New realities in which Yerevan finds itself will destroy all economic achievements of the country.
Armenia's full-fledged mobilization amid martial law and the conscription of men under the age of 55 limited the activities of many labor-intensive sectors of the country with already low demographic indicators. Local businessmen say they are forced to suspend their production activities.
Micro-entrepreneurs are entirely alienated from the business when they are sent to fighting. Meanwhile, small and medium-sized entrepreneurs see a sharp decline in productivity due to their mobilization and the mobilization of most employees. Large business entities are experiencing the adverse effects of the general economic downturn.
As a result of the pandemic, in August, the country posted a 17.4% decrease in economic activity from the beginning of the year, which is already considered a heavy blow to the Armenian economy. Moreover, heavy losses at the border and the transfer of labor from the real sector will only increase this trend. There are already some media reports that Armenian entrepreneurs have begun to speak in the open about the difficulties they face.
So, a complete or partial suspension in production has a serious negative impact on revenue and profits. A sharp reduction in tax payments is expected in November. It, in turn, will negatively affect the Armenian budget. According to the Armenian Ministry of Finance, forecasts for state tax revenues will not be fulfilled.
According to Armenian entrepreneurs, the continuation of the activity of labor resources in the industries that are the drivers of the country's economy is one of the critical conditions. The state will benefit if it involves enterprises with a large share in production and strategic areas in their activities. However, due to its aggressive policy, Armenia attracted all men of the appropriate age to fighting. To compare, during the Second World War, persons working in production were not mobilized, thereby minimizing the effect of hostilities on the country's economy.
The worsening financial state of the Armenian citizens, a quarter of whom suffered from poverty even in a stable time, during the war (due to the late payment of social allocations, wages), will lead to a decrease in demand amid a decline in the purchasing power of the population and, as a result, to a heavy blow to business sector development. Also, the country's military losses and proximity to defeat require additional resources. Attracting the expiring resources of the already impoverished population to help the army by creating funds further worsens Armenian citizens' well-being. Today the Armenian state, having lost its rationality and resorting to thoughtless actions, does not yet realize that all this is the beginning of the end for them.
According to Armenia's latest official statistics for September, 1,213 retail facilities were closed only due to the coronavirus, and 5,058 were halted. It amounts to around 50% of all retail facilities functioning in the country. Moreover, the construction sector posted liquidation of 23 enterprises and a suspension of 231 facilities. The activity of 205 real estate companies was temporarily suspended, and five of them were liquidated. Among the companies operating in 'other services,' 234 were liquidated, while 1,057 temporarily suspended their activities. 67 enterprises engaged in professional and scientific and technical activities were liquidated, and the activities of 493 enterprises were suspended. The registrations of 39 administrative and auxiliary companies were revoked, and the actions of 449 such companies were temporarily suspended.
With the outbreak of hostilities, many facilities operating in the above areas were additionally closed.
With the outbreak of hostilities, many facilities operating in the above areas were additionally closed. In this situation, in a country with a high (5-6 people per 1000 population) net migration rate (the ratio of immigrants to emigrants), the outflow of labor resources abroad will increase due to the worsening economic situation.
It is also possible that the country's residents won't withstand the onslaught of social problems and ultimately take to the streets. Some enterprises are already claiming that after the war, they will demand compensation from the state. The constraints that many entrepreneurs will face in the agricultural sector, which supplies raw materials, especially during the autumn planting season, will lead to lower productivity in Armenia.
It, in turn, will harm business entities and reduce the supply of food. Lower demand makes it possible to predict a sharp increase in prices for this product. Armenia already imports most of its food products and faces restrictions in this process. And on top of that, the fact that the country is showing low domestic productivity again proves the onset of the predicted food crisis.
Armenia's losses associated with the new war, which the Armenian government unleashed to divert the public attention from the severe socio-economic crisis, and Azerbaijan's strong counter-offensive, added to existing severe social and economic problems and military defeat. And now, to get out of this situation, Pashinyan hopes for foreign loans, donations, and assistance. In particular, he relies on the support from Russia and the Eurasian Union. However, Armenia's position towards Russia, including the oppression of Russian entrepreneurs and investments, makes it possible to predict that Moscow will not provide the expected support because no one is interested in bearing the unreliable country's burden.