Economy

The Armenian economy heavily relies on investment and support from Armenians abroad. Before independence, Armenia's economy was largely industry-based – chemicals, electronics, machinery, processed food, synthetic rubber, and textile – and highly dependent on outside resources. Agriculture contributed only 20% of net material product and 10% of employment before the breakup of the Soviet Union in 1991. The republic had developed a modern industrial sector, supplying machine tools, textiles, and other manufactured goods to sister republics in exchange for raw materials and energy.


Armenian mines produce copper, zinc, gold, and lead. The vast majority of energy is produced with fuel imported from Russia, including gas and nuclear fuel (for its one nuclear power plant); the main domestic energy source is hydroelectric. Small amounts of coal, gas, and petroleum have not yet been developed.
Like other newly independent states of the former Soviet Union, Armenia's economy suffers from the legacy of a centrally planned economy and the breakdown of former Soviet trading patterns. Soviet investment in and support of Armenian industry has virtually disappeared, so that few major enterprises are still able to function. In addition, the effects of the 1988 Spitak Earthquake, which killed more than 25,000 people and made 500,000 homeless, are still being felt. The conflict with Azerbaijan over Nagorno-Karabakh has not been resolved. The closure of Azerbaijani and Turkish borders has devastated the economy, because Armenia depends on outside supplies of energy and most raw materials. Land routes through Georgia and Iran are inadequate or unreliable. GDP fell nearly 60% from 1989 until 1992–1993. The national currency, the dram, suffered hyperinflation for the first years after its introduction in 1993.
Nevertheless, the government was able to make wide-ranging economic reforms that paid off in dramatically lower inflation and steady growth. The 1994 cease-fire in the Nagorno-Karabakh conflict has also helped the economy. Armenia has had strong economic growth since 1995, building on the turnaround that began the previous year, and inflation has been negligible for the past several years. New sectors, such as precious stone processing and jewellery making, information and communication technology, and even tourism are beginning to supplement more traditional sectors in the economy, such as agriculture.
This steady economic progress has earned Armenia increasing support from international institutions. The International Monetary Fund (IMF), World Bank, European Bank for Reconstruction and Development (EBRD), and other international financial institutions (IFIs) and foreign countries are extending considerable grants and loans. Loans to Armenia since 1993 exceed $1.1 billion. These loans are targeted at reducing the budget deficit, stabilizing the currency; developing private businesses; energy; the agriculture, food processing, transportation, and health and education sectors; and ongoing rehabilitation in the earthquake zone. The government joined the World Trade Organisation on February 5, 2003. But one of the main sources of foreign direct investments remains the Armenian diaspora, which finances major parts of the reconstruction of infrastructure and other public projects. Being a growing democratic state, Armenia also hopes to get more financial aid from the Western World.
A liberal foreign investment law was approved in June 1994, and a Law on Privatisation was adopted in 1997, as well as a program on state property privatisation. Continued progress will depend on the ability of the government to strengthen its macroeconomic management, including increasing revenue collection, improving the investment climate, and making strides against corruption. However unemployment still remains a major problem due to the influx of thousands of refugees from the Karabakh conflict, which currently stands at around 15%.
In the 2007 Transparency International Corruption Perceptions Index (CPI), Armenia ranked 99 of 179 countries. Armenia ranked 80th on the 2006 UNDP Human Development Index, the highest among the Transcaucasian republics. In the 2007 Index of Economic Freedom, Armenia ranked 32nd, ahead of countries like Portugal and Italy.