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Armenia: Export- and Innovation-Led Industrial Development

Sovereign (Public) Project | 48040-001 Status: Closed

The outcome of the TA will be improved industrial and innovation policies in Armenia. The TA will produce two outputs (i) new institutional and policy instruments to promote export-oriented industries and innovation piloted, and (ii) government's capacity to implement industrial and innovation policies strengthened.

Project Details

Project Officer
Gyurjyan, Grigor Central and West Asia Department Request for information
Country
  • Armenia
Modality
  • Technical Assistance
Sector
  • Industry and trade
 
Project Name Export- and Innovation-Led Industrial Development
Project Number 48040-001
Country Armenia
Project Status Closed
Project Type / Modality of Assistance Technical Assistance
Source of Funding / Amount
TA 9045-ARM: Export- and Innovation-Led Industrial Development
Technical Assistance Special Fund US$ 500,000.00
Financial Sector Development Partnership Special Fund US$ 250,000.00
Strategic Agendas Inclusive economic growth
Regional integration
Drivers of Change Governance and capacity development
Knowledge solutions
Partnerships
Private sector development
Sector / Subsector

Finance / Trade finance

Industry and trade / Industry and trade sector development - Large and medium industries - Small and medium enterprise development - Trade and services

Gender Equity and Mainstreaming No gender elements
Description The outcome of the TA will be improved industrial and innovation policies in Armenia. The TA will produce two outputs (i) new institutional and policy instruments to promote export-oriented industries and innovation piloted, and (ii) government's capacity to implement industrial and innovation policies strengthened.
Project Rationale and Linkage to Country/Regional Strategy

Armenia's economic growth during 2001- 2008 was remarkable, with annual gross domestic product growth averaging 11.9%. This growth brought Armenian income per capita in line with most other emerging economies. But the growth rate was not sustainable, and in 2009-2014 annual growth slowed to an average 1.1%. During the boom years, a disproportionate share of resources flowed to nontradable activities (e.g., construction sector) which crowded out other sectors, particularly exporting firms, many of which were displaced from world markets. Throughout most of the 2000s, Armenia went through a process of de-industrialization, driven by a sustained real exchange rate appreciation fueled by easy access to external financing (remittances and credit). This structural de-industrialization was also a result of the lack of incentives for firms to invest in new, nontraditional economic activities and overcome informational, financial, and technical barriers to exports. Important private sector capabilities in industry and export activities were lost. The export share in gross domestic product declined from 29% (2001- 2005) to 18% (2006 -2009), before rebounding to 25% during 2010 -2014 supported by the significant exchange rate devaluation in March 2009. During 2009 -2013, Armenia experienced 0% growth in exports of new products to new markets. Armenia has become less diversified in its export basket and export destinations, and these export connections are not easy to recover. This specialization structure limits the economy's growth potential.

Armenia has an established private sector manufacturing base but many of its products cannot compete in international markets. In 2012 Armenian firms exported only 80 products with comparative advantage. Armenia''s export basket has become concentrated on minerals and non-precious metal related exports. Exports in just 15 product categories (out of the 786 categories in the four-digit SITC product classification) now represent 80% of Armenia's merchandise exports. Many of these products are exported to members of the Commonwealth of Independent States, where historical ties and migration flows have built consumer awareness and distribution channels. Armenian products, however, remain largely unknown to the rest of the world.

The financial sector in Armenia provides limited trade-related financial instruments, such as export credit insurance and guarantees. This is a major impediment to Armenian manufacturers' competitiveness and risk-taking when attempting to penetrate new export markets, since they are unlikely to offer supply credit terms like their foreign competitors. In 2014 the government created the Export Insurance Agency of Armenia (EIAA) to provide insurance to exporters based in Armenia against financial losses incurred as a result of non-payment by foreign buyers of exported goods and services. The EIAA started its insurance activities in March 2015 but its outreach is so far limited.

Penetration into export markets is important for firms operating in scale-sensitive tradable activities. It is crucial in small and open economies like Armenia. Otherwise firms are not cost-competitive and cannot compete with imports produced at a much higher scale. Firms' export success is also dependent on how many other firms in the same country export the same product. This positive externality has justified the establishment of export promotion institutions in many countries.

In 2011 the government adopted the Export-led Industrial Development Strategy, a set of initiatives to trigger dynamism in manufacturing sectors with export potential and directly target export growth and diversification objectives. The government selected 11 strategic industrial subsectors: brandy, wine, canned food, water, juices, diamond cutting, gold and jewelry, watches, precision engineering, pharmaceuticals, and textiles.

Impact

_Priority 1. Growth of employment_ (Armenia Development Strategy 2014 -2025)

_A special importance will be given to modern industrial and export [promotion] with direct interventionist elements aimed at job increase._ (Armenia Development Strategy 2014- 2025)

Project Outcome
Description of Outcome Armenia's industrial and innovation policies improved
Progress Toward Outcome The TA was implemented from January 2016 to 30 September 2019. Out of three outcomes of the TA two were fully achieved and one was partially achieved.
Implementation Progress
Description of Project Outputs

New institutional and policy instruments to promote export-oriented industries and innovation piloted

Government''s capacity to implement industrial and innovation policies strengthened

Status of Implementation Progress (Outputs, Activities, and Issues)

The TA mainly achieved all outputs (one with delay).

Three export promotion instruments (blueprints) delivered and piloted for the Development Foundation of Armenia (output 1a, achieved). Under the output, blueprints for wine, textile and footwear sectors were prepared and delivered. All three blueprints helped assess the industries' competitiveness and design recommendations for investments and policy instruments for export promotion. The blueprints also identified attractive export markets for Armenian wines, textile and footwear industries, described the effective modes of entering the markets and attracting investments, and proposed a comprehensive plan covering distribution, logistics, marketing, sales, pricing and promotion activities. The findings of the wine sector assessment were presented during international wine forum organized by the Wine and Vine Foundation of Armenia (co-financed by ADB from TA resources). The findings of the textile and footwear sector assessments were presented during the workshop with sector representatives and other stakeholders. Also, wine sector case study was prepared for the Ministry of Economy.

New export credit insurance products delivered and piloted for the EIAA (output 1b, achieved). The consultant i) delivered an assessment of the market to evaluate potential demand for credit insurance, as well as advice regarding product development and market penetration in Armenia; ii) advised EIAA on improvements in existing products; iii) assessed the existing underwriting, risk management, claim settlement and collection procedures; iv) supported EIAA to develop a business model for new products; v) delivered a note about recommendations on the regulatory treatment and a potential state guarantee; vi) created a business model for domestic credit insurance; and vii) developed a business case strategy with the aim of securing a strategic partnership with an international credit insurer.

Feasibility study to replicate or complement existing initiatives on innovation promotion (output 1c, achieved). Under the output, the consultant i) conducted impact assessment of Tumo center ii) delivered a blueprint for Economic Research Center (ERC) of the Ministry of Economy (please see also output 2b); iii) in cooperation with ERC, an economic research paper, titled "The Effects of the Exchange Rate on Exports: the Case of Armenia" was prepared and published. Also, the capacity of the ERC to design and implement an economic research program to support the government's industrial and innovation policies was strengthened.

Industrial policy results framework revised to become more evidence based (output 2a, achieved). The following documents were delivered by the consulting firm: i) science, technology and innovation based industrial strategy and results framework with a clearly defined time bound action plan (including detailed business models and processes, economic impact analyses and assessment of the industrial transformation effect for the country's economy, implementation plans, toolset, mechanisms, cost estimates and financing plans, as well as monitoring and evaluation arrangements and institutional capacity building measures), and ii) survey report on current state of the technological capacity of the economy and existing gaps (includes proposals on possible reviewing of existing legislation, regulations and processes and implementing other mechanisms for promoting a technological upgrade of Armenian companies in the main sectors of the economy based on the upgrading and optimization needs).

Ministry of Economy's research program implemented (output 2b, achieved with delay). The research program (blueprint) was developed jointly with the ERC and submitted to MOE.

Geographical Location Nation-wide
Summary of Environmental and Social Aspects
Environmental Aspects
Involuntary Resettlement
Indigenous Peoples
Stakeholder Communication, Participation, and Consultation
During Project Design The TA has been included in the Country Operations Business Plan for 2015 -2017. The processing team has had discussions with the Ministry of Economy, Export Insurance Agency, Development Foundation of Armenia and private sector players during the fact-finding mission in September 2015.
During Project Implementation A Mid-Term Review Mission was conducted from 10-27 July 2018 to (i) review the institutional, organizational and technical aspects of the technical assistance (TA) project; (ii) update the achievements and identify the need for any changes in the project's design and management framework; (iii) discuss with the executing and implementing agencies measures to expedite project implementation; (v) identify and discuss major issues and reach agreement on the next steps; and (vi) assess the need for extension of the TA period.
Business Opportunities
Consulting Services The senior export credit insurance advisor commenced work in March 2016 and completed in May 2017. The industrial policy economist commenced work in June 2016 and completed in May 2018. The senior research economist commenced work in August 2018 and completed in 31 December 2018.
Responsible ADB Officer Gyurjyan, Grigor
Responsible ADB Department Central and West Asia Department
Responsible ADB Division Armenia Resident Mission
Executing Agencies
Ministry of Economic Development and Investments
5 M. Mkrtchyan St., Yerevan 0010
Armenia
Timetable
Concept Clearance 02 Oct 2015
Fact Finding 22 Sep 2015 to 25 Sep 2015
MRM -
Approval 15 Dec 2015
Last Review Mission -
Last PDS Update 25 Jun 2020

TA 9045-ARM

Milestones
Approval Signing Date Effectivity Date Closing
Original Revised Actual
15 Dec 2015 06 Jan 2016 06 Jan 2016 31 Dec 2018 30 Sep 2019 -
Financing Plan/TA Utilization Cumulative Disbursements
ADB Cofinancing Counterpart Total Date Amount
Gov Beneficiaries Project Sponsor Others
750,000.00 0.00 0.00 0.00 0.00 0.00 750,000.00 15 Dec 2015 445,598.81

Project Data Sheets (PDS) contain summary information on the project or program. Because the PDS is a work in progress, some information may not be included in its initial version but will be added as it becomes available. Information about proposed projects is tentative and indicative.

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Safeguard Documents See also: Safeguards

Safeguard documents provided at the time of project/facility approval may also be found in the list of linked documents provided with the Report and Recommendation of the President.

None currently available.

Evaluation Documents See also: Independent Evaluation

None currently available.

Related Publications

None currently available.


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Tenders

Tender Title Type Status Posting Date Deadline
Industrial Policy (science, technology and innovation-based) and Results Framework for MEDI Firm - Consulting Closed 24 Jan 2019 07 Feb 2019
Export- and Innovation-Led Industrial Development Individual - Consulting Closed 22 Feb 2018 03 Apr 2018
Design and Development of Trade Portal for Development Foundation of Armenia Firm - Consulting Closed 02 Feb 2018 13 Mar 2018
Innovationn Policy Expert Individual - Consulting Closed 11 Jul 2017 17 Jul 2017

Contracts Awarded

Contract Title Approval Number Contract Date Contractor Contractor Address Executing Agency Contract Description Total Contract Amount (US$) Contract Amount Financed by ADB (US$)
Policy and Advisory Technical Assistance 9045 08 May 2019 AMERIA CJSC (Republic of Armenia) in association with TradeRx GmbH (GERMANY) 2 V.Sargsyan Str., KAMAR Business Center 0010 Armenia Consulting Services 172,998.00

Procurement Plan

None currently available.