Mmix Armenia Investment Opportunities Jan 2017 v1

Prepared by Management Mix LLC Version 1.0

ArmeniaInvestment Opportunities 2017

Address by Raffy Semerdjian

Content

Armenia Investment Opportunities - 2016 2

❶ Introduction

❷ Socio-economic overview

❸ Market & trade overview

❹ Investment climate

❺ Conclusions

❻ Global recommendations

Annexes

❶ Introduction

This report is prepared by Management Mix Ltd and will becommunicated to stakeholders, specially from the European Countries,the Gulf States, the Middle East and to all those interested inopportunities in direct investments in Armenia.

The purpose of this report is to provide potential investors with anoverview on Armenia, introducing some key indicators, and exploringthe sectors with a considerable return on investment.


❷ Socio-economic overview - General


IndependenceSince 1991

Official languageArmenian

Government systemParliamentary (post 2017)

CurrencyCurrency rates / 2015 average 1 USD - 477 AMD

Membership The United Nations The Council of Europe The Eurasian Economic Union ICSID: International Center for

Settlement of Investment Disputes The national coat of

arms of ArmeniaThe national flag of

Armenia

❷ Socio-economic overview - Geography

International flights to Yerevan

1.5 hours from Beirut

2.5 hours from Moscow

3 hours from the UAE

3 hours from Rome, Vienna, Prague

4 hours from Paris


Total area29,743 km² - with 90% above 1,000mOpen borders with Iran and Georgia

The Capital CityYerevan

WeatherHighland continental Hot summers and cold winters300 sunny days

❷ Socio-economic overview - Demography


Urbanization64%

Life expectancy 74 years

Adult literacy rate99.6%

Population3,000,000 (approx.)1.12 million (Yerevan)

Age structure 70% between 15 & 64 years 50 % between 15 & 50 years 26% below 19 10% above 64

Active Population 50.9% (1.13 million)


❷ Socio-economic overview - General indicators

Terrorism index 2015/16 rank at 116

124 is the most secure

116

23

7183 77

93

27

0

20

40

60

80

100

120

140

Armenia Russia Georgia Kazakhstan Belarus Azerbaijan Turkey

Rank out of 124

❷ Socio-economic overview - The Economy


Source: Armstat.am – the data are for the year 2015 unless otherwise indicated.

DebtTotal: 4.3 USD Bln.37% of GDP

OtherInflation rate: 3.7%Unemployment rate: 18%Tourist arrivals in 2015: 1,500,000

The GDPTotal: $12 Bln. USDAnnual growth: 3%Per capita: 4,000 USD

TradeExports at 1.49 USD Bln.Imports at 3.25 USD Bln.

❷ Socio-economic overview - Inflation (%)


9.5

1.2

3.8

1.1 1

.5

2.1

1.7

4.3

5.3

3.4

2.7

15

.9

7.4

5

7.2

17

.6

4.8

9.7

6

14

.1

7.8

4.3

14

.7

2 0 1 1 2 0 1 2 2 0 1 3 2 0 1 4

Georgia Germany Armenia Russia Kazakhstan Ukraine Linear (Germany) Linear (Armenia)

Telecom

• VivaCell MTS

• Beeline

Banking

• HSBC

• Credit Agricole

• ArmSwissBank

Financial services

• Nasdaq-OMX

• Amundi-ACBA Asset Management

• C-QUADRAT Ampega Asset Management

Mining

• Cronimet

• Lydian International

F&B

• PepsiCo & Coca-Cola

• Pernod-Ricard

• Carrefour

Airport

• Corporación America

Energy

• ContourGlobal

• Tashir Group

Universities & Education

• American University of Armenia,

• French University,

• British School of Business,

• Slavonic University,

• UWC Dilijan Central College


❷ Socio-economic overview - Major FDIs


❷ Socio-economic overview - FDIs

UAE, 25.80

Argentina, 100.12

Lebanon, 12.21

Italy, 6.20

USA, 24.23

Germany, 57.12Ireland, 8.37

Luxemburg, 60.44

Switzerland, 91.69

Russia, 68.07

Investments by country of originmln. USD, 2015


❷ Socio-economic overview - Infrastructure

Telephone services 3 mobile operations, high quality

connections, 3.8 million subscribers, 4G system available across Armenia.

Media36 privately owned TV stations, and 2 public

EnergyHas a nuclear power plant, 2 thermal power stations, and 100s HPPs

Water supplyReliable and sustainable to both urban and rural communities

RoadsNorth-south highway enables transportof goods between GCC countries, Iran,Georgia, Russia and Europe.

RailwayAccess to Black Sea, Batumi, and Potiports.

Subway12 km in the Capital

Airports2 international airports, 50 international airlines flying directly from Yerevan to 60 large cities


❷ Socio-economic overview - Infrastructure

Source: Akamai, Bandwidthplace.com, Numbeo

e-Society

e-Gov: www.e-gov.am

e-Cadastre: www.e-cadastre.am

e-Register: www.e-register.a

e-Payments: www.e-payments.am

Number of users2.2 million

Country coverage98%

Internet cost$1 per 1MBPS

Average internet speed

8.5 mbps(Armenia)

6.8 mbps(World)

http://www.e-gov.am/

http://www.e-cadastre.am/

http://www.e-register.a/

http://www.e-payments.am/


❸ Market & trade overview - Corporate expenses

Salary and benefits

Minimum: 50,000 AMD/month (~ $105)

Average: 173,000 AMD/month (~ $360)

Qualified Middle Management:

HR, accountant, etc.: 500 USD/month

Manager, Director: 1000 USD/month

Insurance cost/employee: 150 to 350 USD

Annual paid vacation: 23 working days

Taxes

Corporate profit tax: 20%

Income tax – social security: 23% - 34 %

Value added tax (VAT): 20%

Customs tax: 0 to 10%

Non-resident dividend tax: 10%

Non-resident tax: 20% (service providers)

Tax on bank deposits: 10%

Private equity-Investment Funds tax: 0.01%


❸ Market & trade overview - Indicators

GSP+ trade regime with the European Union, allowing the export of nearly 7,200 items

to the EU with no or reduced tariffs

Local Market of 3,000,000 Consumers

Eurasian Economic Union Market of 180,000,000 Consumers

Iranian Market of 90,000,000 Consumers


❸ Market & trade overview - Corporate expenses

Operational expenses

Rent – prime location: $10 up to $30 per square meter per month;

Utilities: very affordable (i.e. ₡10 cents /kwh electricity);

Transportation: around $2,000/ 40 ft. container between Poti/ Batumi ports to Yerevan;

Telephone/internet: 2 USD per month for unlimited service (mobile)

Zero cost for registering a company!


❸ Market & trade overview - Corporate services

Management consulting & trainingManagement Mix

Certification & inspectionTÜV Rheinland

International transit Spayka, Prime Logistic, City Logistics

Hospitality servicesMarriott, Hyatt, Hilton, Radisson, Hyur

Incubator, Social Impact InitiativeImpact Hub

Banking & FinanceACBA-Credit Agricole Bank, AmeriaBank,HSBC, ArmSwissBank, Anelik Bank

AuditingGrant Thornton, KPMG, PwC

LegalCabinet Sevag Torossian (France)

Real estateRealty Group, Target Development, Elite Group


❹ Investment climate - General indicators

Ease of doing business index 2016 rank at 35

35

51

24

41 44

6355

0

10

20

30

40

50

60

70


Rank out of 189

1 is the easiest; 1 is Singapore; 189 is Eritrea



Corruption index 2015 rank at 95

1 is the least corrupt; 1 is Denmark; 167 is Somalia

95119

48

123107

119

66

0

20

40

60

80

100

120

140


Rank out of 167



Economic Freedom index 2016 rank at 54

1 is the most free; 1 is Hong Kong; 178 is North Korea

54

153

23

68

157

91 79

0

20

40

60

80

100

120

140

160

180


Rank out of 178


FREE ECONOMIC ZONES

VAT PAYMENTS postponement for up to 3-year period for

importing equipment and goods within the scope of investment

projects.

CUSTOMS DUTY exemption within the scope of investment

projects.

PROFIT TAX privileges for large exporters

TAX EXEMPTIONS for IT start-up companies

TAX EXEMPTIONS in border areas of Armenia

❹ Investment climate - Incentives for investors


127

126

158

256

166

2012

2013

2014

2015

2016

Commitments in million USDOperates in Armenia since 1993

Cumulative business volume (by end of 2015): $2.13 billion

Covered sectors:

1. Agricultural extension and research

2. Agro-industry, marketing, and trade

3. Animal production

4. General energy sector

5. General trade and industry sector

6. Public administration

7. SME finance Reference: The World Bank

❹ Investment climate - International organizations


Operates in Armenia since 1995

Cumulative business volume (by end of 2015): $340 million

Active portfolio (by end of 2015): $147 million

Covered sectors:

1. Sustainable energy

2. Agribusiness

3. Corporate governance

4. Investment climate reform

5. Banking & finance

Reference: IFC





Active portfolio (April 2016): $347.34 million USD

Covered sectors:

1. Sustainable energy

2. Agribusiness

3. Corporate governance

4. Investment climate reform

5. Banking & finance

Reference: EBRD

93

94

49

114

138

2011

2012

2013

2014

2015

Investments in million EUR





Active portfolio (2015): $689 million USD

Covered sectors:

1. Transport

2. Finance

3. Energy

4. Public sector management

Reference: ADB

201.5

3.6

Sovereign loans

Technical assistance

Investments in million

USD



Major producer of molybdenum (7% ofworld production) and significant depositsof copper and gold;

As of 2011 the mining industry accountedfor over half of the country's exports.

Mining & natural resources

IT is a major cluster, the sector grew by anaverage of 22 percent annually from 2008-2013, and 25.2% in 2014;

The sector employs over 20,000 computerprogrammers and software engineers;

Presence of major IT companies such asOracle and Synopsys, Microsoft MentorGraphics and the French Atos Company(Thierry Breton), develops some of its mainsoftware's in Armenia.

Information Technology

❹ Investment climate - Promising industries


Very small, dynamic, transparent andstructured Financial and Banking system;

The differential of interest rates is high(around 5%); Major expansion possibilities;

Can be developed as a Regional Hub, asIran and Russia don’t have liberal systems.

Finance & Banking

Agriculture constitutes around 20% of GDP,and 40% of the total workforce;

More than 250.000 tons of fruit andvegetables were exported in 2015;

The nation has numerous vineyards and isa major producer of wine and cognac;

Potential of attracting Iran market andincreasing Russia market.

Agriculture



Agro-processing is one of the mostimportant and efficient Industries;

It is an important cluster using localagriculture, resources and nearby markets;

Major food processing industries can bedeveloped locally.

Agro processing

Tourist arrivals increased by around 12 %for the last 10 years reaching around 1.5millions in 2015;

Skiing resorts, religious tourism andwellness and health tourism are interestingattractions;

Chains such as Mariott, Hyatt and Hiltonare operating but the country lacks 5 and 4star hotels

Hospitality & Tourism



Pharmaceuticals

Fashion, Clothing, Leather, Apparels, Garments

Precision Industry

Research and Development

Robotics

Jewelry



❹ Investment climate - Success stories

Pernod RicardAlcoholic Beverage, France

Development and profit for the last 15 years

Credit Agricole and HSBCBanking & Finance, France, UK


RencoContracting & Development, Italy


Vallex Mining (Teghout)Mining, Russia

Around 360 mln. USD investment

Grand TobaccoFood & tobacco holding, Canada

Exporting more than 140 containers every

month for more than 22 countries

TÜV RheinlandCertification/Inspection, Germany

Certified around 50 companies according to

CE & ISO standards

VivaCell MTS ArmeniaTelecom, Lebanon

The investment registered profit on exit of

more than 300 million USD

DoubleTree by HiltonHospitality, Italy

Major investment in the center of Yerevan



Cronimet & Makur YerkatMining/Processing, Germany

Initial investment of 132 Million USD andfurther investment by Circa, 2005 – 2015 ofaround 850 Million USD, employing around3.400 employees; some of the financinginstitutions: Commerzbank, RaiffeisenBank. Daughter companies: Pure Iron Plan(molybdenum smelter), ArmenianMolybdenum Production (molybdenumsmelter).

Synopsys, Synergy, Microsoft Lab, Tumo Center, Mentor Graphics, National InstrumentsIT, USA

Major successes in IT industry

Karas, Armas, ZorahWineries, Argentina, USA, Italy

An important cluster/ wine & alcoholic

beverage

SanitekWaste Collection, Lebanon

Waste collection of the Capital Yerevan,

employing more than 1.200 employees

SADE

Contracting

Veolia, SAURWater, France

Domestic water distribution



ContourGlobalEnergy, USA

Vorotan Hydropower Cascade

AmeriabankBanking & Finance, IFC & EBRD

The largest local bank in Armenia

InecobankBanking & Finance, IFC & EBRD

The first M&A in Armenia

Al HokairRetail, UAE

Retail (Zara, H&M, etc.)


❹ Investment climate - Failures and/or exits

Orange Telecommunications (France)

The latest comer to the telecom industry; Orange exited from Armenia in 2015, due to: Cross-cultural issues such as initiating price war at the entry without any reason; Leadership and Management issues ; Couldn’t create an advantage even though the brand Orange and its French notoriety are cheered by Armenians;

Carrefour (France/UAE)

After more than 1 year to its entry the group is desperately looking for having sustainable results with challenges such as: Change of the French General Director; The location itself and limiting its presence with one facility; Local leader brands refused to collaborate due to the entry fees and the supply policy.

Procredit Bank (German)

Exit from Armenian market in early 2016: Did not take into consideration cultural aspects and could not adapt to local market needs by proposing a niche of

only business lending, rejecting the private clients needs; The Parachuted Top Management followed instructions from German HQ, without making adaptations; The novice staff, trained by HQ methods could not assure the quality of service required by local customers, specially

in the regions outside the capital.


❹ Investment climate - Investments for 2015-17

Lydian International - Mining (UK - Toronto Exchange listed company)

A new investment of 330 million USD with major shareholders such as EBRD & IFC

Gardenia - Agriculture (Lebanese Investor)

Around 1 million square meters of Pecan Plantations Around 1 million meters of Chestnut Plantations

Leaves Garden - Agriculture and Real Estate (United Arab Emirates)

Established in Armenia, the Abu Dhabi group is enhancing its investments

SAP - Software Solutions

10 mln. USD investment in IT, SME and ‘National Cloud’ development


❺ Conclusions - Armenia Investment Opportunities

Armenia is a small country, with a small economy where risks are and can be controlled easily;

Armenia has a liberal system for foreign direct investments, exchange, capital flows and dividend

repatriation;

Armenia is in the Customs and Economic Union with Russia, Kazakhstan, Belarus, Kirgizstan;

Armenia is a major launch-pad to local production and for export to Iran, Russia, Georgia, etc.

Armenia has low crime rates and is considered in the top 10 secure countries;

Armenia has abundant literate manpower with very reasonable costs;

Armenia’s real estate, including land and constructed areas, is very reasonably priced;

Armenia has very dynamic diaspora composed of businessmen interested in investment

opportunities.


❻ Global recommendations

Armenia can be considered a hub for business groups that want to

target Iran, Russia, and Minor Asian countries;

Armenia can be considered an alternative to Luxembourg,

Switzerland and other countries where investors can benefit from

a moderate taxing & corporate expenses.

Annexes



About Management Mix

CSP, Founded in France, 1969

CSP Caucasus, Founded in Armenia, 2000

Management Mix, umbrella branding, 2010

Presently operating through 3 regional headquarters: Cyprus, Lebanon andArmenia

Solutions Provided: Strategy & Management Consultancy, Training &Investments

Attracted investments to Armenia in finance & banking, telecom, wastemanagement, etc.


Researches & studies on Armenian Industries & Sectors by Management Mix

Banking & Financial

Insurance and Reinsurance

Waste Management

Pharmaceutical

Mining

Healthcare

Tourism


Management Mix operations in around 25 countries: 2000 – 2015

Central African Republic

Raffy Semerdjian

• CEO of Management Mix - www.managementmix.com

• Scholar & Visiting Professor • Saint Joseph University (Lebanon)• American University of Armenia (Armenia)• Gulf University for Science & Technology (Kuwait) • Universite Paris 9, Dauphine (France)

• Global consultant in Management Systems and investments;

• Specialized in Middle East and Eurasian Union


http://www.managementmix.com/


Management Mix offices

e-mail: [email protected]

URL: http://www.managementmix.com

Wisdom Tower, 3rd Floor, Ayios Pavlos & Kadmos Avenue,

Nicosia, CyprusTel: +357 96 691022, Fax: +357 96 691044

Ring Building, 4th Floor,Fouad Shehab Avenue,

Beirut Central District, LebanonTel: +961 01 983838, Fax: +961 01 983737

Piazza Grande Building, 3rd Floor,10, Vazgen Sargsyan Avenue,

Yerevan Central District, ArmeniaTel: +374 10 580441

Date post:	15-Feb-2017
Category:	Documents
Upload:	raffy-semerdjian
View:	179 times
Download:	2 times

Mmix Armenia Investment Opportunities Jan 2017 v1

Documents