Tweet
FOREIGN INVESTMENT IN ARMENIA FALLS OVER 2012
Global Insight
April 3, 2013
Venla Sipila
According to data from the Armenian National Statistical Service
quoted by ARKA News, foreign investment received by the country
over last yeartotalledUSD1.6 billion, falling by some 8.5% from
the previous year. In particular, foreign direct investment (FDI)
plummeted by over one-quarter,totallingaround USD657 million in 2012.
Further, it was reported that the most important foreign investor in
the Armenian real economic sector was France, with a total contribution
of some USD230 million, all of which was FDI. Russia and Canada were
the next most important investment sources. Around half of total FDI
received by the real economy waschannelledto the telecommunications
sector, while nearly 10% was allocated to real estate activity.
Significance:The now reported foreign investment results well fit our
latest projections, while the FDI total, in particular, comes somewhat
lower than we expected. Encouragingly, the latest developments have
seen the Armenian external deficit narrowing somewhat, as the recent
economic downturn restricted imports and the high global metal prices
boosted metal sector export values. Consequently, we estimate that the
current-account gap last year was mostly covered by non-debt-creating
FDI inflows. In our baseline scenario, we expect this to remain the
case in the coming quarters as well. Amid the overall strengthening
of the external finances, also pressures from interest payments
on Armenian credit profile seem to have recently eased, and the
liquidity has strengthened enough so that we carried out a minor
upward adjustment in our short-term sovereign risk for Armenia in
our latest forecast round (seeArmenia: 27 March 2013:). Importantly,
however, liquidity has not improved enough for us to carry a sovereign
upgrade regarding the medium-term rating. In fact, although the
current-account position has improved, it still remains unsustainably
wide, and we see risks related to Armenian foreign currency inflows as
very high. Especially in the current unstable external environment,
we definitely see the volatility in these as a factor constraining
Armenian creditworthiness. The now reported fall in FDI only underlines
these risks.
Global Insight
April 3, 2013
Venla Sipila
According to data from the Armenian National Statistical Service
quoted by ARKA News, foreign investment received by the country
over last yeartotalledUSD1.6 billion, falling by some 8.5% from
the previous year. In particular, foreign direct investment (FDI)
plummeted by over one-quarter,totallingaround USD657 million in 2012.
Further, it was reported that the most important foreign investor in
the Armenian real economic sector was France, with a total contribution
of some USD230 million, all of which was FDI. Russia and Canada were
the next most important investment sources. Around half of total FDI
received by the real economy waschannelledto the telecommunications
sector, while nearly 10% was allocated to real estate activity.
Significance:The now reported foreign investment results well fit our
latest projections, while the FDI total, in particular, comes somewhat
lower than we expected. Encouragingly, the latest developments have
seen the Armenian external deficit narrowing somewhat, as the recent
economic downturn restricted imports and the high global metal prices
boosted metal sector export values. Consequently, we estimate that the
current-account gap last year was mostly covered by non-debt-creating
FDI inflows. In our baseline scenario, we expect this to remain the
case in the coming quarters as well. Amid the overall strengthening
of the external finances, also pressures from interest payments
on Armenian credit profile seem to have recently eased, and the
liquidity has strengthened enough so that we carried out a minor
upward adjustment in our short-term sovereign risk for Armenia in
our latest forecast round (seeArmenia: 27 March 2013:). Importantly,
however, liquidity has not improved enough for us to carry a sovereign
upgrade regarding the medium-term rating. In fact, although the
current-account position has improved, it still remains unsustainably
wide, and we see risks related to Armenian foreign currency inflows as
very high. Especially in the current unstable external environment,
we definitely see the volatility in these as a factor constraining
Armenian creditworthiness. The now reported fall in FDI only underlines
these risks.