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UNCLAS SECTION 01 OF 08 YEREVAN 000038 
 
 
SIPDIS 
 
STATE FOR EB/IFD/OIA, EUR/CARC, EUR/ACE 
STATE PLEASE PASS USTR 
 
E.O. 12958: N/A 
TAGS: EINV EFIN ETRD ELAB KTDB PGOV OPIC USTR AM
SUBJECT: ARMENIA INVESTMENT CLIMATE STATEMENT, 2010 
 
REF: A) 2009 STATE 124006   B) 2009 YEREVAN 782 
 
¶1. Following is Embassy Yerevan's submission per ref A request for 
the 2010 Investment Climate Statement for Armenia. 
 
---------- 
BEGIN TEXT 
---------- 
 
¶2. While the Armenian government (GOAM) officially welcomes foreign 
investment and the country has received respectable rankings on some 
global indices as a place to do business (ref B), 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 
about USD 3,500; 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 while it has made progress, the GOAM 
has yet to establish a system for prompt and transparent refund of 
Value-Added Tax (VAT) payments, a problem that creates serious 
problems for export-oriented companies. 
 
¶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, after increasing steadily from USD 70 million 
in 2001 to USD 1.2 billion in December 2008, has dropped by 35 
percent to USD 522 million as of September 2009.  Major foreign 
investments were from France, Russia and Argentina.  The dramatic 
drop has been driven by a general economic recession and contraction 
of GDP, which is projected to decrease 15% in 2009.  This follows 
seven consecutive years of GDP growth from 2002 to 2008, including 
six years of double-digit growth followed by a 6.8% GDP increase in 
¶2008. 
 
¶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.  France was the leading 
investor in the January-September 2009 period, accounting for 38 
percent of the total, attributable to the entry of France's Orange 
Telecom into the Armenian mobile telephony market. 
 
¶6. The communications sector was the largest recipient of FDI in 
January-September 2009, attracting almost 53 percent of total 
investment.  The energy sector attracted 16 percent of total FDI, 
due to increased gasification of the country.  Real estate was the 
third-largest area of foreign investment, with eight percent. 
Investments in air and ground transportation, as well as the mining 
sector have been insignificant compared to previous years, 
constituting 3-6 percent.  There are currently about 36 U.S. 
information technology (IT) firms operating in Armenia. 
 
¶7. Despite the IMF's disapproval, from September 2008 to March 3, 
2009, the Central Bank of Armenia (CBA) spent over $700 million from 
its foreign reserves to support the value of the Armenian Dram 
(AMD).  Prior to this intervention, the AMD had risen nearly 40 
percent against the USD since 2005.  On March 3, after the CBA 
discontinued its intervention,2009 the AMD dropped by 25 percent, 
from 305 per USD to approximately 370; as of early January 2010 the 
AMD trades at approximately 375 per USD.  Since the dramatic dram 
depreciation in March 2009, prices for certain commodities, 
including many imported food staples, have increased significantly, 
though overall inflation for 2009 is expected to be about six 
percent.  Despite the potential benefits of AMD depreciation for 
some exporters, no rise in the volume of exports has been noticed to 
date.  According to NSS, in January-November 2009 exports fell by 37 
percent, while imports decreased by 26 percent compared to the same 
period in 2008. 
 
------------------------------ 
OPENNESS TO FOREIGN INVESTMENT 
 
YEREVAN 00000038  002 OF 008 
 
 
------------------------------ 
 
¶8. 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 43rd out of 183 
economies in the World Bank's Doing Business 2009 report.  Notable 
improvements included ease of starting a business (21st, up from 
65th in 2009), and trading across borders (102nd, up from 136th). 
However, Armenia ranked 62nd for enforcement of contracts, 93rd for 
protecting investors, and 153rd for paying taxes (amounts and 
administrative burden).  Foreign companies are entitled by law to 
the same treatment as Armenian companies (national treatment). 
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. 
 
¶9. 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. 
 
¶10. Armenia's 1997 Law on Privatization (amended in 1999) states 
that foreign companies have the same rights to participate in 
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. 
 
¶11. 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. 
 
¶12. 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. 
 
¶13. 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. 
Such instances, as well as the state's failure to ensure a fair 
investigation of abuses and judicial review, has undermined the 
government's assurances of equal treatment and transparency. 
 
----------------------------------------- 
CURRENCY CONVERSION AND TRANSFER POLICIES 
----------------------------------------- 
 
¶14. 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 GOAM maintains the Armenian Dram (AMD) as a freely 
convertible currency under a managed float, although between 
September 2008 and March 2009 the Central Bank of Armenia (CBA) 
sought to maintain the AMD through intervention in the foreign 
exchange market.  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 currency, but be paid in 
Armenian Drams. 
 
------------------------------ 
EXPROPRIATION AND COMPENSATION 
------------------------------ 
 
¶15. Under Armenian law, foreign investments cannot be nationalized. 
 
YEREVAN 00000038  003 OF 008 
 
 
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 
------------------ 
 
¶16. 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, 
then-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 which holds in actual practice. 
 
¶17. 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. 
 
¶18. 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.  Constitutional amendments of 2005 
restructured the courts of first instance.  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. Following this reform, 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.  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 
--------------------------------------- 
 
¶19. 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 GOAM 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. 
 
¶20. The GOAM 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. 
 
¶21. 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.  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 
-------------------------------------------- 
 
¶22. The Armenian Constitution protects all forms of property and the 
right of citizens to own and use property.  Foreign individuals who 
 
YEREVAN 00000038  004 OF 008 
 
 
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 
----------------------------- 
 
¶23. 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. 
 
¶24. 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 
invention, 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.  Despite 
existence of relevant legislation and executive government 
structures, the IPR concept remains unrecognized by a large part of 
the local population.  However, recent anecdotal evidence suggests 
tightened measures against computer software piracy.  The onus for 
IPR complaints remains with the offended party, and the GOAM 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 
------------------------------------- 
 
¶25. 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. 
 
¶26. 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 
----------------------------------------- 
 
¶27. Armenia's financial sector is not highly developed.  As of 
September 2009, total bank assets were USD 3.2 billion (57 percent 
of GDP), up 25.3 percent from September 2008.  The insurance market 
is very small, with total annual premiums amounting to approximately 
USD 15 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.  This remains the main 
barrier for SMEs and start-up companies.  ?hird quarter 2009 
statistics reflect an increase in commercial lending rates by 1.5-2 
percentage points and a slight decrease of mortgage rates on 
average.  With the onset of the economic crisis in Armenia, a number 
of banks, including the largest players such as HSBC, suspended all 
lending, while others began lending at higher rates due to an 
increased risk of default.  A drop in mortgage rates is attributed 
to decreased demand in the real estate market. 
 
YEREVAN 00000038  005 OF 008 
 
 
 
¶28. 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. 
 
¶29. Remittances constitute approximately 14 percent of Armenia's 
total GDP.  According to the latest data released by the Central 
Bank, the volume of private (non-commercial) remittance inflows for 
January-October 2009 dropped by USD 420 million -- almost 35 percent 
-- compared to the same period in 2008, far higher than the World 
Bank's prediction of a USD 250 million decrease.  The Central Bank's 
2006 survey states that 37 percent of Armenian households regularly 
receive remittances.  The most recent Central Bank data indicate 
that 80 percent of remittances originate in Russia and the remainder 
comes primarily from the US, Europe and other CIS countries. 
 
------------------ 
POLITICAL VIOLENCE 
------------------ 
 
¶30. 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, but amnestied later, in accordance 
with a Presidential Decree of June 19, 2009. 
 
¶31. 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. In 2009 one of the 
leading bottled-water factories, owned by an ardent supporter of the 
opposition Presidential candidate, was seized and put up for 
auction.  The GOAM in late December 2009 sent police and tax 
inspectors to several of this person's companies -- detaining 
several employees for a few hours -- after he and his brothers gave 
newspaper interviews criticizing the government and supporting an 
opposition parliamentary candidate. 
 
¶32. Armenia's ceasefire with Azerbaijan over the disputed region of 
Nagorno-Karabakh has held for more than 15 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 
---------- 
 
¶33. 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. 
 
¶34. 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.  After lengthy discussions initiated at 
the beginning of 2008, the Armenian Government adopted a new 
anti-corruption strategy paper and action plan for 2009-2012 that 
 
YEREVAN 00000038  006 OF 008 
 
 
entered into force on December 3.  Priorities set by the new 
strategy include improvement of legislation and infrastructure to 
combat money laundering, increase of transparency of the public 
sector, and enhancement of accountability of all branches of the 
government. 
 
¶35. According to the Transparency International (TI) 2009 Corruption 
Perception Index (CPI) report, Armenia ranked 120th among 180 
countries, with a score of 2.7 (on a "10-0" scale, where "10" is the 
cleanest country and "0" the most corrupt).  Armenia's score places 
it into the category of "mostly corrupt."  No progress has been made 
during the last three years, with the Armenia's CPI equal to 3.0, 
2.9 and 2.9 in 2007, 2008 and 2009, respectively. 
 
¶36. Relationships between high-ranking government officials and the 
emerging private business sector encourage influence peddling. 
Powerful officials at the national, district or local level 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. 
 
¶37. 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. 
 
¶38. In a move to increase transparency and introduce a degree of 
"naming and shaming" of major tax-dodgers, 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. 
 
¶39. As of January 1, 2009, in an attempt to cut back on shadow 
economic activity and tax evasion, as well as to increase budget 
revenues, the GOAM tightened enforcement of a 2005 law that obliged 
traders to report all transactions through cash registers.  To 
maximize the effectiveness of implementation, GOAM resorted to an 
innovative tactic of stimulating customer interest to demand cash 
register receipts from retailers: state-run lotteries were held at 
the end of each month, during which control numbers of the receipts 
were to be drawn.  Monetary prizes for winners ranged from USD 16.60 
to 1,600.  Although after a few months the lottery was suspended due 
to fraud allegations, most of the retailers continue to provide 
receipts to customers, in fear of unexpected tax audits.  According 
to official estimates, as a result of this action, GOAM has managed 
to raise about USD 30 million in additional revenues. 
 
¶40. Another recent effort to increase tax compliance by larger 
companies was legislation permitting the State Revenue Committee to 
place tax inspectors on the premises of large companies (those with 
annual turnover exceeding USD 10.5 million, and/or those with more 
than USD 1.3 million in imports in a three-month period) to oversee 
sales volumes, prices and corresponding documentation, product 
deliveries, etc.  The amendment went into effect January 1, 2010. 
 
------------------------------- 
BILATERAL INVESTMENT AGREEMENTS 
------------------------------- 
 
¶41. 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. 
 
¶42. 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). 
 
YEREVAN 00000038  007 OF 008 
 
 
 
-------------------------------------------- 
OPIC AND OTHER INVESTMENT INSURANCE PROGRAMS 
-------------------------------------------- 
 
¶43. 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 
----- 
 
¶44. 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. 
 
¶45. 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., shut down operations in early 2009, 
resulting in about 300 qualified technical staff losing their jobs. 
Some have been able to find employment with competing companies. 
 
¶46. 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 current legal minimum wage 
established by 2008 budget equals AMD 30,000 (about USD 80) 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 
------------------------------ 
 
¶47. 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 
------------------------------------ 
 
¶48. The Armenian National Statistical Service reported that total 
foreign investment for the first nine months of 2009 was USD 522 
million, down 35.2 percent from the same period in 2008.  Of that 
foreign investment, USD 384 million was foreign direct investment 
(FDI), down 35.4 percent compared with the previous year. 
 
¶49. In 2009, the most significant foreign investments in Armenia 
came from France (USD 146 million) and Russia (USD 122 million) 
constituting 38 and 32 percent of the total, respectively.  This was 
due to the entry of France Telecom (dba Orange) into the Armenian 
market, as well as Russia's continued investment in the energy 
sector.  Argentina was the third biggest investor, its FDI reaching 
USD 38.3 million, or 10 percent of the total, which consists 
predominantly of investments in the air transportation 
infrastructure as it continues to upgrade Zvartnots International 
and Shirak Airports. 
 
YEREVAN 00000038  008 OF 008 
 
 
 
¶50. The following is volume of FDI based on data by the Armenian 
National Statistical Service: 
 
Net FDI 
Years  2001 2002   2003   2004   2005   2006   2007 2008 
Volume 
(USD m) 70   111   121   217   287   305   582 1,000 
 
PENNINGTON