World Bank Sees Further Improvement Of Armenian Business Climate

In an annual global survey released on Tuesday, the World Bank reported a further, significant improvement of the business environment in Armenia, singling out the areas of tax administration and investor protection.

The bank’s “Doing Business 2013” report rates 184 economies of on 11 aspects of government regulation of mainly small and medium-size businesses, including taxation and the ease of starting and closing companies and registering property.

Armenia is 32nd in the latest rankings, up from 50th place it occupied in the previous survey and ahead of most other Soviet republics. It fared better than even some high-income European states such as France and Spain.

The World Bank found the sharpest improvement in the protection of private investors. “Armenia strengthened investor protections by introducing a requirement for shareholder approval of related-party transactions, requiring greater disclosure of such transactions in the annual report, and making it easier to sue directors when such transactions are prejudicial,” it explained.

The authors of the survey also see serious progress in the Armenian authorities’ ongoing efforts to make taxation less cumbersome and arbitrary. Their extensive report says that the authorities have slashed by more than half, to 13, the number of annual payments for corporate income, property, and land taxes as well as social security contributions. Local businesses typically had to make 50 such payments in 2010.

Still, Armenia ranked 108th in terms of the quality of tax administration, even if this is a major improvement over last year’s World Bank survey. One reason for this is that Armenian firms spend, according to the latest survey, an average of 380 hours a year on dealings with tax and customs officials. The average figure for developed world economies is 176 hours. Corruption and favoritism among tax officials is another serious problem facing Armenian entrepreneurs.

Simplifying taxation procedures has been a top declared priority of the Armenian government and Prime Minister Tigran Sarkisian in particular. The introduction in January 2011 of mandatory electronic filing and payment for major taxes has been among tax reforms implemented by the government in recent years.

Armenia continues to score rather poorly on contract enforcement, with the survey finding no improvement in this area in the past year. But this is offset by its quick and simple legal procedures for starting up businesses and registering property. The country remains among the world’s top performers in these two separate categories of business regulation, according to the World Bank.

Prime Minister Sarkisian, who has repeatedly stressed the importance of the survey’s findings, was quick to hail the “unprecedented progress” in Armenia’s position in the “Doing Business” rankings

“This, of course, is a good indicator,” Armenian news agencies quoted him as saying. “But we still have room for more progress and our efforts should be focused on further improving that position.”

The authorities in Yerevan have for years been under pressure from the World Bank and the International Monetary Fund to improve the business environment. Both lending institutions believe that such reforms are vital for the country’s sustainable economic development.

The World Bank’s latest research on the matter is likely to be dismissed or downplayed by the Armenian opposition. Vahagn Khachatrian, a senior member of the opposition Armenian National Congress (HAK), insisted on Tuesday that the domestic investment climate has improved “only on paper.”

Speaking to RFE/RL’s Armenian service (Azatutyun.am), Khachatrian said the fact that it normally takes less than two weeks to register a company in Armenia “cannot affect the overall economic atmosphere.” He said local businesses still have to grapple with government corruption and economic monopolies owned by government-linked individuals.

Albert Babayan, a senior official at the Ministry of Economy, disagreed. Babayan argued that the survey is based, in large measure, on the opinions and assessments of Armenian businesspeople. The survey’s findings therefore testify to Armenia’s “leap forward” in economic reform, he said.