Friday, November 23, 2007
Let's start with a glance at economic performance of Armenia. Given the size of the economy and the economic blockade by two neighbors, Armenia has been performing very well in terms of economic growth. But where did this growth come from? It was not a result of export-led competitiveness, as the exports (excluding raw commodities) have been stagnant for several years now. There is not much competition in the domestic economy to be translated to competitiveness of domestic firms on the world markets. And given that the international investments flow to the areas where economic resources are used more efficiently, and Armenia hasn't seen much of it, we can safely assume that Armenia has failed to use its resources (physical, human or any other) efficiently.
Let's now turn to government and business efficiency. Apart from creating competitive environment for enterprises, government intervention in business activities should be minimal. Is that true in Armenia? Of course, not. Many government officials have a direct interest in the business activities of enterprises owned by them. On the other hand, this also hinders efficiency and flexibility (ability to adapt to changes in competitive environment) of the enterprises, as managerial attributes of CEOs, together with the attitude of the workforce, are crucial for the competitiveness of the enterprise. Efficiency of the enterprises is also enhanced by a well-developed and internationally integrated financial sector, as well as a skilled labor force (do Armenian universities prepare qualified specialists that are actually in great demand in the labor market?).
More questions arise in the last category - infrastructure efficiency. Is there a well-developed scientific and technological infrastructure? In other words, do businesses invest in innovative technologies and do scientific inventions find applications in business environment? Do we have an adequate and accessible educational resources that help develop a knowledge-driven economy?
There are many unanswered questions when one tries to analyze the overall competitiveness of Armenia's economy. I am curious to hear your views and of any ongoing research.
Wednesday, November 21, 2007
The paper highlights that Armenia has lagged in financial intermediation and that interest rate spreads (i.e. what banks charge borrowers and what they pay depositors) have remained high compared to other transition economies. It employs quarterly panel data obtained from the financial reports of the 21 banks of Armenia for the period 2002-2006Q3 to explore the determinants of interest rate spreads and margins.
The authors also report other findings on the effects of bank size, market concentration, and foreign ownership among others. Equally important, they provide a good overview of the state of banking in the country.
It would be good to see others replicate this study with more recent data, perhaps using annual rather than the quarterly data employed by the authors, as well as extend the analyses to address the causes of the retardation of financial intermediation.
Monday, November 12, 2007
Faik Okte, the administrator of this tax at the Turkish Ministry of Finance wrote a book on the subject documenting all of its features and naming its victims. The book has been translated from the Turkish "Varlik Vergisi Faciasi" into English and is entitled "The Tragedy of the Turkish Capital Tax," by Geoffrey Cox, Croom Helm, 1987.
Exactly 65 years later, history repeats itself with the inquisition extending its reach beyond the borders of Turkey, and that of its citizens. This time the government of Turkey seems to trace the ethnic origin of a partner in a Kazakhstan-based consortium planning to invest $2.1 billion in a privatization project in Turkey, and may have rejected its bid because of the partner's Armenian roots; it accepts a lower bid of $2.04 billion for a loss of $60 million to the taxpayers of Turkey.
As reported to the United States Securities and Exchange Commission on September 6, 2007, Form 424B5 page S-17, the government of Turkey announced "that the consortium of TransCentralAsia Petrochemical Holding made the highest bid of $2.1 billion for 51% of the shares of Petkim." For some unknown reason, the recent press reports a figure of $2.05 billion! On November 12, 2007, the anniversary when the Varlik Vergisi went into effect, the New Anatolian reported that "Turkey's Competition Board has approved the sale of state-run petrochemicals company Petkim to the second highest bidder ... to consortium of the Azerbaijani oil company Socar, Turkey's Turcas and Saudi-based Injaz Projects..." There were 18 prequalifying bids, including European petrochemicals producers INEOS and Basell.
Here is the way information is reported and analyzed by a source in Azerbaijan, the other Turkic state:
The first bidder Kazakh-based Transcentral Asia Petrochemical Holding is reported to be owned by Kazakh national Alexander Matskevich who chairs Eurasian Jews Confederation. He sits in the Forbes List of World’s Richest People.
In the bidding he had been bankrolled by Troika Dialog (commonly referred to as “Troika”), one of the largest investment groups in Russia.
Troika is controlled by Armenian national Ruben Vardanian who owns a 65% stake...
Why the interest in the Jewish or Armenian roots, or that of any other group? Should Israel not allow the imports of Ford Motor products because its former CEO, Nasser of Australia, has Arab roots? Should Arab countries not deal with Citibank because its Chairman of the Board is Robert Rubin, a Jewish American? Indeed, the largest shareholder of Citibank, Prince Alwaleed of Saudi Arabia, a country with no relations with Israel, expressed his trust in the leadership of Rubin and others at Citibank earlier this month. Is it possible that Turkey, with its values and business practices, is perhaps not much more worthy of NATO membership and joining the EU than is Saudi Arabia?
It has been well over five centuries since the Spanish Inquisition. One would think we have come a long way since.
Wednesday, November 07, 2007
Here is how Armenia is ranked:
1. Efficiency and effectiveness of the clearance process by Customs and other border control agencies – Rank: 118
2. Quality of Transport and IT infrastructure for logistics – Rank: 143
3. Ease and affordability of arranging shipments – Rank: 140
4. Competence in the local logistics industry (e.g., transport operators, customs brokers) – Rank: 121
5. Ability to track and trace shipments – Rank: 113
6. Domestic logistics costs (e.g., local transportation, terminal handling, warehousing) – Rank: 8
7. Timeliness of shipments in reaching destination – Rank: 122
Overall rank: 131
The index reflects the perception of trading partners as well as the logistics environment in the country, and as such should provide a reliable picture of the situation in Armenia. Other than the domestic logistics cost, the country ranks way at the bottom. The performance of Customs is not surprising, but much of the rest was unexpected. While it is easy to quibble over the accuracy of the index (e.g. item related to infrastructure can’t be right), it suggests that much work lay ahead. For the curious reader, the overall rank for war torn Liberia is 105, Zimbabwe 114, Somalia 127, and 130 for Nepal. Belarus is ranked 74, Iran 78, Russia 99, and Azerbaijan 111. Georgia is not ranked, and, again, Armenia is ranked 131.