Georgia, Russia, and Armenia’s Economy

The rising tensions between Georgia and Russia, and the severing of land and air links between the two neighboring countries, may have serious implications for the economy of landlocked Armenia.

Russia is the leading source of imports by Armenia (see AEA – excel file). It imported USD 260 million from Russia, or some 15 percent of its total imports of USD 1768 million in 2005. Much of this is in the form of critical energy, raw materials, and other intermediate goods. Imports of uncut diamonds, given their weight and volume, may not be impacted by the trade “embargoes,” and the pipeline shipments of natural gas are not yet slated to be cut. But the imports of many other products will be severely impacted. As an example, in 2005, Russia accounted for 84 percent of Armenia’s imports of cereals valued at USD 45.1 million and weighing 301,942 tons (see here – in Armenian and can be very slow). It also accounted for over one third of Armenia’s imports of vehicles and heavy machinery (USD 50 million), and about 10 percent of many other products.

The following is a breakdown of imports by country (diamonds feature prominently in the trade with Belgium and Israel):

Total imports 1767.9 USD millions
Russia 259.5
Belgium 162.4
USA 116.0
Germany 114.0
Israel 102.5
Iran 102.0
Other 911.5

Exports are much smaller but relatively no less important, given the country’s GDP of less than USD 5 billion. Armenia exported USD 119 million to Russia in 2005, or some 20 percent of the total exports of 950 million, making the latter the fourth largest importer of Armenian goods, after Germany, The Netherlands, and Belgium (see AEA). Beverages and spirits represent much of what Armenia exports to Russia, valued at USD 71.3 million and weighing 23,258 tons (see here – in Armenian and can be very slow). Indeed, this represents about 85 percent of all Armenian beverage exports in 2005.

The following is a breakdown of exports by country (diamonds feature prominently in the trade with Belgium and Israel):

Total exports (USD millions) 950.4
Germany 147.2
Netherlands 130.1
Belgium 124.6
Russia 119.1
Israel 112.2
USA 62.1
Other 255.0

Regardless of the trading partners, much of Armenia’s imports and exports pass through Georgia and its ports on the black sea. As such, the stability and prosperity of Georgia are critical as well.

Airline traffic will also be affected. There are about 80 weekly flights from Yerevan to destinations all over Russia (see AEA, the overall number may vary with season). Half of these are served by Russian airlines which will not fly over Georgia. The necessary detours will most likely add to the duration of the flights and to the cost of air travel.

One hopes wisdom prevails as Georgia and Russia settle their differences. In the meantime do we know of any ongoing research on shipping costs to and from Armenia on various modes of transportation? There are considerable amounts of statistics on the volume and how goods are shipped (see AEA), but little is reported on costs.