The time of not assisting others

On November 12, 2008 the then Armenian PM Tigran Sargsyan delivered a speech in the NA linked to introduction of state budget 2009. Fiscal crisis had already done its black job, however, it didn’t fully impact on Armenia’s economy.

Tigran Sargsyan’s speech was totally devoted to world financial and economic crisis. In a 6-page speech the PM provided detailed information on what crisis is, how it impacted economies of the world, which are its lessons, how it can influence on Armenia (risks) and what should be done to neutralize those risks and mitigate the negative impact. Thorough information was provided on what is necessary to do in separate directions, from which: 8 points were to be undertaken to boost development of SMEs, 6th of which was “In case of other equal conditions in implementation of state procurement, preference will be given to those providing Armenian production and services”.

It isn’t known how that approach was brought into life and what benefit was given to local producers, however, basically, the point is that the state under those conditions was considering the sponsorship policy justified.

2 years later—in December 2010 RA Law on Procurement was adopted, pursuant which the procurement process should be organized through single rules, on transparent, public and non-discriminatory basis. The new Law on Procurement was adopted on December 16, 2016. Besides, yet in 2014 steps were being taken to enlarge the circle of electronic procurement system. Currently state procurement platform is already ready.

People responsible assure, that the new law is a few steps forward, and the electronic platform nullifies human interference to procurement procedures. Vardan Aramyan, Minister of Finance of Armenia, Karen Tamazyan, Deputy Minister, and officials responsible for state purchase held a two-day seminar last week for reporters, purpose of which was to clarify new law and peculiarities of electronic procurement platform.

And as during the discussion the demand for organization with competitive and non-discriminatory basis, we posed a question to the Minister: how local producer will be protected from now on, as it was formerly stated that it’s discrimination?

In reply, the Minister stated that international experience shows that state procurement system isn’t the most productive toolset, by which it’s necessary to boost local producer, and that correct toolset to boost the local producer should be resolved through the policy of proposal.

“It’s even better, that we supported internal producer by insurance, subsidy of loans or creation of venture funds. State procurement toolset isn’t enough to make judgments on boosting internal producers,” the Minister said.

Thus, steps should be taken to raise competitiveness of local producers, and at the moment they would be ready to compete without waiting for preferential conditions, i.e. this approach has changed, although currently economy isn’t in a good condition. However, there is another, crucial point as well. In the period from November 12, 2008 until last Sunday an important change was recorded: Armenia became a member of Eurasian Economic Union (EEU).

Conditioned by that membership after April 1, 2015 there is an order, pursuant which in case of until AMD 70 million 15% price preference is provided to EEU member countries, i.e. sponsorship approach has been adopted in state procurement procedure, however, not in favor of Armenian suppliers, but of all EEU member countries.

How did this order function from the perspective of both EEU and our partners? Did companies registered in EEU became more interested in Armenian state procurement and compete with Armenian suppliers? And vice versa: did Armenian enterprises, making use of 15% price preference, started to actively take part in state procurement of EEU countries? There are no exact figures, however, in both cases participation is weak.

According to V.Aramyan the main reason is the scope. For instance, Russian or Belarusian companies aren’t interested in Armenian state procurements, as volumes of orders aren’t large. From the perspective of Armenian companies the opposite logic functions: volumes of state procurements of Russia are so large, that Armenian companies aren’t able to implement such orders by their capabilities.

In short, the provision of 15% price preference until now gave neither considerable benefit nor loss. However, it turns out that this doesn’t satisfy Armenia. According to V.Aramyan by that toolset preference is given to produced goods, which are also imported for Armenia, i.e. we touch upon boosting export, however, we actually promote import by fulfillment of this requirement.

“Let’s suppose that I buy production from Kazakhstan 15% more, a question arises here: why should I do that if same quality European production may be bought, which will be cheaper and will satisfy my demands? From this perspective we consider that tool isn’t good in supporting internal entities, as other external entities will use it as well. We consider under our small resources they should be used in a more targeted way,” the Minister said.

Moreover, according to Vardan Aramyan that preference for EEU countries will be eliminated. And this decision, according to the Minister, in all likelihood, will find its place in the forthcoming agenda of the government. To be frank, this is rather surprising, as it’s a rather bold decision.

Of course, we state that EEU countries don’t make considerable benefit from that privilege, as Armenian market doesn’t interest them due to its small volume. And one shouldn’t state depriving EEU members of 15% price preference will be a serious benefit to Armenian suppliers. However, the issue is the principle—Armenia protects its economic interests inside the Union.

Of course, this shouldn’t be observed as surprising, but very natural, like for instance, in case of Belarus, president of which without any formality “puts Russians in their place”. However, Armenia, unfortunately, shows more tolerant and patient attitude in similar issues.

At least the history linked to customs clearance process of vehicles quite recently is worth remembering. In February 2015 EEU Minister Tatyana Valovaya stated when importing cars to Armenia from Russia, Armenia charges 20% VAT, however, it doesn’t have the right, as it contradicts EEU legal framework.

First, Armenia attempted to contradict: Armen Alaverdyan, former Minister of Finance, officially stated two weeks later, that Armenia didn’t have any deviation or omission in that issue and everything has been implemented out of budget interests, in compliance with the law.

A week later, Vakhtang Mirumyan, RA SRC Deputy Chairman, stated that for cars imported from EEU member countries, VAT will be eliminated only from January 1, 2017 as until that date a transition period had been defined. However, yet a month didn’t pass, when on March 16, 2016 the NA approved the draft on amendments to RA Law on Value Added Tax, by which in case of importing cars from EEU VAT charging was eliminated. So, let’s live and see what development this story will have.

By Babken Tunyan