
40
50
Share of net profit in sales volume %
Chart 4. Ratio of taxes and sales, %

30
25
20
15
10
Apaven LLC
Vorotan HPP
System CJSC
Armenian
Railways CJSC
Mika-Cement
CJSC
5
Yerevan Brandy
Factory CJSC
This time Pure Iron Plant is the leader in terms of the

two indicators: its net profit amounts to 37.3% of its
sales and profit per employee amounts to about 17.5
million AMD. Although the highest indicator for the
share of net profit in sales belongs to ArmenTel, 38.1%,
the economic efficiency of the company is rather low
since the net profit generated by one employee is 2.8
million AMD. Apaven and Armenian Molybdenum
Production are most prominent in terms of high economic efficiency; in their sales, net profit accounts for
10.1% and 11.4%, respectively, whereas net profit per
employee in Apaven is twice as high as that of
Armenian Molybdenum Production.
20
Flash LLC
To estimate the economic performance of the largest

businesses, let us analyze the data in Chart 3. The
chart presents two indicators: the share of net profit in
sales and profit per employee. Obviously, the indicators
are greatly determined by the company's type of activity, which can be the main reason for the differences.
However, the comparison of indicators produces interesting results.
Net profit per employee, million AMD
The last in the list of the largest businesses is MikaCement. Compared with the same period in the previous year the company's sales increased significantly,
nearly 2.1 times and amounted to 2.8 billion AMD. This
is mainly determined by the sizable increase in construction sales in Armenia: it amounted to 38.8% as of
the first ten months of 2006.
Chart 3. Largest Armenian enterprises in terms of

the share of net profit in sales (%) and net profit per
employee (million AMD)
Electric
Networks of
Armenia CJSC
Armenia Telephon
Company JV
ArmRusgasprom
CJSC
Pure iron Plant
CJSC
authorized capital by 952.4 million AMD (2.5 million

USD) by means of increasing the nominal value of the
shares starting 1 December 2007. This is determined
by the increase in company's profit in 2005. Let us note
that the company's net profit in January-June 2006
amounted to about 2 billion AMD (4.4 million USD) and
exceeded that of the same period of the previous year
by 3%.
million USD). In January-June the companies paid

about 24 billion AMD (54 million USD) to the state
budget, which accounts for 14.8% of the tax revenues
of the consolidated budget. Chart 4 presents the percentage value of the ratio of the taxes and sales of the
companies. The major exporters, Armenian Copper
Program, Lori, Shoghakn, and Armenian Molybdenum
Production are not included since their share of taxes is
very small at 0.2-1.7%.
Largest enterprises by paid-in taxes, fixed assets,
total assets, export, and number of employees.
Table 6 presents the first twenty largest taxpayers as of
the first half of 2006.
Compared with the first quarter of 2006, as of the first
half of the same year, the first four largest taxpayers
have not changed. Thus, the list of the largest taxpayers is again headed by the metallurgical leader,
Zangezur CMC CJSC with a nearly 13.5 billion AMD tax
contribution. The second and third are ArmenTel CJSC
and gas importer and seller ArmRusgasprom with 8.3
31
Q 2 / O 6 ( # 11 )
The sum total of the 20 companies exceeds 61 billion

AMD (137 million USD), which accounts for about
37.8% of tax revenue to the consolidated budget in the
first half of 2006. It is noteworthy that only 57 companies
contributed over 50% of the tax revenue of the consolidated budget out of more than 50,000 companies (with
individual entrepreneurs, over 100,000). (Chart 5)
Considering the fixed assets of the companies, it
should be noted that Apaven, ArmenTel, and Armenian
Molybdenum Production are prominent for the sizable
amount of their fixed assets, 128.3%, 110.7%, and
104.7%, respectively. This is mainly determined by the
active investment implemented by these companies.
As it has already been mentioned, the investment by
Armenian Molybdenum Production is made for the purpose of modernizing the production process. As for
Chart 5. Changes in the tax contributions of the

1000 largest taxpayers to the consolidated budget
Tax payments by ascending cumulative volume, percent in total
billion AMD and 5.6 billion AMD, respectively. The

fourth is oil importer and retailer Flash with about 4 billion AMD (9.2 million USD) worth of taxes.
96
80
64
48
32
16
0
100 200 300 400 500 600 700 800 900 1000
Number of taxpayers by descending

volume of paid-in taxes
ArmenTel, let us note that in accordance with License

#60 this company has already started to digitize the
telephone communication of 800 villages.
Table 6. The twenty largest taxpayers in Armenia as of the first half of 2006.5
Tax payments
Place
Company name
Sector of Activity
Million AMD
Zangezur CMC CJSC
Metallurgy industry
13 447.39
30.32
Armenian Telephone Company JV CJSC
Communications
8 331.98
18.78
ArmRusgasprom CJSC
Import and sales of natural gas
5 647.40
12.73
Flash LLC
Import, wholesale and retail trade

of oil products
4 065.13
9.16
Electric Networks of Armenia CJSC
Purchase and sales of electric energy
3 442.80
7.76
Qagh Petrol Service
Import, wholesale and retail trade

of oil products
3 417.67
7.71
Pares-Armenia JV CJSC
Tobacco import and sales
3 243.11
7.31
K-Telecom CJSC
Communications
3 120.47
7.04
Grand Tobacco JV CJSC
Tobacco production
2 158.52
4.87
10
International Masis Tabak JV CJSC
Tobacco production
2 067.98
4.66
11
Salex Group
Import and trade of foodstuff
1 920.51
4.33
12
Armenian NPP CJSC
Electric power production
1 862.55
4.20
13
Armenia International Airports
Transport and flight servicing
1 250.54
2.82
14
Armenia Lada JV CJSC
Vehicles, vehicle spare parts

and accessories, servicing
1 168.56
2.63
15
Vorotan HPP System CJSC
Production and sales of electric energy
1 059.54
2.39
16
Karcomauto LLC
Vehicles, vehicle spare parts

and accessories, servicing
1 044.90
2.36
1 035.65
2.33
991.52
2.24
936.69
2.11
17
Processing of non-ferrous metals
18
Armjrmughkojughi CJSC
19
Delta Way
20
Mika Armenia Trading LLC

Total
935.72
2.11
61 148.62
137.86
Share in total paid-in taxes volume performed by 1,000 largest taxpayers, %
44.73
Share in tax revenues of consolidated budget, %
37.77
5 Data from the List of 1000 largest taxpayers published by RA Tax Service.
32
Million USD
Considering the export amounts of the companies, it

should be note that the major producing companies
are the leaders here. The share of their export in the
total export of the RA amount to 16.7%, and as for the
total exports of the companies, it declined by 10.4%
compared with the same period in the previous year,
which is probably first of all determined by the appreciation of the AD, unfavorable conditions for
exporters, as well as the developments on the international market.
It should be noted that unprecedented export growth

has been observed in Mika-Cement, nearly twice,
which is due to the increase in export to Georgia. The
dramatic increase in construction activities in
Azerbaijan created an incentive for the export of
Georgian cement to Azerbaijan, in its turn Georgia purchases cheap Armenian cement for its domestic purposes. As a reminder, the global price of cement is 100120 USD per ton, whereas the Armenian cement is sold
at 65-67 USD per ton.
Table 7. Largest Armenian enterprises in terms of fixed assets, as of the first half of 2006
Place
Company name
Sector of Activity
ArmRusgasprom CJSC
Armenian Telephone Company JV CJSC Communications
Armenian Railways CJSC
Yerevan Brandy Factory CJSC
7
8
Fixed
assets of Change compared to
the compa- the same period of
ny, million the previous year, %
AMD
131 045.2
5.6
130 075.0
110.7
59 032.0
-6.7
42 810.5
-5.7
Passenger carriage and freight
12 378.2
Production of alcoholic beverages
7 432.4
12.3
Armenian Copper Program (ACP) CJSC
Metallurgy industry
4 937.9
-2.3
Armenian Molybdenum
Production (AMP) LLC
Metallurgy industry
1 348.8
104.7
Mika-Cement CJSC
795.0
-7.3
10
Shoghakn CJSC
732.0
-24.8
11
693.0
33.8
12
Lori LLC
580.0
13
Flash LLC

244.0
35.6
14
Apaven LLC
Freight
146.1
128.3
Table 8. Largest Armenian enterprises in terms of total assets, as of the first half of 2006
Place
Company name
Sector of Activity
ArmRusgasprom CJSC
Armenian Telephone Company JV CJSC Communications
Total assets
Change compared to
of the comthe same period of
pany, milthe previous year, %
lion AMD
174 462.1
3.6
164 588.0
11.0
80 528.0
2.1
63 338.8
8.8
46 627.7
-6
18 962.8
Armenian Molybdenum
Metallurgy industry
15 158.1
-6
13 283.0
2.1
Metallurgy industry
12 143.2
-6.3
10
Flash LLC

6 653.0
61.3
11
Mika-Cement CJSC
2 895.0
28.9
12
Apaven LLC
Freight
2 114.9
26.8
13
Shoghakn CJSC
1 190.0
-16.2
14
Lori LLC
766.0
-2.2
6 Indicator is lacking due to the unavailability of January-June 2005 data.
33
Q 2 / O 6 ( # 11 )
The exports of ArmRusgasprom have declined more

dramatically, by 70.1%, which is determined by the termination of power export to Georgia starting the spring
of 2006. As the main cause, the company cites the low
profitability of power export to Georgia; however, this is
probably also related to the dwindling interest of
Georgia towards electricity produced in Armenia. The
situation may change next year since Russia raised the
gas tariff for Georgia. Let us note that the main companies exporting power to Georgia are Electric Networks of
Armenia and ArmRusgasprom, which supplies power at
2.9 US cents per kWt/h through the three main high-voltage lines: Ashotsk-Ninotsminda, Lalvar, and Alaverdi.
In contrast with the Armenian Copper Program,

the first company on the list, the Pure Iron Plant,
reduced its exports by 1/3, which is determined
by the reduction of global molybdenum prices by
half and as a result the decline of production rate
of the company.
Among large exporters, Armenian Copper Program (the

second in our list) has significantly increased its
exports, which is due to nearly doubled copper prices
on the international market as mentioned above.
As expected, taking into account the dramatic increase

in Mika-Cement exports, it is no wonder that it exceeds
the same indicator for 2005 in the total sales by about
11 percentage points (Table 10).
A dramatic decline in production was also observed in

the output of the Yerevan Brandy Factory amounting to
33%. This is probably due to the temporary termination
of the export of Armenian cognac to the Russian market in 2005 due to the introduction of new excise
stamps in Russia.
Table 9. Largest Armenian enterprises by export volumes, as of the first half of 20067
Place
Company name
1
2
3
4
5

Lori LLC
Shoghakn CJSC
Armenian Molybdenum
Mika-Cement CJSC
ArmRusgasprom CJSC
6
7
8
9
10
11
Export vol- Changes compared

umes, mil- to the same period of
lion USD
the previous year, %
Sector of activity
Metallurgy industry
Metallurgy industry
Communications
Total exports
Total exports/Total RA exports, %
47.6
38.8
38.1
37.9
-35.3
79.8
-14.4
-23.5
28.3
18.3
14.0
4.08
3.4
1.0
0.9
232.3
16.7
-16.0
63.9
-33.0
181.9
-69.9
-10.4
Table 10. Largest Armenian enterprises in terms of export, as percentage of sales

Place
Company name
1
2

Armenian Copper
Program (ACP) CJSC
Lori LLC
Shoghakn CJSC
Armenian Molybdenum
Mika-Cement CJSC
ArmRusgasprom CJSC
Sector of activity
Share of exports in sales

volumes, %
2005 first half
3
4
5
6
7
8
9
10
11
Armenian Telephone
Company JV CJSC
Change, %
2006 first half
100
100
Metallurgy industry
99.0
100
100
99.4
100
100
0.4
0
0
Metallurgy industry
Purchase and sales of
electric energy
98.7
92.8
42.0
4.4
99.5
90.1
52.8
11.6
1.2
0.7
-2.7
10.8
-3.2
4.5
Communications
16.9
22.0
5.1
7 The table does not demonstrate the data on Flash LLC, Vorotan Hydroelectric power plant system, and Valletta Ltd. due to the absence of exports.
8 The list includes only the data as of the first half of 2006, while the relevant 2005 data is unavailable.
34
The decline in the exports of ArmRusgasprom and

Yerevan Brandy Factory are obvious. This is reflected
in the decline in export share, 3.2% and 2.7%, respectively. Let us also note that the significant increase in
Mika-Cement and ArmenTel exports has a direct impact
on the weight of export in the sales, and the increase
amounted to 10.8% and 5.1%, respectively.
Table 9 presents the largest Armenian enterprises by
the number of employees. Let us note that 14 companies employ a total of 28,447 people, which accounts
for 0.03% of the economically active population
employed in various sectors of national economy.
Out of the presented companies, the leader is Electric
Networks of Armenia CJSC (7,859 employees); however, it should be noted that compared with the same period of the previous year this figure has decreased significantly by 282, which is probably due to the new personnel policy of the new owner.
In the second company, ArmRusgasprom the picture is
different. Compared with the same period of 2005, in
absolute terms, the personnel have grown by 414 people. This situation is probably due to the enlargement of
gasification and, hence, the need to create new jobs.
Chart 6. Changes in the weight of export in the

sales of the largest Armenian enterprises (percentage points) compared with the first half of 2005 and
the 2006 exports9
Change of exports share in sales
volume, percentage points
Chart 6 demonstrates the changes in the weight of

export in the sales of the companies. It can be seen that
Pure Iron Plant, Lori, and Shoghakn are entirely export
enterprises since their output is completely exported.
As for the representatives of metallurgy sector - ACP
and Armenian Molybdenum Production - export nearly
the entire output. It should be noted that compared with
the same period of the previous year the weight of
export increased by 0.4% and 0.7% respectively and
sales by 99.4% and 99.5%.
12
Mika-Cement
10
8
6
ArmenTel
4
2
AMP
Pure Iron
Shoghakn Lori
YBF
-2
-4
ACP
ArmRusgasprom
10
20
30
40
50
60
Exports, million USD
It should be also noted that compared with the previous

quarter ArmenTel retreated to the third position. The
largest decrease in manpower was observed here compared with the same period of the previous year by 356
people. Let us note that only compared with the first
quarter of 2006, the company's manpower dwindled by
335 people.
Significant reduction has also taken place in Shoghakn,
which is mainly due to the significant decline in
Armenia's diamond industry. The company's manpower
dwindled by 308 people, however, the company still
maintains its leading position as the largest diamond
processing enterprise (the total number of employees is
1,089).
Table 11. Largest Armenian enterprises in terms of manpower, as of the first half of 2006
Place
Company name
1
2
3
4
5
6
7
8
9
10
11
12
13

ArmRusgasprom CJSC
Shoghakn CJSC
Mika-Cement CJSC
Lori LLC
Armenian Molybdenum
Flash LLC
14
Apaven LLC
Sector of activity
Communications
Metallurgy industry
Metallurgy industry
Freight
Total
Changes compared
Number of
to the same period
employees,
of the previous year,
person
person
7
6
4
4
1
859
109
940
654
089
923
881
452
372
350
-282
414
-356
-308
23
175
78
2
-2
297
240
66
3
222
59
28 447
13
6
9 The figure does not present Electrical Networks of Armenia and Armenian Railways due to the lack of data as of January-June 2005.
35
Q 2 / O 6 ( # 11 )
ARMENIAN MARKETS IN FIGURES

Currency exchange rates set by the Central Bank of Armenia for the
period of August-October of 2006
AMD/GEL
AMD/100 IRR
USD/EUR
(cross course)
AMD/RUR
AMD/USD
AMD/EUR
2006
August
36
2006
September
2006
October
2006
AugustOctober
At the beginning of the period

At the end of the period
Appreciation (-)/ Depreciation (+), %*
Average
Maximum
Minimum
Standard Deviation
Standard Deviation/ Average (%)
Amplitude
527.70
508.28
-9.09
514.69
527.7
505.48
6.60
1.28
22.22
508.76
485.00
-11.46
494.20
508.76
484.53
8.16
1.65
24.23
485
481.89
-10.94
481.09
485.74
476.55
2.67
0.56
9.2
527.70
481.89
-10.48
496.69
527.70
476.55
15.27
3.07
51.15

Average
Maximum
Minimum
Standard Deviation
Amplitude
413.33
396.54
-12.76
401.85
413.33
396.54
5.40
1.34
16.79
395.89
381.50
-14.66
388.03
395.89
381.50
4.82
1.24
14.39
381.50
378.93
-15.12
381.35
382.95
378.93
1.08
0.28
4.02
413.33
378.93
-14.17
390.44
413.33
378.93
9.58
0.19
34.40
415

Average
Maximum
Minimum
Standard Deviation
Amplitude
15.41
14.83
-7.15
15.02
15.41
14.82
0.19
1.29
0.59
14.81
14.26
-9.46
14.51
14.81
14.26
0.20
1.34
0.55
14.26
14.17
-9.76
14.20
14.26
14.12
0.04
0.31
0.14
15.41
14.17
-8.80
14.57
15.41
14.12
0.376
2.58
1.29
15.5

Average
Maximum
Minimum
Standard Deviation
Amplitude
1.28
1.28
4.21
1.28
1.29
1.27
0.004
0.35
0.02
1.29
1.27
3.76
1.27
1.29
1.27
0.006
0.51
0.02
1.27
1.27
4.93
1.26
1.27
1.25
0.008
0.63
0.02
1.28
1.27
4.26
1.27
1.29
1.25
0.01
0.81
0.04

Average
Maximum
Minimum
Standard Deviation
Amplitude
4.57
4.39
-13.17
4.44
4.57
4.39
0.060
1.34
0.18
4.38
4.22
-14.91
4.29
4.38
4.22
0.053
1.24
0.16
4.22
4.19
-15.16
4.22
4.24
4.19
0.012
0.29
0.05
4.57
4.19
-14.33
4.32
4.57
4.19
0.11
2.46
0.38

Average
Maximum
Minimum
Standard Deviation
Amplitude
234.18
227.37
-10.56
228.48
234.18
213.47
3.63
1.59
20.71
227.00
219.76
-12.06
222.67
227
219.76
2.48
1.11
7.24
219.76
217.90
-12.30
219.16
220.15
217.9
0.70
0.32
2.25
234.18
217.90
-11.63
223.45
234.18
217.90
4.64
2.08
16.28
523
511
499
487
475
August
September
October
August
September
October
August
September
October
August
September
October
August
September
October
August
September
October
407
399
391
383
375
15.1
14.8
14.4
14.1
1.29
1.27
1.26
1.25
4.6
4.5
4.4
4.3
4.2
233
230
224
224
221
218
215
Business: Armenian Markets
AMD/GBP
AMD/AZM
(cross course)
AMD/TRY
2006
August
2006
September
2006
October
2006
AugustOctober

Average
Maximum
Minimum
Standard Deviation
Amplitude
275.81
269.44
-19.38
273.83
279.48
267.94
2.50
0.91
11.54
269.00
255.85
-20.96
264.51
271.99
251.81
5.24
1.98
20.18
255.85
262.20
-22.17
257.58
263.17
251.09
3.74
1.45
12.08
275.81
262.20
-20.82
265.32
279.48
251.09
7.79
2.94
28.39

Average
Maximum
Minimum
Standard Deviation
Amplitude
465.25
449.85
-5.89
453.79
465.25
448.74
5.32
1.17
16.51
449.21
435.50
-10.84
441.53
449.21
435.50
4.63
1.05
13.71
435.50
433.91
-12.99
436.19
437.95
433.91
1.18
0.27
4.04
465.25
433.91
-9.95
443.86
465.25
433.91
8.49
1.91
31.35

Average
Maximum
Minimum
Standard Deviation
Amplitude
771.15
754.08
-8.01
760.26
774.3
749.58
8.18
1.08
24.72
758.21
716.24
-11.04
732.32
758.21
716.24
12.34
1.68
41.97
716.24
721.39
-9.85
714.68
721.39
708.41
3.42
0.48
12.98
771.15
721.39
-9.61
735.79
774.30
708.41
20.84
2.83
65.89
280
274
268
262
256
250
August
September
October
August
September
October
August
September
October
462
456
450
444
438
432
766
754
742
730
718
706
Source: Central Bank of RA

* Calculated for AMD with respect to the corresponding period of the previous year, (average values) in percents
Prices for precious metals set by the Central Bank of Armenia for the period of 2005 and
January-April of 2006
Platinum
Gold
Price for 1 gram standardized bars

(AMD)
2006
August

8 428.93
7 836.84
25.64
Average
8 142.83
Maximum
8 581.99
Minimum
7 836.84
Standard Deviation
229.17
2.81
Amplitude
745.15

16
15
Average
15
Maximum
17
Minimum
15
Standard Deviation
Amplitude
1
274.27
553.85
19.93
964.17
038.68
553.85
418.60
2.62
484.83
2006
September
2006
October
2006 AugustOctober
7 913.73
7 402.23
13.80
7 532.43
8 048.13
7 180.53
323.79
4.30
867.60
7 380.77
7 367.60
6.06
7 191.87
7 380.77
6 967.32
123.77
1.72
413.45
8 428.93
7 367.60
15.30
7 641.75
8 581.99
6 967.32
468.37
6.13
1 614.67
15 693.82
14 093.07
11.95
14 906.14
16 028.01
13 890.47
781.05
5.24
2 137.54
14 044.01
13 194.06
-0.39
13 362.26
14 111.35
13 011.85
338.29
2.53
1 099.50
16 274.27
13 194.06
10.72
14 777.78
17 038.68
13 011.85
1 217.40
8.24
4 026.83
8 435
8 135
7 835
7 535
7 235
6 935
17
16
15
15
14
14
13
12
August
September
October
August
September
October
030
440
850
260
670
080
490
900
37
Q 2 / O 6 ( # 11 )
Silver
Price for 1 gram standardized bars

(AMD)
2006
August

Average
Maximum
Minimum
Standard Deviation
Amplitude
2006
September
150.61
155.79
49.45
156.79
162.56
145.51
3.94
2.51
17.05
160.37
143.02
42.70
148.78
166.39
134.88
12.44
8.36
31.51
2006
October
2006 AugustOctober
141.67
147.78
27.37
141.29
147.78
134.38
3.86
2.73
13.40
150.61
147.78
39.80
149.21
166.39
134.38
9.89
6.63
32.01
170
162
154
146
138
130
August
September
October
* Source: ArmInfo information agency

* Calculated with respect to the corresponding period of the previous year, (average values) in percents
Average fuel prices in Armenia

Wholesale
AMD per 1 liter
Petrol (91)
Petrol (95)
Petrol (98)
Diesel fuel
2006
August
2006
September
354.3
371.1
390.6
273.3
319.5
340.5
372.6
288
2006
October
303.0
326.5
340.1
273
2006
AugustOctober
332.8
352.3
373.4
276.9
Retail
AMD per 1 liter
Petrol (91)
Petrol (95)
Petrol (98)
Diesel fuel
2006
September
379.0
399.0
415.0
293.8
357.0
377.0
401.5
300.0
2006
AugustOctober
2006
October
332.5
359.5
388.5
291.0
361.9
383.6
405.0
294.6
Petrol (95)
Petrol (91)
395
400
375
380
355
360
335
315
340
295
320
275
2006
August
2006 August
2006 September
2006 October
Wholesale
2006 AugustOctober
300
2006 August
2006 September
2006 October
Wholesale
Retail
Petrol (98)
2006 AugustOctober
Retail
Diesel fuel
310
410
300
390
290
370
280
350
270
330
260
310
2006 August
2006 September
Wholesale
2006 October
Retail
2006 AugustOctober
250
2006 August
2006 September
Wholesale
2006 October
Retail
Source: ArmInfo information agency (based on prices at the filling stations of Flash Co. Ltd. and at the Yerevan Commodity Exchange)
38
2006 AugustOctober
Business: Armenian Markets
INTERNATIONAL MARKETS
SELECTED COMMODITY PRICES ON INTERNATIONAL MARKETS
Price of 1 bushel corn, cents
Price of 1 bushel wheat, cents
305
290
479
275
465
260
451
245
437
230
423
215
409
200
395
185
August
September
August
October
September
October
Source: Mineapolis Grain Exchange

Note: 1 bushel = 35.23907 liter
INTERNATIONAL PRICES FOR

PRECIOUS METALS
Price for a troy ounce of gold, USD
656
Price for a troy ounce of silver, USD

13.1
644
12.7
632
12.4
620
608
12.0
596
11.7
584
11.3
572
11.0
560
10.6
August
September
August
October
Price for a troy ounce of platinum, USD
October
Price for a troy ounce of palladium, USD
1 260
351
1 230
343
1 200
335
1 170
327
1 140
319
1 110
311
1 080
303
1 050
September
295
August
September
October
August
September
October
Note: 1 troy ounce = 31.104 gram
39
Q 2 / O 6 ( # 11 )
INTERNATIONAL PRICES FOR

NON-FERROUS METALS
Aluminium, USD per US/tonne
Copper, USD per US/tonne
2 830
8 050
2 750
7 900
2 670
7 750
2 590
7 600
2 510
7 450
2 430
7 300
7 150
2 350
August
September
August
October
October
Lead, USD per US/tonne
Nickel, USD per US/tonne

34 500
1 602
33 300
1 510
32 100
1 418
30 900
1 326
29 700
1 234
28 500
1 142
27 300
1 050
August
September
October
August
Tin, USD per US/tonne
September
October
Zinc, USD per US/tonne
10 350
4 250
10 050
4 100
9 750
3 950
9 450
3 800
9 150
3 650
8 850
3 500
8 550
3 350
8 250
3 200
August
September
Source: www.lme.co.uk (London metal exchange)
40
September
October
August
September
October
THE BASIC FEATURES OF

EXPORT PROMOTION POLICY IN
DEVELOPING COUNTRIES
KAREN GRIGORYAN
PhD in Economics, Armenian State University of Economics
(ASUE) Lecturer
The reasons and the maintenance of export

promotion
Export growth and economic development, driven by
globalization and deep integration processes, are
becoming more and more positively correlated and
interdependent. Exports affect and are affected by
long-term economic growth through various channels
such as production and demand linkages, learning
effects and improvement of human resources, adoption
of superior technology embodied in foreign-produced
capital goods, and the general easing of the foreign
exchange constraint associated with the expansion of
the export sector (Delano Villanueva, 1993). Thus,
because of the important role of exports, relevant promotion policy should be drawn for development of this
sector.
Today's export promotion programs often provide comprehensive and sophisticated services to the business
community. There are some characteristic differences
between export promotion in developed and developing
countries. In developing countries, the export promotion is mostly considered as an instrument of economic
development, whereas in the developed countries, the
focus of export promotion programs is one of strengthening the competitiveness of companies. Anyway, the
promotion policy in developing countries also seeks this
goal.
Countries with an outward orientation were seen to perform better than those with an inward orientation over
the 1960-2000 period. Strongly outward oriented countries, like South Korea, Hong Kong, and Singapore,
have developed internationally competitive export sectors through investment in export production and infrastructure, as well as carrying out export promotion programs.
Obviously many developing countries are now following
this experience, carrying out policies and various programs to assist their industries and companies to compete successfully in the world market.
Today most developing countries have an export promotion organization (EPO), for instance South Korea
(KOTRA-Korea Trade Promotion Corporation),
Thailand (Department of Export Promotion), Malaysia
(MATRADE-Malaysia External Trade Development
Corporation), Singapore (TDB-Trade Development
Board), and others. These organizations play a significant role in export development not only within the business community but also within the public sector (Rolf
Seringhaus, 1990). The five stages of government
involvement in exporting are shown in Chart 1, and
EPOs play the key role throughout this process. By
helping companies to transform foreign market opportunities into sales, EPOs, remarkably, facilitate export
development.
Table 1. Five stages of export involvement by public organizations

Stage
Focus
Evaluation measures
Export marketing and improvement of infrastructure
knowledge, resource level, infrastructure

network development
Export orientation
motivation level
Export promotion
need, awareness level
Export potential and supply
opportunity survey
Export development
export growth and optimization of structure of exports
41
We should indicate some nuance between promotion of

traditional exports and new export products. The first
one can lead only to export growth, whereas the last
one concerns diversification (both-geographic and
product diversifications), which is very important for
export development.
Generally, export promotion is the most important part
of the commercial policy of many countries. Export promotion means carrying out an active trade policy. In
the last decades, it concerned, first of all, developing
countries and countries in transition.
The policy of export promotion, as a rule, is only a
phase of a commercial policy under certain social,
economic and political conditions. In developing
countries, export promotion policy was carried out at
various stages of their industrialization, which had deep
influences on the forms and methods of realization of
the policy.
Export promotion is closely connected with a dismantling of import restrictions. A number of actions
in the field of import regulation can render direct influence on the prices and qualities of the export goods
through the decrease in import duties or the cancelling
of quantitative restrictions of import.
Import tariffs and export taxes have symmetrical effects
on domestic relative prices. Both instruments raise the
domestic price of imports relative to exports (Stephen
Tokarick, 2006). Moreover, they discourage all types of
exports, since they cause a country's exchange rate to
appreciate. Additionally, tariffs and other import barriers
discourage exports by raising the price of imported
intermediate inputs used by exporters.
The Korean experience illustrates an interesting aspect
of timing. Direct export promotion was initiated before
import liberalization had taken place in order to relax
the balance of payment constraints in a period of
declining foreign assistance. It then became the major
impulse of sustained export growth (Jamuna P.
Agarwal, Rolf J. Langhammer and others, 1995, p.9).
The policy of export promotion is also connected
with industrial policy. Export promotion includes the
development of national production, including export
production. In turn, the state can purposefully influence
the development of separate export branches, productions, and regions. Policymakers should encourage
competition in domestic markets and innovation so that
incumbent firms that are close to the technology frontier
can become more productive and thereby increase
exports.
An important direction of export promotion and
export production is the complex of measures
directed to the attraction of foreign direct investments (FDI). The policy of FDI attraction provides the
creation of special export zones and the encouragement of export through the decrease in taxes for the
42
Q 2 / O 6 ( # 11 )
exporting enterprises with foreign investments or inclusion as an obligatory condition of an "export" component.
At the beginning of the 1980s, Thailand resolved majority participation of foreigners in the enterprises with foreign participation only in export manufacturing, not
allowing it in the manufacturers focused on a domestic
market (at 100% export production of manufacturers
completely belonging foreigners was authorized). Such
firms also were allowed to own the land, and they were
exempted from many restrictions. Now a significant part
of the Thai export is made at the enterprises with foreign participation. Thus, there were also appreciable
shifts in its structure aside from increases of a share of
industrial products.
Generally, it is considered that investments and exports
are engines of growth. Evidence can be found in the
East Asian economies, particularly in the Four Tigers,
which displayed exceptional investment rates.
There is no uniform successful policy of export
promotion. The countries use various strategies concerning the state's encouragement of export. In many
respects, it depends on the contemporary issues of a
national economy, the stage of development on which
it is, and the general economic and political situation in
the world. Nevertheless, it is possible to note a number
of important features in their policy that have led to positive results in growth of their export and perfection of its
structure.
A number of countries stimulated their exports on the
basis of industrial policy, having beforehand identified
the most prospective commodity from their point of
view. In general, this was characteristic for the countries with inconsistent reforms. In some cases, such
policy yielded positive results, especially when it was a
question of the development of a non-traditional export
or the export of modern technically complex products
demanding significant capital investments for the manufacturer and promotion on the world markets. In this
case, financial support from the state, intervening after
mobilization of private capital, creation of an infrastructure, etc. were of great importance and supported the
optimization of the export structure in rather short
terms. South Korea can serve as the most indicative
example of such policy.
However, the policy of promotion of separate commodities comprises a high degree of risk. Efficiency of export
promotion directly depends on the correctness of defining prospective branches and products. Administrative
mistakes in this area for some countries resulted in significant losses (failures with large export projects in
South Korea, Thailand, Singapore, Malaysia,
Indonesia, and Brazil).
The negative consequence of such policy can also be
the backlog of branches and the manufacturers working
on the domestic market. The same South Korea has
entered the world markets with color TVs earlier than

such merchandise had been created for servicing their
domestic market.
Other countries to a greater degree relied on market
mechanisms (on the macro, and micro level). Thus
some countries, for example, the majority of export-oriented states among new industrial states-NIS (Taiwan,
Thailand, Malaysia) practically did not interfere with
questions of export. Other states, like China, on the
contrary, alongside with creation of favorable macroeconomic conditions for exporters also used special
measures for export promotion.
As a rule, the development of export should be coordinated with liberalization of foreign trade. Only separate
countries have applied rigid restrictions on imports for a
solution of problems in balance of payment and balance of trade (for example, South Korea in 80s. But,
they more likely are an exception of the general rule. It
is necessary to note that liberalization of imports can
promote the deterioration of the balance of payment
and the balance of trade of the country. For prevention
of negative impacts on the balance of payment, the
country used a uniform package of other tools of
macroeconomic regulation, such as exchange rate, tax
reform and foreign credits.
It is worth mentioning Uruguay's experience in trade liberalization when the average tariff protection fell from
43% to 14%. The policy analysis (Carlos Casacuberta,
Nestor Gandelman 2006) shows that trade openness
affected the adjustment functions of all three factors of
production (in this case-capital, blue-collar, and whitecollar employment). In reality, trade protection may
decrease rather than create jobs within industries, as
firms in highly protected branches do not welcome so
much to hire and are more oriented to fire than firms in
lowly protected branches.
There are some different responses of trade liberalization. The highest level is multilateral trade liberalization
on MFN (Most Favored Nations) basis, but actually this
has been undermined by many preferential trade
agreements. They slow down multilateral trade liberalization unless they have a lower common external tariff
and allow for internal transfers. For example, the
European Union's preferential trade agreements have
clashed with its multilateral trade liberalization-and the
effect is quantitatively significant (Baybars Karacaovali,
Nuno Limao, 2005).
The other nuance is that the degree of openness
(imports and exports as a percentage of GDP) mainly
depends on the geographical size of the country. Small
countries need to trade more than large countries with
big domestic markets. Reflecting this, Hong Kong and
Singapore had a high degree of openness both during
1960-90 and at the beginning of the same period. On
the other hand, Korea and the Taiwan Province of
China, which are geographically much larger, were not
particularly open in 1960, neither in absolute terms nor

relative to other countries of comparable size.
In cases of state-owned foreign trade monopolies
(China's reform of 1980), decentralization policies play
a prominent role in the first stage of export promotion
strategy. "Export promoting approaches towards
reforms of external economic relations consist of gradually progressing decentralization of the foreign trade
system and of the foreign exchange allocation system.
Any decentralization of international trade systems can
be organized either
-
by delegating direct trading rights to a larger

variety of independent national, provincial and
local Foreign Trade Corporations (FTC) and to
other provincial authorities, or
by granting foreign trade decision making powers to those enterprises, which are producing
tradables.
The first approach to trade system reform might be

termed administrative decentralization (see Reinold,
B.L. 1987 p. 484), whereas the second approach could
be described as market economy-oriented decentralization. Administrative decentralization preserves a
system where foreign trade is conducted through intermediation of authorized trading companies'' (Dieter
Bender 1991, p. 34-35).
The methods of export promotion

Worldwide experience shows that stimulation of
export occurs in two basic ways: through the formation of a favorable macroeconomic climate and
the creation of export stimuli for manufacturers.
The first way is, certainly, preferable, because of the
successful experience of the countries with market
economies, but it is used within the limits of some international economic organizations, the integration
unions, and is a subject of regulation of trade. The
experience of developing countries proves that the
macroeconomic stabilization should be sufficiently
advanced before the program of liberalizing foreign
trade is embarked upon, because otherwise, due to
excessive inflation and the wrong rate of exchange,
imports will rise too steeply, while exports would hardly
grow (Dieter Bender, 1993, p.19). The successful experience of East Asian countries in maintaining macroeconomic stability, for example, was one of the main reasons for success in attracting foreign direct investments
and other forms of international cooperation (Erich
Gundlach and Peter Nunnenkamp 1997, p.81).
At the same time, the situation can make it impossible
to carry out quick macroeconomic transformations to
create a favorable environment for manufacturers,
investors and exporters. In these conditions, use of a
special stimulus on the development of export can be
43
an effective way for the development of export manufacturers and the expansion of exports.
In the latter case, however, the combination of both
variants (in that degree in which to carry out the macroeconomic policy directed to the growth of export) is
desirable. Most important of such transformations certainly is the maintenance of the real or rather low
exchange rate, which can be supplemented by other
measures for export development. Measures on export
promotion are accepted both at the state and at local
levels (within the limits of powers of the latter).
On the other hand, the macroeconomic uncertainty in
developing countries can be caused by export instability. Therefore, the question is how various agents in a
national economy should react to significant uncertainty about the prices of a principal export and, therefore,
declining real export earnings and real incomes.
Instruments of export promotion

Export subsidies. the financial privileges given by the
government or private institutes to exporters on the
export of certain goods abroad.
In many cases, it is not only exports that are subsidized, but also manufacturing as a total production
process, meaning the creation of hidden protection barriers.
Subsidies are especially widely used for agricultural
export and capital-intensive products (for example, the
aviation industry and shipbuilding).
The WTO Agreement on Subsidies and Countervailing
Measures (SCM) recognizes three categories of developing country members: least-developed members
(LDC), members with a GNP per capita of less than
$1000 per year, and other developing countries. The
lower a member's level of development, the more favorable the treatment it receives with respect to subsidies
disciplines. Special rules exist regarding subsidies for
agricultural products. Agricultural exports subsidies,
which are in full conformity with the Agricultural
Agreement, are not prohibited by SCM Agreement,
although they remain countervailing duties.
Export credits extend basically on finished goods,
mainly on the most prospective machine-building products. Including both long-term and short-term credits,
crediting is carried out by payments from special funds,
refinancing, subsidizing or insurance. It is realized
through banks and the intergovernmental bank organizations and the creation of special funds of crediting.
Insurance of export is carried out through the granting
of the state guarantees on export credits. Guarantees
stand out to the banks giving export credits. Insurance
covers not only traditional commercial risks but also
political risks. Various terms of insurance extend now to
the broad audience of the goods and the countries.
44
Q 2 / O 6 ( # 11 )
They are realized through special establishments such

as the Export-Import Bank (USA), the Export Credits
Guarantee Department (Great Britain), or through private insurance companies having public funds for these
purposes (Germany, Belgium).
In Malaysia exporters are eligible for a deduction from
taxable income of twice the amount of relevant business expenditure and receive premiums on export
credit insurance to encourage penetration of non-traditional markets.
In their turn, each kind of insurance can play an important role in export promotion (exchange rate risks,
transportation, marine, aviation, automobile, property,
merchandise, business liability, theft insurances and
others).
Tax and customs privileges are given by clearing
exporters of the payment of direct or indirect taxes. For
example, the reduction of tax from the firms creating
foreign branches, the exception of taxation on the
research leading to the creation of marketing branches
abroad, tax exemption on accessories and the materials used in the manufacture of the export goods, creation of tax-free monetary funds for the development of
export, and the decrease and return of customs duties
are possible tax and customs privileges.
The Asian experience gives preference, for example, to
duty exemptions rather than to drawbacks. The latter
involves financial costs for exporters since duty payments on imported inputs are reimbursed only after the
export has taken place (Jamuna P. Agarwal, Rolf J.
Langhammer and others, 1995, p.15).
The exchange rate is extremely important from the
point of view of the allocation of resources in the economy. Many countries successfully stimulating exports
(Chile, Colombia, Mexico, Taiwan, China, South Korea,
and Indonesia) resorted to the undervaluation of their
currencies in foreign exchange markets. For these purposes they made use of the progressive depreciation of
the national currency, sometimes by means of "a crawling currency peg," or made sharp devaluations of currency. Thus, the growth of export was the basic target
pursued by depreciation of the exchange rate.
The use of an undervalued rate of exchange for stimulation of export was resisted by various social and economic agents in the country. It is connected with damages to the manufacturers focused on producing nontradables, to the importers, and a number of other participants of the economic process.
It is important to mention that in the short run, the nominal and real exchange rates can be adjusted. In the
long run, however, the real exchange rate is an
endogenous macroeconomic variable that cannot be
controlled via nominal exchange-rate changes. The
equilibrium real exchange rate is affected both by variables which are exogenous to the domestic economy
and by domestic policy variables. Since commercial

policy is itself one of the factors that affects the balanced real exchange rate, the amount of incentive
given to exports by a once-and-for-all outward-oriented
trade reform will, in general, change over time.
Mussa (1986) and Edwards (1987) have examined the
effects of certain financial policies on the equilibrium
real exchange rate. Mussa notices that a permanent
increase in the real rate of return available to private
asset holders results in long-term real appreciation,
whereas Edwards concludes that capital account liberalization also has this effect. Therefore, financial liberalization may at least partially undermine the exportpromoting effects of outward-oriented trade reform.
Eventually, in developing countries in most devaluation
episodes the real exchange rate responded significantly to the nominal exchange rate shock, at least in the
short run. As for the impact of real exchange rate
changes on trade flows, an older empirical literature on
trade commonly found evidence that relative prices
play a significant role in the determination of trade
flows.
The traditional specifications (Carmen M. Reinhart,
1994) appear to fare better when modeling developing
country demand for imports than when applied to
industrial country demand for developing country
exports. For the majority of cases, relative prices are
found to be a significant determinant of the demand for
imports and exports. Although relative prices have a
predictable and systematic impact on trade, price elasticities tend to be low, and in most instances well below
unity. This result suggests that large relative price
swings are required to have a significant impact on
trade patterns.
Connected with exchange rate policy, ''IMF-statistics of
official exchange rate regimes confirm that a majority of
developing countries prefer exchange rates pegged to
a single currency-the USD. Among Southeast Asian
nations Malaysia, Singapore and Thailand are recorded
as basket peggers. The growing number of basket pegs
has been accompanied by a spread of managed floating. Under so-called 'managed floating' the management of exchange rates can follow rules, which come
close to a single currency USD peg or to a basket peg''
(Dieter Bender 1986, p. 197).
Standards and technical regulations are also the
instruments of trade policy and, of course, an important
part of the trade debate. The results of a World Bank
survey of 619 firms in 17 developing countries (Maggie
Xiaoyang Chen, 2006) indicate that technical regulations in industrial countries adversely affect the firms'
propensity to export in developing countries. The diversity of standards across foreign countries reduces the
economy of scale for firms and influences to decisions
about entering export markets. Moreover, the firms that
outsource components are more challenged by compliance with already multiple standards. There is scope
for considering that the costs associated with more limited exports to countries with import regulations may
not conform to WTO rules assisting harmonization of
regulations to international standards; for instance, policy solutions then might be sought by identifying the
extent to which subsidies or state assistance projects
are needed to offset the cost disadvantages that arises
from nonharmonized technical regulations (Keith E.
Maskus and others, 2005).
Criteria of a choice of the scheme of export

promotion
The choice of this or that scheme of stimulation of export
is made by the country on the basis of the following criteria:
-
choice of a strategic direction of policy of export

(state regulation, market forces, market forces
in a combination to special measures on export
promotion) on the basis of the general macroeconomic policy realized by the country;
definition of internal restrictions on ways of

development of export;
highlighting external barriers to export;
identifying sectors with perspectives from the

point of view of export;
definition of opportunities for export promotion

as a whole, and also separate ways of export
promotion;
comparison of benefits from export promotion in

the long term with the expenses connected with
similar promotion (in some cases the country
simply does not have means for carrying out of
policy of export promotion);
selection of the countries, the goods, regions,

which can be addressed to schemes of export
promotion; and
definition of measures of promotion.
Use of various schemes of export

promotion
The country can resort to enough complex schemes of
export promotion. In Brazil the Ministry of the Industry,
Trade and Tourism and the Ministry of External Affaires
are engaged in export promotion. Their activity consists
in granting to exporters the necessary commercial and
other information, export assistance to small and moderate-sized firms, development of new areas of export
activity, export diversification, and to increase of competitiveness of Brazilian production.
In South Korea during 1961-1973, the aggressive policy of export assistance was spent simultaneously with
45
protection in the field of import. The rigid control over

trade and the exchange rate was combined with a consecutive financial and industrial policy. The commercial
policy has been precisely directed on export promotion,
being neutral enough in relation to the structure of
export. Exporters were supported through multiple
rates of exchange, direct financial injections, the opportunity to use the earned currency on the import of the
goods necessary to them, and an opportunity to take
credits in a foreign currency. Simultaneously, on the
Korean exporters significant withdrawals concerning the
import control and also tariff privileges were extended.
Support went also on a line of bank system controllable
by the state. The state defined the kinds of activity or the
industries required for bank credits. Similar credits often
were preferential. Export activity served as a means of
maintenance of the credit status of borrowers.
Basic elements of successful export

promotion strategy
Access of exporters to import at their world prices
serves as the first condition of effective policy of
export promotion. The policy of protection against
import of the market will be badly coordinated with the
encouragement of export. In this case, exporters of the
given country are laid initially down in more adverse
competitive conditions in comparison with exporters
from other countries that in conditions of escalating
globalization of economy and manufacture has enormous significance for penetration on the world markets.
Therefore in the presence of greater restrictions or high
tariffs, creation of special conditions for exporters who
differently can lose the export advantages and to maintain their access to import the world prices (type of special export zones, withdrawals from tariffs, etc.) usually
is required.
Optimal, however, is a combination of liberalization
of foreign trade and FDI attraction and active export
policy. In practice, such a combination is difficult to provide, but it is possible as shown by the experience of
some NIS countries.
The presence of scale financing of export promotion is the second obligatory condition of successful export policy. Sources and ways and a measure of
their combination thus depend on opportunities of the
state, a choice the list of donors on whom it relies. So,
the state can finance promotion of export to the detriment of other branches and the manufacturers aimed
at a domestic market. Or, it can use for these purposes
budgetary funds in a combination to wide mobilization
of private sources of financing. At last, with a view of
export promotion external sources of financing are
widely used: loans, credits, etc.
State support in penetration on the markets was the
third condition of export "push." It was present at
any variants of policy of export promotion, even in the
most extreme when externally the state was eliminated
46
Q 2 / O 6 ( # 11 )
from the decision of export problems, leaving them at

the discretion of the market. Also, in this case the success of export was provided with the creation of a favorable investment climate for national and foreign
investors and manufacturers, exporters, which was one
of the major economic tasks of the state.
The flexibility of policy of export promotion was the
fourth factor defining its success. Many NIS's
repeatedly changed measures on the stimulation of
export during its development, rejecting the unsuccessful and expanding the application of successful measures.
In this plan the experience of Argentina, which was flexible enough, is very interesting. This was not limited
only to macroeconomic measures of export promotion
or carrying out of policy of assistance of development to
export, but also carried out the broad audience of
actions on development of efficiency and competitiveness of national production.
Additionally, chronic government deficits and monetary
management running out of control will erode the effectiveness of export promotion. Thus, the particular
export stimulus itself will not lead to the expected
results without a stable, but in the meantime flexible,
macroeconomic policy.
The role of differentiation and specialization in
export competitiveness. Theoretical models have discussed the importance of horizontal and vertical product differentiation through the production of greater
varieties of goods or goods of higher quality for maintaining export markets (Krugman, 1980; Flam and
Helpman, 1987; and Grossman and Helpman, 1991). A
way to achieve this differentiation is through product
innovation. In the dynamically developing world economy, a crucial role is specialization in technology-intensive and skilled-labor-intensive goods, rather than natural resource-intensive, unskilled labor-intensive and
primary products. For example, the first two accounts
for about two-thirds of Slovenia's total exports.
Furthermore, since 2003, the Revealed Comparative
Advantage (RCA) for technology-intensive exports has
been greater than one suggesting that Slovenia's
exports to the EU-15 have been more competitive than
rest of the world's (IMF Country Report N 06/250, Rep.
of Slovenia, 2006). Nevertheless, Slovenia's highincome level relative to other new EU member countries creates a disadvantage in terms of cost competitiveness. Furthermore, entering the euro zone and the
loss of an exchange rate instrument will create a new
challenge to its competitive position.
It should be remarked that there is some trade-off
between diversification and specialization. It is well
known that specialization benefits efficiency, but diversification may eliminate the negative impact of shocks
to the economy. Several theories view the above-mentioned trade-off in the presence of uninsurable shocks
as key determinants of economic development (see
Obsfeld, 1994; Saint-Paul, 1992; Acemoglu and

Zilibotti, 1997).
Sequences of export promotion policies can be
classified in the following manner.
1. macroeconomic stabilization (exchange ratebased stabilization), infrastructural development
and financial sector development
2. gradual trade liberalization (reducing tariffs,
quotas changed into tariffs), export subsidies
(direct/indirect), FDI promotion
3. liberalization of international capital flows (opening the capital account)
Additionally, there is one possible negative consequence of export promotion. The domestic prices of
exporting goods can increase and affect the living standards of the exporting country if these products are
included in the consumer's basket.:
Conclusions
Reforms in the field of foreign trade of the countries are
long-term and can be carried out only stage-by-stage.
At separate stages, the direct help of the state to
exporters and manufacturers of export production can
become the important component of these reforms.
We should take into account that the realization of any

special measures to support export manufacturers and
the development of export demand means or are connected with losses for the budget in short-term and
intermediate-term. It assumes either the necessity to
have means for these purposes in the state treasury
(direct crediting the enterprises-manufacturers and
exporters), or mobilization of private sources, which
also demands means from the state though on a smaller scale (the state warranting of export credits), or the
short-reception by the budget of some receipts (in case
of subsidizing production, the decrease in import duties
on the goods used to produce exports).
In the case of the absence at the state level of the
means for the given purposes, more preferable indirect
measures on export promotion (which will not bring
additional incomes in the budget, but also will not
demand from it allocation of additional significant
charges) are represented. In a number of such measures, it is necessary to note the state warranting of
export credits first of all. It is the normal practice widely
used practically by all countries for promotion of export,
including the countries with a market economy.
However, the different starting economic and, why not,

initial political conditions to the integration of world
economy, the cultural and geographical differences, as
well as character of development of democracy and
respecting rules affect the export development and the
choice of methods of export promotion in the case of
each country.
The relevant promotion policy should be distinguished

in the case of exporters attempting to export more, and
in the case of new firms trying to enter the export market. If market entry costs are important, policy should
be aimed at easing bottlenecks such as providing information about potential markets, developing exporting
infrastructure, and eliminating bureaucratic obstacles to
export rather than on providing direct subsidies based
on the value of exports.
The experience of particularly East and South Asian

countries shows us that export development was and is
based on technological expertise. Therefore, the
national capabilities to adapt imported new technology
as well as an advanced educational system are fundamental preconditions for export development of developing countries.
In addition to this, the economic policy of the country

should protect and maintain the domestic competitiveness as a main ingredient of market mechanism of
export promotion. The economic policy should also
consider the structural changes as a result or consequences of export and, in general, economic development, rather than the purpose of the policy.
47
Q 2 / O 6 ( # 11 )
WHAT IS A FREE
TRADE AGREEMENT?
PAVEL HOVHANNISYAN
Capacity Building Team Expert, AEPLAC
Since the early years of independence, the Republic of

Armenia has undertaken the policy of liberal trade.
Bearing in mind a clear understanding of all the benefits of external trade liberalization, in the early 1990s
Armenia and other 11 former Soviet Republics founded
the Commonwealth of Independent States, the main
feature of which became the Agreement establishing a
free trade area. Another essential event in the history of
Armenia indicating the adherence to liberal trade was
accession to the World Trade Organization in 2003. It is
also worth noting that the Customs Code of RA, which
came into force in 2001, provides for a liberal two-tariff
based scheme - 0% or 10% tariff rates imposed on
imports into Armenia.1
Chart 1. Notified RTAs in force, as of February

2005, by type of agreement
Significant changes have taken place since those years.

The CIS countries yielded the pas of the first trading
partner of Armenia to the EU Member States, the share
of which in Armenia's external trade is rapidly growing
year by year. These trends, as well as the will of the
Republic of Armenia to have a deeper integration into
Europe and its structures, raise the necessity to look for
new ways of enhancing the efficiency of Armenia's
external trade with its new main trading partner. As it is
provided by the EU-Armenia Action Plan recently adopted in the framework of the European Neighborhood
Policy, "The EU and Armenia will jointly explore possible
options to further enhance bilateral trade relations,
including the possible establishment of a free trade
agreement between the EU and Armenia." The conclusion of such an agreement between Armenia and the
EU and the successful implementation thereof can bring
for a higher level of welfare and improved economic
environment for the Armenian society.
The free trade agreement (FTA) is the most common

category of the regional trade agreements (RTA), which
accounts for 84% of all RTAs in force. Partial scope
agreements and customs union agreements account
for 10% and 6%, respectively (see Chart 1).
So, what is a free trade agreement? A free trade area is

a designated group of countries that have agreed to
eliminate tariffs, quotas and preferences on most (if not
all) goods between them. Free Trade Agreements
(FTAs) and Customs Unions, such as the European
Union, together comprise the main exception to the
Most-Favored-Nation (MFN) principle, the fundamental
rule guiding trade in goods among members of the World
Trade Organization (WTO). Under the MFN rule, members of the WTO must not give other WTO members no
less favorable treatment in terms of tariff rates and other
trade measures than they afford to any other country.
1 There are exemptions for some spirit drinks for which specific (fixed)
rates are applied.
48
Partial Scope,
10%
Customs Union,
6%
FTA, 84%
In 2006 some main RTA related trends are apparent:

first, countries across the world, including those traditionally reliant on multilateral trade liberalization, are
increasingly making RTAs the centerpiece of their commercial policy; for some countries RTAs are on a par
with multilateral trade objectives; however, for many
others RTAs have become the priority. Second, RTAs
are becoming increasingly complex, in many cases
establishing regulatory trade regimes that go beyond
multilaterally agreed trade regulations. Third, reciprocal
preferential agreements between developed-developing countries are on the increase pointing to a decreasing reliance by some developing countries on nonreciprocal systems of preferences; also significant is
the emergence of preferential agreements among
some developing countries.
Compared to previous decades, the proliferation of
regional trade agreements during the last ten years has
taken place at an unprecedented rate. There are currently 197 RTAs notified to the WTO (including accession agreements), 165 of which are free trade and services agreements, 12 are customs unions and 20 are
preferential arrangements (see Chart 2).
WTO rules allow individual countries to afford preferential treatment to partners in an RTA, provided that the
While free trade in goods has been the focus of virtually all FTAs concluded to date, the WTO also provides
for bilateral or regional agreements liberalizing trade in
services. Technically, these are called "economic integration agreements" (EIA), sometimes described as
"services FTAs." The conditions for concluding EIAs as
exceptions to the Most Favored Nation principle are set
out in Article V of the General Agreement on Trade in
Services (GATS). EIAs are allowed so long as they (a)
have substantial sectoral coverage, and (b) provide for
the absence or elimination of substantially all discrimination between parties, through (1) elimination of existing discriminatory measures, and/or (2) prohibition of
new or more discriminatory measures. To date, no EIA
covering services has been concluded separately from
an FTA covering trade in goods as well.
While an FTA as defined under the WTO does not have
to include trade in services, most contemporary agreements that are labeled "Free Trade Agreements" cover
both goods and services, reflecting the growing importance of the services in the global economy. Such
agreements are effectively a combination of FTAs and
EIAs. In fact, FTAs together with EIAs provide a framework under which countries can negotiate a range of
other bilateral undertakings governing their economic
relations. In addition to trade in goods and services,
Free Trade Agreements frequently cover such issues
as investment protection and promotion, government
procurement, and competition policy, which are either
not yet encompassed by WTO rules or only partially
covered. Thus, FTAs often also contain practical provisions in areas such as harmonization or mutual recognition of technical standards, customs cooperation,
application of subsidies or anti-dumping policies, electronic commerce, and protection of intellectual property
rights. Such provisions are not binding for the inclusion
in FTAs under WTO rules, but they can play an important role in facilitating trade between the parties and in
a broader regional context.
35
250
30
200
25
20
150
15
100
10
50
0
2006
2003
2000
1997
1994
1991
1988
1985
1982
1979
1976
1973
1970
1967
1964
0
1961
The crucial test of an FTA or Customs Union is that it must

eliminate all tariffs and other restrictions on substantially
all the trade in goods between its member countries.
Although WTO members have differed over how precisely to define "substantially all trade", few would disagree
that this means, at the very least, that a high proportion of
trade between the parties - whether measured by trade
volumes or tariff lines - should be covered by the elimination of tariffs and other restrictive trade regulations.
Chart 2. Notified RTAs to the WTO (1948-2006) by

entry into force (in force as of 15 June 2006)
1958
RTA conforms to certain strict conditions. The rationale

for allowing this exception is set out in Article XXIV of
the General Agreement on Tariffs and Trade (GATT).
Article XXIV recognized the desirability of increasing
freedom of trade by the development of closer integration between member countries through agreements
establishing customs union or free-trade areas. At the
same time, strict conditions apply to RTAs to ensure
that they perform a truly liberalizing function in international trade and do not encourage the establishment of
new barriers, or provide an easy route to introduce new
measures discriminating between trading partners.
RTAs yearly (left scale)

RTAs comulative (right scale)
Unlike a customs union, members of a free trade area do

not have the same policies with respect to non-members, meaning different quotas and customs. To avoid
evasion (through re-exportation) the countries use the
system of certification of origin most commonly called
Rules of Origin, where there is a requirement for the minimum extent of local material inputs and local transformations adding value to the goods. Rules of origin
(RoOs) are an inherent feature of FTAs (where each
country maintains its own tariff structure with third parties) as a means of determining whether goods are eligible for preferential treatment in the importing country and
to prevent "trade defection", i.e. the transshipment of
products from non-parties to an RTA through a low-tariff
RTA-party to one which maintains higher tariffs. RoOs
are also frequently used in custom unions, particularly as
a transitional measure. Goods that do not cover these
minimum requirements are not entitled for the special
treatment envisioned in the free trade area provisions.
The predominance of FTAs over custom unions is probably due to the fact that they are faster to conclude and
require a lower degree of policy coordination among
the parties since in a FTA each party maintains its own
trade policy with third parties. Of the RTAs not yet in
force, 96% are FTAs and 4% are partial scope; there
are no custom unions. Custom unions on the other
hand, require the establishment of a common external
tariff and harmonization of external trade policies,
implying a greater loss of autonomy over the parties'
commercial policies and longer and more complex
negotiations and implementation periods. Furthermore,
the majority of FTAs are concerned with strategic market access, often unbound by geographical considerations; in custom unions, on the other hand, geographical consideration play a pivotal role in defining the
objective of economic integration among parties concerned. As for membership in partial scope agreements, their limited trade coverage and poor implementation record, makes them much less attractive to countries, including developing countries that are committed
to comprehensive trade liberalization.
49
Q 2 / O 6 ( # 11 )
GENERAL OVERVIEW OF
INTERNET ACCESSIBILITY AND
USAGE IN YEREVAN: WHAT
HAS CHANGED IN TWO
YEARS?
ARTASHES SHABOYAN
Senior Economic Expert, AEPLAC
In the present-day world, the operation and advancement of both individuals and large corporative enterprises can hardly be pictured without information technologies, especially the Internet and newly developed audiovisual and telecommunications systems. That is why the
European Union has recently attached great importance
to the creation of the Information Society and implementing numerous events in this domain. Thus, in 1999 the
Commission adopted the "eEurope: Information Society
for all" communique welcomed by the Council of Europe.
The document suggests the use of Internet and telecommunications capabilities in such diverse fields as
eGovernment, eLearn-ing, eHealth, eBusiness, etc.
Remarkable developments in the sphere of information
technologies have also taken place in Armenia.
According to various surveys and expert assessments,
information technologies have become a most dynamic
and rapidly developing domain in Armenia's economy.
For the purpose of this country's competitiveness and
further development and attaching great importance to
the creation of an information society, the RA
Government has been implementing a number of activities. Thus, the sphere of information technologies has
been declared a priority of the national economy. A number of forums and exhibitions have been organized. The
first and foremost step in the creation of information society is the proliferation of the Internet in the society.
According to the World Bank development indicators, as
of 2004 there were 66 computers in Armenia per 1,000
of population. The indicator for Internet users per 1,000
is 50. Chart 1 demonstrates the relevant indicators for a
number of countries that are of interest for us.
Let us note that in 2004 in terms of Internet users, Armenia
was only the 116th out 190 countries. If we take into consideration the dynamics of this indicator's development,
and compare it with 2001, in terms of the growth rate of
Internet users Armenia is the 64th (in 2004 the number of
Internet users was 3.04 times as many than in 2001).
In general, the distribution of Internet users worldwide is
rather different. According to the International
Chart 1. Computer availability and Internet usage

per 1,000 of population (as of 2004)
Latvia
350
217
Croatia
190
Bulgaria
283
59
Lithuania
282
155
Romania
113
Turkey
52
111
Russia
82
Iran
Ukraine
FYR Macedonia
50
Azerbaijan
18
Georgia
208
142
132
110
79
28
Armenia
293
78
69
66
49
39
42
100
Computer
200
300
400
Internet
Source: the International Telecommunications Union (ITU) and World

Bank estimates.
Telecommunications Union (ITU), as of 2004, worldwide,

Internet users were nearly evenly distributed between the
G8 countries (the USA, Canada, France, Germany, the
UK, Italy, Japan and Russia) and the rest of the world,
429 and 444 million people, respectively. Whereas, worldwide the Internet user indicator amounts on average to
134 per 1,000 as demonstrated by continent: Europe,
306; America, 306; Asia, 86; and Africa, 18. If we consider only Europe, then the CIS countries obviously lag
behind. As of 2003, there were 415 Internet users in
Western Europe per 1,000, 314 in the Baltic countries,
161 in Central and Eastern Europe (without the CIS), and
on average 56 in the CIS.
The World Bank and ITU data is mainly confined to 2004
indicators. What has been the dynamics of the indicators
in this sphere over the past two years? To analyze the
developments over the past two years and owing to the
sample survey1 of Internet accessibility and usage in
1 General overview of Internet accessibility and usage in Yerevan,
Armenian Trends, Q3/04, pp. 42-48, AEPLAC, Yerevan 2004.
50
Table 1. Computer availability in households by Yerevan communities4 (2006 data)
Community
Number of people
owning a computer
at home, % to total
respondents in the
community
Number of computers with

Internet connection, as % to total
respondents in the community
Share of computers
connected to the
Internet, % to total
Share of respondents in the

whole sample, %
10.0
Ajapniak
18.0
50.0
6.4
Avan
24.0
33.3
4.5
5.0
Arabkir
51.7
76.0
35.2
12.0
Davitashen
55.0
44.4
22.2
4.0
Erebuni
45.5
76.5
27.1
11.0
Kentron
46.7
68.0
29.8
12.0
Malatia-Sebastia
29.2
80.0
20.0
13.0
Nor Nork
35.4
71.4
17.9
13.0
Shengavit
23.1
77.8
11.9
13.0
Kanaker-Zeytun
60.0
57.9
33.3
7.0
Total, Yerevan
37.6
68.3
21.4
100.0
Yerevan held in October 2004, the Armenian Trends in

collaboration with Strategic Development Agency conducted the second sample survey of Internet accessibility
and usage in Yerevan among 500 respondents.2
This survey not only enabled us to obtain the latest data
on Internet usage but also to compare this data with that
of two years ago and get an idea of the developments in
this sphere of the past two years.3
According to the summary data of the survey, as of
October 2006, the weight of the people over 15 years of
age using the Internet in Yerevan amounted 39.2%, which
exceeds by 8.4 percentage points the 2004 indicator.
1. Computer availability at home

As in the previous survey, a number of questions concerned the general computer literacy in Yerevan and
computer accessibility, particularly personal computer
availability, at home.
In 2004, 23.0% of the respondents indicated that they
had computers at home, and in 2006 this was indicated
at 37.6%. In fact, according to the obtained data, over
the past two years the number of computers in Yerevan
households has increased by more than 60%.
The Internet connectivity has also grown in the households. In 2004 nearly half of the household computers
were connected to the Internet (about 49%), and in
2006 this indicator is nearly 68%. If we consider the
weights of the computers connected to the Internet,
then it can be seen that in two years the growth (about
40%) is less than the increase in computers. Table 1
presents the computer availability in Yerevan by community as of the latest survey.
Table 2. Availability of computers in the household

by the respondents' education level and age group,
% of respondents (compared with the 2004 survey)
2004
2006
By education level
secondary
11.9%
26.8%
special technical
11.6%
20.5%
incomplete graduate
37.7%
35.8%
graduate (high)
29.2%
46.5%
postgraduate
58.3%
78.3%
15-29
32.0%
52.3%
30-44
25.8%
23.0%
45-59
14.4%
41.8%
60 and above
10.1%
17.9%
By age groups
As two years ago, Arabkir and Davitashen are among the

first three leading communities in terms of computer availability in the households, while the highest concentration
of computers was observed in the Kanaker-Zeytun community. The shortage of computers again strikes the eye
in the Ajapniak and Avan communities. In terms of
Internet accessibility in the household, Kanaker-Zeytun
joined the leading Arabkir and Kentron communities.
It is logical that the availability of the computer in this or
that apartment is determined by such factors as the
educational level of family members and, naturally, the
household income.
In terms of computer availability in the household, the
indicators (both for the 2004 and 2006 survey results)
decline with the increase in the respondents' age and
grow with the years of education (Table 2). However,
2 The respondents were selected by Yerevan community taking into consideration the proportions of sex/age structure.
3 Owing to the insufficient time, funds and other factors, the survey concerns only Yerevan residents, hence this reservation must be taken into account
when making general conclusions about Armenia.
4 Taking into account that the residents of Nork-Marash and Nubarashen communities account for a small percentage in the population of Yerevan, as
well as the small number of surveyed people, individual data for these communities were not summarized.
51
over the past two years, the impact of age and education factors on the availability of computers at home
has declined. In the 2004 survey, the average age of
the one who has a computer at home was 32.8 years,
and the duration of education was 14.0 years on average. This differed from the age and education of the
one who did not possess a computer by 8.6 and 1.5
years, respectively. In the 2006 survey, the indicators
for the one who possessed a computer (average age
34.6, education 12.6 years on average) differ less from
the indicators of the one who does not possess a computer, by 7.7 and 1.0 years, respectively.
Q 2 / O 6 ( # 11 )
Chart 2. Possession of the computer as determined by the household income level, % of respondents (comparison of the 2004 and 2006 surveys)
2. Computer literacy, time spent, and frequency

In both surveys attempts were made to estimate the
computer literacy of Yerevan residents based on the
self-assessment of the respondents. The comparison
of the obtained estimates obviously demonstrates a
tendency towards the increase in computer literacy
over the past two years. Thus in 2004, 52.0% of the
respondents indicated that they did not master the
computer at all, whereas in 2006 this indicator
decreased by nearly 10 percentage points (42.6%).
However, the number of those who master the computer well has not changed according to self-assessments
(in both cases, 10.8%) while the number of those who
master the computer excellently even decreased a little (in 2004, 5.2% and in 2006, 4.6% of the respondents). Nevertheless, we believe these indicators can
not belittle the general tendency towards the increase
in the computer proficiency over the past two years
(Chart 3).
Self-assessment contains certain subjectivism which
depends on the education level. The results of both
surveys demonstrate that there is a clear direct relationship between education and computer proficiency
(Table 3). The only deviation from the general tendency is the greater percentage of higher education
respondents who do not master the computer than in
the incomplete higher education group which, however,
is accounted for by the age of the respondents.5
31.3
61.7
V quintile
41.3
45.8
IV quintile
28.4
III quintile
43.3
12.8
26.3
II quintile
The possession of the computer is mostly determined

by the household income level (Chart 2).
The respondents were divided into five equal quintile
groups by their income levels. The first quintile consists
of those who indicated the lowest income level; the fifth
group is those who indicated the highest income group.
In addition to the above five groups, the chart also
shows the group which did not share income information, which in the 2006 survey accounted for 10.6% (in
2004, 16.6% did not indicate their income). It can be
seen from this chart that there is a direct relationship
between the income group and computer possession.
43.4
No inform on income
17.4
I quintile
8.1
15.8
10
20
30
40
2004
50
60
70
2006
Chart 3. Computer skills self-assessment, % of

respondents (comparison of the 2004 and 2006
surveys)
60
52.0
50
42.6
40
30
25.4
20
13.4
16.6 18.6
10.8
10
5.2 4.6
0
non
literate
a bit
literate
medium
level
2004
good
excellent
2006
Chart 4. Computer proficiency self-assessment by

age group, % of each age group of respondents
(comparison of the 2004 and 2006 surveys)
100
80
60
86%
92%
57%
40
52%
20
75%
42%
20%
16%
15-29 30-44 45-59 60+ 15-29 30-44 45-59 60+

2004
2006
non literate
less
medium
good
5 The average age of the respondents with incomplete higher education is lower than those with higher education owing to the fact that
presently the respondents with an incomplete higher education are
mainly students.
52
When considering the age factor, the relation between

age and computer proficiency is again obvious (Chart 4).
Nevertheless, compared with 2004, the 2006 data
demonstrate that both age and education factors level off,
i.e. the gap between the high and low groups narrows.
3. The time allocated to the computer, frequency and venue

According to the 2006 survey data, about half of the
respondents in Yerevan (48.4%) do not use the computer (in 2004 this figure was higher at 55.8%).
Although over the past two years a 7.4 percentage
point increase was observed in the weight of computer
users, their number is still rather low compared with
more developed countries. Over the past two years,
growth has also been observed in the weight of daily
computer users. Thus, in 2004 this figure amounted to
23.4% of the respondents, whereas in 2006, 29.4%.
The weight of the ones who use the computer less frequently (weekly, monthly, etc.) almost has not changed
(in 2004, 20.8% and in 2006, 20.2%).
When considering the time allocated by the respondents to computer usage, a dramatic increase can be
observed in the past two years. Thus in terms of all the
respondents, the average duration of computer usage
in 2004 was 1.05 hours (1 hour 3 minutes) while in
2006 it was 1.49 hours (1 hour 29 minutes). If we take
into account only the responses of computer users, in
2006 they allocated 2.9 hours daily, while in 2004, 2.2

hours. It is also notable that the difference between the
time allocated to the computer by permanent, temporary or seasonal employees and unemployed has
decreased. Thus, in 2004 the employed spent on average 2.9 times as much time at the computer than the
unemployed. In 2006 this ratio was 2.6. The latter
attests that the need for the computer is recognized not
only by the employed. The same is true for the time
allocation by education level (Table 4). It follows from
the indicators that the figures have a tendency to level
off; hence, we can conclude that the computer is appreciated by all regardless of the education level and other
factors.
The survey data enable us to consider the time spent at
the computer by venue. Interestingly, in 2004 the
respondents spent most of the time at the computer
(44.0%) at their work place, while the duration of computer usage at home came second (40.1%). In 2006
the time spent at the computer at home was 52.1%,
while at work only 32.3% of their time was spent. In
terms of computer usage, the third venue is the computer club whose weight declined. In 2004, 11.6% of
the total time allocated to the computer accounted for
the computer club, whereas in 2006 it was only 10.3%.
The main cause for the decline of this percentage, we
believe, is the increase in the number of personal computers at home. The time distribution of the time spent
at the computer by age group is presented in Chart 5.
Table 3. Computer proficiency self-assessment, % of each education group of respondents (comparison of

the 2004 and 2006 surveys)
Self-assessment of computer literacy, % to total answers in group
Year of
survey
Education
non literate
a bit literate
medium level
good and excellent
2004
secondary
special technical
incomplete graduate
graduate (high)
postgraduate
73.0
66.3
13.2
42.7
16.7
11.3
11.6
20.8
14.0
12.5
14.5
14.0
39.6
20.2
4.2
1.3
8.1
26.4
23.0
66.7
2006
secondary
special technical
incomplete graduate
graduate (high)
postgraduate
63.0
54.8
28.3
32.4
8.7
13.8
17.8
17.0
18.8
8.7
18.1
23.3
41.5
27.7
17.4
5.1
4.1
13.2
21.1
65.2
Table 4. Average time spent daily at the computer per one respondent
Education level
Average time spent at the computer, minutes per day

2004 survey
2006 survey
secondary
20 minutes
52 minutes
special technical
43 minutes
52 minutes
incomplete graduate
1 hours 23 minutes
58 minutes
graduate (high)
1 hours 16 minutes
1 hours 56 minutes
postgraduate
4 hours 39 minutes
4 hours 11 minutes
Total, Yerevan
1 hours 3 minutes
1 hours 29 minutes
53
Q 2 / O 6 ( # 11 )
4. Internet usage
Chart 5. The time spent daily at the computer by age

group (comparison of the 2004 and 2006 surveys)
Average time at the computer (minutes per day
Computer proficiency is surely a prerequisite, however,

but not a sufficient one for the usage of the Internet.
Internet usage also depends on its affordability and
demand. The comparison of the relevant indicators in
the surveys demonstrates that over the past two years
not only computer users multiplied but also Internet
users.
According to the 2004 survey data, 48.0% of the
respondents (or 240 people) master the computer to
this or that extent and only 154 of them use the Internet
(30.8% of all respondents and 64.2% of computer
users). The 2006 survey results are as follows: 57.4%
of the respondents master the computer to this or that
extent and 39.2% use the Internet (or 67.2% of computer users). The increase in the number of Internet users
is noticeable when considering the age groups of the
respondents. In 2004 in the group of age 45+ only 6.8%
used the Internet, and in 2006 it was 20.6%. Chart 6
demonstrates the percentages of Internet users in the
four age groups.
60
50
40
30
20
10
0
15-29 30-44 45-59 60+ 15-29 30-44 45-59 60+

2004
2006
at home
at workplace
internet club
other
Chart 6. Internet user percentages by age group

(comparison of the 2004 and 2006 surveys)
70
It is also remarkable that in 2004 the Internet was almost

equally used by the respondents of both sexes (30.2% of
men and 31.2% of women), whereas in the 2006 survey
results men started to use the Internet more: 49.5% compared with 32.6% of women. The difference in 2006 was
mainly caused by the change in the behavior of the
unemployed. If the employed respondents of both sexes
use the Internet almost equally (on average, 56%), then
the unemployed men (about 40%) exceed the Internet
usage by the unemployed women by more than 16 percentage points.
60
63.2
57.9
50
40
28.8 30.1
30
28.2
20
10.7
9.9
10
2.5
0
15-29
The survey data also enable us to consider Internet

users by household income groups (Table 5). The figures
in the last column of the table show that the number of
Internet users has grown in all income groups, but
growth rates are larger in high-income groups.
30-44
45-60
60+
Age groups
2004
2006
expected, the most prevalent reason is the inability to use

the computer, which has a lower value than in the selfassessment of computer users. Part of those who do not
use the computer as a reason for that indicated other factors of which the most significant was the lack of need for
the Internet.
The analysis of the reasons why the Internet is not used

according to different surveys is presented in Chart 7.
Although the number of those who do not use the Internet
has declined over the past two years, the reasons why
the Internet is not used have not changed significantly. As
Table 5. Percentage of Internet users by income groups
Income groups (quintiles, 20%-age groups)
Growth, percentage
points
2004
2006
7.0
14.7
II quintile
20.7
24.2
3.5
III quintile
33.3
47.8
14.5
I quintile (with less income)
54
Number of Internet users in group, % to total

respondents
7.7
IV quintile
39.5
49.5
10.0
V quintile (with higher income)
55.0
68.3
13.3
Group that didn't share income information
32.5
41.5
9.0
Total, Yerevan
30.8
39.2
8.4
5. Frequency of Internet usage, time allocated and venue
Chart 7. Reasons for not using the computer as %

of the total number of the respondents who do not
use the Internet.
The obtained data attest that over the past two years
the number of Internet users and the frequency of
usage have increased. In 2004 39.0% of Internet
users used the Internet daily and 41.6% used it weekly, in 2006 47.4% used the Internet daily and 36.2%
weekly.
46.4
No computer or
internet skills
52.6
40.1
No need
39.6
7.2
Material means
However, in terms of the duration of Internet usage the

progress is not so visible. Thus, in 2004 in Yerevan an
Internet user on average spent 1 hour 4 minutes on the
Internet and in 2006, 1 hour 7 minutes. If we compare
in the time spent on the Internet with the total time of
computer usage, we will see that in 2004 the Internet
accounts only for 38.1% of the computer usage time,
while in 2006 it decreased to 32.7%. If using these indicators we try to estimate the time in the Internet for the
whole population of Yerevan (over 15 years old), then
every Yerevan resident above 15 years old in 2004
spent on the Internet on average 20 minutes and in
2006, 26 minutes. The latter indicators also testify that
although over the past two years the number of Internet
users and Internet usage frequency has increased, the
time spent on the Internet has not increased significantly. If we consider the weight of the time spent on the
Internet in the total time spent at the computer, then it
has declined by more than 2 percentage points (in
2004, 31.5% and in 2006, 29.4%). Chart 8 presents the
time spent on the Internet and at the computer by age
group.
6.6
3.3
Lack of time
1.2
Other reason
3.0
10
20
30
2004
40
2006
160
Time (minutes/day)
140
32
120
100
37
80
23
21
60
40
0
29
32
20
22
4
15-29 30-44 45-59
60+
15-29 30-44 45-59 60+
2004
2006
other use of computer
Internet
* The percentages indicate the weight of Internet usage in the total

time spent at the computer in each age group.
If we consider the time on the Internet by venue, then

over the past two years the weight of the time allocated
to the Internet at home and Internet clubs has somewhat decreased, whereas this weight increased at the
work place. Thus in 2004, 51.3% of the total time spent
on the Internet accounted for home usage, 23.4% at
Internet clubs, 21.2% at the work place, and the
remaining 4.2% at educational institutions and other

places. In 2006 the indicators were as follows: 48.0%,
20.6%, 25.4% and 4.3%, respectively. Table 6 presents
the time spent on the Internet by age groups.
Table 6. The time spent on the Internet by venue and age groups (for all the respondents)
min/day
Place of Internet connection

Home
Year
Workplace
Education
institution
04
04
06
04
06
Internet club
04
06
15-29
17.9
22.6
5.3
9.9
1.0
1.2
11.3
13.2
30-44
7.8
6.8
7.5
7.2
0.5
0.1
1.5
0.4
45-59
7.9
10.2
1.5
2.3
0.0
2.0
0.9
0.0
0.4
0.0
4.1
0.0
0.0
10.2
12.6
4.2
6.7
0.5
0.9
60 and above
Total, Yerevan
06
60
Chart 8. Average time spent at the computer

(including the time on the Internet) by age (minutes/day)*
The two charts below (9-10) indicate the ratio of the

time on the Internet and household income. As can be
seen in Charts 9 and 10, although there is a positive
relationship between the Internet usage time and the
respondents' income, over the past two years it has had
a declining tendency.
Age group
50
Other place
04
Time spared
for internet
Total time
spared for
computer
06
04
06
04
06
0.3
0.4
35.7
48.3
0.9
0.2
18.3
15.0
81.1
73.0
1.0
0.0
0.0
10.3
15.6
32.1
53.4
0.0
0.1
0.0
0.0
0.1
4.6
1.3
20.7
4.6
5.4
0.4
0.2
19.8
26.3
63.0
89.2
96.3 148.9
55
6. Internet quality and contacts with the

providers
Another set of survey questions is related to the
assessment of Internet quality in Armenia. The answers
of the respondents to the general question about
Internet quality testify that the satisfaction with Internet
quality has arisen over the past two years, which can
be considered evidence of the improvement in Internet
quality. Thus, in 2004 Internet quality in Armenia was
graded as "bad" by 42.6% of the respondents, while in
2006 by only 30.4%. It should be noted that at the same
time that the percentage of those who graded Internet
quality as "good" or "very good" has not changed much
(17.4%-17.5%). It is also notable that in 2004 the opinion about Internet quality among those who had
Internet at home was lower than among all the respondents (Internet users). In 2006 an opposite tendency
can be observed: home Internet users grade Internet
quality higher than the total respondents. The latter
comparison enables us to conclude that over the past
two years the work of Internet providers of individual
services has improved.
The survey results enable us to consider Internet users
by preferred providers. Thus, in 2004 Internet users
indicated only one provider of Internet services, and in
2006 some Internet users were provided by various
suppliers (one Internet provider supplies services to
71.6% of Internet users, 16.8% are supplied by two
Internet providers, and 2% are supplied by three
Internet providers, 9.5% found it hard to answer or
could not choose a provider). If we consider Chart 12,
we can see that over the past two years no significant
changes have taken place in terms of provider choice.
The five major providers are the same as two years
ago. The leading provider, Arminco, also has not
changed and whose services are used by about 34% of
Internet users. Among the above five providers, Web
suffered the greatest decline in terms of user share
(14.7% in 2006, 19.0% in 2004). The remaining three
leading providers improved their standing on the
Internet services market. Notably, the tendency
towards the decline in the clients of Web could be forecasted based on the results of the 2004 survey. During
the survey conducted in October 2004, the clients were
mainly satisfied by the Internet quality of the other
200
Time for Internet (minutes/day)
In 2004 the Internet accounted for more than 40% of

the time spent at the computer at home, presently its
weight is only 27.4%.6 At other venues, the time on the
Internet has not dramatically changed.
Charts 9 & 10. Average Internet usage time by

monthly household income rate (minutes per day)
2004
y=0.169x-0.946
R2=0.335
160
120
80
40
0
200
400
600
800
Income, thousand dram

Internrt usage (minutes/day)
Linear (Internrt usage (minutes/day))
2006
200
Time for Internet (minutes/day)
If we consider the ratio of the time on the Internet and

the total time spent at the computer (Chart 11) then the
dramatic decline in the time spent at the computer at
home over the past two days strikes the eye.
Q 2 / O 6 ( # 11 )
y=0.08x+4.62
R2=0.18
160
120
80
40
0
200
400
600
800
Income, thousand dram

Internrt usage (minutes/day)
Linear (Internrt usage (minutes/day))
Chart 11. The time on the Internet in the time spent

at the computer (comparison of the 2004 and 2006
surveys)
27.4
Home
40.4
23.3
Workplace
15.2
23.2
Educational
institution
29.3
59.6
Internet club
63.6
29.4
Other
32.0
10
20
30
2004
40
50
60
70
2006
6 The latter change can be caused by various factors. For example,

parallel to the increase in computer proficiency, the work at the computer becomes longer, than "Internet entertainment." In addition, the
time allocated to the Internet has increased, which also can cause
the decrease in the time spent on the Internet at home.
56
leaing providers, though most clients of Web were dissatisfied. If we consider the assessment of service
quality in the 2006 survey, most clients of Web were
satisfied with service quality. Besides, the satisfaction
with the service quality of other providers is rather inferior to that of Web.
As the main cause of dissatisfaction, the respondents
indicated the low communication speed (about 80%)
and frequent disruption of communication (8%).
Actually, it can be concluded that Internet quality has
improved over the past two years since in 2004 the
complaints mainly concerned the difficulty in establishing communication and disruption thereof, while
presently, mainly the speed.
Over the past two years, certain changes have also
taken place in the preferences of Internet users concerning the forms of communication (Chart 13). Thus,
most Internet users both in 2004 and 2006 preferred
connection with time limits (64.3% and 62.9%), and the
weight of 24-hour communication has arisen significantly (27.8% compared with 10.8% in 2004). The latter suggests that both the demand for the Internet and
affordability have increased.
Some changes can be also observed when comparing
the methods of connecting the computer to the Internet.
In 2004, 94% of those who had the Internet at home
connected by a modem, the rest (6%) by cable. During
the 2006 survey, more detailed data were obtained
about the preferences. 78.4% of those who had the
Internet at home connect to the Internet through dial-up
(modem), 5.2% by radio modem, and more than 13.4%
by cable.
7. Internet service prices

The World Bank development indicators include the socalled Internet basket price that shows the price for the
Internet services in the given country. It is calculated in
the amount of the monthly price of 20 hours of Internet
connection in the country. Although such data by country was available only for 2003, the comparison of some
national indicators is rather interesting (Chart 14).
Chart 14 demonstrates Internet prices in most CIS and
East European countries (and some others) as well as
the annual share thereof in the national gross national
income (GNI). As can be seen from the chart, in
Armenia the Internet price is among the highest both in
absolute value (44.8 USD monthly) and in the GNI
(36.6%).7
If we compare the opinions of Internet users in 2004
and 2006 about Internet prices in Armenia, then it can
be seen that these almost have not changed. As two
Chart 12. Internet providers by the number of

users, %
Arminco
Web
Netsys
Xter.net
Cornet
Other
Hard to say
10
20
2004
30
40
2006
Chart 13. Forms of Internet communication, as %

of total Internet users
unlimited during
month
limited megabytes
limited hours
night hours in the
month
hard to say
10
20
30
2004
40
50
60
70
2006
years ago, in 2006 about 17.5% of Internet users

believe that Internet prices in Armenia are very high,
however, those who believe that the prices are affordable have multiplied in 2006 (from 52.3% in 2004 to
45%). It is beyond doubt that this increase is determined by price decrease as much as by a certain
increase in the population's income.
As for the prices paid for the Internet, here too a certain
decrease is observed. In 2004, on average, home
Internet users paid monthly 7400 AMD, and in 2006
nearly 2000 AMD less.8 However, in Internet clubs the
average price almost has not changed. In 2004 the
average price was about 316 AMD and in 2006, 300
AMD.
7 The chart does not show the indicators for Azerbaijan which are even
higher: 108.3 USD and about 105% of the GNI.
8 Such a comparison, however, must be treated with great reservations since the difference of the indicators for the two years can be
also determined by other factors, e.g. the change in communication
forms, new services provided, etc.
57
8. Purposes of Internet browsing
Q 2 / O 6 ( # 11 )
Chart 14. Price for Internet in some countries
Internet users can pursue various purposes on the

Internet. A set of survey questions was devoted to this
issue; a respondent could indicate multiple choices
(purposes). As expected, most frequently the need to
use the Internet arises in the people who need to check
their e-mail.
Thus, 81.4% of Internet user respondents (in 2004,
74.7%) indicated e-mail usage as a purpose of using the
Internet, 66.0% (in 2004, 41.6%) cited browsing for news
as a purpose of Internet usage, and 29.9% (in 2004,
25.3%) to find acquaintances. Other frequently mentioned purposes are as follows: entertainment, recreation,
and games, 25.8% (in 2004, 28.6%) and the search for
concrete answers or information, 26.8% (24.9%).
Tajikistan
Uzbekistan
Kyrgyzstan
Armenia
Moldova
Georgia
India
Kazakhstan
Albania
Ukraine
Latvia
Romania
FYR Macedonia
Lebanon
Lithuania
Taking into account the usage of e-mail as the most frequent purpose, during the 2006 survey more detailed
information was collected about the availability of email, and its placement. Thus, about 30% of the
respondents (or about 76% of Internet users) indicated
the availability of e-mail. E-mail availability by age
groups is presented in Chart 15.
Most respondents who indicated the availability of email (98%) have a personal address and 9% have a
corporate addresses (at work). The latter suggests that
in Armenia (Yerevan) the usage of e-mail is not developed in business contacts, which is common in developed countries.
Belarus
Turkey
Serbia-Mont.
Bulgaria
Bosnia-Herz.
Slovakia
Russia
Poland
Croatia
Czech Republic
Israel
Estonia
Slovenia
If we consider the placement of e-mail addresses (Chart

16), then we will see that nearly half of the respondents
have addresses at Russian sites and only 13.8% on an
Armenian (.am) site. If we also take into account that a
few respondents have e-mail at a number of sites, then
we can claim that only 16.4% of the respondents have
addresses at the Armenian sites, whereas at the Russian
sites, 58.9%, and with the .com extension, 43.8%.
To get a general idea of the most frequently visited sites;
during the two surveys (2004 and 2006), the respondents were given an opportunity to indicate their three
most frequently visited sites. In both surveys, the most
frequently visited sites were the ones which enable
access to e e-mail and (or) have search capability (Table
7). The table data suggests that over the past two years,
the number of visited sites has increased significantly
and their concentration decreased.
In 2004, as in 2006, the indicators presented in Table 7
suggest that three out the ten most visited sites are
Armenian (or have the .am extension). In this respect, it
is interesting to consider the respondents' opinions about
the Armenian sites (Table 8). In fact, according to the
respondents, the disadvantage of the Armenian sites is
in the low speed of connection and not the lack of information or poor design.
If we group the sites indicated by the respondents by
language, then in 2006 the most frequently visited sites
were Russian (about 84% of the respondents), English-
58
Hungary
Belgium
Ireland
Switzerland
10
20
30
40
50
60
Internet value per GNI per capita, %

Internet basket price (USD/month)
Chart 15. E-mail availability by the respondents'

age (2006 data), as % of the respondents in the
given age group
100
80
60
40
48.7
20
22.1
20.9
7.1
15-29
30-44
45-59
non Internet users

using Internet, but no e-mail address
have e-mail address
60+
language sites, 73.4%, and only 38.5% visit the

Armenian sites. In comparison with the two-year old
data, the percentage of Armenian site visitors has
decreased (in 2004, 43.5%). In 2004 Russian sites
were visited by 81.2% of Internet users and Englishlanguage sites by 75.3%. The above indicators enable
us to conclude that most Internet users do not confine
themselves to one language (Chart 17-18).
Chart 16. The placement of e-mail addresses of the

respondents.
.com
36.8%
.am
13.8%
9. Other issues
The survey questionnaires also contained other questions more or less related to Internet usage and information technologies.
Both in 2004 and in 2006, a question on e-commerce
experience was included. In both surveys the responses suggested that so far the usage of this option in
Armenia is not common at all (the percentage of respondents who have ever shopped this way is about 1%).
.ru
49.4%
Another sphere of Internet usage, the IP telephony, has

become incomparably more common in the recent
years. According to the 2006 survey, 56.7% of the
respondents had such experience, and more than 25%
of the respondents use this option rather often.
Another question included in the 2006 questionnaire

was related to the development of the IT sphere. As it
is known, the Government of Armenia attaches great
importance to this sphere in the general context of the
economy. For this purpose, the IT sphere was declared
a priority for the Armenian economy. As for the opinions
of Yerevan residents on this issue, the survey results
are presented in Table 9.
Chart 17. Distribution of the respondents by the

language of the visited Internet sites
2004
Chart 18. Distribution of the respondents by the

language of the visited Internet sites
2006
3 languages,
25%
2 languages,
30%
3 languages,
12%
4 and
more, 3%
4 and
more, 1%
2 languages,
47%
1 languages,
25%
1 languages,
57%
Table 7. Classification of indicated sites by the number of users9

2004
Internet site
yahoo.com
rambler.ru
mail.ru
yandex.ru
mIRC
google.com
port.am
freenet.am
hotmail.com
careercenter.am
other sites (33)
umber of users
78
62
30
29
16
14
9
5
4
3
37
2006
Share of users, %
59.1
47.0
22.7
22.0
12.1
10.6
6.8
3.8
3.0
2.3
28.0
Internet site
yahoo.com
mail.ru
google.com, .ru, .am
rambler.ru
yandex.ru
port.am
myhayastan.am
erevan.ru
realmadrid.com
travel.am
other sites (79)
umber of users
79
72
47
42
14
7
6
4
3
3
84
Share of users, %
44.4
40.4
26.4
23.6
7.9
3.9
3.4
2.2
1.7
1.7
47.2
9 Each respondent was given the opportunity to indicate their three most frequently used sites.
59
Q 2 / O 6 ( # 11 )
Table 8. Respondents' opinions about the Armenian sites (2006 data), as % of all responses
Speed
very bad
bad
medium level
good
very good
hard to say
Update frequency
11.9%
29.4%
39.2%
13.4%
1.0%
5.2%
Quality of Information
4.1%
21.1%
47.9%
16.0%
0.0%
10.8%
To sum up the comparative study of the 2004 and 2006

surveys of Internet accessibility and usage, it should be
noted that over the past two years significant progress
has been observed in the sphere of computer literacy,
which in its turn caused the increase in Internet usage.
Design
4.6%
12.9%
49.0%
18.6%
0.5%
14.4%
1.5%
10.3%
43.3%
28.9%
5.2%
10.8%
The gap between the indicators for computer and

Internet usage for various strata and groups of Yerevan
residents (age, education, and income) has narrowed
significantly, which attests to the increased role of the
computer and the Internet in the society.
Table 9. The opinions on the IT sphere as a priority for the Armenian economy, by education level of the
respondents, %.
Education level
Opinions
Completely acceptable and necessary
Is acceptable, but more active steps are needed
There is no sense, because it is quite difficult for
Armenia to compete with other countries in this sphere
Is not correct, because there are more productive
directions for developing the economy
Hard to say
Total
Special
Technical
Incomplete
Graduate
18.8%
19.6%
15.1%
26.0%
22.6%
24.5%
20.2%
29.1%
34.8%
30.4%
20.0%
25.6%
8.7%
13.7%
5.7%
16.4%
4.3%
12.2%
9.4%
43.5%
100.0%
15.1%
30.1%
100.0%
11.3%
35.8%
100.0%
13.1%
21.1%
100.0%
17.4%
13.0%
100.0%
12.4%
29.8%
100.0%
Graduate
Postgraduate
Total,
Yerevan
Secondary
CONCLUSIONS
In 2004, 44.2% of the respondents worked with the computer and 30.8% of the respondents used the Internet. In
2006, 51.6% worked with the computer and 39.2% used the Internet.
There is a significant increase (by 60%) in the number of computers at home. In 2004 in Yerevan 23.0% of the
respondents indicated that they had computers at home, and in 2006 it was 37.6%.
The computer literacy of the respondents has increased. The share of those who have no computer proficiency
decreased by about 10 percentage points (from 42.6% to 52.0%). The percentage of low and middle proficiency
computer users has increased among computer users, whereas the share of good and excellent users is almost
the same. The difference between the computer literacy levels by age and education groups has decreased.
The duration of computer use per respondent has increased. In 2004 on average daily 1 hour 3 minutes was allocated to the computer, and in 2006 it was 1 hour 29 minutes. The time allocation to the computer has changed. In
2004, 44.0% of the total time accounted for the work place, 40.1% at home, and 11.6% at Internet clubs, and in 2006,
32.3% at work, 52.1% at home, and 10.3% at Internet clubs.
As two years ago, in 2006 the greatest share of Internet users falls on the youngest group of the respondents.
Nevertheless, the highest concentration of Internet users is in the 45-60 year old age group. (18.3 percentage point
increase). In the 15-29 year old group, the increase was 3.3 percentage points, from 30-44 years, 1.3% percentage
points, and above 60 years, 8.2 percentage point increase.
Although the number of Internet users has grown dramatically, time allocation to the Internet per respondent
increased insignificantly (in 2004, it was 1 hour 4 minutes daily; in 2006, 1 hours 7 minutes).
By general estimates, on average each Yerevan resident above 15 years of age spent 20 minutes daily on the
Internet in 2004 and 26 minutes in 2006.
According to the respondents, a certain improvement can be observed in the Internet quality in Yerevan. In 2004
42.6% of the respondents graded Internet quality in Armenia as "bad," and in 2006 it was 30.4%.
The five major Internet providers are the same. The leaders in the order of importance are as follows: Arminco,
about 34%, Netsys, Xter.net, Web, and Cornet.
The main purpose of using the Internet is still checking e-mail. About 30% of the respondents (or 76% of Internet
users) indicated that they had e-mail.
60
HOW WE SPEND OUR HOLIDAY:

SURVEY ANALYSIS
ARTASHES SHABOYAN
Senior Economic Expert, AEPLAC
If at the time of economic crisis the bulk of resources

are used for the provision of man's minimal needs, then
with the development of the economy, a broader scope
of needs must be attended. Among the emerging needs
are education, healthcare, as well as the organization
of recreation. The need for full-fledged recreation is a
physiological requirement for any person. Recreation
enables a person to regenerate their spent resources,
which, in its turn, promotes the maintenance of health
and efficient work later on. The need to rest and unwind
after work and the duration thereof depends on the type
one's work, individual features, and one's way of life.
"How much and how we rest?" To get answers to this
question, in November 2006 the Armenian Trends jointly with the Armenian Sociological Association conducted a sample survey of 500 respondents.1 The purpose
of the survey was to find out the recreation requirements of Yerevan residents, the possibilities and preferences, as well as to learn about the forms of recreation,
places, and costs incurred.
1. Need for recreation and preferences

The first set of questions in the questionnaire concerned the respondents' preferences with respect to
going on vacation for recreational purposes. Thus, the
respondents were given an opportunity to estimate the
duration of the period needed for any employed person
for full-fledged recreation over the year. According to
the majority of the respondents, (53.4%) the best duration of recreation is one month. 12.6% and 12.4% of the
respondents believe that two and three weeks, respectively, per year are sufficient. Fewer respondents supported the other options: 1.5-2 months, 5.6%; 1 week,
4.8%; and over 2 months, 2.2%. Interestingly, according to 3.6% of the respondents, the Saturday and
Sunday rest period was sufficient for full-fledged recreation. 5.6% of the respondents found it hard to answer.
If we group the above responses together by various
distinctive features of the respondents, the comparison
can be rather remarkable. Chart 1 presents the opinions of various economic groups of the population on
the duration of recreation. It can be seen that those who
Chart 1. The distribution of opinions on the duration of recreation by economic activity of the population
11.6
unemployed
21.5
employed
pensioners
11.6
13.8
13.6
19.0
17.6
students
housekeepers
16.3
8.8
12.5
20
72.1
2.3
50.9
9.3
62.1
5.2
52.9
13.2
63.8
5.0
40
60
80
weekend
1-2 week
1 month
1.5 and more months
100
3 weeks
are presently employed are mostly supportive of the up

to one-month long recreation, whereas 74.4% of the
unemployed prefer not less than one month. It is also
notable that according to the respondents working at
international organizations, on average, 36 days of
vacation is necessary. Individual entrepreneurs believe
it should be about 31 days long; the employees of state
institutions and organizations, about 26 days; and the
private sector workers, about 23 days. In our opinion,
the data can be accounted for by the fact that the private sector workers are remunerated for their amount
of work done and want to keep their jobs despite the
sizable unemployment in this country, hence their will1 The respondents were selected from Yerevan communities taking into
account age/sex proportions.
61
ingness to have shorter vacations. The employees of

state institutions and, especially, international organizations wish to have longer vacations.
Chart 2 presents the differences in the opinions of the
quintile income groups of the population.2 Here one can
see that the respondents with higher income are
inclined towards up to one-month long vacation, whereas low-income respondents mostly prefer a longer
vacation.
Let us consider the preferences of the respondents with
respect to the form of their vacation. Seaside recreation
obviously prevails in the preferences of the respondents; 36.0% of the respondents mentioned it as the
most desirable form of recreation; and more than half
(52.4%) mentioned it as the one of the three most
preferable forms of vacation. The most preferable
forms of recreation with more than 10% of the responses are guesthouses and recreation facilities at 17.2%,
health resorts at 15.4%, and traveling, camping, hunting or fishing at 11.8%. Let us also mention that 4.0%
(or 20 people) found it hard to give a concrete answer.
It stands to reason that vacation preferences are determined by this or that distinctive feature of the respondents. In particular, by considering the respondents by
age group, it can be seen that although seaside recreation is the most preferable for all age groups, its
weight decreases in the higher age group. Thus 25.7%
of the respondents in the 60+ year age group mentioned seaside recreation, which is the same percentage as those willing to spend vacations at health
resorts (Chart 3). In addition to these forms of recreation, 10.8% of the respondents in the 60+ year age
group mentioned a fourth form, at a summerhouse or at
an individual parcel of land, whereas only 2.7%
expressed willingness to travel.
Q 2 / O 6 ( # 11 )
Chart 2. The distribution of opinions on the duration of recreation by income groups of the population.
25.6
5th quintile
27.0
4th quintile
3th quintile
12.4
2th quintile
17.2
1th quintile
17.7
If we ignore the respondents who did not specify how

much money they would be willing to spend on their
vacation,3 then we find that the income group is obviously crucial for the amount to be spent on recreation.
More than half of the low-income group (55.3%) is
ready to spend up to 50,000 AMD (half of this group
2 The respondents were divided into five equal groups (quintiles)
depending on their household income. The first quintile includes the
respondents who cited the lowest income, while the fifth quintile
includes the respondents with the highest income.
62
18.9
43.6
11.5
45.9
4.1
65.2
9.0
58.6
9.1
9.0
11.1
17.9
61.1
20
40
60
6.3
80
weekend
1-2 week
1 month
1.5 and more months
100
3 weeks
Chart 3. Vacation preferences by age groups

90
80
70
14.1
60
5.5
12.4
8.3
12.4
21.4
17.8
2.7
18.8
25.7
50
40
30
40.6
47.8
14.8
12.4
18-24
25.34
32.1
20
10
0
21.4
35-44
27.7
21.8
45-59
25.7
17.6
60+
Age groups
Rest houses
No doubt, many other factors affect the vacation preferences. Thus, when segregating the respondents by
sex, the difference between the ones willing to stay at
guesthouses and recreation facilities becomes obvious.
This form of recreation was mentioned by over 21.5%
of women and only 8.9% of men. The preferences of
men are more diverse than the women's. It is supposed
that a regularity can be derived from the preferences of
income groups; however, these are not significant. The
latter attests that the amount of household income is
not crucial for the choice of recreation; however, it
determines the amount of money spent during the
vacation.
11.5
Seaside
Health resorts
Traveling
Chart 4. Readiness to spend money on vacation,

by income group, %
100
80
3.9
5.3
10.5
14.3
25.0
15.4
22.2
15.3
21.7
11.1
25.0
20.3
26.4
31.9
8.8
60
28.6
27.2
40
55.3
25.9
23.6
20
33.0
1st
2nd
18.8
13.6
9.7
7.2
3rd
4th
5th
Income groups
under 50
51-100
101-200
201-300
301 and more
3 This naturally varies depending on the income group. 22.4% of the

respondents from the quintile with the lowest income group found it
hard to answer, whereas in other quintiles it averaged 14%.
indicated their readiness to spend 10,000 AMD) and

42.0% of the respondents from the high-income group
are ready to spend more than 200,000 AMD on their
recreation.
Chart 5. The distribution of the respondents by

vacation duration in 2006, as % of vacationers.
75 days and more
2. Use, form and place of recreation
If we consider the responses of vacationers on the duration of their vacation, it can be seen that they to some
extent differ from the preferences cited by the respondents on the necessary duration of vacation. In most
cases, the duration of actual vacations is inferior to the
preferred ones, which we believe is natural (Chart 5).
The gap between the actual and preferred vacation
would have been wider if Chart 5 also had included
those who did not have any vacation at all. According to
the responses, the average duration of a vacation in
2006 was 26 days, which recalculated for all the
respondents including the ones who did not have vacations would be about 12 days. Thus according to the
survey results, an average Yerevan resident above age
18 over the first ten months of 2006 (until November)
had on average a 12-day vacation.
Let us consider the place where the vacationing
respondents spent their time in the given period (the
first ten months of 2006). Let us note that out of 226
respondents who had vacation, 50 (22.1%) spent it at
home. If we consider the reasons cited by the respondents for spending their vacation at home, nearly half
(45.5%) mentioned scarce financial resources. The
other reasons cited frequently are 22.7% had other
business (work) on hand, 20.5% preferred recreation at
home, and 2.3% could not answer.
The other places where vacations are spent can be
considered in terms of countries (e.g. Armenia and
other countries) and other categories (at a relative's or
friend's place, guest house, on a trip, etc.). Although
most vacationing respondents, over 93%, mentioned
Vacation duration
40-60 days
13.3
25-35 days
27.9
7.1
16-21 days
25.7
10-15 days
18.1
5-8 days
3.1
1-3 days
10
15
20
25
30
Chart 6. The respondents' actual vacation and

place thereof, as % of the respondents in the given
age group.
5.4
41.9
60+
51.4
1.4
Age groups
From the opinions and preferences concerning recreation, let us continue on to the materialization of these
plans in 2006 or the failure thereof. 45.2% of the
respondents indicated that they had (and used) vacation in 2006 and 40.2% indicated that they did not have
vacation. The remaining 14.6% indicated that they did
not have regular vacation; hence, it was hard for them
to speak about that. The fact that one has or has not
vacation can not attest to one's employment since only
45.0% of the respondents identified themselves with
the employed group. In addition, the respondents associate vacation with departures and passing leisure time
for which one's employment is not mandatory. Thus,
depending on the respondents' affiliation with this or
that economic group, going on vacation was cited by
19.3% of the persons working in their households,
77.8% of students, 58.7% of the employed, 8.2% of
pensioners, and 22.9% of the unemployed. The latter
figure is especially noteworthy as it exceeds both the
pensioners and household workers.
4.9
26.7
45-59
51.5
20.8
1.0
26.2
35-44
15.5
25-34
9.7
36.3
18-24
10.9
46.1
0
At home
20
In Armenia
6.0
52.4
40.7
13.3
26.6
16.4
40
60
Abroad
80
100
Have no rest
one vacation location, there are persons who mentioned two or three such locations. Out of 50 respondents who spent their vacation at home, six also spent
their vacation away from home, including five within
Armenia's boundaries and one abroad. Out of the 226
respondents (who cited going on vacation), 44 (19.5%)
spent vacations abroad, while 62.8% spent their vacation in Armenia (away from their home).
The decision to spend their vacation at home or away,
in Armenia or abroad, mostly depends on the respondents' age factor and household income group. Thus,
the number of those who spend vacations at home
increases with age (41.9% of age 60+ and about 10%
of those under 34 years old). Interestingly, more than
half of the respondents over 35 years of age had no
vacation (Chart 6).
To sum up the results in terms of all the respondents, it
can be noted that 8.8% of 18+ Yerevan residents in the
ten months of 2006 went abroad for recreation, while
28.4% spent their vacation in Armenia (away from home).
Table 1 presents some average descriptive indicators on
the respondent in terms of vacation place (country).
63
Q 2 / O 6 ( # 11 )
Table 1. Some average descriptive indicators of the respondent in terms of the chosen vacation place
Age,
average
Number of years of
education, average
At home
38.5
13.3
151 292
4.4
In Armenia
30.8
13.5
239 856
4.1
Abroad
26.4
14.4
401 075
4.1
Place of vacation
Average monthly income of

household, AMD
Average size of the household
Average
Median
At home
40.5
14
117000
In Armenia
26
14
150000
Abroad
23
14
190000
Mode
At home
46
14
200000
In Armenia
20
14
100000
Abroad
20
14
190000
The preferences of the respondents who spent their

vacation in Armenia or abroad are nearly the same. In
both cases most vacationers prefer guesthouses and
health resorts, while the most significant difference is
observed in the share of vacationers who travel (Table 2).
Table 2. Distribution of the vacation locations, as

% of all the respondents, by vacation location
At their friend's or
relative's place
29.7%
26.5%
Lastly, let us consider the distribution of the countries

visited by the respondents. 47.5% of the respondents
who went abroad visited Georgia (Black Sea resorts in
Kobuleti and Batumi) including 2.5% to Abkhazia.
32.5% went to Russia (mainly again to the Black Sea
basin, Sochi). If we take into account that 7.5% went to
Bulgaria, it can be said that nearly 90% of our vacationing compatriots spent their vacations on the Black Sea
coast.
At their own house
11.5%
14.3%
At rest house or health resort
50.7%
38.8%
Traveling
7.4%
18.4%
Other
0.7%
2.0%
Total
100.0%
100.0%
3. Tourist travel, costs

Before considering the respondents' expenditures on
travel and related costs, let us focus on their travel
companions. The responses were mainly as follows:
20.2% of vacationers traveled alone, 53.5% traveled
with family members, 22.7% with friends or relations,
and 3%, however strange it may seem, found it hard to
answer to this question. Interestingly, if we segregate
the responses by age groups, then obviously the ones
who travel with friends will prevail in the lower age
group; the ones who travel with family prevail in the
middle age group, and most of those who travel alone
prevail in the older age group (Chart 7).
The responses of the vacationers about the problems
encountered during their journey and on site are presented in Table 3. It is notable that except language proficiency and travel complications (which are objective),
all the other problems are more often faced by the ones
who spend vacations in Armenia than the ones who go
abroad. Interestingly, financial problems and high prices
were more often mentioned by the vacationers who
stayed in Armenia than those who went abroad.
Let us consider the vacationers' expenses and the
structure thereof. Since in Armenia and abroad the
64
In Armenia
Abroad
Chart 7. Travel companions by age groups.

80
70
60
50
40
30
20
10
0
15-24
25-34
35-44
45-59
+60
Age groups
Alone
with Family
with Friends
vacationers' expenses differ both in terms of absolute

value and structure, we will consider them separately.
Thus in terms of expenditure structure it is obvious that
the share of those who travel abroad and purchased an
all-inclusive tourist package (over 96%) exceeds that of
the ones who used such services in Armenia (about
half). If we compare the average costs of tourist packages abroad and in Armenia, the foreign package is
about twice as expensive (249,000 AMD vs. 124,000
AMD) which is due to the travel costs incorporated into

the foreign package (plane, bus tickets, etc.).
Let us consider the structure of the average expenditure incurred by vacationers in Armenia and abroad by
basic expenditure types (Table 4). The cost of recreation abroad is about 2.8 times as expensive as the
cost of recreation in Armenia; however, if we consider
the structure of expenses, the difference by the basic
items is not so great. Thus, the average food and drinks
expenditures abroad exceed the same expenditures in
Armenia nearly twice. The average payment for the
hotel, house or apartment is even lower abroad than in
Armenia (by more than 20%). The main cause of differences between general indicators is that abroad other
costs exceed similar costs in Armenia 9.5 times, as well
as the fact that transportation costs abroad exceed
domestic costs 5.4 times.
To sum up let us note that according to the survey
results, per Yerevan family, 67,300 AMD were spent on
average on vacation in the first 10 months of 2006.
4. The services of tourist companies

Let us consider in detail the relations between the
respondents and tourist companies. Thus, 22.5% of the
respondents who spent their vacations in Armenia used
a tourist company or intermediary service, while the
same indicator in the case of those who spent vacations abroad amounts to over 65%, and every seventh
vacationer used the services of a foreign company.
When considering the nature of services provided by
travel agencies, we can see that the ones who spent
their vacations in Armenia usually purchased an integrated package or a referral (80.6% of all those who
use the services of travel agencies) and 12.9% used
only the transportation and hotel services (food excluded). As for those who spent vacations abroad, 57.1% of
the ones who used tourist companies purchased integrated packages (referrals) and 35.7% used only transportation services (purchased tickets). If we take into
account that most of those who traveled abroad went to
Georgia, it can be stated that it was rather common to
use travel agencies for the transportation to Kobuleti (or
Batumi).
Those who used the services of travel agencies are
mainly satisfied with the quality of provided services.
50.1% were completely satisfied with the services provided, 44.6% were mainly satisfied, and 4.6% of the
respondents were dissatisfied with the services of travel agencies. Notably, if we consider the opinions of the
respondents in terms of the recreation venue, the dissatisfied are among those who spent their vacation in
Armenia. If we take into account that 60.7% of those
who went abroad were entirely satisfied with the service quality, and 35.5% of those who stayed in Armenia
were entirely satisfied, then we can conclude that the
service provision quality by the domestic companies
leaves much to be desired compared with the services
provided abroad.
Interesting results were obtained when analyzing the
decisive factors for the choice of travel agency. In general, for those who use the services of travel agencies
the opinions of friends and acquaintances about the
given tourist company are most important (this was
Table 3. The problems most frequently encountered during vacation, % of total vacationer respondents.
In Armenia
Abroad
Total
no problem
60.4%
61.7%
60.9%
financial problems, expensiveness
15.3%
10.0%
13.9%
4.5%
unrealized expectations
5.6%
1.7%
traveling problems
5.6%
10.0%
6.9%
language issues
0.7%
3.3%
1.5%
food issues
4.9%
1.7%
3.5%
other
1.4%
1.7%
1.5%
hard to say
6.3%
10.0%
7.4%
100.0%
100.0%
100.0%
Total
Table 4. Average expenditures during the vacation, by basic groups

In Armenia
Abroad
Category of expenditure
AMD
% in expenses
AMD
Hotel, house rental fee
70 646
32.4%
55 500
9.2%
Food and drinks
58 727
27.0%
115 039
19.0%
Transportation
19 842
9.1%
107 738
17.8%
Recreation, cultural, sport and other relevant activity expenses
27 423
12.6%
85 750
14.2%
Purchases, gifts
24 358
11.2%
79 748
13.2%
Other expenses
16 909
7.8%
161 500
26.7%
217 906
100.0%
605 275
100.0%
Total
% in expenses
65
indicated by nearly half (44.6%) of the respondents).

The next decisive factors are as follows: the name of
the given company or whether it is famous (21.5%), the
company's advertising (15.4%), and quoted prices
(12.3%). If we consider the respondents by various
groups, then although the above four factors are present in all four groups, they vary in importance. For
example, for the students on vacation their friends' references are more important (59.1%) and advertising is
least important (just 9.1%). The variations are more
obvious when the respondents are segregated by sex
(Chart 8).
If for women the references of friends in the choice of
travel agencies are most important (51.2%); for men it
is less crucial (31.8%). About 31.8% of men attach less
importance to the name of the company or its being
famous. Notably, the quoted price is more important for
women (16.3%) than for men (4.5%).
Information and awareness play an important role in
the choice of travel agency. The dominating majority of
the respondents (80.8%) indicated that they obtained
the basic information about travel agencies and recreation venues from the television and 9.2% get information from friends, acquaintances and relations. The
other sources of information are incomparably less
important: magazines and newspapers at 4.2% and
the Internet at 2.0%. The role of the Internet as a
source of information is especially low compared with
the percentage of people who obtain information
through the Internet in other countries.
Q 2 / O 6 ( # 11 )
Chart 8. Distribution of the factors decisive for the

choice of travel agency, by sex, % of all the respondents of the given sex
16.3
company name
31.8
51.2
recommendation of
friends
31.8
14.0
18.2
advertisement
16.3
price
4.5
0.0
specific offer
9.1
2.3
4.5
hard to say
10
20
30
men
40
50
60
women
Chart 9. Variation in the appraisal of certain factors

impacting recreation arrangements in Armenia by the
responses of the ones who spent the vacation in
Armenia and abroad, % of the total number of respondents in this group
80
70
60
50
40
5. Appraisal of recreation capacities in

Armenia
30
Let us consider the respondents' opinions and

appraisals on tourism capacities of Armenia (Table 5).
Grading the appraisals in three degrees (high, medium,
low) we see that according to the respondents, the situation is most satisfactory in Armenia's hotels and
restaurants (61.4% high, 3.2% low). Natural conditions
are also positively appraised by the respondents
(53.0% high, 9.6% low). In contrast with this, the percentage of high graders for service quality is comparatively low at 30.0%; whereas, 20% appraised the quality as low. The remaining two factors, the infrastructure
and price, were mainly appraised as low than high.
Moreover, 74.1% believe the price is high for tourism in
Armenia; whereas, only 1.2% believe the price is low.
10
20
high
low
natural
conditions
high
low
high
hotels,
restaurants
low
high
low
infrastructure the quality of

services
In Armenia
high
low
price
Abroad
If we compare the appraisals given by the vacationers

in Armenia and abroad (Chart 9) one can see the following distinctive features. Nature resources and hotels
are mostly highly appraised by the ones who spent their
vacation in Armenia; whereas, infrastructure or service
quality are highly appraised by those who spent vaca-
Table 5. Distribution of appraisals for the conditions for tourism development conditions in Armenia, % of all
the respondents
very high
medium
low
very low
Natural conditions
16.2%
36.8%
37.4%
5.6%
Hotels, restaurants
12.8%
48.6%
35.4%
2.2%
1.0%
2.2%
18.6%
49.8%
17.2%
12.2%
Infrastructure (roads, rest rooms, boutiques, other)

Quality of service
Price
66
high
4.0%
6.8%
23.2%
48.0%
12.8%
9.2%
37.6%
36.6%
24.6%
1.2%
0.0%
tions abroad. The latter can be accounted for as follows:

infrastructure or service quality appraisals deteriorate
after exposure to them, which means that the notion
thereof was better that the reality. The distribution of
opinions about the recreation prices in Armenia is also
of interest as most of the respondents who took a vacation abroad believe that the prices in Armenia are high.
Chart 10. Expenditure on weekend recreation by

household income quintile groups
100
80
The two most frequently cited recreation venues are as

follows: Lake Sevan (32% of respondents and 57.3% of
those who go out of town) and camping in the country
(18.8% and 33.7%, respectively). As the respondents'
age increases, the percentage of those who go to Lake
Sevan decreases (70% of 18-24 year olds go out of
town to Lake Sevan, only 37.5% go there from the 60+
age group). The 60+ age group acquired a new recreation venue, the summerhouse.
2.2
7.0
10.9
8.5
6.7
27.1
38.3
15.8
20.0
26.1
28.1
60
45.0
6. Recreation on weekends
In addition to the time allocated to tourism and recreation
over the year, it is also possible to use the weekends for
recreation purposes. More than half (55.4%) of the
respondents used such opportunities to go out of town.
The percentage of such vacationers varies significantly
depending on the group of respondents. Thus, among
students this amounts to 70%, among men 60%, and
40% of women, etc. There is a clear dependence
between the increase in age and the decrease in going
out of town, as well as between the increase in household
income and the decrease in the percentage of travelers.
0.0
25.4
40
47.8
33.3
27.1
35.0
13.0
15.8
11.9
1st
2nd
3rd
4th
36.7
20
16.7
1.7
5th
Age groups
under 10 ths AMD
10-50 ths AMD
101-200 ths AMD
201 ths and more
50-100 ths AMD
When considering the respondents by household

income groups, there are no visible differences for the
choice of recreation venue or form. The differences
emerge only when considering the amounts spent on
recreation. Thus, 35.0% of the lowest-income 1st quintile group spent on average less than 10,000 AMD to go
out of town and a maximum of 50000-100,000 AMD,
and in the 5th (highest-income) quintile only 1.7% spent
under 10,000 AMD (Chart 10).
CONCLUSIONS
According to the majority of respondents (53.4%) the best duration of vacation is one month. 12.6%
consider two weeks and 12.4% consider three weeks sufficient for a vacation. The other answers have
fewer supporters: 5.6% for 1.5-2 months, 4.8% for 1 week, and 2.2% for more than 2 months.
Interestingly, according to 3.6% of the respondents the rest on each weekend is sufficient for fullfledged recreation.
Among the forms of recreation, the seaside is the first preference (36.0%). Other forms with more than
10% of the responses are guesthouses at 17.2%, health resorts at 15.4%, and traveling, camping or
hunting at 11.8%.
45.2% indicated that in 2006 they had and used their vacations. 40.2% indicated that they did not have
vacation. The remainder, 14.6%, indicated that they do not have regular work; hence, it is hard for
them to speak about vacations.
The average duration of the respondents' vacations in 2006 was 26 days which, if recalculated for all
respondents (including the ones who did not have vacation) will amount to 12 days. Thus, according
to the survey results, an average resident of Yerevan over 18 years of age in the first 10 months of
2006 had 12 days of vacation.
22.1% of the respondents spent their vacations at home. 45.5% of those who spent their vacations at
home cited the scarcity of financial resources. Other cited reasons are 22.7% had other work (business), 20.5% preferred to rest at home, and 2.3% found it hard to answer.
Out of the 226 respondents who had vacations, 44 (19.5%) went abroad and 62.8% vacationed in
Armenia (not at home).
67
Q 2 / O 6 ( # 11 )
47.5% of those who vacationed abroad went to Georgia (Black Sea resorts in Kobuleti and Batumi),
of which 2.5% to Abkhazia and 32.5% to Russia (mainly Sochi). If we take into account that 7.5% went
to Bulgaria, then we can say that nearly 90% of our citizens who went abroad on vacation preferred
the Black sea coast.
The total average expenditure on recreation abroad exceeds about 2.8 times the expenditure on recreation in Armenia, however, the differences in the main items of expenditure are not so significant.
Average expenses on food and drinks abroad exceed nearly twice the same expenses in Armenia,
while the payment for hotel, house or apartment abroad is even lower than in Armenia (by more than
20%). The main cause of the differences in expenses abroad is that other costs exceed 9.5 times the
same costs in Armenia. Also, transportation costs abroad exceed the ones in Armenia about 5.4
times.
Per Yerevan family, 67,300 AMD was spent on average on vacation in the first 10 months of 2006.
22.5% of the respondents who spent their vacations in Armenia used a tourist company or intermediary service, while the same indicator for those who spent vacations abroad is over 65%.
The ones who used the services of travel agencies are mainly satisfied with the quality of provided
services. 4.6% of the respondents were dissatisfied with the services of travel agencies. The dissatisfied ones were those who stayed in Armenia. 60.7% of those who went abroad were entirely satisfied with the service quality, and 35.5% of those who stayed in Armenia were entirely satisfied.
In general, for those who use the services of travel agencies the opinions of friends and acquaintances about the given tourist company are most important (this was indicated by nearly half or 44.6% of
the respondents). The next decisive factors are as follows: the name of the given company or whether
it is famous (21.5%), the company's advertising (15.4%), and quoted prices (12.3%).
In the context of tourism development prospects in Armenia, the situation is most satisfactory in
Armenia's hotels and restaurants (61.4% high, 3.2% low). Natural conditions are also positively
appraised by the respondents (53.0% high, 9.6% low). In contrast with this, the percentage of high
graders for service quality is comparatively low at 30.0%, whereas 20% appraised the quality as low.
The remaining two factors, the infrastructure and price, were mainly appraised as low than high.
Moreover, 74.1% believe the price is high for tourism in Armenia, whereas only 1.2% believe the price
is low.
More than half (55.4%) of the respondents used the weekend to go out of town. If the difference in
terms of recreation venue is insignificant for different groups of respondents, then in terms of
expenses, the household income quintile groups differ greatly.
68
List of Important Events
CHRONOLOGY OF IMPORTANT EVENTS
August
17
Gabriel Geara, the Ambassador of Lebanon to

Armenia, on behalf of his country thanked the
government and the people of Armenia for the
assistance provided during the recent conflict.
The four-day Second All-Armenian Educational
Conference dedicated to the elaboration of the
standards in the all-Armenian education system
started in Tsakhkadzor.
22
25
John Evans, the US Ambassador Extraordinary

and Plenipotentiary, completed his mission in
Armenia.
The Embassy of the Russian Federation in
Armenia expressed its gratitude for the condolences expressed by the Armenian people on the
occasion of the crash of the Pulkovo Airlines
plane.
The respected Armenian poet Silva Kaputikian
passed away at the age of 87.
September
2
4
12
The Nagorno Karabakh Republic celebrated the

15th anniversary of its independence.
The President of Belarus received the credentials of the Ambassador of the Republic of
Armenia to Belarus, Oleg Yesayan.
The Ambassador of the Republic of Armenia to
Argentina, Uruguay and Chile, Vladimir
Karmirshalian, (based in Buenos Aires) presented his credentials to the President of Chile,
Michelle Bachelet.
13
14
21
AEPLAC held the presentation of the 7th book

published in the European Integration Library
Series, Securitization of Assets in Europe, at the
Tekeyan Center in Yerevan.
Armenia has become the second country in the

post-Soviet area to test and introduce ATMs
capable of receiving cash.
A military parade took place in Yerevan on the
occasion of the 15th anniversary of Armenia's
independence
The 3rd All-Armenian Armenia-Diaspora Forum
ended.
The parliament of the Argentine province

Cordoba adopted a declaration marking April 24
as the commemoration day of the Armenian
Genocide victims.
The Days of Yerevan in Moscow commenced
within the framework of the Year of Armenia in
Russia.
The US Senate restricted the approval of the

candidacy of the new US Ambassador to
Armenia for an indefinite period.
The 2nd All-Armenian Economic Forum started.
26
Serge Smesov was appointed the new

Ambassador of France to Armenia.
29
The oldest citizen of Armenia, Gula Navoyan, is

124 years old.
69
Q 2 / O 6 ( # 11 )
October
2
3
11
The opening ceremony of the Days of France in

Armenia took place in Yerevan.
17
The newly appointed Ambassador of Switzerland

to Armenia, Lorenzo Amberg, (based in Tbilisi)
presented his credentials to President Robert
Kocharian.
27
The newly appointed Armenian Ambassador to

the United Arab Emirates, Vahagn Melikian, presented his credentials to the President of the
United Arab Emirates, Sheikh Khalifa Bin Zayed
Al-Nuhayan.
The Ambassador Extraordinary and
Plenipotentiary of Romania to Armenia, Nikolae
Iordake, completed his mission in Armenia.
12
70
The French Parliament adopted the draft law criminalizing the denial of the Armenian Genocide in
the Ottoman Empire in the early 20th century.
AEPLAC held the presentation of the 8th book

published in the European Integration Library
Series, European Union in Detail, in Yerevan.
The Parliament of Milan, Italy, adopted the resolution recognizing the Armenian Genocide in the
Ottoman Empire in 1915.
The newly appointed Ambassador of Sweden to
the Republic of Armenia, Hans Gunar Aden, presented his credentials to President Robert
Kocharian.
The Armenian Ambassador to Norway, Ara
Aivazian, presented his credentials to King
Harald V of Norway.
YOU CAN CONTACT US...
Address:
28 Charents Str., Yerevan 0025, Armenia
E-mail:
at@aeplac.am
Tel/Fax:
(374 10) 55-30-81
TO SUBSCRIBE TO ARMENIAN TRENDS
Visit us, phone us, fax us, e-mail us
TO SUBMIT AN ARTICLE
Topics:
Business and Investment; Economic, Legal and

Institutional Reforms; International Economics and
Policy, etc (2-3 pages, font type: Arial, font size: 10,
single line spacing, standard page setup).
Authors of the articles selected by Editorial Board will get an

honorarium.
Please submit articles or brief proposals to:
at@aeplac.am or contact us.
TO BE INCLUDED IN THE ARMENIAN TRENDS TOP 10 LIST
Send the requested figures of your company.

To download the form please visit:
http://www.aeplac.am or contact us.
YOUR COMMENTS
E-mail: at@aeplac.am
71
72

The Basic Features of Export Promotion Policy in Developing Countries 2006 Eng - q2 - 06 Karen Grigoryan Pages 41-47

Caricato da

Informazioni sul documento

Titolo originale

Copyright

Formati disponibili

Condividi questo documento

Condividi o incorpora il documento

Opzioni di condivisione

Hai trovato utile questo documento?

Questo contenuto è inappropriato?

Copyright:

Formati disponibili

The Basic Features of Export Promotion Policy in Developing Countries 2006 Eng - q2 - 06 Karen Grigoryan Pages 41-47

Caricato da

Copyright:

Formati disponibili

6

ARMENIAN - EUROPEAN POLICY AND LEGAL ADVICE CENTRE

We wish you enjoyable reading.

Economically Active Population, thousands

GDP, million AMD, current prices

Current Account Balance, million USD

Volumes of Industrial Production, million AMD

Base Money, million AMD (as of 30 September 2006)

Average of less than a year Lending Rate of Commercial Banks

State External Debt, million USD (as of 30 June 2006)

AMD/USD Exchange Rate, Period Average

Economy: Macroeconomic Overview

THE MACROECONOMIC SITUATION IN THE REPUBLIC OF ARMENIA: JANUARYJUNE 20061

Chart 1. GDP growth in the first half of 2002-2006,

Appreciation of AMD to USD

Chart 2. GDP growth structure in the first six

Below we will consider the developments in Armenia's

Net taxes on products

port and communication) which in the first half of 2006

Transport and Communications

GDP, market prices

Share in the structure of

Trade and Catering

Total, basic branches

Net taxes on products

basic sectors of economy contributing to the GDP

Chart 3. Growth of net taxes on products and GDP

1999 2000 2001 2002 2003 2004 2005 2006

ity of net taxes on products in the GDP structure is very

Table 2. Total demand structure in the first six months of 2005-2006

Growth to the fist six Contribution to GDP

Private final consumption

Public final consumption, of which

Final Consumption Expenditures

Gross Domestic Products

Economy: Macroeconomic Overview

economy, consumption exceeded production by

Public final consumption

Export minus import

rency with respect to basic currencies over the recent

Table 3. Growth rate of industrial output in the CIS countries in January-June

Industrial output growth,

Difference from RA indicator,

Difference from CIS indicator,

The following distinctive development patterns can be

Chart 5. The share of main sub-branches in the

The volume of the mining industry sub-branch has

It should be mentioned that the manufacturing branch

As to the share of main sub-branches in manufacturing,

Table 4. Development dynamics of industrial output in key sub-branches in January-June

Physical production volume index, to the

Food products, including beverages

Economy: Macroeconomic Overview

Chart 6. Structure of the sub-branch of electricity,

The volume of produced energy in Armenia declined by

Chart 7. Increase in food (F), non-food (N/F) and

As of end of June 2006, consumer prices compared with

As to the industrial output by marzes, it should be noted

food products, including beverages subdivision has also

June against December of previous year

Table 6. Development dynamics of industrial output in marzes in January-June 2006

Share in the overall industrial

Growth rate: January-June 2006