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UNCLAS SECTION 01 OF 08 YEREVAN 000066 
 
SIPDIS 
 
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SUBJECT: ARMENIA INVESTMENT CLIMATE STATEMENT, 2008 
 
REF: 2008 STATE 128559 
 
¶1. Following is Embassy Yerevan's submission per reftel request for 
the 2009 Investment Climate Statement for Armenia. 
 
---------- 
BEGIN TEXT 
---------- 
 
¶2. While Armenia's government officially welcomes foreign investment 
and the country has received respectable rankings on some global 
indices as a place to do business, the country's investment climate 
poses several significant challenges: A population of just three 
million; relative geographic isolation due to closed borders with 
Turkey and Azerbaijan; per capita GDP of under USD 3,000; and high 
levels of corruption in both official and commercial spheres. 
Foreign businesses must frequently contend with tax and customs 
processes that lack transparency and add to costs; the court system 
lacks independence, making it an unreliable forum for resolution of 
disputes; and the GOAM has yet to resolve a backlog of several years 
of Value-Added Tax (VAT) refunds, with some companies owed several 
million dollars. 
 
¶3. Major sectors of Armenia's economy are controlled by 
well-connected businessmen--some of them members of Parliament or 
with other government positions--who enjoy government-protected 
monopolies.  This raises barriers to new entrants, limits consumer 
choice, and discourages investments by multinational firms that 
insist on partnering with politically-independent businesses.  The 
GOAM also continues on occasion to deploy government agencies, 
including the tax and customs services, against political opponents. 
 
 
¶4. According to the National Statistical Service (NSS), foreign 
investment in Armenia has increased steadily from USD 70 million in 
2001 to USD 805 million as of September 2008.  From January to 
September 2008, Foreign Direct Investment (FDI) in Armenia totaled 
USD 595 million, a 91 percent increase over the same period in 2008. 
 Major foreign investments were from Russia, Argentina and Germany. 
After six years of annual double-digit increases, Armenia's GDP grew 
just 6.8 percent in 2008, after taking account of a sharp decline in 
the last quarter of 2008.  Due to the global financial crisis that 
took hold in late 2008, the IMF now projects GDP growth of three 
percent for 2009 for Armenia. 
 
¶5. The largest foreign investors in Armenia are those that have 
acquired interests in the telecommunications, mining, energy, air 
transportation and financial sectors.  The privatization of 
Yerevan's largest hotels, two historic brandy factories, the 
Zvartnots International (Yerevan) and Shirak (Gyumri) Airports, the 
telecommunications network, several mining assets and much of the 
energy generation and distribution system accounts for the bulk of 
the foreign commercial presence in Armenia. 
 
¶6. According to the NSS, FDI inflows were up by 64.8 percent 
year-on-year in the first half of 2008. Russia was the leading 
investor in this period, accounting for more than two-thirds of the 
total, attributable to the acquisition by Russian owners of several 
major businesses, including both of Armenia's mobile phone networks, 
K-Telecom (dba Vivacell-MTS) and Armentel (dba Beeline), several 
mining companies and the national railroad network. 
 
¶7. The energy sector was the largest recipient of FDI in 
January-September 2008, attracting almost 37 percent of the total. 
The ground transportation sector attracted 22 percent of total FDI, 
due to restoration of rail tracks and refurbishment of carriages and 
rail cars. Communications was the third-largest are of foreign 
investment, with nine percent of the total.  Greenfield investments 
consist primarily of small and medium-sized enterprises (SMEs). 
There are currently 36 U.S. information technology (IT) firms 
operating in Armenia. 
 
¶8. In 2008, the Armenian dram (AMD), which had increased 
approximately 40 percent over the USD over the previous four years, 
remained relatively steady against the U.S. dollar, at approximately 
AMD 300 per USD.  Although the GOAM officially maintains a "managed 
float," the Central Bank of Armenia (CBA) spent much of 2008 
maintaining the AMD at this level.  For much of the year the CBA 
intervened to prevent further Dram appreciation, but in the last 
quarter of 2008 the CBA spent approximately USD 225 million (about 
15 percent of its foreign reserves) to prevent its decline.  By 
maintaining the Dram, the CBA hopes to forestall a large-scale 
movement out of Dram-denominated assets and dollarization that could 
lead to a collapse of the currency.  However, many experts believe 
that the CBA's strategy is not sustainable, and that the AMD is due 
for a significant adjustment.  Dram depreciation would benefit 
exporters and help reduce Armenia's current account deficit, which 
 
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for January-October 2008 reached USD 2.6 billion, a 33 percent 
increase compared to the same period of 2007.  Year-on-year 
inflation amounted to 9.3 percent as of November 2008. 
 
------------------------------ 
OPENNESS TO FOREIGN INVESTMENT 
------------------------------ 
 
¶9. Armenia's investment and trade policy is relatively open, and the 
GOAM consistently asserts its interest in obtaining foreign 
investment.  Significant obstacles remain, however, particularly 
with respect to corruption.  Armenia ranked 44th out of 178 
economies in the World Bank's Doing Business 2009 report.  However, 
this included rankings of 61st for enforcement of contracts, 66th 
for ease of starting a business, 88th for protecting investors, and 
150th for paying taxes (amounts and administrative burden). Foreign 
companies are entitled by law to the same treatment as Armenian 
companies (national treatment), and in some cases they may benefit 
from temporary preferential tax treatment including a two-year 
profit tax exemption.  This exemption, however, phased out at the 
end of 2007. Under the Armenian Law on Profit Tax, taxpayers engaged 
in agricultural production are exempt from tax on that income. 
However, due to WTO requirements, this is set to expire in 2010. 
 
¶10. Basic provisions regulating American investments are set by the 
Bilateral Investment Treaty (BIT), signed by the United States and 
Armenia in 1992, and by the 1994 Law on Foreign Investment.  In 
addition to providing for national treatment and most-favored nation 
treatment, the BIT sets out guidelines for the settlement of 
disputes involving the governments of either party. 
 
¶11. Armenia's 1997 Law on Privatization (amended in 1999) states 
that foreign companies have the same rights to participate in the 
privatization processes as Armenian firms.  Nevertheless, the 
majority of important privatizations of Armenia's large assets have 
not been competitive or transparent, and political considerations 
have in some instances trumped Armenia's international obligations 
to hold fair tender processes. 
 
¶12. Under the Constitution, foreign individuals are prohibited from 
owning land in Armenia, but this prohibition does not apply to 
foreign businesses.  Armenia does not issue foreign tax credits and 
has no double taxation treaty with the United States.  To date, no 
cases have been identified in which U.S. entities were disadvantaged 
for lack of a double taxation treaty.  The Armenian government has 
expressed interest in negotiating a double taxation treaty with the 
United States.  The State Department and U.S. Embassy Yerevan would 
welcome information from American firms or individuals that would 
substantiate whether such a treaty would facilitate U.S. business 
interests in Armenia. 
 
¶13. Armenia is a member of the following major international 
organizations:  IMF, World Bank/IDA, IFC, WTO, OSCE, Council of 
Europe, UN/UNCTAD/UNESCO, MIGA, ILO, WHO, WIPO, INTERPOL, European 
Bank for Reconstruction and Development (EBRD), the Asian 
Development Bank (ADB), IAEA, World Tourism Organization, World 
Customs Organization, International Telecommunications Union and the 
Organization of the Black Sea Economic Cooperation (BSEC).  Armenia 
became the 145th member of the WTO in February 2003. 
 
¶14. The seemingly open legislative framework and the government's 
visible effort to attract more foreign investment are overshadowed 
by instances of unfair tender processes and preferential treatment. 
A few recent cases of de facto takeovers by certain investors, 
facilitated by senior government officials, as well as the state's 
failure to ensure a fair investigation and judicial review, has 
undermined the government's assurances of equal treatment and 
transparency. 
 
----------------------------------------- 
CURRENCY CONVERSION AND TRANSFER POLICIES 
----------------------------------------- 
 
¶15. There are no limitations on the conversion and transfer of money 
or the repatriation of capital and earnings, including branch 
profits, dividends, interest, royalties, or management or technical 
service fees.  Most banks can transfer funds internationally within 
2-4 days.  The Government maintains the Armenian Dram (AMD) as a 
freely convertible currency under a managed float, although during 
the latter part of 2008 intervened regularly in the foreign exchange 
markets to sustain its value.  According to the 2005 law on 
"Currency Regulation and Currency Control," prices for all goods and 
services, property and wages must be set in Armenian Drams.  There 
are exceptions in the law, however, for transactions between 
resident and non-resident businesses and for certain transactions 
involving goods traded at world market prices.  The new law requires 
that interest on foreign currency accounts be calculated in that 
 
YEREVAN 00000066  003 OF 008 
 
 
currency, but be paid in Armenian Drams. 
 
------------------------------ 
EXPROPRIATION AND COMPENSATION 
------------------------------ 
 
¶16. Under Armenian law, foreign investments cannot be nationalized. 
They also cannot be confiscated or expropriated except in extreme 
cases of natural or state emergency, upon a decision by the courts 
and with compensation paid to the owner.  While the U.S. government 
is not aware of any confirmed cases of expropriation, a local 
subsidiary of a U.S.-based mining company was engaged for several 
years in a dispute with the GOAM over mining rights, and accused the 
GOAM of attempting to expropriate company assets.  The parties 
reached a settlement in 2008 after lengthy negotiations at various 
levels. 
 
------------------ 
DISPUTE SETTLEMENT 
------------------ 
 
¶17. According to the 1994 Foreign Investment Law, all disputes that 
arise between a foreign investor and the Republic of Armenia must be 
settled in Armenian courts.  In late January 2007, however, 
President Kocharian signed a new law on Commercial Arbitration, 
which provides investors with a wider range of options for resolving 
their commercial disputes.  The Bilateral Investment Treaty (BIT), 
signed by the U.S. and Armenia, provides that in case a dispute 
arises between an American investor and the Republic of Armenia, the 
investor may choose to submit the dispute for settlement by binding 
international arbitration.  As an international treaty, the BIT 
supersedes Armenian law, a point which Armenia's constitution 
acknowledges and that exists in actual practice. 
 
¶18. Many Armenian courts suffer from low levels of efficiency, 
independence and professionalism, and there is a need to strengthen 
the Armenian judiciary.  While there have been a few investment 
disputes involving U.S. and other foreign investors, there is no 
evidence of a pattern of discrimination against foreign investors in 
these cases.  In general, the government honors judgments from both 
arbitration and Armenian national courts. 
 
¶19. Disputes to which the GOAM is not a party may be brought before 
an Armenian or any other competent court, as provided by law or by 
agreement of the parties.  Following the court reform in January 
2008, commercial disputes are tried in courts of general 
jurisdiction.  The verdict can be appealed to the Court of Appeal 
and Court of Cassation, the highest judicial authority in Armenia. 
The Law on Arbitration Courts and Arbitration Procedures provides 
rules governing the settlement of disputes by arbitration. 
According to Constitutional amendments of 2005, the courts of first 
instance have undergone a major restructuring; as a result, in 
January 2008, the GOAM abolished the Economic Court and launched a 
new specialized administrative court and courts of general 
jurisdiction to hear civil and criminal cases, in the hope of 
streamlining these proceedings. Armenia is a party to the Convention 
on the Settlement of Investment Disputes between States and 
Nationals of Other States (the Washington Convention) and the New 
York Convention of 1958 on the Recognition and Enforcement of 
Foreign Arbitral Awards. 
 
--------------------------------------- 
PERFORMANCE REQUIREMENTS AND INCENTIVES 
--------------------------------------- 
 
¶20. Armenia currently has incentives for exporters (no export duty, 
VAT refund on goods and services exported) and foreign investors 
(income tax holidays, and the ability to carry forward losses 
indefinitely).  The government amended the VAT law in November 2005 
to allow companies to delay VAT payments for 1-2 years on certain 
imported goods used in production and manufacturing.  Also, in 
accordance with the Law on Foreign Investment, several ad hoc 
incentives may be negotiated on a case-by-case basis for investments 
targeted at certain sectors of the economy and/or of strategic 
importance to the economy. 
 
¶21. The Government of Armenia has imposed performance requirements 
for investors as part of privatization agreements, especially for 
the privatization of large state assets like mines or the 
telecommunications network.  There are no performance requirements 
for de novo investment. 
 
¶22. The GOAM takes considerable interest in economic activities in 
the disputed region of Nagorno-Karabakh.  In August 2008, the 
Central Bank of Armenia (CBA) terminated operations of Western 
Union's money transfer services in Armenia, following the company's 
decision to close its operations in Nagorno-Karabakh under pressure 
 
YEREVAN 00000066  004 OF 008 
 
 
from the National Bank of Azerbaijan.  As the CBA's mandate does not 
officially include Nagorno-Karabakh, the decision by the CBA is 
viewed as politically motivated. 
 
-------------------------------------------- 
RIGHT TO PRIVATE OWNERSHIP AND ESTABLISHMENT 
-------------------------------------------- 
 
¶23. The Armenian Constitution protects all forms of property and the 
right of citizens to own and use property.  Foreign individuals who 
do not hold special residence permits cannot own land, but may lease 
it; companies registered by foreigners in Armenia as Armenian 
businesses have the right to buy and own land.  There are no 
restrictions on the rights of foreign nationals to acquire, 
establish or dispose of business interests in Armenia. 
 
----------------------------- 
PROTECTION OF PROPERTY RIGHTS 
----------------------------- 
 
¶24. Armenian law protects secured interests in property, both 
moveable and real.  Armenian legislation provides a basic framework 
for secured lending, collateral and pledges, and provides a 
mechanism to support modern lending practices and title 
registration. 
 
¶25. Domestic legislation, including the 2006 Law on Copyright and 
Related Rights, provides for the protection of intellectual property 
rights on literary, scientific and artistic works (including 
computer programs and databases), patents and other rights of 
inventions, industrial design, know-how, trade secrets, trademarks 
and service marks.  Armenia's legislation is in compliance with the 
Trade Related Aspects of Intellectual Properties (TRIPS) Agreement. 
In January 2005, the government created an IPR Enforcement Unit in 
the Organized Crime Department of the Armenian Police.  The onus for 
IPR complaints remains with the offended party; the Government of 
Armenia has yet to prosecute one case of IPR violations 
successfully.    There is also an Intellectual Property Agency in 
the Armenian Ministry of Trade and Economic Development responsible 
for granting patents and for overseeing other IPR related matters. 
While Armenia has made some progress on IPR issues, strengthening 
enforcement mechanisms remains a priority. 
 
------------------------------------- 
TRANSPARENCY OF THE REGULATORY SYSTEM 
------------------------------------- 
 
¶26. The Armenian regulatory system pertaining to business activities 
still lacks transparency in implementation.  A small group of 
businesses dominates several sectors and suppresses full 
competition.  The inconsistent application of tax, customs 
(especially with respect to valuation) and regulatory rules, 
especially in the area of trade, undermines fair competition and 
adds uncertainty for small- and medium-sized businesses and new 
market entrants.  Banking supervision is relatively well developed 
and largely consistent with the Basel Core Principles.  In early 
2006, the Central Bank of Armenia (CBA) became the primary regulator 
for all segments of the financial sector, including banking, 
securities, insurance and pensions. 
 
¶27. Safety and health requirements, most of them holdovers from the 
Soviet period, generally do not impede investment activities. 
Bureaucratic procedures can nevertheless be burdensome and 
discretionary decisions by individual officials still provide 
opportunities for petty corruption.  Despite persistent problems 
with corrupt officials, both local and foreign businesses assert 
that a sound knowledge of tax and customs law and regulations 
enables business owners to deflect a majority of unlawful bribe 
requests. 
 
----------------------------------------- 
CAPITAL MARKETS AND PORTFOLIO INVESTMENTS 
----------------------------------------- 
 
¶28. Armenia's financial sector is not highly developed.  As of 
September 2008, total bank assets were USD 3 billion (36 percent of 
GDP), up 43.7 percent from September 2007.  The insurance market is 
very small, with total annual premiums amounting to approximately 
USD 10 million.  IMF estimates suggest that banking sector assets 
account for 95 percent of total financial sector assets.  Financial 
intermediation is poor:  commercial lending rates in AMD range from 
16 percent to 24 percent.  Nearly all banks require collateral 
located in Armenia, and large collateral requirements often prevent 
potential borrowers from entering the market.  Fourth quarter 2008 
statistics will likely reflect an increase in commercial lending and 
mortgage rates by 1.5-2 percentage points on average.  The climb is 
attributed to a shortage of liquidity in local banks related to the 
 
YEREVAN 00000066  005 OF 008 
 
 
global financial crisis that has led to reduced commercial 
activity. 
 
¶29. Although there is a system and legal framework in place, 
Armenia's securities market is not well developed, with minimal 
trading activity.  On November 21, 2007, OMX, a leading expert in 
the equities exchange industry, and the Government of Armenia signed 
a Share Purchase Agreement regarding the acquisition of the Armenian 
Stock Exchange and the Central Depository of Armenia.  According to 
the agreement, OMX became the sole shareholder of the Armenian Stock 
Exchange (Armex) and the Central Depository of Armenia (CDA).  In 
addition to the Share Purchase Agreement, OMX and the Government of 
Armenia have also signed a Cooperation Agreement outlining joint 
efforts to support the long-term development of capital markets in 
Armenia. 
 
¶30. Remittances constitute approximately 15 percent of Armenia's 
total GDP.  According to the latest data released by the Central 
Bank, the volume of private (non-commercial) remittances for 
January-October 2008 increased by almost 30.6 percent compared to 
the same period in 2007, reaching last year's Central Bank forecast 
of USD 1.366 billion, from which net inflow amounts to around 85 
percent, or USD 1,168 billion.  The Central Bank's 2006 survey 
states that 37 percent of Armenian households regularly receive 
remittances.  The most recent Central Bank data indicate that 89 
percent of remittances originate in Russia and the remainder comes 
primarily from the US, Europe and other CIS countries.  The World 
Bank estimates that remittances could decline by USD 250 million in 
¶2009. 
 
------------------ 
POLITICAL VIOLENCE 
------------------ 
 
¶31. Armenia experienced ten days of peaceful political 
demonstrations following a disputed President election in February 
¶2008.  This was followed by a government crackdown on March 1-2 that 
resulted in ten deaths and the imposition of a 20-day State of 
Emergency that included limits on press reporting and restrictions 
on public gatherings.  Since then, the GOAM has denied dozens of 
applications by opposition groups to hold political rallies.  Many 
have proceeded without permission, and without incident.  The GOAM 
also detained hundreds of opposition supporters in the wake of the 
March 1 events, with well over a hundred being charged and held for 
a significant period of time.   Most have been convicted through 
trials of questionable fairness.  Approximately two dozen have been 
pardoned by the President, but only after admitting to the crimes 
with which they were charged. 
 
¶32. The GOAM has also appeared to use its agencies to retaliate 
against businesspersons who support the political opposition.  Since 
the 2008 Presidential election, the GOAM has conducted tax audits of 
businesses owned by opposition supporters. Recently, one of the 
leading bottled-water factories, owned by an ardent supporter of the 
opposition Presidential candidate, was seized and put up for 
auction.  Another of his companies was forced out of business when 
the Customs Service, for apparent political reasons, refused to 
release its imported goods.  The owner, also a member of the 
National Assembly, was stripped of his parliamentary immunity and 
left the country before he could be arrested.  He continues to top 
the police "Most Wanted" list.  In 2008 the GOAM also initiated tax 
inspections of several independent and opposition newspapers, though 
none led to any legal action. 
 
¶33. Armenia's ceasefire with Azerbaijan over the disputed region of 
Nagorno-Karabakh has held for more than 13 years; there have been no 
threats to commercial enterprises from skirmishes in the border 
areas.  It is unlikely that civil disturbances, should they occur, 
would be directed against U.S. businesses or the U.S. community. 
 
---------- 
CORRUPTION 
---------- 
 
¶34. Corruption remains a significant obstacle to U.S. investment in 
Armenia.  The Armenian Government introduced a number of reforms 
during the last four years, including the simplification of 
licensing procedures, civil service reform, a new criminal code, 
privatization in the energy sector, anti-corruption laws and 
regulations, and in 2004, establishment of an Anti-Corruption 
Council tasked with coordinating the government's anti-corruption 
activities and improving policies aimed at the prevention of 
corruption.  Nevertheless, corruption remains a problem in critical 
areas such as the judiciary, tax and customs operations, health, 
education and law enforcement.  Petty corruption is widespread 
throughout society. 
 
 
YEREVAN 00000066  006 OF 008 
 
 
¶35. In November 2003, the GOAM adopted a National Anti-Corruption 
Strategy paper which contained an action plan aimed at introduction 
of tax and customs reforms, harmonization of legislation and 
improvement of public access to information.  The plan, completed in 
2007, was widely criticized by local and international observers for 
failing to yield any result. The Armenian Government initiated 
discussion of a new anti-corruption strategy paper in the beginning 
of 2008 which is still underway. 
 
¶36. According to the Transparency International (TI) 2008 Corruption 
Perception Index (CPI) report, Armenia ranked 109th among 180 
countries, with a score of 2.9 (on a "10-0" scale, where "10" is the 
cleanest country and "0" the most corrupt), which signifies 
corruption as rampant in Armenia.  No progress has been made during 
the last three years, with the Armenia's CPI equal to 2.9, 3.0 and 
2.9 in 2006, 2007 and 2008. 
 
¶37. Relationships between high-ranking government officials and the 
emerging private business sector encourage influence peddling 
between officials and the private firms from which they benefit. 
Powerful officials at the federal, district or local levels acquire 
direct, partial or indirect control over emerging private firms. 
Such control is exercised through a hidden partner or through 
majority ownership of a prosperous private company.  This 
involvement can also be indirect, e.g., through close relatives and 
friends.  These practices promote protectionism, encourage the 
creation of monopolies or oligopolies, hinder competition and 
undermine the image of the government as a facilitator of private 
sector growth. 
 
¶38. The Law on Civil Service, in force since January 1, 2002, 
restricts participation by civil servants in commercial activities. 
The new Law on the Disclosure of Property and Income for heads of 
state authorities has increased transparency in government 
officials' decision-making and influence.  Corrupt practices exist 
widely within private companies as well, mostly in the form of tax 
fraud and unregistered business activities. 
 
¶39. In a move to increase transparency and introduce a degree of 
"naming and shaming" of major tax-dodgers, the GOAM since 2006 the 
GOAM has published quarterly lists of the country's largest business 
taxpayers.  It is not clear if this has had the intended effect, as 
companies of some major businesspersons feature prominently on the 
list, while others remain conspicuous by their absence. 
 
------------------------------- 
BILATERAL INVESTMENT AGREEMENTS 
------------------------------- 
 
¶40. Armenia has bilateral investment treaties (BITs) in force with 
21 countries:  the U.S., Argentina, Austria, Belarus, Bulgaria, 
Canada, China, Cyprus, France, Germany, Greece, Georgia, Iran, 
Italy, Kyrgyzstan, Lebanon, Romania, Switzerland, Ukraine, the 
United Kingdom and Vietnam. According to the U.N. Conference on 
Trade and Development, Armenia has also signed BIT agreements with 
Belgium, Egypt, Finland, India, Israel, Russia, Tajikistan and 
Turkmenistan, but these agreements have not yet entered into force. 
Armenia is a signatory of the CIS Multilateral Convention on the 
Protection of Investor Rights. 
 
¶41. The Treaty between the Republic of Armenia and the United States 
of America Concerning the Reciprocal Encouragement and Protection of 
Investment (the Bi-lateral Investment Treaty or BIT) was ratified in 
September 1995.  The BIT sets forth investment conditions for 
investors of each party to be no less favorable than for national 
investors (national treatment) or for investors from any third state 
(a Most-Favored-Nation clause).  It protects investment regulates 
dispute settlements between foreign companies and the governments of 
each party. 
 
-------------------------------------------- 
OPIC AND OTHER INVESTMENT INSURANCE PROGRAMS 
-------------------------------------------- 
 
¶42. The "Investment Incentive Agreement between the Government of 
the Republic of Armenia and the Government of the United States of 
America," signed in 1992, provides a legal framework for OPIC's 
operations in Armenia.  OPIC offers political violence insurance in 
Armenia and insures against expropriation.  OPIC insures against 
currency inconvertibility only on a case-by-case basis.  Armenia is 
also a member of the Multilateral Investment Guarantee Agency 
(MIGA). 
 
----- 
LABOR 
----- 
 
 
YEREVAN 00000066  007 OF 008 
 
 
¶43. Armenia's human capital is one of its strongest resources.  The 
labor force is generally well educated, particularly in the 
sciences.  Almost one hundred percent of Armenia's population is 
literate.  Enrollment in secondary school is 92.8 percent, and 
enrollment in senior school (essentially equivalent to American high 
school) is 85.6 percent.  According to a survey by the U.N. 
Development Program, approximately 20 percent of Armenians have 
completed some sort of higher education program. 
 
¶44. Much of the new foreign investment in Armenia has occurred in 
the high-tech sector.  High-tech companies have established branches 
or subsidiaries in Armenia to take advantage of the country's pool 
of qualified specialists in electrical and computer engineering, 
optical engineering and software design.  Pilot training programs 
have increased the supply of qualified software programmers, and 
Armenia's IT sector is growing based on its qualified pool of 
inexpensive labor.  However, a number of IT firms are currently 
facing the risk of a significant phase-out and/or shutdown due to 
the latest global economic developments.  Two large software 
companies, German and U.S., have recently announced closures 
scheduled for early 2009 that will result in about 300 qualified 
technical staff losing their jobs. 
 
¶45. The amended Labor Code came into force in June 2005, and is 
considered to be largely consistent with international best 
practices and the international conventions to which Armenia is a 
party.  The law sets a standard 40-hour work week, with minimum paid 
leave of 28 calendar days annually.  The draft 2008 budget, which 
has been approved by the National Assembly, increases the legal 
minimum wage to AMD 30,000 (about USD 100) per month.  Most 
companies also pay a non-official extra-month bonus for the New 
Year's holiday.  Entry-level skilled professionals (such as software 
engineers) command wages of about USD 500 per month.  Wages in the 
public sector are often significantly lower than those in the 
private sector and, while all wages must be paid in AMD, many 
private sector companies continue to use a fixed exchange rate to 
denominate employee salaries. 
 
------------------------------ 
FOREIGN TRADE ZONES/FREE PORTS 
------------------------------ 
 
¶46. Armenia has no foreign trade zones or free ports at present. 
However, the Armenian Government has approved a concept to create a 
free trade zone in the area of Zvartnots International Airport. 
Another free trade zone is proposed to cover the Gyumri area as part 
of the Gyumri Techno-city concept paper unveiled by the Minister of 
Economy. 
 
------------------------------------ 
FOREIGN DIRECT INVESTMENT STATISTICS 
------------------------------------ 
 
¶47. The following is volume of FDI based on data by the Armenian 
National Statistical Service: 
 
Net FDI (According to IMF data) 
Years   2001  2002  2003  2004  2005  2006  2007 
Vol(USD m)  70  111  121  217  287  305  467 
 
¶48. In 2008, the most significant foreign investments in Armenia 
came from Russia, Lebanon and Argentina.  The Russian-Norwegian 
Mobile Telephone Operator Vimpelcom (operating under the Beeline 
brand), which purchased 100 percent of the Armenian National 
Telephone operator Armentel (which itself had been acquired by the 
Greek OTE company in 2006), has made significant investments to 
upgrade its network.  (NOTE: It had previously announced plans to 
invest around USD 100 million in 2007, and has relinquished its 
monopoly over international calling and access to the internet. End 
Note] Argentinian-owned Armenian International Airports Company has 
made considerable investments as it continues to upgrade Zvartnots 
International Airport.  Its investment has increased through its 
development of an airport near the city of Gyumri, in the northern 
part of the country. 
 
¶49. In September 2007, another Russian telecom company, MTS, 
acquired 80 percent ownership of Vivacell, the second mobile 
operator in Armenia, with the remaining 20 percent remaining under 
the ownership of the Lebanese K-Telecom Company.  Prior to the sale 
of the controlling stake to MTS, the Lebanese company had made a 
significant investment to expand the network further.  A French 
firm, Orange, has been awarded a tender to operate a third mobile 
telephone service in Armenia, and is expected to launch business 
operations in Fall 2009. 
 
¶50. Dutch Haypost Trust Management, which entered into a 
concessionary management agreement of the Armenian postal service in 
 
YEREVAN 00000066  008 OF 008 
 
 
2006, has invested about USD two million out of a projected USD 10 
million in upgrading the postal system and establishing local postal 
bank branches all over the country.  The company has since been 
acquired by the same Argentinian company that owns Armenian 
International Airports. 
 
¶51. The Armenian National Statistical Service reported that total 
foreign investment for the first nine months of 2008 was USD 805 
million, up 71.4 percent from the same period in 2007.  Of that 
foreign investment, USD 595 million was foreign direct investment 
(FDI), up 91 percent compared with the previous year. 
 
YOVANOVITCH