According to the 2021-2026 RA Government Programme, it is targeted to increase the FDI net inflow/GDP ratio to 6% by 2026. Due to the favorable external economic factors, it was possible to rapidly improve this indicator and to come significantly closer to the set target.
A record-high FDI net inflow was registered in 2022
In 2022, the net inflow of FDI in Armenia (net incurrence of liabilities) increased by USD 632 million and amounted to almost USD 1 billion, which is 2.7 times higher than in the previous year and is a record high in the entire history of Armenia. It should be noted that such impressive growth is partially conditioned by the appreciation of Armenian dram: Particularly, the contribution of dram appreciation in the structure of growth was 13.5%.
Foreign direct investment (FDI)
Foreign direct investment is a cross-border investment in Armenia made by an entity resident in another economy through the acquisition of at least 10% of the voting power in a direct investment enterprise, with the intention of establishing a lasting interest. FDIs, unlike other types of investments, provide either full control or significant influence over decision-making in the resident entity.
FDI net inflow
FDI net inflow is the difference between the value of inward direct investment made by non-resident investors in the reporting economy and the repatriation of capital and repayment of loans.
Due to the rapid growth in net FDI inflow, the net FDI/GDP ratio also increased sharply in 2022, reaching 5.1%, which is almost twice as much as in 2021. Thanks to this growth, the government's target for FDI has dramatically improved. Nevertheless, the structure of net foreign investment inflow remains a concern, in particular, in 2016-2022, the share of equity capital (greenfield investments, capital replenishment by investors in existing companies) was 44.0%, for comparison, the same indicator for Georgia in the same period was 53.4%.
Regarding the record high FDI net inflow, it must be noted that reinvestments, that is the undistributed profit of companies operating in Armenia with FDI, accounts for 58.6%, which was also positively affected by the appreciation of the national currency.
The FDI into the economy’s real sector reached USD 1 billion
In 2022, the FDI inflow into the real sector of the economy reached USD 1 billion, which is 31% higher than in the previous year. The figure recorded in 2022 is a record high for the last seven years.
FDI inflow
FDI inflow is the value of cross-border direct investment in Armenia made by non-resident investors during the reporting year.
Regarding the sectoral distribution of FDI into the real economy, it should be noted that the leader is the electricity and gas supply sector with a share of 58% (USD 578 million), followed by the mining and real estate sectors, with 15% and 7%, respectively. Moreover, compared to the previous year, FDI inflow in the electricity and gas supply sector increased by 50%, and in the real estate sector increased by more than 2.2 times. Fly Arna: An impressive increase was also recorded in the air transport sector (94%), which is probably due to the establishment of new companies in this sector, for example, Fly Arna.
Russia continues to maintain its position as a leading investor in the real sector of Armenia's economy. In 2022, Russia accounted for about 70% of the FDI inflow in the real sector of Armenia's economy (USD 697 million). Russian investments were made in such areas where large Russian investors have been traditionally represented: electricity and gas supply, telecommunications.
In 2022, Cyprus and Jersey were also among the leading investors in Armenia, with 7% and 5% shares, respectively. The main investments from Jersey were directed to real estate activities (USD 46 million).
In 2016-2022, the FDI net inflow to Georgia exceeded the same indicator of Armenia by 4.3 times
In 2016-2022, the FDI net inflow in Georgia was about USD 10.2 billion, while in the same period in Armenia this indicator was about USD 2.4 billion, which is about 4.3 times less than in Georgia.
Regarding the geographical and sectoral structure of Georgia's FDI net inflow, the leading sectors during 2016-2022 were the financial, transport and energy sectors, with 23.4%, 13.8% and 13.2% shares respectively, and the main donor countries were Great Britain (20.6%), Azerbaijan (12.6%) and the Netherlands (12.1%), while the share of Turkey was 9.6%.
In summary, it should be noted that the performance of Armenia in terms of FDI inflows in 2022 can be assessed as good, but there is still a lot of work to be done in the direction of improving the investment environment and promoting investments.
You can download the full report here: FDI Performance of Armenia 2022