Armenia in need of industrial policy

By the recommendation of Dashnaktsutyun. an expert group was set up for studying the economic prospect of border opening. The group consists of specialists from Armenia, as well as an expert from Turkey's Economic Competition Committee. As a result of painstaking work, it prepared a report reflecting the main problems in Armenia and Turkey's economy, as well as studied separate spheres (agriculture. Industry, transportation), particularly export-import regulating mechanisms, and drew parallels between two countries' economic policies. The report was publicized this June and received Prime Minister's approval. The document is significant inasmuch as it shows Armenian Government has conducted no relevant studies and analysis in the sphere while advocating possible advantages of border opening.

As regards specific problems, it should be noted that unlike Armenian Government which conducts a neo-liberal policy, Turkish side sticks to protectionism. While Armenia joined WTO on condition of establishing no more than 15% customs duty, the case with Turkey is different. Turkey has a list of imported products restricted to 50%, with established custom fees exceeding 15%, whereas custom fees for other imported products are not limited to special criteria. Hence it may impose 300% custom duty on imported beer and 400% custom duty - on wine. Such policy helps protect local producers. That's why, the country's economy recorded a breakthrough over the recent 20 years, and Turkey is now producing a wide specter of products of national consumption, ranging from pens and paper to automobiles.

Presently, Turkish goods are presented as affordable and good-quality products. So, opening of the border doesn't open the door to the Turkish market for Armenian production. Those speaking about entering 70-million Turkish market should think why we failed to enter a similar Iranian market. The problem is our business system. It has suppressed local manufacturers. Import exceeds export more that 4 times. This is for most part conditioned by artificially overrate of AMD and the import monopoly held by oligarchs.

Dwelling on Turkey's transport possibilities, I should mention that railway communication is underdeveloped in the country. Over 90% of transportation is exercised by vehicles. Railways are state-owned and tariffs to be set for the Armenian companies will be much higher than for Turkish ones. The same refers to Turkish ports, which are the most expensive in the region.

Furthermore, Armenia doesn't possess shipping facilities. Armenian roads are overloaded with Iranian and Turkish vehicles. The problem is whether will make use of the situation or foreign companies will make money on our economy.

There is a fairly extensive program of agricultural subsidies in Turkey. For example, if the farmer treats 1 hectare of land, it receives a USD 90 subsidy, another USD 14 he receives as a subsidy to reimburse the cost of diesel fuel. Meanwhile, there are no such subsidies in Armenia. Though our agricultural products are competitive and of high quality, however, in respect of prices, are less competitive. In this respect, we might not be able to compete in the Turkish market. 

I was in the Turkish city of Manisa - a small town with a 700 000 population, having an industrial zone nearby and employing more than 25 000 people. This industrial zone has more than 100 enterprises, and foreign trade turnover of this small zone surpasses the half of Armenia's GDP. It's exports reach USD 5.5 billion. Unfortunately, we have not conducted such a policy. I suggest to study the experience of Turkish counterparts: how they have protected the economy, haw they have lifted the economy from underdeveloped to a very competitive level. To do something, it is necessary to study the international experience and implement economic reforms not on the basis of neo-liberal approaches, but and the experience of countries, that have been successful in building industrialized states.