08/02/2005
Armenia Must Become a Competitive Nation: Artashes Kazakhetsyan, Director of “Armenia-2020” Yerevan Office
By Rafael Zakaryan
We are at the dissemination stage now.
Q. Please tell me about your conference in Boston.
A. On March 8, we held a scientific conference at Harvard University in Boston, which is considered one of the finest schools of government in the world. Numerous global leaders are graduates of the school, including Minister of Foreign Affairs (of Armenia), Vartan Oskanian. Why was Harvard chosen to be the place of meeting? First, it is one of the most appropriate places to host a scientific conference. Secondly, the state of Massachusetts is home to some of the most renowned members of the Armenian Diaspora of the United States. For example, people such as Nubar Afeyan, who is a board member of “Armenia-2020” (he is a significant investor and venture capitalist who is in charge of multi-billion dollar investment funds,) Nshan Atanessyan-major shareholder (Marriott-Armenia), Aram Chobanian- President of Boston University, and many others. There were around 120 guests at the conference. They included scientists, businessmen, artists, historians, not only Armenians, but also people from the United States, France and other parts of the world.
The goal of the conference was to present the results of the two-year efforts of the “Armenia-2020” project, and, secondly, to discuss future plans which will follow the “dissemination stage.” We currently have a wealth of information, articles and analytical pieces which help us understand our place in the global economy today and opportunities related to the future of Armenia. Because of this, discussions during the conferences took an interesting turn as we spoke of specific projects. James Tufenkian’s (representative of the Gafesian John Waters Fund) speech about his experiences of working in Armenia sparked a lot of interest among attendees. These noteworthy investors, (unfortunately, their number is too small,) working in Armenia are met with many difficulties, and voids which are present in our investment market.
The investment market is only a small part of what needs to be changed in Armenia for it to become a serious competitor on the global market as a nation, as a cell inside our globe. Our project, “Armenia-2020” aspires to accomplish just that-identify the areas in which Armenia can prove to be a serious competitor, and to gather our country of citizens, who want and can make a difference, to achieve this common goal.
Michael Porter suggests Clusters
“In order to help identify our strongest areas, which can later be developed on the competitive level, we decided to invite Michael Porter to our conference. He is a star on the international level in the area of determining the competitive abilities of companies, organizations and entire countries,” continued Artashes Kazakhezian. He has worked with nations including Portugal, Belgium, Spain, Argentina, and currently, Kazakhstan. The purpose of the invitation was to demonstrate that with the help and authority of a person of his caliber and experience, Armenia has the ability to break through in certain areas and directions, so as to rise to the same level of development with certain European countries, Israel, Ireland and Singapore.
With this purpose in mind, we began gathering information about the development process of various countries. For example, twenty years ago, Ireland was the poorest country in Europe, whereas now, the quality of life in Ireland is one of the highest in the entire world. A sudden miracle did not take place in Ireland-no hidden treasures or alternative forms of energy were found. Instead, widespread tactics were used such as creating good conditions for the development of businesses attracting foreign investments and a reliable and predictable economy, which is important. One of the first steps the Irish government took was making a promise to not alter taxation laws during a period of tens years. This is the most reassuring sign to investors as they are able to build their investment projects around that date and decide its purpose. In general, most investment projects are designed for six to ten years. Research on the experience of other countries was conducted prior to the conference in Boston.
Michael Porter analyzed our economy through both official data and the findings of various research centers. With his results, he determined the areas in which we can be viewed as competitive figures and the specific steps we must take towards attracting investments in these areas. In his opinion, our primary path is through clustering the economy. The significance in Michael Porters’ words is his suggestion to view investment projects in regard to their cluster ability. For example, the area of tourism must be actively considered as a cluster possibility for the development of the entire economy. The following clusters can derive from tourism: airports, transportation, hospitality services, hotels, hostels, resorts and hospitals, museums, in a wider sense-agricultural goods and others. Consequently, tourism is closely linked with Armenia's imports, and its prices are a key factor in attracting tourists. Porter provided specific recommendations in the given area, what needs to affect the pricing, and in turn attract more tourists. Today, the high price of airline tickets, which arises from the expensive services of airports, the monopoly on importing oil, as well as general corruption, all halt development in this field. The journey, for example, from any point in the globe to Syria or Israel, which are competitors for Armenia, are significantly cheaper, which does not work in our favor when tourists select a destination.
We asked one of the most renowned consulting companies in the world, McKinsey & Company to research and give recommendations in the field of tourism. If last year only 260,000 tourists visited Armenia, of which 200,000 were Armenians, in the case of correct efforts, in the year 2020, we can see that number reach 1,200,000 tourists of which Armenians make up only 250-300,000. These figures were presented by McKinsey & Company after meticulous research and analysis.
The Great Example of the Cargo Terminal
Q. What other competitive areas other than tourism did Michael Porter suggest to develop?
A. One of these areas can be IT-information technologies, which will in turn give opportunity for the development of new clusters. For example, with the development of Armenia’s sphere of information services, clusters such as financial services, new banks, and clearing companies can arise. For this to occur, it is critical to achieve a very high development in the IT domain and a large numbers of specialists in the aforementioned areas. Accordingly, it is necessary to develop the educational cluster. As you can see, a clustering outlook on the economy is vital. For example, there was a proposition for a project rejected by our government, to use one of the terminals in Zvartnots airport as a regional transit center of the company DHL. If today, this terminal uses only 5% of its possible capacity, with the case of accepting DHL’s proposition, new job openings would have arisen, and advanced technologies would have been installed.
Aside from this, DHL would cause a chain-reaction bringing many airlines with it, as DHL uses both its own airplanes and those of other companies, the airport would need a large amount of fuel, causing lower prices on it or attracting various importers of oil and many other benefits. As a result, if you look at this project from a clustering perspective, it was a very good one for Armenia, when the government was considering it as an opportunity for DHL’s financial investments in that cargo terminal. DHL was met with conditions about paying taxes, rent, etc...This was unsatisfactory for them.
Q. What were the exact results of the conference?
A. We discussed specific projects, which will be accomplished by “Armenia-2020” and for which we will find investors. For example, currently, we are very seriously considering a project on establishing an international children’s camp in Armenia which will be supervised either by Switzerland or France. This will be determined at a later date. This project is interesting also in the sense that it is very similar to “Armenia-2020” as it uses the same clustering technique.
There is an interest. Quite a prolific one.
Q. What does our government think of the project “Armenia 2020”? Is there an interest on their part about your project and its successes?
A. We met with the president of Armenia, Robert Kocharian, to discuss our project and will meet again in the future to discuss the strategic plan of development in Armenia. We are also in good relations with Armenian political parties and their leaders-Vasgen Manukian, Gurgen Arsenyan, and the representative of the “Dashnakutyun,” who are all interested in our project. In terms of politicians, several ministers have demonstrated an interest in “Armenia 2020.” For example, the minister of foreign affairs, Vartan Oskanian, is an active member of our project, we are constantly asking for advice, discussing various questions, and he is one of the reasons we decided to conduct such extensive research in the field of tourism. Aside from that, the Ministry of Trade and Economic Development, and its leader, Karen Chshmarityan, is well-informed about our project. He asked us to work alongside with us in creating a strategic plan of economic development in Armenia, in which there will be certain economic sectors demanding immediate attention, specific steps regarding its development, its prices and sources of funding. We will be working to create this plan throughout this summer with the help of McKinsey & Company.
We are so fortunate in the sense that we are able to ask for the assistance of a company of as high a caliber as McKinsey & Company. In general, Armenia does not pose much interest to McKinsey & Company considering its market and what we are able to pay them for their efforts. Their willingness to offer their expertise had a lot to do with the fact that two members of “Armenia-2020’s” board, Pierre Gurdjian and Andre Andonian, are top managers of McKinsey & Company. I can say with great confidence that the research conducted in the field of Armenia’s economy is thorough and with wide perspective, as it is done with the help of the most innovative technologies and methods which are used by McKinsey & Company.
The economy must not depend on the change of power in the country
Q. What specific steps were made or will be made in the field of creating legal foundations for the development of the country with our recommendations?
A. In Armenia, there exists an organization called “AEPLAC”, an effort to make Armenian laws similar to those of Europe. This organization, built on our recommendations in the field of tourism, prepared a proposition of change in the law system, which will improve the investment climate in tourism. The greatest benefit of our project is that foreign companies interested in organizing their businesses in Armenia receive a good understanding of our country based on our findings, because more thorough research on the business market of Armenia has not been conducted prior to this. For example, Microsoft used our account in the area of information technologies when making their decision to operate in Armenia. I am happy to announce that Microsoft will be opening its branches in Armenia, and they are already beginning to look for workers. A pretty well-known company in the world of information technologies, Synopsis, is also keenly operating in Armenia.
Currently, “Armenia 2020” is actively involved in spreading information regarding the project, its findings and recommendations in various fields of the economy. The Armenian population must come to understand how much our destiny lies in our hands. With correct and superior efforts, Armenia, despite its obvious difficulties, in a short period of time can grow to become a competitive nation with a developed economy and a high quality of life for its people. To achieve this, it is imperative to generate a law-abiding foundation and such conditions so that Armenia’s economy would not depend on the shift of power in the country, or in other words, we must become predictable.
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