Armenia Trade Competitiveness Diagnostic

Overview:
In October 2024, the World Bank released the Trade Competitiveness Diagnostic (TCD) report for Armenia, which provides a comprehensive analysis of the country's trade landscape and competitiveness in global markets. The report identifies trade obstacles, highlights areas for improvement, and explores opportunities for Armenia to enhance its global trade position.

Key Findings:

• Export Growth: Armenia has experienced significant growth in goods and services exports, which have risen from 27% of GDP in 2011 to 42% in 2019.
• Export Composition: Armenia's export profile is dominated by unprocessed commodities, particularly copper ores, which represent 25% of total exports (2019-2021). Over 80% of merchandise exports are primary products, suggesting a heavy dependence on commodities, which makes Armenia vulnerable to changes in global demand and international prices. Services exports, particularly ICT, have also soared.
• Market Concentration: Armenia's export destinations are highly concentrated, and the country is increasingly reliant on Russia and China, while the share of its exports to the EU is declining (from 43% in 2011 to 23% in 2021).
• Geographical and Trade Barriers: Armenia's landlocked status and closed borders with Türkiye and Azerbaijan limit trade access. Joining the Eurasian Economic Union (EAEU) has increased Armenia's dependence on EAEU trade partners and raised tariffs. By limiting Armenia's ability to lower tariffs on its own, this makes it harder for the country to procure affordable, high-quality imports and materials. As a result, Armenian businesses, whose expansion and growth are also constrained by a relatively small domestic market, struggle to compete internationally. The situation is further exacerbated by the loss of special trade benefits through the EU's GSP+ program.
• Armenia's information-communication technology (ICT) services sector has grown rapidly and is helping the country overcome some of its trade challenges. In 2021, ICT made up 20% of Armenia's commercial services exports and the country has a strong competitive advantage in post and telecommunications services compared to its peers. The sector benefits from growing investments, especially from the Armenian diaspora, and faces fewer barriers than goods trade, as digital services bypass traditional logistical issues. The ICT sector is also shifting toward higher value-added services, which are in high demand globally, especially after the COVID-19 pandemic.

Turning challenges into opportunities:

• Trade Facilitation: Armenia has an opportunity to increase trade by effectively implementing WTO Trade Facilitation Agreement (TFA) obligations. The OECD trade facilitation indicators reveal that Armenia lags in areas such as engagement with the trade community and cross-border cooperation. Effective implementation of the WTO Trade Facilitation Agreement could boost exports by 14.8 %, imports by 10.9%, and real GDP by 2.9%.
• Foreign Direct Investment (FDI): Armenia has the potential to attract further investments in mining, services (IT and finance), utilities, and manufacturing. To improve FDI attractiveness, Armenia will need to strengthen investor protections and provide enhanced investor facilitation services through a fully enabled investment attraction agency.
• ICT Sector: Armenia's booming ICT sector has high growth potential, with opportunities to integrate services into manufacturing. To further enhance this sector, educational programs must be aligned with industry needs to increase the availability of skilled talent in fields such as software development, engineering, and product management. Additionally, addressing regulatory gaps, particularly in personal data protection and cross-border data transfer, should be a priority.

The report highlights three strategic priorities critical to enhancing Armenia's trade competitiveness.

1. Ensure effective implementation of the WTO Trade Facilitation Agreement:

• Institutionalize a national committee on trade facilitation that fosters collaboration with the private sector to design solutions, in line with best practices and uptake of services.
• Advance digitization reforms, consolidate initiatives of border agencies to strengthen governance, and redesign border management procedures based on modern technologies.

2. Review and adjust export support to promote diversification:

• Develop temporary, targeted programs in sectors like agriculture, apparel, and ICT.
• Facilitate linkages by integrating domestic SMEs with larger exporters and adopting best practices to facilitate certification of products.

3. Continue to enhance ICT sector competitiveness:

• Upskill the workforce, revise regulatory frameworks, and attract foreign investment.
• Address gaps in data protection laws and improve state capacity for regulatory enforcement.

To boost its global competitiveness, Armenia needs strategic interventions in trade facilitation, export diversification, and ICT sector enhancement. These steps will help Armenia overcome its trade constraints and position itself more favorably in global markets.