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Armenia: Twelve Years After Independence
Armenia: Twelve Years After Independence

A TALE OF TWO CITIES: ONCE THE MACHINE OF SOVIET INDUSTRY, CITIES OUTSIDE THE CAPITAL STRUGGLE IN A SHRUNKEN ECONOMY


by Viorica Vladica, Special from ArmeniaNow.com

It upsets Tyoma Sarksyan when somebody says to her: "Let's go to the city". Each time she replies: "I am living in a city." As a native and resident of Kapan (in the southern part of Armenia), she gets mad when people from Yerevan disregard her city's status and lower it to the rank of a village.

Maybe Tyoma is overreacting to metropolitan attitudes. Maybe Armenia needs more patriotic citizens like her. What is certain though, is that cities in Armenia overshadowed by life in the capital struggle in ways peculiar to their diminished status.

For decades Armenia used industry from non-capital cities as the machine for economic growth. The Soviet government poured enormous resources into construction of massive factories and sent engineers from various Soviet republics to ensure active development and productiveness.

The Soviet ideal was to create factories that would supply its own mass market. It implemented State plans (called "gosplans") to achieve the goal of supply and demand. Now, however, the machine is running on empty. And Armenian industrial plants have become skeleton-like burdens, and unhappy reminders that cities like Kapan and its northern equivalent, Vanadzor were once significant.

Some towns of industry have turned to agriculture—but only those fortunate enough to exist in arable regions. Given the rocky, mountainous particulars of Armenia, the transition from factories to farms is not as simple as a change of profession. And even in the best cases, workers trained as factory specialists might not adapt to living off the land.

Such is the case of Kapan and Vanadzor.

At opposite poles geographically and with mentalities that also reflect social differences, the cities share a common predicament: While the world is experiencing a dramatic transformation in the field of industry and technology, these two cities are living in a post-industrial regressive age.

Similar to other remote areas in Armenia, Vanadzor and Kapan have lost considerable parts of their population. People emigrate because there are no job opportunities. In Vanadzor, according to its Mayor's Office, the number of jobs has declined from 25,000 to only 10,000.

"Not allowing people to leave and live abroad would be illegal," says Armen Migrabyan, chief of the Economic Development Department of the Mayor's Office in Vanadzor. "It is a normal process for everybody to look for a better job. However, these people do not move because of encouraging prospects; they leave because of hardship."

Hasmik is a native of Kapan who left Armenia 10 years ago. She went with her family to Moscow and visits Kapan only on vacation. In Moscow, Hasmik and her husband sell flowers. And even if in the beginning it was difficult to leave Kapan, she is now happy to run a flower shop. She says her plan is to return to her native city only after she secures the future of her children; that is, when she gets old.

The last census does not show significant changes in Kapan population figures. It remained almost the same as Soviet times, at about 45,000 inhabitants. Unofficially though, it is considered that only a third is left in the city. The reason for such distortions in statistics is that people are still registered as Kapan residents, but in reality many of them work in Russia or elsewhere illegally.

Official statistics in Vanadzor are a little bit different. Officially it is known that the population of Vanadzor has dropped from 172,000 people to 136,000, but this city was in the earthquake zone, so the population decline was not only due to emigration.

Want to work but don't know how

Pre-independence, Kapan was a major refining center, extracting copper, silver, gold and processing marble. At the same time Vanadzor was best known for its massive chemical plant, but also had textile mills and factories that produced parts for automobiles and tractors.

Now both cities produce little more than reasons for people to leave.

Municipality officials from both Vanadzor and Kapan say the only chance to stop emigration is to create new jobs. But do authorities create necessary conditions for businesses to work?

It does not always seem so. Even if Vanadzor and Kapan produce different goods oriented for different markets, both deal with similar problems.

First, of course, is the blockade that locks Armenia out of potential export destinations. Conflict with the east in Azerbaijan and the west in Turkey, leave only Georgia and Iran as direct routes for commercial cooperation. (Despite closed borders, however, plenty small-scale businessmen import goods—primarily clothes and food products—from Turkey by taking bus tours to Istanbul via Georgia.)

Once, regional railways provided easy access for import/export, with a major hub connecting in Tbilisi, Georgia. Now, however, rails that gave Armenia north-south transport are closed, because the line runs through Nakhichevan, which is controlled by the Azeris.

Talk to Armenian exporters about Georgia, and watch their faces turn sour at the mention. Why? Because roads are torturous and Georgian police notorious for extorting money from any vehicle holding Armenian license plates.

As for Iran, neighboring this country might be of a big favor to Armenia, but it is not yet an exploited advantage. Roads are bad getting there too, plus Iran has suffered its own international trade blockades that have hampered its ability to develop stable economic relations with its neighbors.

As a consequence, Armenian industrial cities previously on major trade routes are now isolated.

"Vanadzor is not rich in resources, so, besides exporting prepared goods, it also has to import raw materials, which makes the transportation a double problem for us," says economist Migrabyan, suggesting that it is extremely expensive to import unprocessed items and even then with no guarantee of selling the final product.

One solution, then, might be a transition from big industry to small business. But that presents its own peculiar problems.

"People here do not know basic principles of marketing and still do not have a sense of quality in order to be competitive with foreign production," says Sevak Oghanesyan, Chairman of Direction for Finances and Social-Economic Development in Lori Province, of which Vanadzor is the capital.

A solution, Oghanesyan says, might be to get business and marketing consultation from international agencies.

A third weakness named by municipality officials is the law on local administration. The Mayor's Office, where, traditionally, people might turn with complaints or requests, has limited power over problems related to development. In both Vanadzor and Kapan, municipal jurisdiction is limited to administering kindergartens, arts schools, clubs, cultural organizations and housing distribution. Business licenses are administered through State ministries (and business taxes are applied to the national budget).

Municipalities do not collect significant taxes. The only taxes collected for the local budget are for property and land. These sources usually pull together half of the budget. The State government provides the other half.

But budgets are symbolic, says Vanadzor deputy-mayor, Norik Harutyunyan, referring to the city's 800 million Drams (about $1.3 million) budget. He thinks income taxes should be paid to the local budget and not to the central one.

"Municipality should have the freedom to control small and medium businesses so that both authorities and businessmen have a mutual interest to develop it in cities other than Yerevan", Harutyunyan says.

His colleague Migrabyan adds that it is a pain for local authorities to endure a legislation that was borrowed from a foreign system: "In a real democracy all proposals should come from the bottom and not from the top. It is not right to acquire a model from a developed country and implement it in a foreign environment."

Made in Armenia

While legislation is being revised in the capital, local businessmen try to last long enough to see the results. In spite of hard times, 51 enterprises—84 percent of which are privatized—still operate in Vanadzor. As Migrabyan says, "Vanadzor's problem today is not that it doesn't know what to produce; the problem is that it doesn't know how."

The existing enterprises work at a loss and not at full capacity, but some are showing progress.

An American company, Amerex Ltd., operates five Vanadzor clothing factories producing men's and women's items mostly for the U.S. market.

Flagman is one of the five and one of the oldest mills in the country. It started to operate in 1928 and it has experience producing clothes for military as well as for civilian purposes. Today it produces jackets and suits for children and adults and exports 95 percent of its "Made in Armenia" goods (90 percent in the U.S.; five percent in Russia).

Flagman's Executive Director, Yuri Mikaelyan, says that his enterprise is quite lucky to be a constant manufacturer of Amerex because the American side is providing raw materials. And that in itself is a very important investment in the factory.

A problem, though, is that its employees are miserably paid, which makes their situation seem unfair to what similar workers in the U.S. get paid. The highest salary of Flagman's 1,000 employees, mostly women, is not more than 24,000 drams ($41). A jacket that is sold in the U.S. for between $90 and $180 is bought by Amerex for only $6-10.

"It is alleged that we sell our products too cheaply," says Mikaelyan. "This is our most painful problem. But if we compare our situation with the jobless market in Armenia, it is still a privileged case."

Flagman annually produces almost 600,000 items and since it started to work with Amerex, it has dressed nearly two million Americans.

The company received two international prizes for quality performance and, as Mikaelyan considers, it is totally ready to work by itself but cannot operate independently because it does not have its own market.

Production in Kapan is different. Out of 15 factories operating in the Soviet times, only three are active today. Besides being called the "little Switzerland" for its picturesque mountains, Kapan is also famous for its copper, molybdenum, gold and marble resources. But its only pride is the copper plant that was bought last year by a British businessman.

It employs 1,100 people today and since being privatized it pays its employees twice higher salaries than before—about 53,000 Drams ($91) a month. The factory has not started making profits, but its revenues at least cover all expenditures and an $8 million debt is now being repaid.

Suren Voskanyan, its technical director, says the factory receives new equipment, and employees are constantly trained for new demands.

Kapan's Mayor, Armen Karapetyan, says the key to his city's growth is investment but that there are not many opportunities to make its resources known to the world. He is hoping that in the future there will be a similar sized city from the U.S. or Europe which will want to establish a sister relationship with Kapan and have potential investors coming to the region.

Karapetyan, who became Kapan's mayor after the recent local elections, is quite enthusiastic at the beginning of his term. He says he personally plans to develop tourism in the region by opening a farm for horse riding. But he says he needs to raise money first.

While the mayor looks for investors in a riding stable, others try to shape basic skills to fit their changing environment.

Yuri Gevorkyan, for example, had only an idea to prop up a business. Being an architect, Yuri thought that selling design projects would be better than working for a salary.

Together with four friends, Yuri opened a small company of design in 2001. Designing gas stations may not be the pinnacle of an architect's career, but at least it is providing a source of income.

Those like him who have stayed to struggle in these often-forgotten cities have a fierce loyalty and a determination to prove themselves as survivors.

"Until I no longer have money for bread," says Tyoma Sargsyan, "I will not leave my city."

Originally published in the November 2003 ​issue of AGBU Magazine. Archived content may appear distorted on your screen. end character

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