It is obvious that the inefficient and unprofessional activity of state institutions in Armenia, as well as the low level of protection of property rights, are obstacles for local and foreign investments. It is no secret that in countries where private property is not protected or freedom of economic activity is restricted, governments carry out large-scale expropriations (confiscations), exactly what is happening in Armenia now.
The actions of the Armenian government and law enforcement agencies in this or that scandalous criminal cases (for example, Galaxy Group of Companies, Spayka company, etc.) or investment programs (for example, Lydian Armenia, Sanitech, etc.) can be described as indirect, unlawful expropriations. Indirect expropriation occurs when the state exercises effective control or otherwise impedes the use, possession or management of an investor’s investment, significantly reducing the economic value of the investment.
Moreover, as a result of these expropriations, Armenia will have to pay large compensations for the material damage caused both in international arbitration and in the European Court of Human Rights. In other words, as a result of the government’s inability and irresponsible policy, the taxpayers of the Republic of Armenia will bear the burden of compensation for damages. At that stage, the government cannot substantiate that the policy pursued was based on public interest.
It is obvious that the current political instability can have a negative impact on the investment climate and reduce the flow of investments in Armenia, which in turn will lead to a slowdown in economic growth. There are many issues in the sphere of public administration in Armenia.
Moreover, the government ignores the fact that the state’s political rating plays a significant role in the international market for investors before they make the decision to invest in a particular country. Political risk is due to the seizure or damage to property (an asset), possible production disruptions, staffing problems, a negative domestic political climate, riots, and volatile legislation. Investors prefer not to invest and not to risk their earned capital in an unstable investment environment.
It is obvious that before making an investment, businesses will assess Armenia’s political risk, in particular
- Stability of the local economy,
- Fair and equal treatment of investors by the state,
- Prohibition of arbitrary policy by the state,
- Free transfer of profits from Armenia,
- Possibility to sell the investment freely,
- The political will of the state and the ability to make constructive reforms.
However, it should be noted that there is a risk that investors may be subject to arbitrary interference by the State, which may be expressed by the State seizing property, suspending or terminating its activities, and so on.
Developers of investment or economic policy should take into account the basic principles of arbitral tribunal judgments and study in detail the best practices and constructive solutions available to other states.