Be Careful from Growth of Export to Russia

2015 has ended 5 months ago, however, its economic implications are still being summed up. For instance, report of performance of state budget 2015 is still being discussed in the National Assembly, and a few days ago the Central Bank of Armenia (CBA) issued its Financial Stability Report 2015.

We formerly touched upon those documents regarding financial stability of real estate market. However, other curious points are available in this report as well. Let’s touch upon one of them—foreign trade.

Note, upon the data of RA National Statistical Service, volume of export from Armenia decreased by 3.9% and comprised USD 1 billion 486.9 million. And import reduction was larger—26.5% (volume—USD 3 billion 254 million).

This change of external trade volumes is introduced per product price without taking into consideration change in prices. And CBA also introduces real change of foreign trade dynamics taking into consideration the factor of prices. Thus, given the CBA assessment, the real exports of goods and services increased by 13.7%, according to the balance of payments, though the international prices of raw material commodities decreased. The net imports declined by 7.8%.

However, this is not all.  CBA assesses concentration level of RA external trade, by commodities and by countries, i.e. to which extent they depend on one or a few commodities or markets. By countries Russia is our main trade partner, Armenia’s external trade turnover of which comprised 24.8% in 2015. China is on the second place (10.2%), then Germany follows it (7.3%), i.e. concentration is high. According to CBA in 2015, Armenia’s external trade concentration level by countries has decreased, because of 4.7 pp. lower share of trade partner Russia in the structure of exports.

Note, in 2015 commodities by total cost of USD 225.9 million (15.2% of total export volume) have been exported to Russia from Armenia, and in 2014 that volume comprised USD 308.2 million (19.9%).

The most noteworthy formulation linked to this statistics is the following: “The latter has diminished the sensitivity of Armenia’s economy to unfavorable developments in Russia.” This formulation so attaches the attention that rather interesting conclusions may be drawn.

Firstly, reduction of export is already a direct implication of unfavorable developments, how can it be regarded as a factor reducing sensitivity? This is like a case, when a person catches the flu from  the other, and the doctor tells it reduces the risk of catching it. Of course, what to reduce, when the risk has vanished, as there is no risk, and there is already a fact.

Collapse of the field of construction used to be introduced as recovery of Armenia’s economic structure, where specific gravity of construction was decreasing. Then, surely, many of Armenia’s economists said there is nothing positive in it. It would be positive if construction grew, and other fields of economy recorded more growth, resulting which dependency from construction would have disappeared. And reduction of absolute volumes doesn’t contain any bright point.

Or it turns out the more export to Russia increases, the more sensitive we are towards country’s negative influences. And it turns out, when those responsible for Armenia’s and Russia’s economic bloc during the joint meeting were/are touching upon increasing volumes of bilateral trade turnover, in fact, they intended to damage our country, and make it more sensitive.

And finally, the most upsetting conclusion—upon the data of the first quarter of 2016, export volume from Armenia to Russia as compared to the same period of the previous year has grown 2.2 times, thus, comprising USD 67.7 million (in 2015 that indicator was USD 31.2 million). Volume of total export in the same period grew not so intensively—by 26.3%. As a result, Russia’s specific gravity in Armenia’s export again grew and reached 18% upon the quarter results.

As unfavorable developments of Russia’s economy will continue throughout 2016 as well, this means we have become more sensitive.

However, this is not all. If export growth continues with the same proportion, and export grows by 26.3%, and by 2.2 times to Russia, then the latter’s specific gravity in Armenia’s export will exceed 26% till the end of the year. Do you imagine what a high concentration is it and how sensitive will Armenia’s economy become ?

And just the contrary, import from Russia to Armenia has recorded a double digit reduction, i.e. Russia has become more sensitive towards unfavorable developments of our economy. Yes, according to anticipations negative developments aren’t expected, however, cautiousness won’t be hindering.

So, we’d advise those responsible for our economic bloc not only to accidentally touch upon export growth to Russia, introducing it as success, but to do everything possible to reduce those temps. And if possible, they should do so that decrease of export volumes to Russia was recorded.

As we don’t want to have sensitive economy, do we?

By Babken Tunyan