Current Situation of the Diaspora Connected FDIs in Armenia

A closer look to the significant role of Foreign Direct Investments as competitiveness enhancer November, 2011 
 
FDI in Armenia
FDI has been an important factor in Armenia’s economic performance in post-independence era. Given the constraints in natural resource endowments, size and geopolitical situation, FDI has been a significant factor for Armenia to enhance knowledge intensive industries. It has also demonstrated its potential to boost the competitiveness of the national economy.
Overall, FDI in Armenia has mainly gone to the real sector (80% of total FDI throughout 2005-2010), peaking in 2008 with total value of over USD 1 bln. Until 2008, increasing volumes of FDI  were driven by large privatization deals in mining, investment in telecom and airport infrastructure. However, the augmenting investment volumes in the pre-crisis period were reversed with falling trend in 2009 and 2010. By 2010, total FDI stock in all sectors in Armenia counted around USD 4.15 bln of which 90% went to the real sector and about 50% sourced from Russia. 
 
Diaspora investments in Armenia
Importantly, the Armenian Diaspora communities worldwide have played an evident role in the volume of FDI made to Armenia. Furthermore, the number of business established by/connected with Diaspora investors has been of significant weight since independence in 1991. About 69% of all foreign investors that invested directly in the Armenian economy in 1994-2004 were Diaspora-connected investors. The latter are estimated to have invested around USD 275 mln from 1998 to 2004, which makes approximately 25% of total FDI in Armenia in that period. The traditional sectors attracting Diasporan investments have been ITC, gems and jewelry, food processing, construction and sub-sectors in apparel. 
 
Overall, the nature of Diaspora engagement in Armenian economy since its independence has undergone phased changes. Thus, in early post-independence stage there was mainly a wave of sporadic charitable contributions to the newborn Armenian state passing through immense hardships. Afterwards, Diaspora engagement became more organized with a set of institutions emerging to facilitate the socio-economic interaction with Armenia (e.g. the Hayastan All-Armenian Fund). Once the structured relationships with Armenia were in place, the first Diaspora brokered deals started to take place as well. Among these were first mover investments and Diaspora facilitated MNCs’ engagement in the Armenian economy. The next phase of directing generic efforts to achieve deeper Diasporan engagement in Armenia did not result in sizable outcomes. The drawbacks in attraction of Diaspora investments to Armenia were largely rooted in the shortcomings in the Armenian business environment. The resulting disappointment among Diaspora wide business circles was moderated in mid2000s during the construction boom in Armenia. Nevertheless, the latter decreased during the global financial crisis and its aftermath.