The manufacturing sector contributed to 12.4% of total economic activity in 2020, making it the largest economic sector in Armenia, driven by higher manufacturing of food, beverages and tobacco products.

Contribution of manufacturing sector to GDP in 2020, % of total

Sources: Statistical Committee of the Republic of Armenia

Food, tobacco and beverage production together accounted for about three-quarters of manufacturing output in 2020.

Main manufactured product types in Armenia in 2020, % of total

Sources: Statistical Committee of the Republic of Armenia

Bread was the most manufactured food in 2020 with 40% of the total, followed by flour with 30% and meat (13%). Also, non-alcoholic beverages were the most manufactured beverage in Armenia with 36% of the total, followed by natural water (16%), mineral water (15%) and cognac (13%).

The number of employees in the manufacturing sector increased by 5% to 77,436 employees in 2020, while the average salary of employees in the sector also declined by 1% to AMD 166,711 in 2020.

Mining & Quarrying

Armenia is rich in iron, copper, molybdenum, lead, zinc, gold, silver, antimony, aluminum, as well as in scarce and scattered metals enclosed therein.  Ore concentrates and metals accounted for just over half of Armenia’s exports, solidifying their status as the country’s most important export products.

Armenia has more than 670 mines of solid minerals, including 30 metal mines. Among the metal mines, there are 7 copper-molybdenum mines, 4 copper mines, 14 gold and gold-polymetallic mines, 2 polymetallic mine, 2 iron ore mines and 1 aluminum mine.

In addition to mines estimated and registered in the state inventory, 115 deposits of various metals have been discovered in the territory of the Republic of Armenia.

Armenia’s mining & quarrying sector grew by almost 12% in 2020, making it the second fastest growing sector in the country. The strong growth in the sector is mainly due to higher copper and molybdenum production in 2020, after the Teghout copper and molybdenum concentrate mine was relaunched in the second half of 2019 after an 18-month break.

Activity in the mining & quarrying sector contributed to 3.4% of total economic activity in 2020.

Mining & quarrying sector growth in 2020 (% change)

Sources: Statistical Committee of the Republic of Armenia

Contribution of mining & quarrying sector to GDP in 2019, % of total

Sources: Statistical Committee of the Republic of Armenia

Mining by category (% of total mining)

Sources: Statistical Committee of the Republic of Armenia

The number of employees in the mining & quarrying sector increased by 2.2% to 10,762 employees in 2020, while the average salary of employees in the sector also declined by 4.4% annually to AMD 455,465 in 2020.

Armenia’s power sector is dominated by a mix of nuclear, hydro and thermal generation

Currently the four largest generation companies (ANPP, Yerevan CCGT, Sevan-Hrazdan Cascade HPP and the Vorotan Cascade HPP) produce more than 80% of the total electricity output.

Total installed generation capacity in Armenia is 3.4GW. Total electricity output stood at 7.4TW/h in 2018.

Armenia power system structure:

Regulatory overview:

• Regulated market
• Mix of private and public companies
• Financing largely from IFIs / DFIs
• Participation in the Regional energy programs
• The market framework is based on the “single buyer model” with tariffs being regulated for generation, transmission and distribution
  • Under the framework, ENA acts as the single buyer of electricity through contracts with generating companies at prices regulated by the PRSC
  • Energy flows and payment delivery are monitored by the Settlement Centre, and
  • System Operator dispatches generators taking into account the economic dispatch order of plants as well as plants’ operational constraint

Tariffs:

• Public Services Regulatory Commission (PSRC) establishes procedures for setting and reviewing tariffs
• According to Article 22 of the RA Law on Energy, electricity tariffs may be revised not earlier than every 6 months, but PSRC usually reviews tariffs for major power generation plants and service providers annually

Energy Strategy:

• Government of Armenia has identified energy independence, energy efficiency and renewable energy as the main pillars of its overall energy strategy
• Armenia has pledged to generate 30 per cent of its electricity from renewable sources by 2025 and has the potential to integrate as much as 1,000MW of solar energy. Today it has around 2,800MW of installed power capacity, evenly distributed between nuclear, hydro and thermal generation from imported natural gas
• Armenia is already a significant producer of hydroelectric power, and many of the country’s more than 200 rivers and lakes are suitable for floating solar power projects. With wind speeds of 8.5 meters per second and above, much of Armenia is also ideal for wind farm development, while the country receives an estimated 1,720 kilowatt-hours (kWh) of solar energy per square meter, compared with an average of 1,000kWh per square meter in Europe

The diverse landscape and ecosystem in Armenia along with relief peculiarities, vertical zonation and 10 landscape-climatic zones contribute to formation of rich and unique agricultural product diversity.

The agricultural sector is one of the most strategically important sectors for the Armenian economy

It is the main source of economic activity in rural areas (that include around 36% of the population) and is a significant contributor to the GDP of the country. In fact, the agricultural sector contributed to 11.7% of total GDP in 2020, the second largest contribution after the manufacturing sector.

Contribution of agricultural sector to GDP in 2020, % of total

Volume of gross agriculture output, AMD mln

Main subsectors of agriculture include: horticulture and animal husbandry

Armenia has favorable climatic conditions for a year-round commercial fish farming. Around 13-14 tons of fish are raised in the country, around 20% of which is exported

The level of self-sufficiency in the country in terms of most relevant food products is around 64%. This percentage mainly corresponds to fruits, vegetables, lamb, eggs and fish. Meanwhile, around 95% of milk is produced locally.

Local production data 

Overall meat sufficiency of the country is not very low, but separate markets do have room for growth (poultry, pork, etc.)

Pasta, sweets, organic oil remain among products with lowest share of local production.

These directions are among most appealing for potential interest.

Potential for the Future Development

• Armenia has 2.974 million ha of land, of which 2.043 million ha is considered agricultural land (0.69%). The total area of arable land is 446.0 thousand ha (21.8% of agricultural lands), out of which 68.1 thousand ha is located in Ararat valley (15.2 %). More than 57% of agricultural land in Armenia is pastures and meadows. Around 29.1% of cultivable land is not utilized for various reasons. According to census results from 2014, in average 33% of arable land in holdings without legal status and 38% of holdings with the legal status are abandoned
• In this sense:
  • Food processing sector has a potential to further develop, both to meet domestic demand as well as to enter new markets
  • There are opportunities for manufacturing high-value and organic products, processed and unprocessed fruits and vegetables which comply with international food safety standards
  • Greenhouses are expanding and there is increasing demand for greenhouse technologies
• Armenia is a member of Eurasian Economic Union, which gives the country access to a market of 182 million people, with as low as 0% import and export customs duties
• Armenian government sees the future of the sector in driving the initial transition to a new, technology-based growth model. There is a confirmed agenda with IFIs to focus on increasing the sector efficiency, equity, and sustainability

Import Substitution Mechanisms

• A big proportion of meat (mainly pork and poultry) consumed in Armenia is imported
• Armenia also relies heavily on grain imports (mainly imported from Russian Federation)
• There is an attractive market for locally producing these products, which will allow for import substitution and increase in self-sufficiency level
• On the other hand, Armenian high-quality and 100% organic produce can be successfully introduced to international markets, also to serve as a production input (e.g. milk) for countries seeking import substitution mechanisms

Sector-specific incentives:

• Agricultural production: annual sales < USD 220.000 – corporate tax exemption
• Borderline Tax Regime: in case the operation is in one of the bordering villages/cities in Armenia – corporate tax exemption

Due to its location, history, climate, topography Armenia has an unparalleled potential to significantly expand and further develop its tourism proposition to the world.

Tourism is a priority sector of the Armenian economy, and it is no accident that the development of the sector is always highlighted by the government.

The number of tourists arriving in Armenia has increased by about 1 million 300 thousand over the ten years from 2009- 2019. In 2009, about 587 thousand tourists came to Armenia, and in 2019, the number of tourists reached 1.9 mln.

Number of tourists, people

Armenia is most often selected as a tourist destination by citizens of Russia, Georgia and Iran. According to the Migration Service, most of the tourists who visited Armenia in 2019 (610.695) are Russian citizens.

According to the Ministry of Economy, about 31 percent of tourists arriving in Armenia are Diaspora

Armenians, and 69 percent are foreigners. Nearly half of the tourists in Armenia are attracted to cultural tourism, 19% come to see the nature of Armenia, 16% come for leisure. Business, adventure and health tourism are preferred by 13 percent, and 3 percent come to Armenia for long-term tourism.

In 2019, Armenia improved its ranking by 10 points in the World Economic Forum’s Travel and Tourism Competitiveness Index compared to 2018. This index measures the opportunities and policies for sustainable tourism development, which in its turn contributes to the country’s competitiveness. In 2019, Armenia ranked 79th among 140 countries (in 2018 it ranked 89).

Safety Index 2020 published by Numbeo ranks Armenia as 9th safest country in the world, at par with Switzerland.

Hotels

Number of hotels in Armenia grew over 70% from 2014 to 2019. The highest concentration is in Yerevan and then Tavush and Kotayk marzes following, 59%, 11% and 10% share in 2019, respectively.

However, in terms of the proceeds, Kotayk marz is at the second place after Yerevan accounting to just 4% of the proceeds in 2019.

Number of hotels in 2019 and proceeds, AMD mln

Armenia has made substantial progress in improving the physical health and social well-being of the population. The government has been increasing budgetary spending on the healthcare sector, with the aim to guarantee free healthcare to a larger portion of the population while also increasing the benefits and services entailed in the Basic Benefit Package (BBP). The BBP is a publicly-funded package that specifies a list of services that are free of charge for the entire population and stipulates the population groups that are entitled to receive any type of health care service for free.

General information about the healthcare sector in Armenia

Economic activity in the human health & social work services sector expanded by around 8.4% in 2020, the third fastest growing sector, and represented 5.7% of total GDP, the seventh largest economic sector.

Growth of human health & social work activities sector in 2020, % change

Contribution of human health & social work activities sector to GDP in 2020, % of total

Contribution to healthcare services in Armenia by region, % of total

Armenia’s share of healthcare spending as a percentage of GDP is one of the largest among Eastern European and Central Asian countries.

Share of healthcare spending in Eastern European and Central Asian countries, % of GDP

The number of employees in the human healthcare and social work sector increased by 4.5% to 48,970 employees in 2020, with those employed in the private sector growing by 8%, and those in the public sector rising by 2.3%. The average salary of employees in the sector also increased by 9% in 2020 to AMD186,850, with public sector wages rising by 12.5% and private sector salaries growing by 3.4%.

Distribution of employees in the healthcare sector in 2020, % of total

Pharmaceutical sub-sector:

There are 1,500 drugstores in Armenia, with Alpha Pharm and Natali Pharm representing the two leading chains in the country. There are also 23 manufacturers of pharmaceuticals and a total of 367 registered medicines. Armenia exported USD 11.4 mln in pharmaceuticals and imported USD 181 mln in such products in 2019. There are 31 importing pharmaceutical firms in the country.

Armenia has competitive advantages and strong development potential in three pharmaceutical niches that are herbal medicine production, research and development (R&D) and development and production of active pharmaceutical ingredients (API).

Medical tourism:

Armenia has a competitive share of medical tourism compared to peer counties, mainly supported by the Armenian diaspora, especially in Russia. The ratio of “Medical tourists/Tourism” for Armenia is 0.67%.

Ratio of medical tourists to total tourism (%)

Source: BDO Armenia

Ease of market entry and investment in healthcare sector

• 3 days to open a company; no government fees
• 7 days to register property; estimated cost: AMD 55,000
• 23 days to receive license for medical services (AMD 50,000)
• 23 days to receive license for drug production (AMD 200,000)
• 23 days to receive license for wholesale trade of drugs (AMD 50,000 to AMD 100,000)

Armenia has retained its great potential for technology development, and was considered a hub for software development, industrial computing, electronics, and semiconductor production, even during the Soviet Union. It continues to be the regional leader in IT and high-tech industry due to its competitive labor, its share in GDP, and its constant growth in the number of companies and total turnover.

ICT is the most labor productive sector of the Armenian economy. In total, c. 800 IT companies are present in Armenia employing over 19,000 people.

The ICT sector’s economic activity increased by over 6.2% in 2020, and was the fifth fastest growing sector in Armenia. The ICT sector accounted for 3.7% of Armenia’s GDP in 2020.

Growth of information and communication sector in 2020, % change

Contribution of information and communication sector to GDP in 2020, % of total

In addition to the local ICT companies, a number of foreign branches and representation offices are in operation in Armenia. These are primarily outsourcing centers with clearly defined budgets; a small proportion of the revenue generated by these foreign branches stays in the country as salaries and other expenses. Nevertheless, this branch model is still relevant in Armenia, and has a noticeable positive effect on the country’s industry and overall economy.

A diverse set of infrastructure development initiatives have supported the development of Armenia’s IT sector. For instance, the Enterprise Incubator Foundation, a government entity that promotes IT and high-tech sector, has been active in attracting and building training, innovation and incubation facilities. Also, Microsoft Innovation Center, IBM Innovative Solutions and Technologies Center, Armenian-Indian Center of Excellence have all provided modern educational and research services to the industry. Further, the Gyumri Technological Center project, which houses state-of-the-art laboratories, an educational center and business incubator, was launched with support from the World Bank’s E-Society and Innovation for Competitiveness project. In addition, the second technopark was launched in Vanadzor. Another important infrastructure initiative is TUMO center for creative technologies, an education center for teenagers specializing in technology and design. TUMO has a rapidly expanding network with 4, soon to be 6 centers in Armenia, and international centers in Paris and Beirut.

The year 2019 was an eventful one for the Armenian ICT industry, justifying Armenia’s name as the “Silicon Valley of the ex-Soviet Union”. World Congress on Information Technology (WCIT), one of the largest & most prestigious ICT events in the world, was held in Yerevan in October 2019 with over 2000 attendees from 70+ countries, and more than 80 distinguished moderators and panelists. Artificial Intelligence was one of the key topics of the congress.

Armenia’s tech sector is poised to be one of the top next-generation technology hubs, given the increasing tech entrepreneurship in the country. Over the past 10 years, dozens of successful startups have launched in Armenia, including:

• Krisp is an Armenian AI-powered a noise cancelling app backed by Silicon Valley investments that subtracts background noise during calls. It has raised USD 8.5 mln in Series A funding, including from Berkeley SkyDeck Fund and HIVE Ventures. It entered America’s Top 50 most promising AI in 2020.
• Picsart is a photo and video editing app with a social platform for artists building a community around creatively edited pictures. It has raised a total of USD 65 mln, including from Sequoia Capital (USD 15 mln), DCM Ventures, Insight Venture Partners, and Siguler Guff & Company.
• SuperAnnotate AI is an image annotation software applying patented AI algorithms for 20 times faster, pixel accurate object selection. It raised USD 3 mln in a seed funding round led by Point Nine Capital and including Runa Capital and Fathom Capital.
• Teamableis an employee referral and diversity hiring platform that transforms social networks into high-performance talent pools. It has raised a total of USD 10 mln in Series A funding, including from Foundation Capital, True Ventures and SaaStr Fund.
• AppearMe is an on demand platform for litigation support helping to find appearance/deposition attorneys and court reporters within 60 seconds. The platform has more than 5,000 Attorneys in 13 US states, which has been growing at a rate of 20% monthly. AppearMe has so far raised a total of USD 900 mln in funding.

Government incentives for ICT sector include:

• A tech company in Armenia is exempt from paying corporate income taxes until end-2022. This benefit is offered to new companies with less than 30 employees. These incentives are applicable not only to local companies but also branches of foreign IT companies and will stay in effect until 2022
• IT startups operating in the following fields can benefit from state support:
  • Software development
  • Consulting activities in the field of computer technology
  • Computer system management activities
  • Data processing, network distribution and related activities
  • Activities related to web-portal development
  • Implementation of educational or research programs in the field of IT
  • Electronic systems design, testing and production, computer animation and modelling, as well as design and testing of integrated circuits