VZCZCXRO7953
RR RUEHLMC
DE RUEHYE #0648/01 2601248
ZNR UUUUU ZZH
R 171248Z SEP 09
FM AMEMBASSY YEREVAN
TO RUEHC/SECSTATE WASHDC 9495
INFO RUEHLMC/MILLENNIUM CHALLENGE CORPORATION WASHINGTON DC
RUEHRC/DEPT OF AGRICULTURE WASHINGTON DC 0076

UNCLAS SECTION 01 OF 03 YEREVAN 000648 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: EAGR ECON AM
SUBJECT: AMBASSADOR SEES ARID ECONOMIC LANDSCAPE IN VAYOTS 
DZOR 
 
REF: YEREVAN 016 
 
¶1. (SBU) SUMMARY: During the Ambassador's early August trip 
to Vayots Dzor marz, she found a region struggling to dig out 
of an economic hole.  Local mayors, the governor, NGO leaders 
and business groups all noted that the arid region, over 100 
kilometers southeast of Yerevan, faced an uphill struggle. 
Several agricultural interests -- a goat breeding center and 
winery -- provided evidence of scaleable, successful projects 
amidst economic hardship.  Regional tourism projects, 
however, seemed products of Soviet-style central planning 
more than sound business development attuned to market 
realities. END SUMMARY. 
 
---------- 
HARD TIMES 
---------- 
 
¶2. (SBU) Vayots Dzor administrative district (marz) holds 
real potential, Ambassador Yovanovitch heard during her early 
August trip to the region, but is undergoing a difficult 
period of economic adjustment.  Some interlocutors, including 
the mayor of the capital Yeghegnadzor, Sirekan Babaian 
suggested that the area had yet to recover from the 
post-Soviet collapse.  He remembered Vayots Dzor's industrial 
heyday, when textile, shoe, cannery, dairy processing, 
machinery, and electrical parts factories hummed along.  Now 
all were shuttered and industry had largely disappeared. 
More recently, with the onset of the economic crisis, trade 
turnover in retail shops had dropped 35 percent, local 
business leaders said.  Construction projects had dried up. 
Remittances from Russia, an important source of income for an 
estimated 25-30 percent of marz families, had dropped 
dramatically.  Many young men who had been seasonal workers 
in Russia in the past had returned home or never left this 
year.  Without jobs in the marz, most now worked on family 
land or previously untended plots for personal consumption or 
barter, since "they don't know how to access markets to sell 
their goods," Babaian said. 
 
------------ 
GREEN SHOOTS 
------------ 
 
¶3. (U) The Ambassador did witness some impressive examples of 
economic development amidst this hardship.  Representatives 
of the USDA-supported ARID Goat Center in Yeghegnadzor told 
of very successful efforts to use crossbreeding of local with 
American breeds to increase milk production in the offspring 
by 350-400 percent.  Milk collection units gave farmers a 
ready market for their milk, while cheese-making technology 
transfer resulted in the sale of high-quality goat cheese 
into the Armenian market.  Outreach to farmers and 
word-of-mouth had expanded the program's reach to 28 
cooperating commercial farms in 14 communities, where over 
2,500 crossbreds are generating good income for farmers. 
 
¶4. (U) A visit to Getnatun Winery provided another example of 
local entrepreneurial spirit combined with U.S. assistance to 
create a thriving local enterprise.  USDA technical 
assistance over several years, as well as Millennium 
Challenge Corporation-funded drip irrigation, contributed to 
the emergence of a healthy local winery buying 200 tons of 
grapes from 120 local farmers and selling over 150,000 
bottles per year to local and Russian markets. 
 
----------- 
GRAND PLANS 
----------- 
 
¶5. (SBU) Still, while those few green shoots were visible in 
this parched economic landscape, more prominent still were 
the challenges ahead.  Regional officials proudly spoke of 
the tourism potential of the marz, particularly of Jermuk -- 
the hilly, green, and relatively clean resort town in the 
easternmost section of the marz.  The Ambassador heard that 
President Sargsian had declared tourism development in Jermuk 
a national development priority, thus demonstrating the 
political will to achieve real results.  Yet the path from 
high-level political will to significant expansion of 
regional tourism was less than clear.  As Shirak Mikayelian 
head of a local NGO, worried, the Jermuk strategy seemed to 
rely more on central planning methods and best-case scenario 
projections than organic economic growth strategies built 
upon current conditions. 
 
¶6. (SBU) Jermuk, with its dramatic gorges, forested hills, 
and medicinal spring waters popular since Soviet times, 
clearly holds potential.  Yet the Ministry of 
Economy-directed development strategy calls for an increase 
in visitors from last year's (admittedly depressed) 5,000 to 
 
YEREVAN 00000648  002 OF 003 
 
 
100,000 by 2015.  At its peak during the Soviet era, Jermuk 
saw 25,000 visitors per year. 
 
¶7. (SBU) One key to GOAM plans to hit its target has been to 
make Jermuk a year-round attraction.  To that end, it has 
constructed a ski resort to complement the spa treatments 
that have long drawn visitors.  Moreover, plans are afoot to 
establish a rail link from Yerevan to Jermuk (financing tbd), 
to build new IT infrastructure to give the region first class 
internet and cable access (financing tbd), and to build a 
"Disneyland"-type theme park on the site of the old airport 
to give guests something to do when they aren't on the slopes 
or drinking the natural spring water.  (The Ambassador was 
also told a new airport would be constructed, not on the old 
site, but rather at the top of a ridge of hills overlooking 
the city.) 
 
------------------------------- 
SUB-PAR SERVICE AT A HIGH PRICE 
------------------------------- 
 
¶8. (SBU) If nothing else, the plan is ambitious.  Reaching 
100,000 visitors a year appears even more so when considering 
the spa/ski experience available is not currently competitive 
on price with other European alternatives.  According to a 
USAID project advisor, a vacation in Jermuk runs about 50 
percent more than a comparable vacation in Lithuania.  For 
the same price, he said, vacationers could choose a spa/ski 
resort experience in Switzerland with superior service and 
amenities. 
 
¶9. (SBU) Hotel owners' attitudes at present are part of the 
problem.  Several contacts suggested that the "oligarchs" who 
own the hotels (or, depending on whom one talks to, the 
single oligarch, Arshot Arsenian, owner of the Jermuk Group, 
who controls everything in the town directly or through 
intermediaries) are only interested in running "elite" 
institutions.  They would rather have ten percent occupancy 
at full (non-competitive) price than a hotel filled with 
"riff-raff," as one observer put it.  There has been talk of 
the government instituting tax incentives for hotel owners 
who charge more competitive prices, but no action as yet. 
 
---------------------- 
BUT WAIT, THERE'S MORE 
---------------------- 
 
¶10. (SBU) Jermuk's challenges go beyond its international 
competition.  President Sargsian's pet project in Jermuk also 
must compete with what had been former President Kocharian's 
pet development project -- the ski facilities at Tsakhkadzor, 
one hour northeast of Yerevan.  Like Sargsian now, Kocharian 
had visions of creating a regional attraction with 
first-class facilities.  What he ended up with was a decent 
set of intermediate ski runs serviced by unimpressive hotels 
and an absence of other local attractions/amenities.  Thus, 
even Yerevan residents might ask themselves why they should 
drive three and a half hours through winding winter roads to 
Jermuk for what, at least at present, would be the same 
experience an hour away at Tsakhkadzor. 
 
¶11. (SBU) Still, Jermuk boosters believe they have a distinct 
comparative advantage -- the water.  A 1951 Soviet study, the 
Ambassador heard, determined that Jermuk spring water held 
special medicinal properties.  Jermuk's Chief Doctor 
indicates that the waters are particularly useful for 
"digestive tract disorders; musculo-skeletal and locomotive 
system disorders; liver, kidney, pancreas and gall bladder 
diseases; endocrinological and hormonal disorders; 
neurological diseases; diabetes; and gynecological, 
dermatological and proctological diseases." 
 
¶12. (SBU) Indeed, the "Jermuk" name still holds positive 
connotations for many in the former Soviet Union who equate 
it with good health.  For those without those positive 
historical associations, though, promoters of Jermuk tourism 
may face a challenge in luring tourists with claims of 
medicinal invigoration.  One indication of the challenge: a 
Google search for "jermuk waters health effects" yields five 
entries on the arsenic content of the water (e.g. the first 
entry: "FDA Warns Consumers Not to Drink 'Jermuk' Brand 
Mineral Water... The most likely effects include nausea, 
vomiting, diarrhea...") before an entry making claims about 
the positive effects.  Little things at the site of the 
springs also point to the challenges ahead.  For one, the 
tourists lining up to drink the water were not exactly a 
vision of health - a scene more reminiscent of a Soviet bread 
line than an energy drink commercial.  The pesticide sprayer 
wearing a white haz-mat suit and goggles doing his rounds 
past the springs also pointed to a likely gap between what 
former Soviet citizens and western spa tourists might 
 
YEREVAN 00000648  003 OF 003 
 
 
consider good for their health. 
 
------------------------- 
BOTTLING BUSINESS BOOMING 
------------------------- 
 
¶13. (SBU) The two Jermuk bottling operations (the only real 
industry in the city besides tourism) had put the arsenic 
problem behind them, the Ambassador heard.  New equipment was 
now reducing any toxins to acceptable levels, and the 
bottling businesses hoped, once FDA approval comes, to resume 
exports to the U.S. by year's end.  For now, 85-90 percent of 
sales were domestic, with most export sales going to Russia. 
 
¶14. (SBU) Business for the two companies was good, we heard, 
in part because they had been able to snuff out any 
competition.  In one well publicized case, and another 
illustration of how politics can drive economics, opposition 
oligarch (a supporter of opposition leader Levon 
Ter-Petrossian) Khachatur Sukiasian saw his Bjni mineral 
water plant auctioned off by the government earlier this year 
after his failure to pay fines for alleged tax evasion 
(reftel).  Sukiasian says the charges were politically 
motivated.  Regardless, the government action against him was 
a boon to the Jermuk Group and Jermuk Mayr Gortsaran bottling 
plants that remain.  Their prospects could improve further 
still if a draft law, which would restrict usage of the 
"Jermuk" name to those operations bottling in the town proper 
(in the interest of quality control, the Ambassador was told) 
soon passes Parliament.  Political will in this case at 
least, according to some, looks like it could translate into 
direct financial benefits for these two, favored business 
interests in the marz. 
 
------- 
COMMENT 
------- 
 
¶15. (SBU) The trip revealed pockets of entrepreneurial spirit 
as well as the lingering influence of top-down economic 
planning, and demonstrated the need for more firm-level 
assistance in the region to nurture the former.  USAID is 
currently reviewing the micro-economic conditions and the 
business enabling environment in the marz so as to target 
assistance most effectively. 
YOVANOVITCH