In half a year, there will start a phased removal of international sanctions imposed on Iran, which will open new geopolitical and economic horizons for this country. According to experts, Iran will act cautiously but firmly. Tehran will make up for lost time and reestablish its position in the region. For the neighboring countries, the opening of the Iranian market with its 80 million population and GDP of around $450 billion promises new opportunities. In his interview to EADaily , the President of the Board of Directors of American Chamber of Commerce in Armenia speaks about the challenges and opportunities related to the fact that Iran is going out of its isolated state and discusses if the Transcaucasian republic can benefit in the challenging struggle of world powers for the “Iranian pie.”
Mr. Jrbashyan, Iran and the “Six” international mediators reached a consensus with regard to the nuclear program of the Islamic Republic. The UN Security Council has already approved this agreement. How will the fact of Iran coming out of international isolation affect the South Caucasus region and, in particular, Armenia? What dividends can Armenia gain from this?
The process undoubtedly promises dividends. Iran is a country with a population of 80 million and GDP of around $450 billion. The level of accumulation in the economy constitutes 34 percent. This indicator for Armenia does not exceed 20 percent. In fact, Iran has been under sanctions for the past 30 years and was closed in the technological sense. This reflects upon such things as the number of internet users per 1000 people, the number of mobile phones, internet sites, etc. According to all indicators, the country does not correspond to the power it holds in terms of its population, GDP and level of accumulation in the economy. The fact of Iran coming out of international isolation means that the country will be making up for lost opportunities in a speedy way. It will become a large consumer of main products, services, and technologies. At the same time, during all this period Iran has been developing on its own by making huge investments in infrastructure, education and the health sector. In this sense, Iran is a unique oasis, where one can clearly see the inconsistency between the resource and investment potentials and the actual level of consumption of technologies, services, and products. Therefore, it is assumed that the opening of this market will be rather attractive for the majority of countries, including Europe, the US, and Russia. They will try to establish themselves in this market by investing in various sectors.
Let us come back to Armenia. Can it count on activating trade relations with Iran? Before, because of sanctions, we have almost lost Iran as a trade partner and were cut off from Iranian port of “Bander Abbas” on the Persian Gulf.
I do not expect a strong activation of trade relations between Armenia and Iran. This is not an option. It will be just enough to compare the average indicators of purchasing power parity in Iran and Armenia. In Iran, according to the data of 2014, this is around $17,000, while in Armenia this indicator is $7.300. In other words, from this perspective, Iran is a more developed country. In my opinion, Armenia can benefit a lot if it becomes a “portal” for access to Iran. Taking into account the internal and external politics of Iran, as well as its ambition for regional leadership, no country neighboring Iran can play that role, except for Armenia. Turkey is a regional rival to Iran, while Iraq is a battlefield. The Arab world, which has the Shiah-Sunni conflict, is also excluded from this list. At this point, the most suitable entry or even “gates” to Iran for the whole world is Armenia.
I think that there are all conditions to make Armenia a “portal” for Iran for large investors. International companies (European, American, etc.) will open their representations in Armenia to work with Iran. There are all necessary conditions for this. For example, according to the international ranking of GITR (Global Information Technology Report), compiled by the specialists of Global Economic Forum, Armenia occupies the 58th place as to the Networked Readiness Index, while Iran is in 96th place, lagging behind Armenia according to numerous indicators, mainly the use of technologies, infrastructure development, access, skills, as well as the ease/liberties in business and innovation environment. According to the international ranking of Doing Business, published by the World Bank Group, Armenia occupies 45th place, while Iran 130th, again lagging behind in many components, including a significant indicator of “registering a company” (4th and 62nd place accordingly). All this gives certain advantages to Armenia when selecting the venues for offices and company branches which are going to enter Iranian market.
What prevents them to open their representations in Iran itself after the removal of sanctions?
In terms of its business climate, Armenia is undoubtedly much more attractive than Iran. Here, other peculiarities of Iran come into picture, such as Islamic banking, Sharia courts, etc. Iran is attractive as to trade relations, but not for operating or servicing a business. A significant role here is played by the factor of state regulation and participation in the economy. In other words, there is a possibility that the international business structures will opt for locating their representations and offices in Armenia to work in Iranian market.
Does the purchase of Vorotan HPP, which is a strategic energy object, by American company “Contour Global” fall under this logic?
It might be, but I am not sure. Anything can happen. After the deal with Iran, Armenia has a totally different status not only for the U.S. and Europe, but also for Russia and the Eurasian Economic Union (EEU). If before, Armenia was a small remote island for EEU, now, after the removal of sanctions, Armenia becomes a platform for interaction between the EEU and Iran. It is through Armenia that the process of intensification of Iran-EEU relations will take place. There is already talk about the possibility of the formation of a free trade zone between the Eurasian Union and Iran, based on the cooperation experience between Armenia and the Islamic Republic, which share a common border. When in Armenia, there started the construction of the North-South highway, connecting Iran, Armenia, and Georgia, a project supported by Asian Development Bank (ADB), the possibility of addressing the nuclear issue of Iran was on a very low level. Now, the North-South Corridor becomes a highly potential project.
What is the possibility of implementing joint Armenian-Iranian economic projects, which were delayed, according to many, because of the sanctions? I am talking about the Armenia-Iran railroad, new heating station for barter trade with Iran (electricity for gas), a refinery on the border, and Meghri HPP?
I do not have big expectations here. After the removal of sanctions, there will be more problems here than opportunities. If we are talking about the gas-turbine energy sector, in particular, about construction of the second option of the Yerevan TPP, the issue is the following. The only reason for the construction of the Yerevan TPP, supplying electrical energy to Iran in exchange for gas, is the limitation in building a similar station in Iran, since new technologies were not available to Tehran.
After the removal of sanctions, Iran can freely buy these technologies and build similar stations. This relates to other fields as well. I will not be surprised if after 10 years we will be importing Hyundai or Toyota cars from Iran, produced there. The same can be said about plans to build refineries on the territory of Armenia. Why would Iran build an oil refinery on Armenian territory, if it can build it on its own territory? The project of the construction of the Meghri HPP can be probably realized, even though today Iran produces 2.8 times more electrical energy per capita (in oil equivalent) than Armenia. In perspective, Iran may also become an alternative supplier of petrol to Armenia. As regards to the construction of the Iran-Armenia railroad, this is more of Armenian than a joint project. Of course, for Iran it would be good to have a branch line with Armenia, but this project for Iran does not have much of a perspective, since in a short time it will have a railroad connection through Azerbaijan (Iran-Azerbaijan-Russia).
Does it mean that these projects lost their actuality?
These projects were largely actual when Iran was cut off from the world by sanctions. After their removal, a totally new situation is created, which does not target the integration of two economies, but for turning of one economy into an “office hub” for another. In the region, there are no alternative places for locating offices of international companies and working freely. I will repeat myself by saying that this significantly raises the role of Armenia in the region. In the short-run there can take place negative trends for Armenian side. This is the return of Iran to the global oil market, oil prices fluctuations, which will negatively affect Russian currency and economy. Armenia receives remittances from Russia, which are used for consumption. Russia is also a large trade-economic partner of Armenia. These links can work. Even though I assume that these factors are accounted for in the current oil price. The speculative decline of oil prices may pressure the ruble and Russian economy, but this will not take a long time, taking into account the speculative nature of the process. I think that the current level of prices is balanced.
We are talking about potential opportunity for Armenia, when Iran makes its exit from “sanction siege.” There is a question with regard to this: “can Armenia benefit to its maximum from this situation as a state and as an economy”?
Taking into account the high potential of getting adjusted to the changing environment (which was proven by centuries), the Armenian nation will find ways to benefit from the new opportunities to its maximum. Will the Armenian government be able to display the necessary level of flexibility? I am not absolutely sure of this. The issue here is not even in developing economic policy or its absence. At this point, the institutional capacity of Armenian government to pursue a certain direction in politics is rather weak. In this regards one can develop endless strategies, pursue good goals, but eventually everything will depend on the process of their realization. For this, one needs a clear and effective institutional state system, which we unfortunately do not have. Thus, I do not think that in the given situation the government can display the necessary flexibility.
Let us talk a little about Armenian-American relations. Recently, Armenia and the U.S. signed a Trade and Investment Framework Agreement (TIFA). What is it about? And how does it happen that being a member of Eurasian Economic Union (EEU) and given the worsening of relations between the US and Russia, which is the main sponsor of the EEU, Armenia signs a bilateral agreement with Washington?
I can say that this document creates a base for increasing cooperation between the countries in the future. It all depends on the capacities of the parties to utilize existing opportunities. I think that the framework of US investments in the region will have a rather concrete outline, especially given the unblocking of Iran. In the given case, this confirms a fact that the US views Armenia as an important element of the general system of interrelations in this region. The removal of sanctions on Iran will one more time highlight the importance of this agreement. I will repeat myself by saying that Armenia assumes a role of “gates” to Iran, and one has to be friends with these “gates.”
On the other hand, Armenia positively stands out among the countries of the Eurasian Economic Union as to its business climate, the ease of doing business, and implemented reforms. The agreement, concluded between Armenia and the United States provides for opportunities for American companies to stay in the EEU space. In the case of worsening of relations between Russia and United States, in other words, in the case of a strengthening of the sanctions imposed on Russia, Armenia becomes a beneficial solution for the companies implementing profitable projects in Russia, who want to stay in the Eurasian space. It is quite possible that US companies transfer their management structure to Armenia. But for this, one agreement with the US is not enough. The issue here lies in the fact of what else can Armenia offer to these companies, besides a better business climate. This is logistics (not only roads, but management personnel), the quality of office space, communication, internet, knowledge of language of personnel, airplanes, hotels, etc. Here, the geographical accessibility of Yerevan as a business center plays an important role. Thus, the realization of this project requires a great number of elements in place. Repeating myself, I will say that Armenia has all chances to become a serious player in the region, to which all global power centers will have to talk. With this regard, Yerevan will have rather large room for negotiations and bargaining. However, I am not so sure how ready Armenia is to all this in terms of its institutional potential in the modern conditions. But there is a chance.
The interview was conducted by Arshaluys Mgdesyan (Yerevan)