By Shant Mirzaians
In a report by the World Bank comparing business regulations in 190 economies, Armenia ranked 47 with a score of 74.5. Although there are areas that could be improved, Armenia is considered to be business friendly, especially in respect to the ease of starting a new one.
The latest figures put the number of small to medium enterprises in Armenia at just under 60,000, with over half of those including enterprises without employees.
Small and medium sized businesses are a significant driving force in Armenia’s economy. Micro-businesses, enterprises that employ 1-9 people, make up a significant portion of Armenia’s small to medium businesses at over 23,000. Meanwhile small enterprises that employ 10-49 people make up a little over 3,000. Small and medium enterprises make up 97.9% of all businesses in Armenia. They also account for 19% of all employment and 25% of the country’s GDP.
Export and International Payments
For businesses involved in retail trade, shipping to customers outside of Armenia is a common challenge. Haypost, the national mailing service for Armenia, currently does not have an effective method for registering small companies that want to export. The registration process is bureaucratically difficult, and many small businesses instead opt to declare their exports under an individual name instead of their company. Although taxes are still paid through this method, there is a loss of potential revenue and more importantly, statistics on the businesses and exported products are not properly recorded. Without proper data, both the government and private entities cannot make informed economic decisions.
There is also a lack of an easy to use electronic money moving method in Armenia. Paypal is widely used across the world, but it is not available in Armenia. Instead, there is a domestic internet payment system called Idram. Idram operates within Armenia, but it is not commonly used by clients outside of the country. The lack of Paypal’s availability in Armenia is due to a business decision by Paypal.
Paypal currently does not find it economically viable to make their services available within Armenia. There have been meetings in the past between the government and Paypal representatives, but one way to make a strong case for Armenia is to present the correct statistics on business operations. These statistics are not wholly accurate when Small-Medium Enterprises (SME) are not properly registering their international sales due to the bureaucratic registration process.
Success Stories and Other Challenges
Aside from government involvement, there have been efforts by NGOs to encourage growth among SMEs in Armenia. The Homeland Development Initiative Foundation (HDIF) works to initiate, facilitate, and nurture sustainable economic opportunities in rural villages, towns, and cities throughout Armenia, especially in vulnerable communities. HDIF helps create jobs that generally pay above the minimum wage. Its founder and president, Tim Straight, has led workshops with local entrepreneurs and producers to assess challenges and provide an opportunity for small business growth.
A sentiment from most SMEs is that the government is not a major roadblock for businesses. Taxes are not particularly intrusive and basic business registration is readily available. If a business is not doing well, it is likely an internal problem than one imposed by the government.
“I don’t think that the issue is necessarily legal framework or the practice of legal framework. I think it’s more marketing skills, and supply chain management generally. You have to have a good product at the right price. You have to have good communication. You have to have access to the materials you need to make your product in quantity,” notes Tim Straight.
“If you look at Guatemala, India, Kenya, and you look at the percentage of GDP in those countries that is based on cottage industries, small production units in villages, in kitchens around the country and then sold locally or exported. This is what Armenia needs to understand it can do as well,” he adds.
By recognizing and focusing on SMEs, the government can address their concerns and promote further growth for the economy.
Another challenge for some businesses has been to keep up creativity amidst new competition. Aylkerp is a company that creates Armenian language board games for all ages. Since its founding in 2014, they have created 10 products ranging from games that involve brainstorming, math, image matching to alphabet puzzles and stickers for young children. They have clients within Armenia, the US and Russia. In 2017, Aylkerp received the Prime Minister’s Best Female Entrepreneur Award. Founders Sofya Khachatryan and Anahit Hakobyan are proud of creating a market for Armenian board games in the country from scratch.
“A year after creating Aylkerp, our games began to fill the stores, and people understood that it could be profitable. Now there are so many games that we can’t even find our games,” Sofya remembers.
She adds that, “There are positive points to this, it creates competition. Everyone tries to create a good product. But it has it’s negative effects because they try to copy each other. For example, if you put out a game, someone may make small changes and basically put out the same product.”
This prompted Aylkerp to adapt and continue to innovate new game types in order to keep up with competition.
Another challenge for businesses is maintaining confidence in new ideas and products. Pes-Pes was founded in 2019. They create cartoon maps and locations of Armenia for children to color and learn. Founder Yana Babajanyan was motivated by her childhood in Tbilisi where her grandmother would encourage her to learn more about Armenia. Outside of visiting her local library for research, she found it difficult to find information about Armenia. Thus, the vision for Pes-Pes came about to educate young children about Armenia in an entertaining way through coloring various city maps that include prominent landmarks.
Pes-Pes products can now be found in local bookstores and children’s toy stores. They also service businesses internationally as well as local companies that provide gifts for their employee’s families during holidays.
Given the challenges small and medium sized businesses face, the economy continues to grow. SMEs are an important contributing factor to that growth. Cooperation between the public and private sectors to address key issues can help encourage further growth and development within Armenia.
The current Covid-19 situation has presented a particularly difficult challenge for small and medium businesses in Armenia and around the world. Not only have small businesses been forced to close storefronts in an effort to prevent the spread of the virus, but consumers are now making fewer purchases outside of basic living expenses. Many workers have been furloughed or outright fired due to the situation. The demand for nonessential products and services has plummeted, which has already begun to affect the welfare of small businesses. This coming year will be a particularly new challenge for small and medium sized businesses, and the private, public, and the non-profit sectors will need to work together to work towards a sustainable future for business in Armenia.