Armenia Amid a Sea of Uncertainty
No. 4 2004 October/December


At the
start of the 21st century, the countries that once made up the
Soviet Union have approached a momentous point in their history.
The inertial development model which is characteristic of a
majority of the former Soviet republics (now known as the
Commonwealth of Independent States), and which continues to
function thanks to the partially surviving ties and potential from
former times, is almost exhausted. Now, the ex-Soviet republics
must choose a program for their further development, which equally
takes into account their foreign-policy orientation, as well as the
creation of a social and economic model.


The world
now tends to form interstate associations which are largely
economic in nature (the European Union, the Common Economic Space
of Russia, Ukraine, Belarus and Kazakhstan, the North American Free
Trade Agreement, etc.). The newly independent states bordering on
the mighty development centers, such as Russia, the EU or China,
will have to set their priorities and decide for themselves what
structures they would like to integrate into. They should also
decide whether they are ready to sacrifice their independence in
political and economic decision-making, in exchange for benefits
from their participation in the more powerful supranational
organizations, and whether the integration scenario is the only
possible solution to their development tasks.

Republic of Armenia must find the answers to these questions, as
well. The land-locked country is surrounded by a hostile
environment and does not possess an abundant supply of natural
resources. Even though the economic growth rate in Armenia has
stood at five to seven percent a year on average since the
mid-1990s, its GDP, together with the population’s incomes, does
not exceed 60-65 percent of the 1990 figures.


What does
the future hold for Armenia? In order to determine the prospects
for the country’s long-term development proceeding from its
potentialities and the uncertainty factor, representatives from a
broad range of groups launched the Armenia 2020 project.
Participants included Armenian scholars, representatives of the
Armenian communities in Belgium, Britain, Canada, France, Germany,
Russia, the United States and other countries, as well as several
organizations (see the full list on p. 144) The survey was
conducted by means of a scenario-building exercise.


About 80
percent of ethnic Armenians polled in the country and around the
world said that Armenia must focus on the development of a
knowledge-based economy and the creation of new jobs. Seventy-five
to eighty percent stated that the Armenian government must be the
main factor in improving the population’s wellbeing, and that it
must pursue an active policy for attracting foreign investment in
the country. An analysis of Armenia’s social structure and
requirements shows that a program for institutional reform – should
it be proposed – would be supported by 70 percent of the


preparing various possible scenarios, the members of the project
assumed that Armenia’s population will remain unchanged at 3-3.5
million people with a total area of about 30,000 square kilometers.
A majority of the experts agreed that by 2005-2006 the current
model of Armenia’s inertial development will be exhausted, so they
worked out scenarios for the subsequent period ending in 2020. They
did not consider obviously negative variants leading to economic
collapse, a decline in the population’s incomes, reductions in the
number of the population and the loss of territory.




Integration into the European Union

scenario can be described as the ’Ireland model.’ (Ireland, which
joined the European Economic Community in 1973, availed itself of
the advantages offered by the common European market and turned
from a relatively backward country into one of the
fastest-developing economies in the Old World.) This scenario
provides that at some time before 2020, Yerevan, together with Baku
and Tbilisi, may meet the criteria for joining the European Union
(depending upon its economic situation, level of democracy and a
rule-of-law state) and become full-fledged EU members. (Due to
political reasons, one of these three Transcaucasian states joining
the EU without the other two seems unlikely.) Obviously, Armenia’s
accession to this larger and more developed economic space would
bring about the country’s stable growth. In order to meet the
integration requirements, Armenia would have to liberalize its
economy, which would accelerate its development given its
relatively cheap yet productive source of manpower. The adoption of
European standards would strengthen democracy and civil society, as
well as boost investment in science and education.


seemingly optimum scenario, attractive to many of the post-Soviet
states, runs up against a very large obstacle in the case of
Armenia. The basic principle of European integration requires the
member states to renounce part of their national sovereignty and
delegate the decision-making powers to supranational bodies. As the
European process deepens, the scale of powers delegated to
pan-European bodies will only increase. If Armenia is prepared for
such a move, in the next two to three years it will have to make a
major decision concerning the loss of much of its independence.
Meanwhile, according to a public opinion poll, about 80 percent of
the respondents (both in Armenia and among ethnic Armenians abroad)
said that a high degree of the nation-state’s sovereignty, that is,
independence in making fundamental decisions, is an indispensable
condition.  The poll revealed that it
is essential for Armenia to become an ’umbrella’ for an absolute
majority of Armenians around the world, and a guarantor of their
unity. In other words, the European choice, to which many of the
post-Soviet states are now gravitating, is not an obvious choice in
Armenia’s case.


Stagnation in isolation

scenario can be described as the ’Paraguay model’ (Paraguay is a
small South American state, rather isolated and unstable and for a
long time governed by military regimes which pursued inconsistent
and contradictory policies.)  In this
model, the dominant role belongs to a centralized state and a
strong army. In an underdeveloped rule-of-law state, much of the
economy goes into the informal sector. The cheap manpower and
dirigiste measures can ensure short-term growth. This, however,
will be followed by stagnation due to regional isolation and the
lack of investment needed for the reproduction of human and
technological capital.


’Paraguay model’ can be implemented in two ways, depending on the
form and degree of Armenia’s interaction with the rest of the

The closed
version of Armenian development: Let us assume that Armenia finds
itself outside the global economy; it is not integrated into the
regional or world markets and has to build a closed national
economy. If the world economy remains open, isolationist tendencies
in Armenia will be checked by a negative reaction created by the
Armenian diaspora, and by the need to preserve a geoeconomic
balance. But if the world economy grows less open, Armenia will
become an autarky, that is, a closed political and economic society
with drastically cut imports.


Armenia is not rich in natural resources and has a poorly developed
infrastructure, it will be unable to build an effective closed
economy. It will undergo de-industrialization – due to the shortage
of raw materials, above all energy resources, the low capacity of
the domestic market and the lack of access to foreign markets. The
only surviving industries will include power engineering, tourism,
repair services, and a few others. Export-oriented enterprises
will, most likely, continue to be sold to foreigners. These
developments will reduce industrial Armenia to a small region which
will comprise the Yerevan area and a narrow strip of land around
Lake Sevan. The rest of the country, under such a scenario, would
be forced to leave the international and even national market, as
it will start using primitive forms of exchange.


Thus, over
a period of 10 to 15 years, on a large part of Armenian territory
there will emerge a system of economic relations similar to those
existing in small feudal mountainous states. At the same time, the
country will experience a natural population growth, as well as the
restoration of the more traditional ways of life. The birth rate
will increase from the present 1.8 children per family to 2.2-2.5
children. The increase will be due in large part to
Nagorno-Karabakh, a de facto independent entity in neighboring
Azerbaijan, which maintains close ties with Yerevan (the birth rate
in Nagorno-Karabakh averages more than three children per


It is at
this time that we shall witness the peak of ’Armenianship outside
Armenia.’ The country will become an exporter of certain kinds of
manpower (healthy and strong men who have learned certain trades or
soldiering) to the entire ’Land of the Five Seas’ (the territory
between the Caspian, Black, Mediterranean and Red Seas, as well as
the Persian Gulf). These people will not be simply emigrants but
’seasonal workers for an indefinite number of seasons.’


There will
form a regular flow of human capital: people will go from the
Armenian periphery to the central industrial regions (Yerevan, Lake
Sevan). Once they are adapted to the contemporary world they will
disperse throughout the region. However, this will be a closed
flow: the bulk of those who leave Armenia will later return to the
country. In the meantime, there will emerge several basically
different ways of life in Armenia and in the Armenian


living in and around Yerevan will lead a European way of life, but
they may be subjected to the influence of clans arriving from the
mountain regions of Armenia who are engaged in illegal business
activity. The mountain regions of the country will engage in its
traditional forms of business, gravitating toward illegal
production. The level of industrial development in Nagorno-Karabakh
will be somewhat higher than in the mountain

Apart from
the old diaspora holding high positions in some large European
countries, there will emerge a new Armenian diaspora, comprised of
those people living in the mountainous areas who will leave Armenia
to do unskilled work.


this scenario is not attractive, it is not catastrophic. Should
things develop in Armenia the way we have described, the country
will face a serious generation gap (the younger generation will
seek integration into the open world, as opposed to the older
generation gravitating toward the traditional way of life). This is
not characteristic of Armenia and its culture and may result in the
loss of its uniqueness. At the same time, Armenia will escape
global political  and economic
cataclysms, typical of a phase transition, and the Armenian nation
will be able to preserve its geocultural identity.


The open
version of Armenian development. This model will be translated into
life at the level of the Armenian diaspora. While there is economic
stagnation inside Armenia, the diaspora becomes a form of the
nation’s spatial development and, simultaneously, an instrument for
geoeconomic interaction between the mother country (the Republic of
Armenia) and the outside world. The Armenian elite are a small but
united group of society, which is well-informed about modern models
for organizing activity, cooperation, and information exchanges.
Moreover, it is capable of rapidly mastering these

to this scenario, in the period until 2007 the diaspora will
prepare a new agenda for the Republic of Armenia, entitled “Uniting
the fragmented people,” which will be aimed at addressing mutual
sociological problems and building mechanisms for political,
economic and cultural cooperation between the mother country and
the diaspora.


From 2008
to 2015, a united economic network will be built (above all, in
trade), which will involve the mother country, posing as the
originator of Armenian uniqueness, with the diaspora serving as the
conduit of this uniqueness.


the real issue is the restoration of a structure of mutual
relations similar to the one that existed in Soviet times. In the
Soviet Union, the Armenians were part of the Soviet cultural,
scientific and military elites. Now they are becoming part of the
elite community in the world’s major countries which have a
developed Armenian diaspora (Russia, France, the United States, and
others). In this scenario, the mother country will exchange human
capital for a ’development rent,’ posing as a seller of a certain
humanitarian ’product’ built on the basis of Armenian


the leadership of the Republic of Armenia may adopt a policy of
autarky, for one reason or another, at any time. If so, the closed
version of its development will be implemented very soon (within
two to three years) and this scenario will continue for a long
period of time (not less than a decade).


Russia’s outpost

scenario can be described as an ’Israel model.’ (Israel, surrounded
by hostile countries, maintains its existence largely due to its
military might, which by far exceeds the war potential of all its
neighbors. It also owes much to the generous economic, political
and military support of the United States which has an influential
Jewish community. Actually, Israel is the main U.S. outpost in the
Middle East.)


scenario can be implemented if Russia consolidates and extends its
political and economic influence in the post-Soviet space and
becomes a guarantor of stability and security in various regional
conflicts. The main prerequisite for this scenario must be the
inability of the peoples in the Caucasus to receive stability and
order from the outside, that is, from ’foes.’ But from the point of
view of the Caucasian mentality, even Russia is a ’foe,’ not to
mention the U.S., while Armenia is a ’friend’ and the outcome of
the Karabakh war has enhanced its authority. This is why it would
be expedient for Russia to continue assigning the key role in the
region to Yerevan.


scenario would bring relative peace to the Caucasus, cause the U.S.
to gradually withdraw its presence from the region, and give
Armenia the unofficial status of ’Russia’s representative in the
Caucasus’ which presupposes all forms of military and economic aid
from Moscow. The Republic of Armenia will develop economically due
to its highly skilled manpower, investment in education and
scientific research, and extensive support from the diaspora and
other countries. However, this growth will not be consistent
because Armenia will be checked by the chronic hostility of its
neighbors, a low level of regional integration, active emigration,
and Armenia’s high transaction costs which affect the final price
of its products; despite a cheap labor force, these are going to be
restricting factors for growth. The bigger the role that Russia
plays in guaranteeing regional security, the stronger military and
political positions there will be for Armenia. At the same time, it
will lessen the chances that the Armenian diaspora will have for
participating in the development of the nation-state.


scenario may have dramatic ’offshoots’ under the common name of a
’Transcaucasian war.’ This war may be provoked by an aggravation of
the conflict in Georgia and its subsequent breakup, fresh
confrontations over Nagorno-Karabakh, or by clashes in Kurdistan.
The war may last the life of a generation and become a
post-industrial catastrophe for the entire region.


Regional leader

scenario can be described as a ’Singapore model.’ (Singapore, a
tiny state in Southeast Asia void of any resources, transformed
into an economic ’tiger’ after it stepped up the development of an
innovation economy.) This scenario presupposes Armenia’s rapid
transition to an innovation model of development through the
application of the latest technologies in all spheres of life. This
model boosts economic development due to cheap manpower, large
investments in education and infrastructure, and consistent
liberalization of the economy. It also depends upon the leading
role of a centralized state, extensive transit trade, and more
attention to critical stages in production.


This model
may also have two variations – closed and open, both presupposing a
high degree of Armenia’s sovereignty.

The closed
version. If globalization retains its tendency toward network
development and if the regional status quo remains, the Republic of
Armenia and the Armenian diaspora can pool their efforts and start
the process of restructuring the national economy on the basis of
high-tech industries. With growing employment, Armenia can achieve
high economic growth rates and improve the wellbeing of an absolute
majority of its population.


The open
version provides for Armenia’s close interaction with large
integration communities – the European Union or a Russia-led
community. At the end of the first decade of the 21st century,
Russia, the United States and representatives of the diaspora will
pool efforts to start the implementation of regional projects which
will provide an opportunity for the reconciliation of the
conflicting parties in Transcaucasia. Thus, for the first time
there will be the need for a transport ring between the
participating countries, as well as for an integration structure.
Russia’s purposeful actions for forming new Euro-Asiatic
infrastructures, specifically to serve the North-South corridor
(North Europe – Russia – Iran – Gulf countries – India), must play
a major role in achieving viable agreements.


aforementioned regional projects may include the creation of an
interregional common market in Western Asia and Transcaucasia,
comparable in capacity and turnover to the European market. On the
face of it, the ethnic, religious, geographic and resource
heterogeneity of the region, not to mention its tendency for
military and political conflicts, rules out any hope for the
success of a policy of integration. However, the history of Europe,
for example, testifies to the contrary: just a few decades ago few
people could have imagined that Germany and France, which tried
their best to destroy each other in the two most brutal wars of the
20th century, would become close allies and the driving forces
behind European integration.


Like the
European Union, a West Asian community may start from a purely
economic partnership that will not presuppose any political
superstructure. With clearly expressed common interests (economic
development), this economic union could include not just former
enemies but even those states that are formally in a state of war.
The desire to settle regional conflicts will be a driving force
behind the integration. In turn, such a union of states would be a
means for settling the conflicts.


integration process in the Transcaucasia-Western Asia region can be
boosted by the following factors:

  • an
    understanding by Russia’s political elite of the need for
    macroregional associations (viewed as mechanisms for implementing
    Russia’s economic strategy);
  • a close
    union between Russia and Armenia, which would guarantee stability
    in the region;
  • coming
    to power of a new generation of governing elites in the five
    countries of the region (Azerbaijan, Armenia, Georgia, Iran and
  • a common
    interest of the business communities in the five countries in
    security issues (above all, energy security) and in the development
    of the tourist industry.


efforts could result in the signing of a treaty on the
establishment of a common economic space in Western Asia, which
would comprise Azerbaijan, Armenia, Georgia, Iran and Turkey. These
could be joined by Iraq, Lebanon, Syria, Jordan, Palestine, Israel
and Pakistan. At a later date, the participating countries could
conclude a treaty on a West Asian transport nexus, providing free
travel for people and goods (but not capital and not all services).
This nexus could be built around the political and economic
structure of the ’Land of the Five Seas’ (Azerbaijan, Armenia,
Georgia, Iran, the Asian part of Turkey, Iraq, Syria and Lebanon).
This communication network would be the restoration of perhaps the
oldest ring infrastructure in history, which has not functioned for
several centuries due to constant tensions in the region. Today, a
unique opportunity presents itself for reanimating this ancient
transport system, together with the development of a regional


The West
Asian nexus could be linked up with the global trade network via
Beirut, Alexandria, Suez, and the Gulf ports. The emergence of a
new ethnocultural platform in Central Asia would raise the issue of
building a Caspian transport nexus which, crossing the West Asian
ring, would cover South Russia, Azerbaijan, Armenia, Georgia, Iran,
Afghanistan, Tajikistan, Kyrgyzstan and Kazakhstan. The
Astrakhan-Aktau route would provide access to the global trade
space. The successful creation of the two rings would pave the way
for the creation of a new regional market, above all a market of
energy resources.


implementation of this scenario would help Armenia develop an
innovation-based economy and become a regional economic
headquarters. The transport ring can create prerequisites for
building a new, common identity amongst the countries in the ’Land
of the Five Seas,’ which in the long term will allow them to
overcome all their ethnic, religious, cultural and historical


measures should be taken for the realization of this scenario?
First, it will be necessary to establish a group of institutions
(including a Development Council under the president of the
Republic of Armenia, and a Russian Strategic Administration) and
introduce a conceptual formula which acknowledges that “the
infrastructure belongs to the region rather than the country.”
Under the patronage of the great powers, a West Asian economic
union will be set up, uniting Azerbaijan, Armenia, Georgia, Iraq,
Iran and Turkey. At this time, the transport nexus and the regional
market will be built. At this point, the agenda of contemporary
Armenia, which has been “Looking for a niche for itself in the open
world,” would be considered fulfilled.


possible developments, described in the Armenia 2020 research,
provide for an intricate scenario trajectory. In reality, events
may develop at a slower pace and the aforementioned processes may
require not 20 years, but possibly 25-30 years. However, this will
not greatly alter the essence of the developments. The above four
scenarios are not mutually exclusive alternatives. The larger part
of the models described provide that Armenia will participate, in
one way or another, in a global post-industrial project. At the
same time, Armenia’s preservation of a fair degree of its
sovereignty is the main condition for the realization of the
country’s potential.