COMMENT – Armenia: the dire rankings behind its Velvet Revolution

COMMENT – Armenia: the dire rankings behind its Velvet Revolution
Armenia scores very poorly in almost all the international rankings.
By Kakha Baindurashvili in Tbilisi May 10, 2018

On May 8, Nikol Pashinian, who led the massive protests that ousted Armenia's longstanding head of state turned prime minister Serzh Sargsyan, who was in power for over a decade, was elected prime minister by MPs.

Due to constitutional changes put in place by Sargsyan that increased the powers of the office of prime minister, Pashinian has not only become the fourth leader of the Republic of Armenia since it achieved independence, he has also gained the expanded powers his predecessor intended for himself.

Unlike his predecessors, Pashinian is neither a dissident nor shaped by a military background. He is the first of his kind in Armenia’s political history: a former newspaper editor, Pashinian entered politics via the media. As might be expected from a man with his background, the new prime minister’s look and speech are informal and are oriented to the young and the future. These were vital elements in driving the street demonstrations, creating the so-called Armenian Velvet Revolution. There has been huge popular demand for a political reshuffle, equality, justice, and a better future.

The Armenian events caught many observers by surprise; even the most well-informed Russian thinkers were confused by the sudden rise of a self-made politician. Hardly anyone believed the opposition could win a victory so fast. They were caught off guard by the power of the street over the established political elite – at least for now as things stand.

Now the new administration is in place, the first major question it must tackle is foreign policy – and most importantly the Pashinian policy towards Russia.

In the current turbulent geopolitical climate, it is highly unlikely the new government will revise its Russo-Armenian relations. Changes to the previous set-up won’t happen soon, if ever. In reality, Russia plays a very small role in the internal politics of the country as Armenians are far more concerned with their personal situation than external relations. To better understand what drives popular dissatisfaction, let’s have a look at how Armenia is ranked in various credible indexes.

Armenia places 129th in Jeffrey Sachs’ World Happiness Report 2018, which makes Armenians one of the unhappiest nations in the world. Among things that make Armenians unhappy are corruption, low incomes and social injustice.

Corruption seems to be the key factor behind popular frustration. In none of the indices is Armenia a frontrunner, although it does perform relatively well in some business-focused rankings. For instance, Armenia ranks 47th out of 190 countries in the World Bank’s Doing Business 2017 ranking. It has a good position in US-based think tank the Heritage Foundation’s 2018 Index of Economic Freedom placing 44th of 180 countries. And it does even better in Fraser Institute’s Economic Freedom of the World at 18th.

Despite these relatively good results, all the benefits are actually monopolised by the country’s oligarchs and government officials; literally every sector of the Armenian economy is controlled by someone from one of these two groups. Very little trickles down to the man in the street.

The country’s economy is effectively divided among the local strongmen. No surprise then that there is no place for ordinary Armenians in Armenia and they have been leaving en masse: circa 15,000 left Armenia in 2017 alone. The country has a population of some 3mn people, but the diaspora is estimated at between 7mn-10mn according to various estimates. Armenia actually has the highest emigration rate in the South Caucasus, according to United Nations statistics. The Armenian population may fall to 2mn over the next 30 years, reaching the point of no return.

Corruption is a major driver of this trend. Anti-graft watchdog Transparency International’s Corruption Perception Index 2016 ranks Armenia as 113th of 176 countries, which makes it one of the most corrupt countries in the world. Corruption is a nationwide handicap for a country with an ancient history and a vibrant youth; talented people are simply unable to realise their potential.

In the World Economic Forum’s Network Readiness Index, which measures a country’s information technology-readiness, Armenia ranks 58th–better than its progressive neighbour Georgia. Similarly, in the Global Innovation Business 2017 ranking, Armenia performs better than its neighbours, coming in at 59th. But once again, all the achievements are offset by the corruption and injustice.

Injustice and inequality are currently the predominant themes of Armenian society. Not only are the people and political elite divided, but the exclusion happens in every social group. In the World Economic Forum’s Global Gender Gap survey, Armenia ranks 102nd out of 144 countries, a true offence to the nation taking into account how gender-balanced Armenian society has been in the past. Thus it should come as no surprise that Pashinian was able to tap a deep well of resentment and was widely supported by the female part of the population, whose economic participation has been falling during recent years.

Corruption is a cancer, but another driver of dissent has been the underperformance of the economy. There are many arguments to justify the poor economic outcome. Indeed, the Armenian economy suffered heavily during the world financial crisis of 2008 and was among the most affected countries globally: GDP contracted by around 14%; regional imbalances created additional shocks and there was no relief for ordinary citizens.

It is also a fact that according to data on GDP per capita income (in PPP terms) Armenia is one of the poorest countries of the former Soviet Union. Its economy underperforms even when compared to its immediate neighbours Azerbaijan and Georgia, neither of which are particularly prosperous. That creates a mood-lowering cross-border inequality.

According to World Bank Open Data, in 2016 GDP per capita income in Armenia reached $8,800 while it was $10,000 in Georgia and $17,200 in Azerbaijan. In the Legatum Prosperity Index 2017’s sub-component of Economic Quality, Armenia scores 114th out of 149 countries. Such a dire state of affairs would cause instability in any other country, even one with better institutional foundations.

Looking at all these figures, it is no wonder that Sargsyan was ousted by a popular uprising that gained such a head of steam. Pashinian appeared at the right time, in the right place and, armed with his personal charisma and open mind, he had the right message. It is not rocket science to understand what the country needs now. Armenia must seek a way out of the developmental crisis in which it has been languishing for years. Fighting corruption, cutting governmental red tape, removing the informal controls over businesses and delivering equal justice for all can ensure Armenia turns into one of the most successful countries in the wider region. And this can happen very fast if the politicians will only allow it.

Kakha Baindurashvili is an economist and former minister of finance of Georgia. Currently, he provides professional advice through the Silk Road Outlook consulting platform. He tweets as @kbaindur