ARMENIA: SURPRISINGLY LITTLE TRADE WITH IRAN

UNCLAS SECTION 01 OF 03 YEREVAN 001473

SIPDIS

SENSITIVE BUT UNCLASSIFIED

E.O. 12958: N/A
TAGS: ECON EFIN EAIR ETRD AM
SUBJECT: ARMENIA: SURPRISINGLY LITTLE TRADE WITH IRAN

REFTEL: YEREVAN 966


1. (U) Sensitive but Unclassified. Please protect
accordingly

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SUMMARY
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2. (SBU) Despite Armenia's geographic isolation and
closed borders, trade with its southern neighbor Iran
remains surprisingly small. While the April 12-13
meeting between Armenian Foreign Minister Vartan
Oskanyan and Iranian Foreign Minister Kamal Kharrazi
and First Vice-President Mohammad Reza Aref focused on
the proposed Iran-Armenian gas pipeline (reftel),new
trade or investment agreements were noticeably absent
from the meeting's agenda. The overall trade turnover
of USD 100 million between Iran and Armenia has
remained steady over the past six years with Armenian
exports to Iran slowly decreasing and Iranian imports
remaining steady. A combination of an increase in the
import of more western goods, an increase in Armenian
domestic production, and obstacles to doing business in
Iran will likely push down the overall trade balance
between Iran and Armenia in the near future. End
summary.

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ARMENIAN EXPORTS TO IRAN: SMALL AND SHRINKING
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3. (SBU) Recent statistics provided by the GOAM show
that the total value of exports from Armenia to Iran
during 2003 was USD 22.2 million (a decrease from USD
31.3 million during the same period in 2002). This
latest information places Iran in seventh place for
Armenian exports behind Russia, Belgium, Israel, U.S.
and Switzerland.


4. (SBU) Armenian Ministry of Foreign Affairs Middle
East Division Chief Karen Mirzoyan and Ministry of
Trade and Economic Development representative Gagik
Kocharian said that the main Armenian exports to Iran
are machinery and machine parts, copper, aluminum,
scrap metals and a minimal amount of food products.
Kocharian said the GOAM believed that the amount of
machines and machine parts exported to Iran would
probably stay at the same level for the near future,
but the amount of export of scrap metal to Iran would
drop. He predicted this drop because much of the
leftover Soviet era scrap in Armenia had already been
sold, and Armenian scrap dealers are now looking toward
European and Indian clients for better prices.

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IRANIAN BUSINESS PRACTICES FRUSTRATE TRADE
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5. (SBU) Samuel Bakimyan, Chief of the Armenian Chamber
of Commerce, said that dissonance between Armenian and
Iranian business practices also frustrated trade
between the two countries. He reported that an
upcoming exhibition for Armenian exports will not
include Iran. Bakimyan stated that Armenian
businessmen find the business climate in Iran
frustrating and complain of cultural misunderstandings,
a difficult Iranian bureaucracy and the inability to
sign and keep agreements with their Iranian partners.

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IRANIAN EXPORTS TO ARMENIA
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6. (SBU) Official GOAM statistics show that in 2003,
Iranian exports to Armenia equaled USD 66.7 million (an
increase of USD 62 million from the same period in
2002). Mirzoyan and Kocharian told us that the main
imports from Iran consisted of fruits, nuts, light
metals, textile home products, and plastics. Kocharian
predicted that certain imports from Iran will probably
drop in the next several years due to the increased
importation of foodstuffs from Europe and recently
opened plastic and cement factories in Armenia.
Kocharian believed that home textile products will
probably remain steady and imported raw materials from
Iran may actually increase as domestic production in
Armenia increases. Kocharian stated that many rank and
file Armenians, however, had a perception that Iranian
manufactured goods were of low quality. GOAM contacts
report that the increase of domestic goods and European
imports, coupled with the bias against Iranian goods,
is slowly pushing many Iranian plastics, foodstuffs and
manufactured goods out of the Armenian domestic market.

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BUILDING TEXTILES: STEADY IRANIAN IMPORT
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7. (SBU) One consistent attribute in Iranian-Armenian
trade has been the importation of Iranian building
materials. The President of building contractor RV
Comfort, Ruben Shahmuradyan, told us that from 1994-
2004, he increased the import of Iranian construction
and building materials by twenty percent each year. He
said that RV imported about USD ten million worth of
Iranian goods in 2004, making RV the leading importer
of Iranian construction materials, tiles, bathroom
appliances, radiators, stones and piping in Armenia.
Shahmuradyan told us that more than half of his total
inventory was made up of Iranian products, which he was
able to consistently sell to local builders because of
their affordable price. Shahmuradyan predicted that he
would increase the import of Iranian goods over the
next several years and told us that after a multi-year
relationship with Iranian factory owners, he can now
buy up to USD 300,000 on credit. He said that he has
enjoyed support from both Iranian Customs officials and
the Iranian Embassy in facilitating the purchase and
shipping of his products.

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IRANIAN INVESTMENT IN ARMENIA
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8. (SBU) According to Tigran Sukiasyan of the Ministry
of Trade and Development, Iran invested USD two hundred
thousand in Armenia in 2003. Investment in 2003
dropped sharply from an unusual spike of over USD two
million in 2002. Sukiasyan stated that since 1991,
Iran ranked eighteenth in total investments in Armenia
following Russia, U.S., Greece, Cyprus and others. The
2003 investment figures put Iran in twentieth place for
foreign investment in Armenia during the year.
Mirzoyan told us that Iranian investors generally
prefer to make smaller investments in Armenia because
they are still uncertain about the local business
climate and are often afraid to lose any large
investment capital. Kocharian said he believed that
mid-level Armenian and Iranian businessmen founded the
majority of recent joint ventures in Armenia. As an
example of a successful joint venture between the two
countries, he pointed to Iran's Grand Sun Holding,
which produces lamps in Iran as well as light
industrial products, jewelry, and transportation joint
ventures in Armenia. A June 2004 visit by Armenia's
Minister of Agriculture reportedly included discussion
of new joint ventures involving leather goods and fruit
products.


9. (SBU) In a five-year (1998-2002) Iranian economic
cooperation program outline, the Iranian government
admitted that trade did not significantly increase from
1998 to 2002, and felt this was hampered due to
misunderstandings on both sides, frequent changes in
Armenian officials, lack of transparency, and a lack of
a long term investment strategy. The outline also
stated that the energy sector was a crucial area of
bilateral cooperation because of Iranian interest in
selling Iranian gas through Armenia and Georgia to
Europe, as well as the import of electricity from
Armenia to help develop the Iranian economy (reftel).
The outline also suggests that Iran was interested in
actively pursuing joint ventures in cattle breeding,
poultry, milk processing plants, and leather processing
mills.

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COMMENT
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10. (SBU) Even though Iran represents one of only two
immediate open borders with Armenia, there are few non-
energy joint ventures or investments currently under
discussion between the two governments. While trade in
certain sectors such as Iranian building materials,
Iranian fruits, and Armenian machinery and machine
parts will probably remain steady or even expand in the
near future, non-energy trade between the two nations
will likely remain at the same level or even slowly
shrink, due to cultural misunderstandings, bureaucratic
obstacles, and a desire of Armenian businessmen to
explore the more efficient and larger markets in Europe
and the U.S.
ORDWAY