Economic Relations between Armenia and Russia

11 m.   |  2024-05-21
Current situation and developments

N owadays, the development of effective ways of interaction between the countries of the world, the establishment of close trade-economic ties, as well as the implementation of international cooperation are more important than ever. Given the changing of the “rules of the game” in the world economy under current conditions, comprehensive studies and analyses of socio-economic relations, as well as the created opportunities and further developments between Armenia and its main partner countries are gaining significant importance. Shortly, the Orbeli Analytical Center will present articles focusing on the current state of trade and economic relations with the five main economic partners of RA, development prospects, as well as the utilization of economic potential among these countries, and the search for alternative ways.

In this context, it is important to refer to the study of the economic relations between the Republic of Armenia and the Russian Federation, since the latter is widely recognized as the primary trading partner of Armenia.

Bilateral trade and economic ties

T rade turnover is an important prerequisite for economic development and growth. In the context of foreign trade, especially for countries with a developing small economy like Armenia, the presence of factors that contribute to export growth and the optimal utilization of the opportunities they create are particularly important in the process of normal economic development.

For years, Russia has been the main trading partner of Armenia, and when examining the trade turnover between RA and RF over the past decade, we observe a consistent upward trend, except for 2015 and 2020, which was due to the currency crisis and instability in Russia in 2015 and the spread of the COVID-19 pandemic in 2020.

In the last 10 years, the trade turnover between Armenia and Russia reached its peak last year: compared to 2022, exports of goods and services from Armenia to Russia increased by 38.8%, while imports from Russia to Armenia increased by 47.4%. Especially in recent times, the demand for Armenian products in the Russian market has significantly increased, largely due to the escalation of the Russian-Ukrainian conflict, which created an unfavorable economic situation for Russia, and on the other hand, it served as an incentive for Armenian businessmen to export large volumes. The main factors contributing to the increase in imports were the presence of high demand growth in the country and the opportunities to increase export volumes, as well as the devaluation of national currency.

When observing the structure of exports from Armenia to Russia by product groups, we notice that in the first half of 2023 (based on the latest statistical data published by the SRC), mineral water (66.3 thous. Tons) was exported the most, followed by the export of agricultural products: apricots, cherries, peaches, plums (19.2 thous. tons), tomatoes (13.8 thous. tons). It is noteworthy that more than 94% of the apricot export volumes from Armenia fell to the Russian Federation, and the remaining 6% was distributed to Georgia (4.7%), Belarus (0.8%), Ukraine (0.2%), France, Kazakhstan and other countries. In the structure of exports from Armenia to Russia, carpets and blankets accounted for a relatively large share (about 12 thous. tons), as well as alcoholic and non-alcoholic beverages, of which brandy accounted for 11.5 thous. liters. Precious and semi-precious stones, including 857.5 kg of silver and 18 kg of gold and a number of other products, had a large share of the products exported to Russia. It should be noted that in the considered period, the largest share in the total export volume from RA belonged to the product group of precious and semi-precious stones, comprising over 21%, increasing by 2.3 times compared to the same period last year. At the same time, it is clear from the semi-annual data that only Russia’s share in the entire volume of export of precious and semi-precious stones from Armenia is about 22%, which proves close economic cooperation with Russia in this field as well. It should also be noted that the second largest product group in the structure of total exports from RA is machinery and equipment, in which the share of Russia is again the largest 73.6%.

In parallel, when examining the structure of imports from Russia to Armenia by product group, we observe that the following groups were imported the most during the observed period: energy resources, particularly natural gas (1.296 mil. cubic meters). Oil ad oil refining products (129.7 thous. tons), as well as gold (3.9 thous. tons) and aluminum (15 thous. tons). Grain, particularly wheat (170.8 thous. tons), corn (30.6 thous. tons), as well as animal or vegetable fats, oils, including sunflower oil (12.4 thous. tons) and margarin (8.1 thous. tons) are among the products imported from Russia to Armenia in relatively high quantities.  

In the first half of 2023, the import of wheat to Armenia, 107.9 thous. tons, was almost completely (99.97%) carried out from Russia. The import of wheat in Armenia has always exceeded the production, which has made the economy of Armenia highly dependent on foreign markets, especially on the Russian Federation, which has led to the great dependence of Armenia’s food security on the latter.  

Along with all these, according to the latest data, Armenia produced 138.6 thous. tons of wheat in 2022, marking an increase of 42.6% compared to the previous year. At the same time, the total demand and thus the volume of wheat imports increased by 6.8% and 33.7% respectively. Generally, let’s note that half of the total demand, 52.3% is met at the expense of imports and only 24.4% at the expense of own resources. The latter represents the level of self-sufficiency of wheat in the country, which in 2022 saw a certain increase compared to the previous year, but decreased in 2021 compared to 2020. This decline was primarily attributed to the 44-day war in 2020, which led to a decrease in wheat production due to the loss of arable land and consequently, it directly impacted the level of wheat supply in RA, since a certain portion of RA’s wheat demand was previously met by production in Nagorno-Karabakh.

Turning to gas import volumes, it is worth noting that according to the 2023 summary data of the Public Services Regulatory Commission (PSRC), 86.4% of RA’s gas imports went to Russia, and the remaining 13.6% to Iran.

In this regard, the energy dependence on Russia is significant and it is not secret that Russia is considered one of the largest countries in the world in terms of natural gas production and market capitalization. The next reason for significant energy dependence is the low price of natural gas imported from the Russian Federation, which is highly important in the current geopolitical conditions and currently occupies an irreplaceable place in the context of ensuring the energy security of Armenia*.

As for the natural gas supplied to Armenia from Iran, it should be noted that in the context of price policy, since 2009, Armenia and Iran have been cooperating within the framework of the “Gas for Electricity” program and based on that Armenia gives Iran 3kWh of electricity per 1 cubic meter of natural gas. 

Thus, the dynamics of trade and economic relations highlight the Republic of Armenia's economy’s significant dependence on the Russian Federation, which has become increasingly apparent in recent years, demonstrating the initiation and implementation of effective steps aimed at addressing one of Armenia’s main challenges: diversification.

Russia as a leading money transfer partner

M oney transfers from abroad to Armenia have always had a key role and significance and continue to be pivotal in the economic development of Armenia. To prove this, let’s note that in 2023, the inflow of remittances in RA amounted to 2 trillion 235 billion 942.1 million AMD, which according to our calculations, was equivalent to 23.5% of the RA GDP. The picture would be more prominent if presented in dollar terms. However, it is important to note that the summery annual GDP data for 2023 in dollar terms has not yet been published by the World Bank.

In the last 10 years, the highest inflow of remittances in Armenia was recorded last year, in the amount of 5.7 billion dollars. However, it should be noted that as can be seen from the chart below, there was a slowdown in the growth rate of remittance inflows in RA in 2023. Thus, if there was a 2.5-fold increase in inflow in 2022 compared to 2021, then in 2023 it increased by only 9.8% compared to the previous year.

Traditionally, the lion’s share of remittances flowing into Armenia have come from Russia, largely due to the presence of RA migrant workers there, and since March 2022, there has been a significant increase in capital inflow as a result of the escalation of the Russian-Ukrainian conflict. Thus, year after year, the share of Russia in the volume of remittances flowing into Armenia has increased: about 60% of the total inflow of remittances in 2022 fell to Russia, and more than 69% in 2023.

The second country in terms of money transfers to Armenia is the United States: the inflow of remittances amounted to 663.3 mil. dollars last year, decreasing by 1.1% compared to 2022. The third largest partner is Switzerland, from where the volume of remittances to Armenia has registered a significant increase in 2023, more than 47% compared to the previous year.

Transitioning from the inflow of remittances to the outflow, it is noteworthy that during the period from 2014 to 2023, both inflow and outflow recorded the maximum result in 2023, which increased more than 1.5 times compared to the previous year.

Russia, the United Arab Emirates (UAE), and the United States, among others, continued to be destinations for remittances from Armenia. It is also important to address the share of India in the total outflow volume from Armenia. Despite its small volume, the influx of migrants from India to Armenia for work, study and therefore the pursuit of temporary or permanent residency among other purposes is currently increasing day by day.  

To gain a fuller understanding of the picture, let’s examine the net inflow of remittances to Armenia, which represents the difference between inflow and outflow: making around 1 billion 655 million dollars in 2023, it decreased by 36% compared to the previous year. Generally, the net inflow has always been positive over the past 10 years. However, it should be noted that the gap has narrowed considerably in 2023 compared to previous years, as the outflow has increased 1.5 times along with the 9.8% increase in the inflow of remittances compared to last year.

In the last 10 years, there has been a sharp increase in the outflow of remittances, particularly since 2022, until then the outflow did not exceed 1.5 billion USD annually. The reasons for increased outflow can be different. In particular, since the beginning of the Russian-Ukrainian conflict, migrant workers who relocated from Russia to Armenia, naturally send a part of their income to their family members and relatives living in Russia. Additionally, it should be taken into account that there is currently a trend of decreasing labor migration from Russia to Armenia, as well as a reduction in the overall flow of labor transferred to Armenia, as a result of the conflict compared to the high indicators recorded in previous years.

Thus, it is evident that amidst structural changes in the current world economy, the revision and modernization of existing international relations between countries along with the establishment and fortification of new foreign partnerships, particularly in strategic directions are gaining significant importance. In this context, summarizing the analysis of the existing economic ties between Armenia and Russia, and their future developments, it can be stated that over the past decade under review, the trade-economic and strategic significance of food trade between Armenia and Russia has steadily deepened day by day. Thus, in light of the current geopolitical uncertainties, Armenia also faces the problem of reviewing the economic component of the security system, alleviating dependence on unique relations and developing a new diversification agenda.