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THE HAYK INSTITUTE, P.O.BOX 23447
WASHINGTON , D.C. 20023-3447
375010, ºðºì²Ü« вÜð²äºîàôÂÚ²Ü öàÔ© 37
37 HANRAPETUTIAN STR., 375010 YEREVAN

Rafayel Harutyunyan

The backbone sectors of the Armenian economy.

In the fall of 1989 the ways of survival for the Republic of Armenia somehow has been defined in the conditions of constant blockade. It is still fresh in the memory the task that has been given to the president during the session of the previous Verkhovniy Sovet (Highest Council): to devise a program of making the republic's economy sustainable in the conditions of blockade. The task has not been resolved. New democratic government came. In the conditions of full blockade the suffocating economy faced new challenges which had to be promptly resolved. Here is the list of some of them:

a) Need for investments. It was necessary to define the economic sectors and industrial enterprises where it would be most effective to invest.

b) In the winter of 1991/92 it should have been decided how to allocate electricity to industrial enterprises in conditions of fan disconnections of electricity.


Unfortunately, both of these issues haven't been scientifically resolved, and this resulted in some small and big problems which could have been avoided had the thesis of the backbone economic sectors been considered in time, and had the attention of the respective governmental bodies been directed at this issue. Regretfully, the idea of «backbone economy» should be considered as a lost opportunity awaiting for its revival.

In the today's crisis situation, the expected results can not be compared with the ones that were forecasted two years ago, though today this issue is still important. According to the 1989 data, these backbone branches of the economy employed about 1500 people, which comprised about 20 % of the GDP. Investment injections should have been made into these sectors, equal to 35-45% of their gross product. Currently one year work of these industries would require up to 4 consists, while only 20-25 tracks will suffice to export their final output.

Let's list these industries:

1. Jewelery
2. Diamont syntesis
3. Productoin of diamont instruments
4. Synthesis of technical stones.
5. Final processing of natural/artificial and precious/semi-precious stones

The issue is about different enterprises in the 5 industries mentioned above.

The calculations show that had these industries been supplied with electricity and necessary resources, in 1992 they could have provided up to 65-57 billions rubbles of produce adjusted to current prices; the tax collections could have funded the social programs with necessary financial resources. According to the February data of the current year, 4.5 billion rubbles were needed for these social programs. The «backbone sectors» of the economy can become a locomotive power of taking the republic's economy out of current depressed condition towards stability, to lead the «train» of the economy from the «Depression» to the «Stability» station. But it is critical that the railway officials and the switchmen contribute rather than interfere with the movement of this “train”. In other words, these sectors should be given tax remissions, investments should be allocated especially in these sectors, the banks should extend loans at lowest possible interest rates, and the export of the produce should be made without any customs duties.

As it was already mentioned, had the investments to these sectors of the economy been made 2 years ago the results would have been much more conspicuous. This could be substantiated by the simple logic: 2 years ago, prior to transition to the market economy, the main «game» could have been played basing on the huge difference between prices in the international market and the prices in the former Soviet Union, to the benefit of the latter. Today this difference gradually decreases, and the development strategy of the economy can not be based on this factor.

Now the development strategy and tactics should be based mainly upon the cheap and still highly educated labor force. According to the recent research, 1 hour of highly qualified employee costs 13 cents ($18.5 in the United States) while the literacy reaches 96%.

If the country's economists consider the above given thesis, the economic activities can be significantly expanded, enabling the «backbone sectors» to play the leading role in the economy. This idea can be illustrated by two examples: today in Armenia the official prices for gold and silver nearly equaled and in some cases even exceed the international quotes. Even in these conditions a profitable production can be organized in this field, by minting golden and silver commemorative coins picturing, for instance, Armenian Olympic champions, the first president of the Republic of Armenia and etc. These coins should be manufactured employing high-tech equipment, their selling price will always be much higher than the price of precious metals, and, finally, due to their low cost, the coins will be profitable, of course, if high quality and nice design is maintained. The commemorative coins will be in constant requisition and will make huge profit at the same time raising the prestige of Armenia in the international arena. Besides that, this kind of production will create so indispensable sense of economic stability, a condition, which will make possible to save some time for the republic, in the meantime the painstaking everyday work will make the economic stability real.

The next example refers to the diamond lapidary plant situated in village of Nor Hajn. In the past we received natural rough diamonds from Yakutia, which were cut and faceted here according to become cut diamonds. Currently there are three quoted prices for Yakut diamonds: the first and the cheapest is for Yakuts; the second is for Russia and the third is for CIS countries.

The Nor Hajn plant doesn't work due to lack of row materials. This lack can possibly be explained simply because the list of 25 most indispensable materials for the country doesn't include diamonds. This problem could be resolved if the plant of Nor Hajn joins the De Bears diamond concern, like it was done by Antwerp and Brussels. As soon as the plant has the technical capacity to facet diamonds, it can begin the production of cut diamonds; as a result, the shortage of significant financial resources for obtaining row diamonds will be resolved. Under the protection of government the top management of Nor Hajn plant should aim to maintain the required quality and guarantee the storage of materials. Both issues demand great efforts to be made by any factory or plant that has worked in socialistic economy

The first condition for sustainable development of the backbone economy is the maintenance of existing markets as well as the formidable task of discovering new markets. In this regard it is indispensable to keep and extend businesses with current customers, disregarding their origin: CIS countries, Baltic or democratic states. In the atmosphere of intense global competition it is much easier to keep old ties rather than obtain new ones. For this purpose it is necessary to watch the economic conditions of traditional clients, to participate in regional trade fairs and exhibitions, to have permanent trade delegates in economically most active regions, etc.

The experience of developing new markets will be invaluable not only for backbone but for any other sector of the Armenian economy. Unfortunately, for the past three years our governmental officials and businessmen have been targeting Paris and Rome, Madrid and Berlin, London and Montreal, Washington and Los-Angeles, places where our fledgling economy will hardly succeed unless significant financial resources are spent to overcome numerous trade barriers, bar-code packaging, etc.

The new markets for our developing national industries are the ones from where Japan, Taiwan, South Korea, Hong Kong, Singapore, and China started their trade expansion after the World War II and subsequently secured leading positions. Only after passing this stage the goods of these countries flooded the Western markets. Our economy should also be guided by the markets of Middle East, mainly in Arabic states, and to the Oceania. Many times the author of these lines presented this simple logic at multiple conferences, and only since 1992 some changes became noticeable.

In this context, the Mediterranean region is very important for the strategic development of the Armenian economy.

Currently developing strategic programs of The Black Sea should only be of secondary importance because at this stage Armenia is unable to accomplish significant results both in international trade and politics.

The situation is different in the Mediterranean. Using the resources of Armenian Diaspora warehouses should be obtained in ports of Latakia (Syria), Lima sol (Cyprus), Alexandria (Egypt) and Solonics (Greece), where freight and finished goods from Armenia will be stored. Subsequently by means of sea, air or overland transport (contingent upon the importance of the freight and situation around Armenia) the goods will be imported or exported from Armenia. In case it is impossible to transfer the scheduled goods to Armenia then they should be immediately sold and to put the obtained money into business until it is convenient to import the goods to Armenia. Even the temporary difficulties could be made beneficial rather than detrimental if the international trade is organized this way. Significant financial resources are needed to put this program into practice; in this regard the spinal economy could be beneficial, as a result no warehouses will be needed to sell the goods on a world wide scale.