Thursday, March 29, 2007

Travel Patterns

2006 is the first year since the country's independence when more people arrived by air than departed. More specifically, 586,800 individuals arrived in 2006, compared to 585,300 that left, as reported by the Migration Agency. In contrast, 636,900 arrived in 1992, which is 228,600 short of the number of those who left.

Number of individuals arriving by air (in black)
and the difference between arrivals and departures (in red), 1989-2006.

Travel by land also exhibited a similar positive reversal in the trend of arrivals and departures. In 2000, departures exceeded arrivals by some 19,000. By 2006, this was reversed, and arrivals exceeded departures by about 21,000. Most if not all of this takes place through Georgia to the north. A number of factors may explain this emerging pattern. One of the more interesting potential causes of this surge is that perhaps Georgia is being rewarded for abolishing its corrupt traffic police. It is well known that more and more Armenian tourists travel to vacation in Georgia, an unlikely fete before the crackdown on corruption in that country. The travel numbers in 2005 and 2006 are quite telling!

Arrivals and Departures by Land
Year Arrived Left Difference
2000 100805 119331 -18526
2001 120750 138891 -18141
2002 143997 136458.. 7539
2003 147244 132488. 14756
2004 169432 155565. 13867
2005 257652 236261. 21391
2006 375124 354405. 20719

For a population of 3 million, the number of arrivals and departures to the country is quite sizable and may have significant implications for the economy. Is anyone studying the trends in travel and recent migration patterns? What kind of infrastructure is being put in place to accommodate the surge in travel? Is out migration reversed? I am sure there are many other questions.

Monday, March 26, 2007

Real Estate, Up Again in 2006

I reported in my last post on the rapid growth in construction activity which stood at 584.6 billion Drams in 2006, or 35 percent higher than the 435.1 billion level in 2005. Stated in USD, activity grew from 0.95 to 1.41 billion, or an impressive 47 percent.

2006 was also a banner year for the related real estate market. Real estate prices, as reported on sales transactions by the Cadastre commission, increased throughout Yerevan over the past five years. In Kentron, the city center, apartment prices almost doubled from 187772 Drams per square meter in 2002 to 377600 in 2006. With the appreciating Dram, the increase is more impressive when stated in US dollars as the re-stated price almost tripled from USD 328 to 908 in 2006. The greatest appreciation rate was observed in Nubarashen where the price jumped from 28668 to 108000, or USD 50 to 260.

In 2006, prices appreciated by about 30 percent in the most districts of Yerevan. An exception is the Nubarashen district where prices increased by 55 percent. Stated in USD, prices appreciated by an average of 40 percent; 70 percent in Nubarashen.

Average price per sq. meter, in Drams
Yerevan Districts.. 2002.. 2003.. 2004.. 2005.. 2006
Kentron.......... 187772 222765 246500 288900 377600
Arabkir.......... 114670 161300 193900 235300 298200
Kanaker-Zeitoun... 68802. 98158 119200 143700 186100
Nor - Nork........ 57335. 78538 101700 135100 171100
Avan.............. 61635. 76396. 97000 122800 156200
Erebouni.......... 55902. 83920. 96500 118800 155800
Shengavit......... 61635. 83052 110600 143900 182700
Davidashen........ 63069. 97116 120900 147100 189400
Ajapniak.......... 57335. 84557 109500 138400 171800
Malatia-Sebastia.. 55902. 81779 108600 134500 166800
Nubarashen........ 28668. 36693. 43000. 69600 108000

Drams per USD.... 573.35 578.76 533.45 457.70 416.05

Prices increased in all the regions as well. Transactions in the city of Abovian, in the Kotayk region, fetched the highest price of 98100 (USD 236) per sqm, and the city of Shamlugh, in the region of Lori, fetched the lowest of 2800 Drams (USD 7).

What explains this price appreciation? Demographics may explain some of the increase in demand for housing. With children reaching adulthood, combined with the growing prosperity in recent years, they may seek their own housing arrangements. Also, the trend in the net outflow of the population has reversed itself, and now the number of arrivals in the country exceeds that of departures, but only by about 20,000. Some in the country may acquire second residences, again reflecting the growing prosperity. Also I am sure that there are a number of speculators as well.

So, who is buying all these properties? Equally important, who is selling them? Do we know of any ongoing research on the housing market? Also the price appreciation must have dramatically increased the equity in the homes of most households. Are we seeing any traces of this wealth effect in the economy?

Wednesday, March 14, 2007

Construction activity and future growth

Armenia's economy has grown at double digit rates over the past five years. Construction activity accounted for much of the recent growth in the economy (see recent post). Changes in the underlying trend in construction activity and its composition over the past decade, however, may foretell further growth and expansion in the economy.

Construction activity grew from 33 billion Drams in 1995 to 585 billion in 2006, or from USD 60 million to about 1.4 billion. Activity in the manufacturing and electric and gas utilities grew from 4.6 billion Drams to 92 billion in 2006. Even more impressive, activity in the transportation and communication sectors grew from a mere one billion (i.e. USD 2 million) to 63 billion.

..1995 ...2000 ...2006
32,829 100,990 584,608 Total Construction, in millions of Drams
.4,646 .10,488 .92,147 Manufacturing & Utilities
.1,091 .36,606 .63,392 Transportation & Communications
14,780 .21,098 306,030 Housing/Real Estate

Impressive gains are also observed in the housing and commercial real estate sectors. Construction activity grew from 15 billion in 1995 to 306 billion in 2006. These figures in part may reflect a wealth effect as more and more new and expansive buildings are built and older homes are renovated. Also these activities expand the volume of rental property and office space available in the market place.

Gone are the days when humanitarian aid accounted for 10 to almost 20 percent of construction activity. Indeed, such source of funding accounted for less than 1 percent of the total in 2006, down from close to 20 percent (45 billion Drams or slightly less than USD 100 million) in 2003. Also, it is gratifying to see an expanded construction activity in the education sector, which increased from a mere 360 million Drams (less than USD one million) in 1995 to 10.7 billion (about USD 25 million) in 2006.

These activities are bound to expand the country's productive capacity and add to future growth and expanded employment opportunities. Do we know of any studies on how labor markets are impacted by this? Also, has anyone explored the effects on future growth?

[March 15 -- I have had some difficulty in posting the detailed construction data for 1995-2006 on the site. Perhaps I'll be able to do so within the next day or two, and the link above will be more useful then]

Monday, March 05, 2007

The Changing Face of Agriculture

There are about 320,000 farms in Armenia, a number that has remained roughly steady over the past decade. Given a population of about 3 million, this is quite sizable and reflects the privatization policy of the early 1990s whereby farms were distributed to the workers and members of the various state cooperatives and collective farms.

The agricultural sector has made significant gains in output over the past decade, virtually in all sub sectors (see here). Grain output as well as that of fruits, vegetables, and eggs grew by over 50 percent between 1995 and 2005. A similar pattern is also observed for available poultry and pigs. Notwithstanding the advances made, the agricultural sector is undergoing serious changes in organizational (or rather ownership) structure.

Local businesses have been making steady inroads into this sector, as suggested by the statistics reported in the various publications of Armstat. For the most part, these commercial enterprises account for less than 5 percent of the output. But they do account for 12 percent of the potato and 20 percent of the grain output. In the case of poultry, however, they account for about 40 percent of the 5 million chicken available to be brought to market. Similarly, they account for about 45 percent of the eggs produced.

The share of Commercial Organizations in Poultry Output

Undoubtedly the commercialization of the agriculture sector has great benefits. [Not sure how many commercial entities are engaged in this sector, but I assume ownership is highly concentrated.] It is potentially more efficient and cost effective to cultivate the land by commercial entities than by the farmers and villagers each with their own small plots. But is there a risk that the latter will be (are already) displaced, thereby exacerbating rural poverty? Are the commercial entities truly more productive? Is anyone writing on the subject?

[March 10: Graph is replaced -- it disappeared again]

Thursday, March 01, 2007

On Dual Citizenship

On the 26th of February, 2007, the Parliament approved the bill on dual citizenship. This belated legislation is some 15 years in the making since Armenia’s independence in late 1991, and long overdue. This change, of course, is not enacted without any opposition. Indeed, opponents of this legislation in the ruling coalition and some in the opposition have argued that granting dual citizenship to the Diaspora would increase corruption [sic], and lead to a loss in the country's sovereignty [sic]. These are virtually the very same arguments underlying the policy advanced in the early 1990s, one that is in many ways responsible for preempting the integration of the Diaspora into the fabric of Armenian society.

Contrast this with the Israeli experience. Under the Law of Return, Jews are granted immediate citizenship in Israel. Often they are provided with subsidized housing, language training, and many other benefits upon their arrival. On the eve of its independence in 1948, its population stood at 805,000. This increased to 2.15 million by 1960. Approximately 65 percent of the increase in the population during this period can be attributed to the in migration of 869,400 newcomers (mostly from middle eastern countries). After the breakup of the Soviet Union, about a million arrived on its shores. Few if any spoke Hebrew and, as Soviets, had little exposure to Israel's western ways of business and commerce. Yet, they were all welcome and fully absorbed.

Israeli Population and Immigration (in 1000s)
Source: here, Table 2; also a good summary of Israel's economic history.

Returning to Armenia, what I find truly sad is not the restrictions on voting as much as those related to the economics. Almost immediately after its independence, the government made the integration of the Diaspora into Armenia’s economy an impossible task. Diaspora Armenians, for instance, were prohibited from land ownership, a prohibition that continues to date (the introduction of a special 10-year passport relaxes this constraint). They were also discouraged by sheer intimidation. A member of the Diaspora, and a "supporter" of the then ruling regime, wrote in 1993 that "… Diaspora Armenians who (motivated by patriotism or profit) have tried to start businesses or engage in joint ventures have soon found out that they are being ripped off. But the saddest realization comes when they learn that their corrupt partners enjoy protection from higher echelons in the government ..." (see here, page 38)

In the name of national security and sovereignty, policymakers have inflicted serious damage to the country and exacerbated the pains of its transition to a market economy. As explained in a recent article in the Armenian Law Review, it takes little effort to make the legislative changes necessary to make dual citizenship a reality. However, the final chapter may not be written yet, as little is known how the enacted changes (once signed by the President) will be actually administered.

More on the economic effects in a future posting. These would have been much larger if we were able to turn the clock back to 1991 with the country's institutions of higher education and productive capacity intact. In the mean time, does any one know of a link to the legislative bill that the parliament passed (I checked the parliament's website)? What I read in the press is confusing!

[March 2 -- Table is replaced. I'll replace with plain text if it disappears again.]