The new opportunities of investing in Armenia

The new opportunities of investing in Armenia

The time for easy growth in the country is long foregone. The new reality of the economy is here, and it requires the business and economic elite to move to its next level of thinking, to make some hard choices and adapt. In this article we point to the main investment themes that have the potential of high returns for possible investors, and can eventually help turnaround the economy today.

Text : Sona Grigoryan / Photos: UITE, Arnos Martirosyan


Armenia’s economic growth has been sluggish for some time already. GDP growth in 2016 will be as low as 3%. Forecasts for 2017 are not much higher – just around the level of 3.2%, mostly in light of Russia’s recession and reduced remittances from Russia.
The increasing physical threat on the country’s border and the volatile internal situation have been the priority for the country strategic agenda. These are also the main factors that have severely deteriorated the investment climate in the country.
Adapting to this new reality requires a competitive economy that can attract and digest healthy investments and utilize its main competitive advantages, while being resilient to the lack of natural resources and logistical advantages. Some of the growth points of the investment climate in the country are pointed out below:

Investment theme 1: Fast growth of IT, agro and other selected segments of the economy
Amid the overall economic grayness in the country, a handful of sectors have been growing impressively. Thus, riding the growing wave of these segments will payoff to the investors.
Unlike, the first period of economic freedom of the country, when construction was the main locomotive for the growth, now this has shifted. IT, Agro, Mining, Leisure and several other sectors are the main “growth providers” in the country.
Each of these sectors has a unique set of underlying growth factors that allowed to drive growth against the overarching trend of decline. The most interesting of these trends can be observed in the IT sector.
The growth driver for IT has been the availability of high quality and relatively low cost human resources, as well as the entrepreneurial wave of start-up movement, fueled by the availability of venture and angel funding in the sector. Average annual growth in the IT industry amounted to about 20% for the past several years. The productivity of the sector, which equals the total output per one employee, is about 5 times higher than the average of the economy.
There is no doubt that the global economy is in the era of innovative technological movement. Thus Armenian economy and its IT/engineering sectors face the challenge of keeping up with the global pace.
Venture, angel and other forms of investment are increasingly available for the sector companies, although still with ample potential of growth. Granatus Ventures is the first venture fund in the country that has been actively involved in securing investments for promising start-ups in the country.

Menu Group (,, and yet to grow) is one of the successfully growing investments of the fund – a restaurant food delivery service IT platform, that is rapidly expanding to regional countries. Last year it closed $720,000 investment round to fuel its growth strategy. ggTaxi – an IT platform allowing to disrupt the taxi industry emulating and tailoring the business model of uber for Armenia and with ambitious plans to grow. SoloLearn – a mobile educational platform that provides users with unique teaching methodology and game-style learning experience in different areas such as programming, business and photography. It has recently raised $1.2M seed round to socialize mobile code learning. NewsDeeply, an online journalism and technology platform, is another Armenian start-up, which is specialized in single-issue news websites and it attracted $2,500,000 from four sources – Omidyar Network, Granatus Ventures, HIVE and Fresco Capital.
The most recent and a very significant success news was out only several days ago, while this article was in process – CodeFights announced raising $10 million Series A round led by CodeFights, Granatus Ventures portfolio company that brings together coding challenges and skills-based recruiting.
PicsArt, renowned for being one of the best Armenian start-up applications so far, succeeded in 2015 to attract a total of $45M at three stages from different venture companies – Sequoia Capital, Insight Venture Partners, DCM Ventures and Siguler Guff & Company. PicsArt has become among the world’s most famous popular photo-editing and sharing applications. According to Forbes, the mobile application is now valued at $250M.
Apart from the start-up movement in the country, the IT sector success is very much due to the country hosting some of the largest multinationals in the global IT industry. In particular IT giants such as Microsoft, Oracle, Cisco, Ericsson, Huawei, D-Link, VMware, Mentor Graphics, National Instruments, Synergy International Systems and Synopsys have subsidiaries, R&D offices and laboratories in Armenia.

Investment theme 2: Deleveraging and distress financing due to rapid expansion of credit
Bankruptcy of local companies in different sectors has become very frequent and common. It is the sad but inevitable consequence of slow economic realities. The purchasing power of the population has plummeted, bringing whole sectors “down to their knees”.
The rapid expansion of bank loans and lack of deep equity markets resulted in suboptimal capital structures and emergence of many distressed assets.
The higher-than optimal leveraged companies now face the challenge of restructuring debt, which opens opportunities for investing in distressed assets. Most of these assets are either stuck at the mercy of commercial banks, or still breathing with their original owners, eager for new capital injection.
The non-performing loans, which include bad debt, restructured loans and written-off assets, rose to almost 9 percent towards the end of the year, according to Central Bank data. Which is quite high for Armenia and still does not reflect the whole reality of non-performing loans.
It is time to recognize that crises and defaults are an essential part of investing in developing countries and Armenia is no different. Companies default, get restructured; learn their lessons, and rebuild.
Distressed opportunities in Armenia are more suited for private equity, as there is a sever need for equity instruments for improving the capital structure and also, more importantly, there is a need to make the management changes.
The bankruptcy wave is a result of not-only the higher than acceptable leverage of local companies, but also the failure of management to recognize the need for change and adapt to the new realities of the economy. The imperative to mobilize and flex to new markets, new channels of growth and the new needs of the economy is higher than ever. Thus the new investment can have effect only in case of recognizing the need for efficient management.

Investment theme 3: Expansion of local companies to EEU market
Armenia’s becoming part of the 180m+ Eurasian Economic Union market opens new expansion opportunities for the local producers. This is of course yet a project in process, with numerous practical issues to be resolved, however, it has the great potential to provide some relieve to local companies “hungry” for market, scale and efficiency.
There is a growing interest from international players to buy production assets in Armenia to capitalize on this opportunity.
Armenia’s exports to member states of the EEU have increased by 70% over the past seven months, according to the official representatives of the EEU. This indicates numerous opportunities mainly in agro, greenhouse and food processing sectors of the country.
Spayka, a locally established logistics and greenhouse company, has been paving the success path on this theme. Today Spayka has its own fleet of more than 200 Volvo trucks, with more than 10.000 m2 of A Class refrigerated warehouses in Yerevan, Ararat and Tavush regions, factory of juices and preserves with Italian production lines, factory of packaging materials for agricultural products. Spayka manages also 30 ha radish greenhouses in Ararat region. The company is “responsible” for about 70% of fresh agricultural exports from Armenia. And it has plans to invest in a 100ha greenhouse complex equipped with modern technology, the main export market being Russia.
Although, manufacturing sector has lagged behind agro and IT by its growth levels, there will be substantial opportunities to invest in value-creating businesses that can tap into the large EEU market. Armenia’s manufacturing sector needs to grow in productivity and management efficiency, which can largely benefit from the foreign direct investment in the country.
Investments are the much needed fuel for the economy right now, and the timely recognition of significant trends might lead to harnessing the available growth potential. Realizing the potential of Armenia’s economy will require national and local leaders to adopt new approaches to management, both in corporate and in government levels. For investors, Armenia represents a sizable market but will require a granular strategy and a locally focused operating model. This is the new imperative of the economy and the success could give a historic boost to Armenia’s economy.