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Diaspora Armenians in no hurry to invest, seeing poor protection of foreign investments in Armenia

Diaspora Armenians in no hurry to invest, seeing poor protection of foreign investments in Armenia
United States Ambassador to Armenia John Heffern
United States Ambassador to Armenia John Heffern

In his most recent video blog United States Ambassador to Armenia John Heffern made a statement on the U.S.-Armenian-American economic cooperation. He reminded that on October 18 Yerevan hosted a regular meeting of the Armenian-American Task Group held for the purpose of exploring ways to develop bilateral trade and making investments.

Earlier, the Ambassador repeatedly stated that he was trying to attract U.S. investments to Armenia. Deputy Undersecretary of State Eric Rubin and project coordinator of U.S. government assistance projects Daniel Rosenblum discussed ways of improving the business environment to promote trade and investment, in particular, concerning the reform of tax and customs administration, ensuring open competition, intellectual property rights and independence of the judiciary.

On November 16, the U.S. ambassador hailed the progress that Armenia had made in these areas, which he said was reflected in the improvement of Armenia’s positions in the World Bank Doing Business 2013 report. But he stressed that political will was needed to proceed with key reforms.

This means that Armenia still lacks sufficient conditions for attracting sizable foreign investments. In an interview with Lragir.am in August Heffern said that when in the United States he spoke with potential investors, they asked him three main questions – whether their contracts in Armenia would be protected by the judiciary, how much their investment would cost them – taxes, customs, etc., and whether there was a level-playing field for competition in the country. He noted that there was some progress in Armenia, reforms were continuing, but “unfortunately, I still could not answer those three questions.”

Armenia has signed bilateral agreements concerning the Encouragement and Reciprocal Protection of Investments with 37 governments of the world, including with 15 European Union-member countries, the United States, Russia, and six other post-Soviet countries. However, despite the fact that according to the Doing Business rating in terms of investment protection Armenia has risen from the 98th to 25th position, no big flow of investments has yet started into the country’s economy.

Several litigations are currently on in Armenia related to the protection of foreign investments. Armenian-American businessman Edmond Khudyan has unsuccessfully been trying, through courts, to regain several million dollars that he had invested in construction and says were seized away from him by scammers enjoying protection at the very top of the Armenian power pyramid.

Khudyan is one of few Diaspora Armenians to have decided to use publicity to stand up for his rights. Many Armenians from abroad who became victims of fraud after investing money in Armenia prefer not to talk about it loudly, often out of “patriotic reasons”. They simply silently leave, thus encouraging further fraud in Armenia.

However, public courts can be a test for the Armenian government as they are to indicate whether investments in the country are protected in name or in action. What is the use of good laws if the court defends only the interests of local “fraud-committing” senior officials?

Ambassador Heffern said that he has monitored the process related to the Khudyan case and lawyers of the Embassy would be present at the hearings to draw conclusions. Heffern also said that he had been in contact with the Armenian presidential administration to demand explanations in connection with the case that has been dragged out for two years now.

A group on the protection of Diaspora investors is also attending to this case. This group has also chosen the way of publicity. Little progress has been made in the Khudyan case yet, but the fact that he is not accused of slander perhaps means that the accusations that he makes are grounded.

There is also another court proceeding in connection with another U.S.-Armenian, Nareg Hartounian, who was charged with tax evasion. Remarkably, Hartounian’s is a rare case when the Armenian public has stood next to the investor, which may have had an impact on the court.

Court proceedings are also on into the claim of the German-owned company, InstInvest, against Prosperous Armenia Party leader Gagik Tsarukyan’s Ararat Brandy-Wine and Spirits Factory. The German company is demanding the reinstatement of its shares, which it claims to have lost due to an alleged unlawful decision made by the General Meeting of Shareholders.

Earlier this year, a New York court ordered Armenia’s former Minister of Nature Protection Vardan Ayvazyan to pay $37 million in penalty to the American Global Gold Mining company. The ex-minister did not admit his guilt and the Armenian authorities have not commented on the case, which may also have an adverse effect the level of confidence among potential foreign investors.

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