Eurasian Development Bank assesses economic effects of Armenia’s joining Customs Union

Armenia’s accession to the Customs Union (CU) and the Single Economic Space (SES) will have a positive effect on its economy. This conclusion is suggested in the report entitled Armenia and the Customs Union: Assessing the Economic Effect of Integration published by Eurasian Development Bank’s (EDB) Centre for Integration Studies.

Quantitative analysis of the effects of Armenia’s joining the Customs Union has shown that, as a result of integration with the CU, the additional growth in Armenian GDP will approximate 4% a year. The trade effect from the reduction in the prices of Russian gas alone will constitute $140 million.

The authors of the report believe that Armenia’s integration with the CU and SES is preferable regardless of which economic development strategy the country opts for: improving the domestic demand or choosing an export orientated development. As a fully-fledged member of the Customs Union, Armenia will be in a position to effectively solve pressing socioeconomic problems and step onto the trajectory of sustainable and balanced growth.

The researchers emphasise that one of the main advantages for Armenia is getting access to the CU single labour market. The SES agreements in the area of labour migration are aimed at providing national treatment for labour migrants and ensuring an effective operation of the common labour market. A total of 85% of transfers are currently being made by labour migrants from Russia (15% of Armenia’s GDP). Armenia’s accession to the SES agreements will lead to an increase in remittances by US $40 million a year. This will help to stably finance the trade account of the country’s balance of payments.

Thanks to the free movement of goods and capital in the CU the country will get access to a large-capacity market and, at the same time, an inflow of investment in the sectors that are orientated on the CU market and the domestic market. As a result, Armenian export-orientated sectors will be given a boost to development. The country will get an opportunity to advance the solution of its strategic problems such as transport isolation and the need to improve its energy potential. The authors of the report believe that the most promising infrastructure projects in Armenia, which can be implemented with the participation of investors from the SES countries, are the construction of a new nuclear power plant and other projects in the energy sector, the construction of a railroad to Iran, the North-South transport corridor, and the restoration of rail links with Russia through Georgia.

It is particularly important that these projects are of interest not only to Armenia but to the current members of the Customs Union, because projects to establish and develop rail and automobile corridors through Armenia to South Asia and the Near East will effectively link these markets with the Customs Union countries. The construction of electric power grids in the direction of Iran is another promising area of development.

The researchers have also analysed the potential of Armenia’s foreign trade. They state that the country will need to increase protection of its market to meet the level of protection provided by the Customs Union (the weighted average customs tariff on imports in Armenia is 2.7% at present, while in the Customs Union the tariff for 2014 will be 6.9%). The report says that the increase in customs duties will help reduce the budget deficit but will trigger the WTO-based adjustment procedures.


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