Immediate impact: January - July 2020

The COVID-19 outbreak reached Armenia on 1 March 2020. By 11 March, a rash of new cases pushed the Armenian government to close its borders and declare a state of emergency. This entailed a lockdown beginning on 15 March, initially for one month, but which was extended through to 14 August. Almost all business activities, including trade, personal services, manufacturing and construction, were considerably restricted in the first month of the lockdown. Armenian entrepreneurs, except for those running “essential” businesses such as supermarkets and pharmacies, experienced economic pain as a result. At the beginning of May, the government eased some of the limitations on business, but COVID-19 cases subsequently increased, only decreasing gradually from the end of June 2020. There has been a significant economic impact on both entrepreneurs and on the economy overall due to COVID-19. The greatest proportion of Armenian entrepreneurs are in the trade and restaurant sectors — two of the areas hardest hit by the restrictions. Additionally, business restrictions on other large sectors of the Armenian economy caused a domino effect, spreading to other sectors. For example, while agriculture was not restricted under the government’s orders, it still suffered due to supply chain challenges.

After the easing of the restrictions in early May 2020, Armenian entrepreneurs restarting their activities have been facing new issues. For example, they have been required to follow new, strict health guidelines, which have been very costly and onerous. Additionally, overall consumer demand for products and services has decreased during the lockdown. Other issues include the difficulty in anticipating future customer expectations, further adding to the uncertainty faced by entrepreneurs. More time is needed to assess whether COVID-19 has impacted new registered businesses in Armenia, although Central Bank data from March to May 2020 reveal a large increase in online sales. Entrepreneurs with an existing online sales pipeline have therefore gained a competitive advantage. Those without a significant digital presence have been working to close this gap. This will likely generate opportunities for companies that provide digital development services. It is also possible that new, digital businesses will appear to meet new consumer demands, which could compete with existing businesses with less digital prescence.

Immediate policy interventions: January - July 2020

During past crises, such as the 2008–2009 Global Financial Crisis, the government increased public spending, and the same response has been adopted in the midst of the current COVID-19 crisis. The government has been providing financial assistance to Armenians to cover part of their utility spending, as well as supporting employees and entrepreneurs who have lost their jobs. These efforts are aimed at maintaining or increasing consumer demand in the absence of private spending. The government has introduced 21 programs, 13 of which are socially focused and 8 economic. The economic programs include: grants to SMEs to maintain their full workforce, grants to high-tech companies, allowances to microbusinesses, financial support for SMEs in selected sectors, support for agriculture, as well as other lending or co-financing programs.

Future economic / policy outlook

The most optimistic economic growth forecast assumes that the pandemic’s impact will peak in Q2 and will only result in a –2.5% annualized decline in GDP. A more pessimistic scenario is a –10% economic decline, representing a severe retraction compared to 2019’s strong 7.6% GDP growth. The unemployment rate is also expected to increase from 18.9% in 2019 up to possibly 25%, depending on the forecast. The Armenian government must reassess whether the mid-May reopening of businesses (albeit with restrictions) contributed to the recent increase in cases. Plans to open the country’s borders to tourism and other foreign-dependent business activity may need to be reconsidered or deferred to a later date. If no appropriate policy steps are taken, many Armenian entrepreneurs will face a significant struggle in restarting their business. The majority of Armenian entrepreneurs are in the trade sector, one of the areas most impacted by the restrictions. On the other hand, it is also possible that COVID-19 will create some “niche” sectors, where more productive entrepreneurs can thrive by offering products and services that outperform less efficient firms.