Armenia number one monopoly nest in the region

The World Bank has published a report entitled “Republic of Armenia: Accumulation, Competition, and Connectivity.” The government of Armenia will not be happy about some definitions and interpretations in this report.

In general the World Bank calls on drastic changes through this report. The main message is the following: there is a need for other models of growth for providing new vacancies in Armenia. According to the report, the economic growth before the crisis did not support new vacancies as it was mainly based on construction sector, which made Armenia’s economy even more vulnerable. After that even though the government tried to make some changes, there were no reliable solutions. The report focuses on four main factors that would provide economic growth and new vacancies.

In order to create vacancies, the private sector should be boosted and people should be trained on specific skills demanded in the market. Professional training and enhanced quality through the involvement of employers will support new vacancies.

The report touches upon Armenia’s connection with the external world. The World Bank encourages Armenia, as a land-locked country, to increase its connections with other countries through land, air and communication technologies. This concerns liberation of airline business in Armenia. The government is working for that purpose.

There are two other components that show poor conditions. One of these components concerns the banking system and financial mediation services. The government of Armenia claims that the banking sector in Armenia is one of the advanced sectors. The government always discusses volumes of increased lending and banking services. The World Bank’s report writes that even though the Armenian banking system is on stable grounds, its efficiency and innovation is not at the level of similar countries.

The private sector’s financing of GDP is low (about 38%). In Europe and Central Asia this average indicator was 42% in 2010. This means that the banking system does not fulfill its main function, which is financing of the economy. According to the WB’s report, Armenia’s performance in indicators that support economic efficiency is not high either (interest rate margins, overhead costs / actives).

The report also pays attention to limited opportunities for small and medium businesses. “Banks mostly offer borrowings to large corporative customers at standard conditions, however for microfinancing small and medium companies face challenges. Small and medium companies often are not eligible for borrowing due to insufficient accounting registration and reporting.” The report says that small and medium businesses lack influence. Large corporations have easy access to financing, while small companies are self-sustainable.

These estimations are enough to conclude that the Armenian banking sector is not as developed and stable as it was believed to be, and it does not support economic growth well.

The report writes that support to competition is a component of growth as well. Evaluation of competition is not good either. In the Armenian economy the structure of the economy, limiting legislative regulations, state patronage of a group of businesses, presence of strong enterprises that control the majority of sectors and inefficient application of competition rules are obstacles for development.

Armenia is in the last place among Europe and Central Asia countries with its anti-monopoly policy and competition.

The WB reports that Armenia’s important economic sectors are dominated by a limited number of companies. Several companies dominate key sectors such as communication and transport, which generally are to fuel the economy and support competition.

Armenia is number one with strongest monopoly influence in the region. The WB report says that the number of monopolies in Armenia is higher than in any other country of the region. Markets are centralized in Armenia. While in other countries of the region the centralization rate of markets is at average 6%, in Armenia it is 19%. More than 60% of the target sectors in Armenia have oligarchic or monopolistic structure. In this region Armenia’s policy in anti-corruption efforts and competition is the worst too.

A lack of competition in a number of sectors is a serious problem is it stops economic development in those sectors and affects prices, which limits the living conditions of people and affects export.

The report brings examples to show that prices are significantly higher in Armenia than in the other countries of the region. For example, among CIS countries the price for bread is higher in Armenia by 36%, the price of butter – by 23%, egg -by 25%, and milk – by 33%.

The report highlights the fact that the reason of increased costs is not tax policy. Taxes for groceries in Armenia are lower than in many of the countries the report compares with. This means that rates are increased primarily due to a lack of competition. Armenian consumers pay extra money for products to make monopolies and oligarchs richer.

These facts are no news for Armenian people, however such well-grounded report with calculations is a good document for the opposition to criticize the government.

The dilemma is that the World Bank has published similar reports before too, but the situation has not got better. The WB’s report offers solutions to improve the situation. However, in practice, what the World Bank recently did is that they announced that they are pleased with the work of the government and would issue more than $800 million dollars in borrowing to Armenia. It is strange that this institution trusts the Armenian government. Maybe their slogan is the one of the Armenian Republican Party: “Let’s believe to change.”

By Babken Tunyan