Page 24 - Small Stans and Causcasus Outlook 2022

2.1.2 External environment

Armenian exports are centered around mining and food, beverage and
tobacco products. In 2020, Armenia’s top exports were metals: $604mn
of copper ores and concentrates formed the country’s top export (24%
of total exports by value), followed by gold ($255mn, 10.1% of the
total). Other key metal and ore exports included molybdenum ($103mn,
4.1% of the total exports), ferroalloys ($99mn, 3.9%), and aluminum foil
($94mn, 3.8%). Armenia’s other primary exports were tobacco products
($241mn, 9.6% of the total exports) and alcohol spirits ($202mn, 8.1%).
Russia is the top export destination with $659mn of Armenian exports
(26% of the total), followed by Switzerland ($453mn, 18%) and China
($289mn, 11.5%).

As for imports, the primary categories are fuel-related. In 2020,
Armenia’s top imports were petroleum and fossil fuels at $719mn
(15.7% of Armenia’s total imports), followed by parts for nuclear
reactors ($537mn, 11.7%) and electrical machinery ($338mn, 7.4%).
The country’s top trade partners for exports were Russia ($1.49bn, 32%
of the total), China ($663mn, 14.5%), and Iran ($316mn, 6.9%).

Armenia’s economy remains primarily restrained by the country’s
geopolitical situation. 80% of the country’s borders have been closed
for the last 30 years, with the borders with both Turkey and Azerbaijan
sealed as a result of the Karabakh conflict. Reopening these borders
and regional trade and transit links is one of the stipulations of the
November 9, 2020 ceasefire deal that ended the 2020 war, but to date
little tangible progress has been made. There are signs, however, that
the Turkish border may open soon, with the appointment in
mid-December of special envoys from both Turkey and Armenia to
facilitate normalization of ties. On December 14, Armenian and
Azerbaijani leaders also held a meeting in Brussels in which the EU’s
support in restoring rail links between the two countries was promised.
If one or both borders should open, the impact on the Armenian
economy would be immense, and it is thus the main event to watch for
in 2022.

2.1.3 Inflation and monetary policy

Armenia’s inflation in 2021 surged dramatically. Rates went from 4.5%
in January to 9.6% by November, accompanied by repeated rate hikes:
the Central Bank of Armenia (CBA) raised rates from 4.5% in January
to 7.75% in December. Food prices also increased dramatically, hitting
a 13.5% y/y increase in July that marked the highest relative prices in a
generation.

Armenia’s consumer price index also saw a major jump. The y/y growth
in CPI (from November 2020 to November 2021) was 9.6%, driven
mainly by high CPI growth in food and alcohol (16.9%), clothing and
footwear (12.1%), and recreation and culture (11.5%). Consumer goods
likewise saw a 14% total price growth y/y from last November.

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