Thursday, November 29, 2007

Competitive enterprises in Armenia.

Shushan at the Armenian Economist has posted a blog entry about Armenia's competitiveness in the global marketplace. Basically, you competitiveness boils down to the cost of your product to the buyer relative to the other similar products available. This assumes free marketplace where there are no government restrictions like the ban on Georgian products in Russia.

The cost is a short term item and can be manipulated through accounting tricks, exchange rates, favorable tax environment or operational effectiveness.

But there are long term issues that affect the overall competitive environment. Here are the issues that I think have a negative effect on the Armenian products' competitiveness in the world market.

1. The absence of rule of law. The laws that are there are generally good. But the corrupt system of governance, both the executive and judicial branches of the government, make a mockery of them. See the recent tax issues at Sukiansian enterprises (Bjni, Noy, etc.) after his support for LTP and the imprisonment of the Royal Armenia management for criticizing the corruption at the tax authorities.

2. The de-facto war involvement. This increases the perception of risk and prevents the flow of capital in the country. This is also the direct cause of high logistics costs of importing and exporting physical goods due to the blockade. While the current president came to power dismissing the war issue, we see that the Armenian economy has hit a plateau and in the past has mainly been growing through construction projects instead of something more substantial.

3. The scarcity of highly skilled labor. While Armenians claim that the labor in the country is highly skilled, it is not as widely available as claimed. Undoubtedly, there is a small pool of experts in their fields but overall, the labor market is in a sorry state because of the brain drain. And there is no pipeline of future experts as the education system and science are generally on the back burner for the government and the society at large.

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