by David Zenian
Armenia's young Prime Minister Armen Darbinian is confident that his government's liberal economic policies will continue to encourage foreign investment in his land-locked nation.
He admits that the road to economic prosperity is long and often linked to regional developments, but says Armenia is on the right track.
"Armenia has the most liberal economic policies among the former Soviet republics, and while we are still in the transition phase, continued economic freedom, free enterprise and a strong social safety net will guarantee movement toward a better life," he said in a recent interview.
Darbinian said Armenia has already entered the phase of financial stability, economic growth and is sparing no effort to boost foreign investment.
Citing recently published figures, Darbinian said foreign investment has doubled in two years -- from 140 million dollars to a little more than 300 million dollars this year.
This, he said, was due to liberal tax laws which include tax shelters for foreign investors. These include a two year grace period which would be followed by only a profit tax. "There is no capital tax and no restrictions on investors to take their profits out of Armenia," Darbinian said.
Most of the foreign investment involves the computer, hi-tech, and chemical industries which Darbinian says could generate as many as 500,000 jobs in the next ten years.
"No one should be afraid to invest in Armenia," he said.
Darbinian's up-beat look at Armenia's future is partly based on the faith and trust of several key investors who have "put their money where their heart is."
One such person is American Armenian billionaire Mr. Kirk Kerkorian who has pledged a total of 200 million dollars to energize the Armenian economy and infrastructure.
While 100 million dollars of Mr. Kerkorian's gift to Armenia is specifically earmarked for small business loans and 15 million for housing projects in the devastated regions of the 1988 earthquake, more significant is his 85 million dollar allocation for a strategic road project which will enhance Armenia's role in the region and make it a real "transit state" between south and north.
The so-called "Kerkorian's road" will begin from the Armenian town of Meghri on the border with Iran in the south and reach the Georgian capital of Tbilisi in the north.
The three-part project, which needs Georgian approval and cost sharing with Armenia only for the portion between the Armenian border and Tbilisi and more international funding for the construction work within Armenia, is scheduled to be completed by the year 2003.
The total cost of the road is estimated at 150 million dollars.
The Georgian government has already been approached and asked to share part of the 15 million dollar cost for the Armenian border to Tbilisi section, and negotiations are underway with the World Bank and other international lending institutions for a 50 million dollar loan to supplement Mr. Kerkorian's 85 million dollars allocated for the construction work within Armenia's borders.
Mr. Kerkorian's faith in Armenia's future, along with the Yerevan government's open-door economic policies, are encouraging others to also invest.
Just think.
The next time you buy a diamond ring, there is a good chance that the precious stone was cut to perfection in Armenia or Nagorno Karabakh -- one of the hundreds of stones that pass through the hands of skilled Armenian craftsmen every day.
The same is true with your next telephone bill in the United States. It could very well be generated by software written in Yerevan by Armenian computer programmers.
Neither of these products carry the explicit "Made in Armenia" label, but nevertheless, they are placing Armenia on the world map of technology, where hi-tech is as important as the mass production of tractors or heavy machinery.
Another hi-tech sector is in pharmaceuticals where the first bold steps have already made an impact on the cost of at least one product -- intravenous fluids -- which no longer needs to be imported from overseas.
The three new additions to Armenia's production infrastructure generate not only well-paying jobs in a country where dozens of Soviet-era factories have closed since the collapse of the Soviet Union, but also set a trend in a new direction based on the nation's human resources.
"We can no longer depend on heavy industry and mass production of goods. We need a new direction which should be based on Armenia's main asset -- its brain power and skilled labor force," says Gagik Abrahamian, the Director General of the state-owned Shoghakn diamond cutting facility.
"Armenians are by nature perfectionists, and this has been true for centuries. Examples of this are evident in the ancient manuscripts, the miniature writings and paintings," he said.
But the Armenians have also excelled in other fields.
During the Soviet era, Armenia was often referred to as the "silicon valley" of the Soviet Union. More than 35 percent of Armenia's Gross National Product (GNP) was industry based.
In the hi-tech - though mainly military - fields of communications, computers and space technology, Armenia produced more than 20 percent of the needs of the entire Soviet Union. In other electronics, the proportion was 15 percent, and in light industry, more than 20 percent.
By Soviet accounts, given the size of its population, Armenia was the most industrialized member of the former USSR.
Armenia's industrial base, however, was very labor intensive, and that was due to the old Soviet concept which regarded employment as a basic right of every citizen. There was no room for unemployment.
It was not important if 50 people were assigned to a job which could have easily been done by five. Everyone had to work.
The Shoghakn enterprise was established in 1981 when Armenia was still one of the republics of the former Soviet Union. It had a cut production capacity of 100,000 carats per year.
The rough stones were sent from Russia and the cut diamonds were sent back to Moscow.
In the years before the collapse of the Soviet Union, the facility had more than 1,200 employees, including about 500 upper, middle and lower class managers. There were also the communist party representatives who played the role of the "big brother who kept an eye on everything."
After independence, and the dramatic shift in direction, more than 500 "employees" were dismissed. Abrahamian says most of these were "artificially employed because they spent their days at the factory drinking coffee and doing nothing or very little else."
He said in the old days the factory also had more than 50 accountants. They too were dismissed and replaced by two qualified accountants and "a good computer which does all the quality checks on every piece of cut diamond in a very professional way."
The new approach has given the diamond factory a new lease on life.
"This factory worked like a robot. The key factor was production and no one had to worry about sales. No one had any idea what the world diamond market was," said Abrahamian, an electrical engineer who entered the world of diamonds only six years ago when he was named director of Shoghakn.
"I learned the business on the job, but could not have done it without the help of Vartkess Knadjian."
Knadjian is an Armenian diamond dealer in Antwerp, Belgium -- one of the world's largest diamond trading centers. He is also chapter chairman of the local Armenian General Benevolent Union.
After the collapse of the Soviet Union, Shoghakn was left out in the cold.
"This facility was doomed. Our orders from Moscow dried up and we were about to close when Knadjian stepped in...as an Armenian who had the expertise, the contacts and market skills and who wanted to help his homeland. He did not come in as a partner or investor, but rather as a big brother who wanted to help Armenia," Abrahamian said.
The journey into the international diamond cutting world was long. No one knew of Armenia's abilities or even the fact that a facility like Shoghakn existed in the first place.
With Knadjian as the point man and with the stubborn perseverance of Shoghakn Director General Abrahamian, the first contacts were made with the South African diamond group, De Beers, which holds an effective monopoly over more than 70 percent of the world's rough diamond mining and sales.
"It was clear from the beginning that we could not expect to move ahead without De Beers, a company which is very scrupulous about who it trusts with cutting its diamonds," Abrahamian said.
Abrahamian's first visit to De Beers' London office in 1993 produced no results, but generated enough interest in the Armenian facility for De Beers to send six technical missions to Yerevan to investigate and "test" Shoghakn's potential.
The breakthrough came in 1995 when De Beers, finally convinced that the Shoghakn facility was as good as any in the world, sent its first rough diamonds to Armenia for processing.
Since then, the facility, which employs several hundred people, has cut more than 40 million dollars worth of diamonds which were sent back to Europe for sale on the international market.
"This is a risky business, where trust and quality play key roles. If we fail in either one, we will be out forever. At risk is not just our money, but also our reputation. So far, we have done very well," he said.
Encouraged by its initial success, Shoghakn has opened a small facility in Stepanakert, the capital of Nagorno Karabakh, where a dozen experts are employed.
"Some of our cutters make up to 300 dollars a month which is considered a top salary in Armenia today. The greater the volume, the more money they make," Abrahamian said.
The diamond sector is not the only success story. Computer software and pharmaceuticals are also moving full-speed ahead toward establishing themselves as the new components in post-communist Armenian industry.
Only a few months old, the off-shoot of a Texas-based computer software facility is already growing into an important support unit where Armenian programmers are busy filling contracts and learning new skills at the same time.
"We started with 15 people and we will soon add another ten computer programmers. The target is to increase this work force to 100, and I think we can get there very soon because there is no shortage of skilled computer experts in Armenia," says Sam Simonian, President and CEO of INET, one of the fastest growing telecommunications companies in Texas.
Simonian, a graduate of the Armenian General Benevolent Union's Hovaguimian-Manougian secondary school in Beirut and the University of Texas school of electrical engineering, has already built INET into a multi-million dollar enterprise and hopes to turn its Yerevan off-shoot into a similar success story.
"I want to stimulate the telecommunications software sector in Armenia, not just by creating jobs, but also giving young engineers new opportunities in one of the fastest growing sectors of the computer industry," Simonian said from his Dallas, Texas office.
In the few months since the opening of INET's Yerevan office, several Armenian computer programmers have already been trained in Dallas. Others will be trained as the Yerevan facility grows.
"I want to bring as many people as I can, not just to prepare them for work in our Yerevan office, but in the long run, to create a work force which can grow by itself and give Armenia a new boost as more telecommunications markets open up in the former Soviet Union.
"The computer and telecommunication industry is growing very fast, and I want to see Armenia part of that process. I am very excited about this project," he said.
"There is no shortage of computer experts in Armenia. In fact, all the equipment we use in our Yerevan office is home-grown. We are moving fast," Simonian said.
If the computer and diamond industries are moving full-speed, so are pharmaceuticals which not only fill an urgent need in the Armenian market, but also in the rest of the Commonwealth of Independent States (CIS).
After several successful ventures, London-based businessman and philanthropist Vatché Manoukian recently brought another international company to Armenia to follow the footsteps of Coca Cola and Midland Bank which have revolutionized the soft drink and banking business in Armenia.
The GlaxoWellcome Bristol-Myers Squibb Company and Armenia's PharmaTech began operations earlier this year, and in its first few months have already made an impact.
The production of intravenous glucose solutions has put an end to expensive imports and taken its first steps to export the product to other markets in the region.
"We can produce up to 9,000 bags of glucose solution per day of which 30 percent is more than enough to meet the requirements of all the hospitals in Armenia," said PharmaTech's General Manager Vova Galstyan.
"Armenia used to buy each bag of glucose solution from Europe for 1.20 dollars. We are selling the same product for 60 cents," he said.
The facility employs 50 people who make an average of 200 dollars a month. More staff will be hired as production increases and new products are added.
In the months to come, the facility will add a packaging element along with a major storage unit which will serve the mother company's vast markets in the former Soviet Union.
"We are presently negotiating with several countries and will soon have all the necessary licenses to begin exports to places like Russia and the Central Asian republics. We will be increasing our production quickly," Galstyan said.
But not all foreign investment projects are as free of controversy.
Opposition politicians were up in arms when the government recently sold Armenia's 110-year-old cognac factory to Pernod-Ricard, a French company.
The deal, the result of an international tender in June 1997 which produced only two bidders and was supervised by Merrill-Lynch, was worth 30 million dollars. But opposition activists said the selling price was too low for a facility that has made the Armenian national drink famous across the former Soviet Union and elsewhere.
"The opposition described the sale as treason, but we think it was good not only for the Armenian grape farmers, but also for the high quality of the product itself," a government source said.
The French manager, Mr. Jean François Rouquet who represents the new owners in Armenia, said his company had no intention of changing the well-known brand names and was prepared to invest large sums of money to improve Armenia's vineyards.
"Initially, we will concentrate on already existing markets and then expand to all the large cities in the West which have important Armenian communities. We will also help the farmers improve their crops, boost production and maintain the high quality of Armenian cognac," he said.
The gradual increase in foreign investment is already giving a boost to the fledgling Yerevan Stock Exchange (YSE) which was established in 1993.
Headed by Sedrak Sedrakian, the Yerevan Stock Exchange has already attracted dozens of Armenian companies whose shares are traded on the open market.
On any given day, the Yerevan Stock Exchange, which is one of the members of the Federation of the Euro-Asia Stock Exchanges (FEAS), handles State and Municipal securities, precious metals, currency trading and stocks from Armenian and foreign countries including those from the CIS.
The volume of transactions has gone up from 30 million dollars in 1994 to 60 million dollars in 1995 and has more than quadrupled in the last 12 months.
"We have 34 brokerage firms, including individuals and banks, who are involved in daily trading activities. Activity is improving as more people see the benefits of investing.
"This is the time to invest in Armenia. Today prices are low, but not for long," Sedrakian said.
