Armenia and Azerbaijan made international headlines in September 2020 when violence erupted in Nagorno-Karabakh, a disputed region of southwestern Azerbaijan that claimed independence in 1992. After six weeks of fighting and more than 5,000 deaths, both former Soviet republics established a truce in November 2020.
If Armenia hopes to recover from this conflict, it must address significant institutional problems that have plagued this country and undermined its economic vitality for years.
Armenia’s “weaknesses in the rule of law and judiciary, and a legacy of corruption” challenge its investment climate, according to the U.S. State Department’s 2020 Investment Climate Report on Armenia.
The Heritage Foundation’s annual Index of Economic Freedom quantifies 184 counties’ levels of economic freedom. The higher a country scores on this index, the more prosperous its citizens become.
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Twelve variables determine a country’s overall score. While Armenia ranks high on several of these variables, its “property rights” and “government integrity” scores are low.
Armenia has clear protections for individual property rights in its civil code, but the judiciary may not give a fair and timely ruling to claims involving land, intellectual property, or business. Land ownership security trails levels elsewhere in Europe.
Armenia’s government integrity score also falls below Europe’s average rating. Bribery, grafting, and corporate cronyism contribute to Armenia’s low government integrity score.
The State Department report said, “Despite progress in the fight against corruption and improvements in some areas that raise Armenia’s attractiveness as an investment destination, investors claim that numerous concerns remain and must be addressed to ensure a transparent, fair, and predictable business climate.”
Protecting property rights and ensuring that elected officials abstain from corruption are fundamental pillars of economic freedom. It is extremely difficult for an economy to grow when its citizens cannot compete in a free and fair marketplace.
Thankfully, it is not all bad news for Armenians. Armenians enjoy a low tax rate and high rates of business and labor freedom. Government spending is not out of control. Despite the country’s poor government integrity and property rights scores, Armenia’s overall economic freedom score still stands strong at 71.9 compared to the United States’ 74.8 score.
While these are all good indicators, more can and should be done, starting with an aggressive campaign to rid Armenia of its dark clouds of corruption. Once this occurs, Armenia’s rule of law and economy will flourish, and so will the Armenian people.
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