Supporting Exports: Challenges and Opportunities for Credit Insurance in Armenia
| Author | Shane Rosenthal,Vazgen Abgaryan |
| Date | 01 September 2017 |
| Published date | 01 September 2017 |
| DOI | http://doi.org/10.1111/1758-5899.12477 |
Supporting Exports: Challenges and
Opportunities for Credit Insurance in Armenia
Vazgen Abgaryan
Executive Director, EIAA
Shane Rosenthal
Country Director, ADB
Abstract
This article discusses the role of credit insurance in Armenia as an important mechanism for promoting export diversification,
growth and sustainable development. The authors show that a market gap in demand for export financing, as compared with
existing supply, is mainly attributed to the use of two-factor models by commercial banks, limited product knowledge, and
increased risk of cross-border trade transactions. The authors analyse the key drivers for export financing and export insur-
ance, showing the immediate impact the Armenian export credit agency has achieved over the past two years, and argue its
defining role for the development of value chains over the medium and long term.
Introduction
Armenia, the first Christian nation with history dating back
to 2500 BC, can well be considered as a remarkable example
of an emerging economy. Landlocked and having no diplo-
matic relations with two of its four bordering countries, the
country has built a relatively strong economy with a stable
currency, a robust financial system and ambitious plans for
development. Membership in the Eurasian Economic Union
with its 180 million consumers, combined with generalised
schemes of preferences (GSP and GSP+) access to the Euro-
pean Union, USA, Japan, Canada, Switzerland and Norway,
provides opportunities for Armenian exports and positions
the country as a bridge for third countries, such as Iran,
through joint production. Ranking 38 in the World Bank
Doing Business Report, and 33 in the Heritage Foundation’s
Economic Freedom Index 2017, the country offers foreign
investors benefits such as guarantees against changes in
legislation for five years, equal treatment, no limitations on
repatriation of profits, land ownership permission, and defer-
ral of value-added tax on most qualified investments. These
policies have helped attract brands like NASDAQ OMX,
HSBC, ACBA Credit-Agricole, Microsoft, National Instruments,
Synopsys, and Carrefour.
The Armenian economy
With a population of roughly three million, the country
recorded a gross domestic product (GDP) of US$10.6 billion
as of year-end 2015. Despite being connected with market
turbulence in Russia, Armenia has managed to keep inflation
steady at 3.0 per cent and 3.7 per cent in 2014 and 2015
respectively. Given the small size of the domestic market,
export promotion has been one of the first priorities of the
government. With limited natural resources and absence of
oil and gas, Armenia’s path to long-term development
clearly lies in the continuous expansion of the non-mineral
exports with high value added (Figure 1).
The country has also recorded substantial progress in low-
ering the negative trade balance, with the aim of bringing
the volume of exports to 40 to 45 per cent of GDP within
the next five years. As of today, however, the negative trade
balance is more than US$1.5 billion (Figure 2).
Economic integration and elimination of borders are
opening up new markets, but is also bringing new players
and more intense competition. Unless Armenia’s competitive
edge is supported by a knowledge-based economy or inno-
vative technology, it will face long term challenges exploit-
ing its comparative advantage. As a small economy with
limited production capabilities, Armenian producers do not
start with an advantage in the scale of production. This
makes it economically infeasible to compete for consumers
on the basis of price. In addition, extra hurdles such as strict
certification requirements, high transportation and import
duties, or presence of ‘aged’brands make it difficult for
products like wine, brandy, processed food and meat prod-
ucts, where markets are well established. To overcome these
challenges, the government of Armenia has been helping to
subsidize certification costs, reimburse trade fair participa-
tion costs, and organize trade missions. This has had a posi-
tive impact in both diversification of export destinations and
an increase in product offerings –which are distinguished
by their natural and organic qualities. Steps have also been
taken to improve the trade environment and financial
Global Policy (2017) 8:3 doi: 10.1111/1758-5899.12477 ©2017 University of Durham and John Wiley & Sons, Ltd.
Global Policy Volume 8 . Issue 3 . September 2017 397
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