Hayastan All Armenian Fund Business Pareta Ltd. Tavush Marz, Republic of Armenia - Description of Economy - Analysis of Competitiveness - Analysis of Economic Efficiency - Micro-Franchising Opportunities 2009 WWW.HIMNADRAM.ORG, WWW.GCCI.AM
by the authors Varazdat Karapetyan, PhD karapetyanvarazdat@yahoo.com Armenia, 2009 A preliminary version of this document was produced for the Rural Economic Development Project run by the Hayastan All Armenian Fund in Armenia. I would like to express my thanks to colleagues for their support and for our shared learning experience. 2
Contents Structure of Analysis... 4 Methodology Used in Analysis... 4 Part A. General Analysis of Statistics... 5 1. General Data... 5 2. Structure of Marz s Economy... 6 2.1. Industry... 6 2.2. Construction... 6 2.3. Trade... 7 2.4. Services... 7 2.5. Agriculture... 7 3. Productivity of the economic areas... 13 1. Analysis of Marz s Business Environment... 17 A. Product Demand... 17 B. Factors in Production Quality... 17 C. Strategy and Competition of Enterprises... 19 D. Existence of Economic Clusters... 20 2. Analysis of Competitive Within Regions... 21 A. Dilijan Region... 21 B. Ijevan Region... 23 C. Noyemberyan region... 25 D. Berd Region... 26 Competitiveness Among Regions of Tavush, Regional Economic Systems (Clusters)... 27 Part 3. Analysis of Economic Sectors... 28 Sector: Wine Making... 28 Sector: Grapevine Growing... 30 Sector: Production of Peaches... 32 Sector: Stone working... 34 Sector: Tobacco Growing... 36 Sector: Breeding of Livestock... 37 Sector: Wood Working... 39 Sector: Construction... 41 Sector: Tourism... 43 Part 4. Opportunities For Micro Franchising in Tavush Marz... 45 A. Basis of Micro Franchising... 45 Conclusion: Vision for Development in Tavush Marz... 49 Continuation... 49 3
Foreword The aims of research and analysis are the description of Tavush marz s 1 economy: revelation of its efficiency, description of economic interrelations and clusters, as well as the revelation of long-term development using the Micro Franchising tool. Tavush marz s economic competitiveness is viewed in both national and local frames of the global economy s development. The regions, communities, and enterprises within the region are also observed within this context. Further, the national economic competitiveness is a baseline for comparisons of its sub economic systems. Analysis of national competitiveness has been implemented in recent years in Armenia, and annual reports of this information have been recorded ( Economy and Values NGO 2 ). Those involved in assessing community competitiveness also have experience and knowledge in the economic competitiveness field. PACA 3 (Participatory Appraisal of Competitive ) methodology has been adopted and used in different urban communities of Armenia by the German ProSME (GTZ/ PEM) project, with active participation by Business Pareta Ltd. Business Pareta Ltd implemented appraisal of competitive advantages and value chains of two rural communities in March and April of 2009, and conducted a business development projects in the Sarukhan and Vardenik communities of Gegharkunik marz 4. The project was financed by Near East Foundation and Armenia Fund USA The implementation of local economic development projects has been included in the agenda of Hayastan All-Armenian Fund since August 2009. Gaining consensus on strategies and implementing local economic development in Armenia are main priorities. It is within this context that Hayastan All- Armenian Fund supported the first appraisal of competitive advantages in Tavush marz via the implementing partner, Business Pareta Ltd. Summary of the implemented analysis is presented in this document. Structure of Analysis The statistical summary of the marz, its position in comparison with other marzes of Armenia, the structure of the economy, and its competitive analysis are introduced in the first part of the analysis. The second part of the analysis includes competitiveness of the marz and sub- regions, as well as a description of the economic sectors using Porter s Diamond. The third part of the analysis includes economic clusters, their relationships, the strengths and weakness of existing structures, and missing structures necessary to develop Tavush s value chains of economic efficiency. The fourth part brings forth possibilities for micro franchising. Each section ends with conclusions and suggestions directed to executives, local and national governing bodies, funding organizations, and the social sector. Methodology Used in Analysis The methods and tools used in this analysis are: - Comparative and dynamic analyses of statistical data, Porter s Diamond for discovering competitive positions, PACA methodology for participatory appraisal of competitive advantages, Systematic interviews for revealing territorial and sector clusters, Mini workshops for assessments of sector productivity. 4
Part A. General Analysis of Statistics 1. General Data 5 Tavush marz of Armenia is located in the northeast part of the country. In the years of the Soviet Union, Tavush included the regional areas of Ijevan, Dilijan, Noyemberyan and Berd (Shamshadin). Now there are five towns: Ijevan, Dilijan, Noyemberyan, Berd, and Ayrum, as well as 57 rural village communities. Tavush borders with Gegharkunik and Kotayk marzes in the south, Lori marz in the west, Georgia in the north, and Azerbaijan in the east. Tavush marz has 400 km international borders, 350km of which border the Republic of Azerbaijan, and 50 km border Georgia. capital. Tavush marz is 2704 sq km, and occupies 9.1% of Armenia. The town of Ijevan is the marz Picture 1. Map of Tavush marz There are 134,100 inhabitants, 52,600 of which live in towns. 48.9% of the population are men, and 51.1% are women. Tavush marz is one of the smallest marzes in Armenia in terms of population. 4.2% of the population of Armenia lives in Tavush marz. 54,800 citizens in Tavush marz contribute to the economy. 50,000 people of this economically active population are employed, while 4,800 citizens are unemployed. The official records show that the level of unemployment is 8.8%, one of the highest rates in Armenia. Tavush marz touches part of the Lower Caucasus mountain Range (Virahayoc, Gugarac and Miapor mountains). For the marz, the lowest point above sea level is situated near Debedavan village at 380 meters (this point is also the lowest elevation in all of Armenia), and the highest point is Murghuz mountain of Miapour mountain range, at 2993 meters. The marz is located in a temperate and moist region of Armenia where the summers are warm, and winters are mild. The average amount of sunlight is 1900 to 2000 hours annually. All of the rivers from the marz (Aghstev, Pagh Jour, Tavush rivers, etc) flow into the Caspian Sea, via the Kour River, where the main water sources come from melting snow, underground springs, and rain water. The main lake for the marz is Parz Lake near Dilijan. The natural environment of Tavush marz is quite picturesque. Forests occupy 51% of the entire land surface, and include rich flora and fauna. The area of Tavush marz is extremely laden with historical/cultural buildings, such as monasteries/churches, castles, cross-stones, bridges, mausoleums, memorials, and memorial fountains; and Tavush marz is home to Goshavank, Haghartsin, Kiranc, and Makaravank Monasteries, along with the Tavush Castle. Kiranc is the largest church made of brick in all of Armenia. Several rivers, both large and small, flow through Tavush marz including Aghstev, Pagh Jour, and Tavush. The North Caucasus-Tbilisi-Yerevan gas-pipeline goes through the center of the marz. An international highway connects Iran to Georgia runs through Armenia; 152.6 km of this highway passes through Tavush marz. A 70 km stretch of Ijevan-Hrazdan railway goes through the Aghstev gorge and a 7 km stretch of Yerevan-Tbilisi railway goes through the north border of Debed. 5
2. Structure of Marz s Economy 6 The greatest assets for Tavush marz s economy belongs to agriculture. In 2008, the annual gross production of agriculture was 35.2 billion dram, or 5.5% of the total agricultural production of Armenia. Industrial production was only 5.1 billion dram, or 0.7% of the industrial production of Armenia; five years ago, it was 0.9%. In 2008, 4.2 billion dram was invested on construction, a mere 0.5% of all construction in Armenia. The total value of provided services was 3.2 billion dram, or 0.4% of provided services in all of Armenia. In Tavush marz compared to all of Armenia, the amount of goods traded is influenced by the geographical position and great pre-existing border situation between Armenia and Georgia. The trade volume of Tavush marz is almost 1.2% of Armenia s total trade volume. In 2008, the income from trade in Tavush was 12.6 billion drams. 2.1. Industry The structure of industry is as follows: Sector Volume of production (mln dram) in 2008 Physical volume s index of production % Mining industry 291 122 Food and drink production 2815 103 Wood and wood products production 260 114 Production of electricity 1240 122 Other 494 98 Total 5100 106 Table 1. Structure of Tavush marz s industry The quickest developing industry sector is mining. Tavush marz is rich in reserves of ferzite and travertine (types of stones), found mostly in the Noyemberyan region. More than twenty mines and stone working enterprises are located in the marz with the largest mining company, Karart Ltd, located in Ijevan. Karart Ltd exports ferzite-lined tiles. In 2009, a significant decrease of construction within Armenia also came with a decrease in production volumes within the mining/stone working arena. The only company not affected by this decrease was Karart Ltd. Most other companies within this industry have closed. Wine production outweighs food production and continues to be a stable market through 2009. The Ijevan Wine Factory OJSC is the leader in production of wine. There are also canning factories in Varagavan and Ayrum, which are very important for Tavush marz. Tavush marz has factories that produce bottled mineral water, cheese, bread, and other products. Canning production will decrease in 2009 and the factories are currently not purchasing fresh fruit for production. Until 2009, the production of wood products was an emerging sector within Tavush marz. However, the decrease in construction and an increase in strict ecological control of the forests in 2009 caused bankruptcies for many companies in the wood products sector, especially in the Berd and Ijevan regions. In the sector of electricity production, two hydroelectric power stations have recently been built. 2.2. Construction In the last five years, there have been no significant changes in the construction arena. It fluctuated between 4.5 and 6 billion dram, depending on the kind of construction inside of the marz (hotel, factory, etc.). Of private construction investments, only 0.4% of those went towards construction projects in Tavush marz (most of them were in Yerevan). An increase in construction can be expected from 2010 to 2011, in connection with a government project of building a banking-financial center in Dilijan; the construction for the Central Bank head office and bank sectors has already been planned. Also, construction of more hotels and spa resorts is expected within the marz. 6
2.3. Trade Tavush marz ranks fourth amongst marzes in Armenia in terms of value in retail sales. Yerevan, Kotayk, and Lori top the other marzes in retail. Tavush marz ranks fifth in comparative activity of trade: Marz Number of permanent residents, thousands of people Retail, mln dram Sales per inhabitant, dram Sales per inhabitant with regard to the average of Armenia, % Total 3234 1059571 327614 Armenia Yerevan 1109 894902 806508 246 Vayots Dzor 55 6297 112848 34 Kotayk 278 28729 103156 31.5 Armavir 282 27587 97760 30 Tavush 134 12584 93771 28.6 Table 2. Comparative activity of Tavush marz s trade arena Centralization of Armenia s goods trade in Yerevan essentially weakens the position of the other marzes. Comparative activity for Tavush marz is determined by its long distance from Yerevan (transportation costs are great, and small purchases in Yerevan are not advantageous for the inhabitants) and the proximity to the Armenian-Georgian border (the market near the cross road of Bagratashen will be reopened in 2010, which will increase Tavush marz s goods trade. 2.4. Services The service sectors represented within the marz have no specific trends. Service providers are defined as restaurants, hotels, health institutes, education, transportation, etc. However, the volume of service sectors in the marz has increased by 40% in the past five years, with a total increase of 120% in all of Armenia. The poor quality of services in Tavush and a lack of organization from businesses within the region both influence the small increase for the total of the marz. Within Tavush marz, the only service areas where the percentage nears the national average are in the restaurant and hotel sectors. The number of restaurants and hotels has doubled within Armenia in the past five years; in Tavush marz alone, they have increased 2.3 times. This upwards trend will continue over the next three years due to the growing interest in developing Tavush s tourism industry. When looking at research analysis for the service industry volumes, the percentages have decreased for Tavush marz. The per capita rate of 16% for Armenia in 2006 saw a decrease to 12% in 2008. This tendency exists in every marz of Armenia, besides in Yerevan, where the main service providers are centralized. 2.5. Agriculture 60% of Tavush marz s annual gross product is comprised of agriculture and about 70% of the marz s population is engaged in the agriculture sector. Because agriculture is a backbone for the marz, the following sections will be divided into two main areas for the region: plant harvesting and livestock breeding. 2.5.1. Plant Harvesting 2.5.1.1. Agriculturally cultured crops In 2009, 13,876 hectares of land were harvested in Tavush marz. This is about half of the total arable land for the marz. Type Arable land of Tavush marz in 2009, hectares Arable land of Armenia in 2009, hectares Comparison of arable land of Tavush marz in 2009 with 2008, % Grain and legume plants 7032 172838 94.5 Industrial crops 1090 2386 91 Potatoes 1888 34298 102 7
Vegetables 898 24219 100 Kitchen-garden plants 120 5446 133 Fodder crops 2354 65272 98 Total 13382 304459 Table 3. Structure and comparison of the arable land Tavush marz leads in technichal crops, with about 46% of Armenia s technichal crops located within the marz. Tavush marz is first in gross yield for tobacco and sunflower. To compare Tavush marz with other marzes of Armenia and to clarify the different agricultural sectors, the following calculations will include crop yield for harvests and comparison of the marz s data with other marzes in Armenia. Grain crops Grain crops of Tavush marz are mainly wheat and barley, harvested in winter and spring. This table shows data for wheat harvested in winter in relation to other top-yielding marzes: Marz Arable Land Average yield of one hectare, centner/hectare Ararat 4478 36.8 Gegharkunik 15395 28.3 Shirak 21272 24.3 Tavush 4310 17.7 Table 4. Yield of grain crops Tavush marz uses 2% of Armenia s arable land for grain crops, but has a lower yield than the top tier marzes. Corn Currently, Tavush marz is experimenting with high quality hybrid varieties for use in poultry farming, which may drastically change Tavush s current agricultural landscape. 2008 data for Indian corn is as follows: Marz Arable Land Average yield of one hectare, centner/hectare Ararat 332 80 Armavir 962 60 Lori 570 31 Tavush 2091 51.6 Total Armenia 3971 53.1 Table 5. Yield of Indian corn Even though more than half of the arable land of Armenia is located in Tavush marz, Ararat valley beats out any other Armenian area with its yield. However, growing new varieties within Tavush marz will annually improve the agricultural climate. Grain and legume cultured plants Tavush marz is recognized for production of the lobi bean (Armenian green bean). Green peas, yellow peas, and lentils are almost absent. Marz Arable Land Average yield of one hectare, centner/hectare Total Armenia 2208 27.8 Tavush 685 23.2 Aragatsotn 225 26.2 Armavir 304 52.2 Gegharkunik 27 55.3 Syunik 387 17.7 Table 6. Yield of Granule legume cultured plants 8
Lobi bean yield is near the average for Armenia, with Tavush marz ranking highest. Growing beans within in the marz is advantageous because of the rich land, if planting new varieties and further cultivating beans is a focus. Tobacco Tavush marz is a leader in Armenian tobacco production. About 60% of arable land of Armenia is located here. Marz Arable Land Average yield of one hectare, centner/hectare Total Armenia 170 31.6 Tavush 101 25.5 Ararat 47 50 Lori 4 17.5 Vayots Dzor 18 21.1 Table 7. Tobacco yield Only Ararat marz is higher than Tavush marz in tobacco yield. In Armenia, the leading company in tobacco production has donated new varieties of tobacco, which is resulting in an increase of arable lands and active productivity. Potato Tavush and Lori marzes rank last in terms of arable land and yield of potatoes. Marz Arable Land Average yield of one hectare, centner/hectare Total Armenia 34298 188 Gegharkunik 15589 178 Shirak 4590 228 Tavush 1888 137 Table 8. Potato yield Cabbage Cabbage production is not a high yield crop for Tavush marz. Marz Arable Land Average yield of one hectare, centner/hectare Total Armenia 3668 350 Tavush 109 139 Table 9. Cabbage yield In Tavush, cabbage is produced only for local household demand. Cucumber The yield of cucumbers is less than three times of Ararat valley, which is why the cucumber is produced only for local household demand. Marz Arable Land Average yield of one hectare, centner/hectare Total Armenia 2339 290 Armavir 1143 378 Tavush 160 97 Table 10. Cucumber yield Growing cucumbers in greenhouses can take the place of importing cucumbers to Tavush from other areas. Side note: cucumbers and tomatoes ripen later in Tavush than in Ararat valley, which gives an opportunity to local farmers to sell these crops outside of the marz. 9
Tomato Marz Arable Land Average yield of one hectare, centner/hectare Total Armenia 6257 440 Tavush 185 83 Ararat 3012 446 Gegharkunik 33 101 Table 11. Tomato yield In Tavush, tomatoes are produced only for local household demand. Competition with Ararat Valley s tomato crop is only possible in cases where farmers are producing tomatoes in greenhouses (sunnier regions of the marz economically offset tomato harvesting by lowering heating costs with greenhouses). As shown above, several marzes have an overall higher yield in tomato harvests than Tavush marz. 2.5.1.2. Gardening Productive gardens/orchards occupy 36,748 hectares of space in Armenia. Only 2,339 hectares of that are located in Tavush marz. If 101 is the average yield received from one hectare in Armenia, the yield in Tavush marz is 53.1. The marzes of Ararat Valley, Syunik, and Gegharkunik beat Tavush for higher yields in local gardens. Apples and Pears 12,442 hectares of Armenia are represented by apple and pear orchards, 814 of which are located in Tavush marz. Tavush marz yields four times less (33.8 center/hectare) than the average percentage for Armenia (130 center/hectare). Stone/Pitted fruits Most of Armenia s peach orchards are located in the Noyemberyan region of Tavush marz. The following chart expresses stone/pitted fruits in Armenia. Marz Arable Land Average yield of one hectare, centner/hectare Total Armenia 19880 93 Tavush 962 82 Peaches, in particular 350 180 Armavir 7005 123 Ararat 5675 122 Gegharkunik 119 17 Table 12. Pitted fruits yield The numbers for Ararat valley are mainly influenced by apricot orchards. Peach orchards have an advantage in Tavush marz due to the amount of sunny days, quality of peaches, and low-lying growing lands. In 2009, the peach orchards in Tavush marz took up about 350 hectares of land. The average yield of one hectare is 180 centner; one of the largest yields in Armenia Nuts Ijevan and Berd regions of Tavush marz are famous for their high quality walnut varieties. Marz Land space Average yield of one hectare, centner/hectare Total Armenia 1649 30 Tavush 164 26 Vayots Dzor 355 9.7 Syunik 317 57 Kotayk 252 38 Aragatsotn 204 9.8 10
Table 13. Nut fruits yield 10% of walnut trees in Armenia are located in Tavush marz. Tavush marz is close to Armenia s annual average yield for walnut production. Subtropical fruits Subtropical fruits of Armenia (specifically figs, blood oranges) grow in Tavush and Syunik marzes, due to the natural climate conditions. Marz Land space Average yield of one hectare, centner/hectare Total Armenia 691 27.3 Tavush 246 26.7 Syunik 345 32 Table 14. Yield of subtropical fruits The land area for figs and blood oranges increases annually. Specifically, the area for these crops has doubled in the past two years in Ijevan. For Tavush, this fruit production is one of the best agricultures for the region. After three to four years, when the new orchards are productive, the growers will have a problem of its sale because the retail market will then be flooded. Berries Harvesting berries from farmland is introduced in this section. Gathering berries in the forests will be introduced in further analysis. Marz Land space Average yield of one hectare, centner/hectare Total Armenia 2106 74.9 Tavush 153 61 Ararat 107 170 Syunik 224 220 Aragatsotn 1058 50 Table 15. Berries yield Tavush marz ranks third in Armenia in terms of yielded berries. Strawberries, raspberries, currants, and blackberries mainly grow here. Tamara Fruit company plans to create a new garden to increase production because they purchase a large amount of berries from the marz. One hectare of blackberry gardens were installed near the Aygehovit community of Ijevan region. Grapes Grapevine growing already exists in the Ijevan and Berd regions of Tavush marz. Tavush ranks fourth in Armenia with its area dedicated to wine making. Ararat Cognac Company is planning to build a factory to produce cognac as well. Marz Land space Average yield of one hectare, centner/hectare Total Armenia 16796 128 Tavush 1345 48 Ararat 4853 183 Armavir 6486 165 Aragatsotn 1934 68 Table 16. Grape yield Tavush ranks last place in Armenia with the indicator of grape yield mainly because the grapes grown in this region are not used for sparkling wine production. 11
2.5.2. Livestock Breeding Cattle breeding, pig breeding, small cattle breeding, bee keeping and poultry farming will be discussed in this section. Cattle Name of region Total cattle 2009 2008 +/- Ijevan 11353 13778-2425 Noyemberyan 10320 11216-896 Berd 7380 8435-1055 Dilijan 42300 4501-271 Total 33283 37930-4647 Table 17. Cattle population The decrease of the cattle population is influenced by the effectiveness of other income sources. In particular, cultivation of land is economically more effective than cattle breeding in all regions of the marz. That is why the population are motivated to invest resources into cultivation rather than into raising cattle. The yield of natural plough is also low in Tavush marz: Marz Land space Average yield of one hectare, centner/hectare Total Armenia 165949 34 Tavush 11172 29.4 Gegharkunik 78990 36.5 Ararat 11844 63.5 Table 18. Yield of natural plough On the other hand, the ploughs and pastures are 30 to 40 km away from the rural communities of Tavush marz. Tavush marz has no territorial advantages for yield of cattle feed. Marz Land space (annual cattle feed) Average yield of one hectare, centner/hectare Total Armenia 7666 53 Tavush 130 33 Gegharkunik 4532 35 Ararat 1208 149 Table 19. Yield of cattle feed All of these factors influence the decrease of the cattle population and make the raising of this livestock economically ineffective. 46,000 tons of milk was produced in Tavush marz in 2008, which is 7% of Armenia s total. The volume of produced milk will decrease by 5% in 2009, related to the decrease in the number of cattle. Other areas of animal husbandry Name of region Small cattle Pigs Bee families 2009 2008 +/- 2009 2008 +/- 2009 2008 +/- Ijevan 5955 1031-4363 2947 2255 692 5765 4596 1169 8 Noyemberyan 3509 5143-1634 1979 1665 314 5085 4096 989 Berd 4967 7262-2295 2515 2739-224 3899 3617 282 Dilijan 1472 2045-573 1093 1027 66 1246 1284-38 Total 1590 3 2476 8-8865 8534 7686 848 15995 13593 2402 Table 20. Cattle population in the regions 12
Animal husbandry other than cattle breeding is also decreasing. This is mainly influenced by the same factor as the decrease of cattle: - lack of food, - far distance of pastures, - attraction of investing in other areas. The 2007 epidemic abolished 80% of pigs in the marz. An increase of the pig population began again in 2008. The existence of forests mainly influences favorable conditions for pig breeding, which is a large opportunity of food. There are favorable conditions also for bee keeping, such as natural climate conditions and skilled knowledge. The number of bee families increases annually. 2.5.3. Agricultural products: Percentage of market consumption (versus private consumption) 7 Agricultural product Market Consumption in Market Consumption in 2007, % 2008, % Grains 4 23 Potatoes 15 12 Vegetables 19 16 Fruits and berries 15 19 Grapes 58 50 Meat 80 77 8 Milk 41 34 Eggs 38 28 Wool 24 13 Honey 56 39 Table 21. ³Total of production sold (versus private consumption) of agricultural products Many products show a high percentage of ³market consumption, and a low percentage in private consumption. This indicates a great opportunity for sales. These products are grains, vegetables, fruits and berries, grapes, pork, milk, and honey. A high ³market consumption is especially noted with grapes, berries, and other fruits, and these products are important for Tavush marz s agriculture. 3. Productivity of the economic areas Each area of productivity is calculated as a section of gross production per employee. Indicator Agriculture Industry Construction Services Total Gross 35.2 5.1 4.2 3.2 47.7 product, bln dram Employees 34 2.3 1.2 12.5 50.0 by sphere, thousand people Productivity, person/dram 1.035.294 2.217.391 3.500.000 256.000 954.000 Table 22. Productivity by marz s economic sectors 13
The calculation for the area of productivity shows that the construction sector ensures the highest productivity for one person. The worst result is in the service sectors. Agriculture has a higher productivity than the average, and it ensures the greatest share of gross product and jobs in Tavush marz. To clarify the comparative effectiveness of the marz, it is impossible to compare them with the same indicators of other marzes. Comparative productivities of the sectors are: Agriculture Marz Gross agricultural Employees in Agriculture, Productivity, product, bln dram thousand people person/dram Yerevan 7 0.6 11.666.666 Aragatsotn 48.4 49.1 985.743 Ararat 83.5 86.4 966.435 Armavir 95.6 88.9 1.075.365 Gegharkunik 90.4 76.2 1.186.351 Lori 63.1 49.3 1.279.918 Kotayk 63.7 31.6 2.015.822 Shirak 64.3 49.8 1.291.164 Syunik 58 23 2.521.739 Vayots Dzor 28.1 18.3 1.535.519 Tavush 35.2 34 1.035.294 Total 637.3 507 1.257.001 Table 23. Comparative productivity of agriculture between marzes In the aspect of agriculture productivity, Tavush marz is close to Armenia s averages. Productivity of the marz is 83% of Armenia s average. Industry Marz Gross industrial product, bln dram Employees in Industry, thousand people Productivity, person/dram Yerevan 361.7 67.8 5.324.483 Aragatsotn 13 2.6 5.000.000 Ararat 59.4 8.7 6.827.586 Armavir 33.9 5.6 6.053.571 Gegharkunik 10.3 2.9 3.551.724 Lori 42.4 10.4 4.076.923 Kotayk 89 20.2 4.405.940 Shirak 17.8 4.5 3.955.555 Syunik 112.2 8.9 12.606.741 Vayots Dzor 6.2 1.5 4.133.333 Tavush 5.1 2.3 2.217.391 Total 751.2 135 5.564.444 Table 24. Comparative productivity of industry between marzes The indicator of the industrial sector in Tavush marz is the lowest in Armenia. Productivity of Tavush marz is 40% of Armenia s average index. Construction Marz Construction Employees in Industry, thousand people Productivity, person/dram Yerevan 736 14.2 51.830.985 Aragatsotn 6.7 0.3 22.333.333 Ararat 10.4 2.1 4.952.380 Armavir 8.2 2 4.100.000 Gegharkunik 5.2 1.5 3.466.666 Lori 6.4 2.7 2.370.370 14
Kotayk 16.5 1.5 11.000.000 Shirak 13.2 2.6 5.076.923 Syunik 25.4 1.9 13.368.421 Vayots Dzor 9.9 0.8 12.375.000 Tavush 4.2 1.2 3.500.000 Total 842 31.1 27.073.954 Table 25. Comparative productivity of construction between marzes In the construction sector, Tavush marz has some of the worst prospects. These numbers are 13% of Armenia s average index. This is caused by the large gap of construction taking place in Yerevan versus other marzes, as well as by the technical dominance of Yerevan s construction companies; companies of Tavush marz cannot compete with them. Services Marz Service volume, bln dram Employees in Services, thousand people Productivity, person/dram Yerevan 670 230 2.913.043 Aragatsotn 2.8 11.1 252.252 Ararat 5.5 19.6 280.612 Armavir 5.5 23.7 232.067 Gegharkunik 4.6 22.9 200.873 Lori 9.4 29.4 319.727 Kotayk 11 23 478.260 Shirak 13.2 30.5 432.786 Syunik 5 17.2 290.697 Vayots Dzor 1.9 6.1 311.475 Tavush 3.2 12.5 256.000 Total 732 428.5 1.708.284 Table 26. Comparative productivity of services between marzes Yerevan is also the leader in the service sectors. 91% of services are found in Yerevan. Enterprises are competitive and technically saturated within the Yerevan area. Tavush marz is in the bottom three marzes (15% of Armenia s average). Therefore, comparative analysis of the productivity of the economic areas shows this picture for Tavush: - productivity of agriculture is 83% of Armenia s average, - productivity of industry is 40% of Armenia s average, - productivity of construction is 13% of Armenia s average, - productivity of services is 15% of Armenia s average. Comparative analysis of productivity shows that the main competitive and productive sector is agriculture within Tavush marz. Conclusion of the First Part Proceeding from the comparative analysis of agricultural products yield, and calculation of productivity of the economic areas, competitiveness and productivity is focused on in the next part of the analysis for the following sectors: - wine making, - tobacco growing, - cattle breeding, pig breeding, - peach production, - grape production, - hotels, restaurants, health resorts, - stone working, - wood working and furniture production, - construction. 15
Part 2. Analysis of Marz s Business Environment In Relation To Regions and Economic Areas M. Porter s Diamond Model (the figure below) is used to analyze Tavush marz s competitiveness and to evaluate the business environment. It shows the business environment as a system consisting of four interconnected areas: a) Product demand (demand conditions for products) b) Quality of production factors (conditions that influence quality) c) Strategy and competition of enterprises (context for firm strategy and rivalry) d) Existence of economic clusters (related and supporting industries) Analysis will be implemented in three stages, using the Diamond Model: 1. Analysis of the marz s business environment as an entirety, 2. Analysis of the marz s business environment broken into the four areas of the Diamond Model, 3. Analysis of the marz s economic situation, and the competitiveness of essential economic sectors. 16
1. Analysis of Marz s Business Environment A. Product Demand High demand is one of the main factors to encourage enterprises to innovate with technology. In Armenia, Tavush marz ranks second in poverty levels. Tavush marz s purchasing power is lower than Yerevan s and regions surrounding Yerevan. Because of this, demand is low in Tavush. Therefore, enterprises of Tavush are not inclined to develop technologically. However, domestic consumers have a high demand for products in traditionally developed areas: wine, fruits, dried fruits, vodka, honey, and wood products. Consumers are very informed about the quality of these products and they do not purchase low quality products, even if the products are offered at a low price. Demand of high quality products is low because purchasing power is also low in Tavush marz. Demand from outside sources can inspire enterprises to move forward with technological innovations. In some areas, this has all ready occurred such as in stone working, hotels and spa resorts, and wine production. However, this trend is only occurring for some large enterprises with the ability to export their products. The largest share of Tavush marz s agricultural products (grapes and tobacco) are purchased by large companies. Demand is high, but the purchasing companies hold monopolies on production and distribution, thus influencing sale prices. All over Armenia, peaches, berries, walnuts, and figs from Tavush marz are famous for their excellent quality. Domestic and external demand affects competitiveness of the marz s economy. However, the domestic consumer has low buying power and thus chooses low price/middle quality strategies. B. Factors in Production Quality Physical Infrastructure Most state and local roads in Tavush marz have been repaired, with an exception of the main road connecting Ijevan and Berd. The Berd region has limited opportunity for transport and communication because 30 meters of the road is ruined. This situation will become more difficult in October, the season for purchasing grapes. Inhabitants are taking the long route, using a 50 km gravel road as an alternative. The community-owned roads are also in poor condition. Mostly, local roads were built in the times of the Soviet Union and have not been repaired since. All communities of Tavush marz receive electricity, but the electricity supply is sporadic, particularly to rural communities. Not all regions of the marz receive gas. Currently, the marz and many international organizations are funding work to provide gas to all rural communities. The telephone connection quality has improved in recent years. Both land telephones and cell phone connections are now accessible in all regions of Tavush. Internet connectivity has a satisfactory quality only in urban communities. Rural communities either cannot access the internet, or the quality is poor (and the price is extremely high in the case of a high quality connection). Administrative Infrastructure There are no essential differences between Tavush and other marzes of Armenia. The main disadvantage is the lack of competency in local governments. Human Capacity There are some specialized institutes, including the Ijevan Branch of Yerevan State University in Tavush. 17
The motivation of inhabitants to receive a higher education is great, however there are very few jobs offered in the marz for graduates. To work in the state system, a diploma is required. However, the higher education is just a formal process and knowledge is not necessarily gained via formal education. Generally, higher education is of low quality, and graduating students are not competitive. Specialized institutions do not correspond to market demand, for the most part. The quality of education in specialized institutions is also low,but, the existence of specialties in woodworking and tourism does create such jobs in the labor market. In agriculture, human capacity is transferred by tradition. Usage of new methods and tools rarely occurs. The organization for Marz Center of Agricultural Support works in the agriculture sector. Human capacity is not existent in industry and construction. Modernization and reforms are priorities in the educational system. Scientific and Technological Infrastructure This infrastructure is absent. Investment in new technologies is disorganized. It is influenced either by large investments (Karart Ltd, Bentonit CJSC) or by the enthusiasm of very specific fields (ostrich breeding, rabbit breeding). Financial Infrastructure Bank branches of ACBA, Ardshininvest, Unibank, VTB-Hayastan, Hayekonombank, and Converse are all located in Tavush marz. There are Kamurj, FINKA, Aregak, Horizon, universal micro-credit organizations, and the Trpanjyan Fund here. The only place that entrepreneurs can receive loans from is the bank. Plenty of financing organizations have had increased accessibility to finances in recent years, but the following problems exist: 1. Value of mortgage exceeds the sum of available or possible credit by several times, 2. Mortgages are not possible to insure with real property, 3. Even for profitable enterprises, the market rate of interest is too high for them to re-pay, 4. Creditability is low in the sphere of agriculture, 5. There are no ways to finance without credit, and a venture capital market is not established; in other words, individuals do not trust each other to have a process of issuing loans. Natural Resources Tavush has the richest forests in Armenia. Forest resources have been unsparingly exterminated recently, without being reproduced. Control of forests and protection of forests strengthened starting in 2008. However, the process itself is still not transparent and there is a high risk of corruption. The forests are rich with the following fruits and berries: cornelian cherries, blackberries, pears, apples, mushrooms, and mulberries. Almost 20% of income of communities located near the forests is generated by selling these gathered berries. The forests also create natural conditions for pig breeding. Tavush marz is rich in hydroelectric resources. Debed and Aghstev rivers flow inside of the marz s territory, which provide an opportunity to build hydroelectric power stations. These waters are used for irrigation. There are many mineral water sources. Dilijan water is bottled and sold all over Armenia. Tavush marz is famous for its mines of ferzite, zeolite, and basalt. Tavush marz is located in the lowest land zone of Armenia, where inhabitants are taking the opportunity to grow fruits. 18
C. Strategy and Competition of Enterprises Management Enterprises are individually managed. There is no institution where managers are educated. Entrepreneurs do not place importance on specialized management. Entrepreneurs hire their friends and relatives to work for them, rather than those who formally educated with business skills. Employer-entrepreneur relations are generally distrustful. Motivation and reward systems do not work. A corporate management culture is absent. Competition The competitive sectors of Tavush marz are mainly in agriculture. The markets for peaches, grapes, berries, figs, and blood oranges function well. However, there is a limitation on the resource market: local governors are partial to the distribution of fertile land. The customers for tobacco, Indian corn, grapes, and milk are large businesses, mostly monopolies, who can set the market price as they are market makers. Stone working enterprises compete in the mining sector, but the mines are owned by monopolies. In the wood product sector, there is market competition, but in the resource area, supply of wood is not competitive (the supply of wood has totally stopped due to new rules and regulations in deforestation). The market for health resorts and restaurants is competitive. Generally, the monopolization in Armenia has a negative influence on Tavush marz, in both supply of resources and competitiveness of products. Productivity Economic sectors of Tavush marz are mainly based on the usage of cheap local resources. Thus, the labor force is not trained and lacks expertise in their areas. This essentially decreases productivity of businesses (introduced in the first part of the analysis). Technological innovation is almost absent, besides the existence of two large and innovative enterprises in the stone working sector. Enterprises do not invest, nor realize the importance of investment, on research and development. Marketing There are positive examples of product exportation from Tavush marz: ferzite tiles, varieties of fruits, bentonite, mineral water, canned goods, and wine. This relates only to large and specialized companies, where expenses are allocated towards marketing, and contacts abroad for exportation exist. The small entrepreneurs and farms do not allocate income fpr marketing costs, nor do they have a basic knowledge of marketing. Because of this, the large companies who are not marz based have a large role in the chain of goods sale. Aside from the large companies, other businesses have no concept of a target market or target groups. Labor Force Enterprises and farms almost do not spend money on training labor forces. The large firms who purchase products from Tavush marz have a positive role in this: they provide farms with quality seeds and professional consultation. Some enterprises invite specialists from abroad who train locals. Generally, there are no unique specialists and specialized schools in marz. 19
D. Existence of Economic Clusters Economic clusters are essentially different economic units that can compliment each other and be used to build one system. They are almost completely absent in Tavush marz. In some cases, there are supporting sectors present, but they have not yet developed. Large enterprises purchase goods from outside of Tavush marz and/or Armenia, as the demanded services and goods either are not produced in Tavush, or they do not meet quality standards. Resources for improving goods through technological and professional development are absent. The structure of economic clusters will be introduced in the next part of the analysis. 20
2. Analysis of Competitive within Regions A. Dilijan Region Basic Economic Sectors Health resorts and hotels have been developed in Dilijan for the past 100 years. Recently, this sphere has seen new investments. Dilijan currently has 20 health resorts and hotels, and more than 50 hb&b s. There are plans for the building new health resorts and hotels. The restaurant business is also developing. The following are high-class restaurants: Parz Lich, Getap, Haghartsin, etc. There is a factory that bottles mineral water in Dilijan. Trade is developed in Dilijan. A large share of Dilijan s population receives its income via trade. Agriculture is mainly undeveloped. There are two cattle farms, and a cheese production enterprise. Competitive of Dilijan Region Natural Competitive 9 Dilijan is one of the best health resort areas of Armenia. The natural climate assists in curing some pulmonary diseases. The space is mainly forested, full of natural and beautiful monuments. There are famous Armenian monasteries in Dilijan: Haghartsin, Goshavank, Matosavank, as well as hundreds of sanctuaries. Aghstev River flows through Dilijan, and is a hydroelectric resource. There are many mineral springs. The geographical location of Dilijan is favorable as a transportation junction. Variable Competitive 10 Armenia s national government policy gives advantages to Dilijan. The government is conducting a large project to build Armenia s central banking system in Dilijan within the next three years. This will give Dilijan an economic boom, and Dilijan will become the financial center. Construction is very active right now in Dilijan. Some of the construction companies have worked abroad for several years, which has helped improve their knowledge and give them new information about construction. However, there is a lack of educational institutions in the field of construction. Knowledge transfer occurs via work experience. Dilijan has a hospitable population. Hospitality is gradually becoming a specialty in Dilijan. Dilijan s state college has a department of tourism. However, the educational level does not correspond to the international standards, and the resorts staffs need a radical shift towards providing higher quality services. There are many hotels located in Dilijan. B&B s began to work in the times of the Soviet Union, and are still developing now. B&B s of Dilijan are Armenia s leaders in providing quality service. Investments are now very attractive in Dilijan. Large hotel complexes of Armenia have all ready purchased land for new health resorts. The prices of real estate have almost tripled in the past five years Description of Economic Trends And Competitive Of Dilijan The rate of construction has increased in Dilijan. There are several construction projects, but the local construction sector is not technically well developed. The construction enterprises of Dilijan mostly work 21
with small orders, but the construction projects on the horizon are very large, and the local enterprises are not technically developed to complete them. There are no educational institutions specializing in construction and education is transferred via apprenticeship and on the job training. 1. The new financial institutions in Dilijan will result in a large demand for staff at entry level and middle management levels. There will be 500 jobs to fill. Currently, Dilijan has no institutions to give quality training to employers in the financial system. 2. Large investments in tourism are planned, but a lack of employees exists, and quality of customer service training does not correspond to international standards. 3. There is a possibility for use of hydroelectric resources, but they are not efficiently used. Three rivers could potentially house hydroelectric stations, but they currently do not. 4. Though the roads joining Georgia, Vanadzor, Berd, and Ijevan to Yerevan pass through Dilijan, there is no resulting trade activity. 22
B. Ijevan Region Basic Economic Sectors Trade- Trade is one of the traditionally developed sectors in Ijevan. Both the locals of the Ijevan region and travelers who pass through Ijevan on the main road participate in trade activities. The agricultural market of Ijevan is well known in Armenia, and agricultural products from all over Armenia are sold there. Restaurants and Cafes- Ijevan is the leader in Tavush marz in the number of enterprises working in this sector. Ijevan has the most open-air cafes in Armenia. Stone working- Karart LTD and Bentonit CJSC are Armenia s leaders in stone working, based in Ijevan. Wood working- There are several wood working enterprises in Ijevan that produce wood products for construction. Small production places of furniture are also in operation. Tobacco production- The basics of this sector were introduced during Soviet times. Now, IMT Corporation cultivates new varieties of tobacco in Ijevan. It provides professional and financial support, as well as purchases cultivated tobacco. Gardening- Basic fruits are figs, blood oranges, and seeds. The garden spaces of the blood orange and the fig are increasing annually. The regional quantity produced will double in three years. Grapevine growing- This sector is developing mostly because large organizations are purchasing the product. Grape gardens are located in Aghstev Valley, in the lowlands and watered areas. Wine making- Wine making is a tradition in the Ijevan region. Now, the leader of this sphere is the Ijevan Wine Factory OSJC, but wine and vodka are also produced domestically in the home. They are made from mulberries, grapes, blackberries, cornelian cherries, and pears. Pig breeding- This sector was the main source of income for farms in 2007. The African Swine Fever reduced the pig population by 80%. Since 2008, the pig population increased by 20%. Competitive of Ijevan Region Natural Competitive Ijevan is located on a main crossroads. It joins the Noyemberyan and Berd regions with the central part of Armenia. The town of Ijevan has unique architecture. The area of Ijevan is rich with forests, and thousands of tons of berries and fruits grow in the forests. The region is rich with natural, historical, and religious monuments, including the famous Makaravank, Lastiver, Tsrviz Monastery, and Kirants Monastery. Aghstev river is a great opportunity for having irrigated ploughs and gardens in the nearby communities. The villages of the region are located 600 to 1000 meters above sea level. The climate is temperatesubtropical. There are mines of bentonite and ferzite stones in the Ijevan region. Variable Competitive Specialists of woodworking and carpet making live in Ijevan. Woodworking and carpet making are unique spheres that provide well-developed competitive advantages to citizens living in Ijevan. There are developed specialized abilities in the agricultural sphere of growing tobacco and grapes. Locals are experimenting with producing new varieties. 23
Now, new sorts of Indian corn are being experimented with and used for cattle food. New irrigation lines are being built (AFH 11 ), which will give an opportunity to create gardens of figs and blood oranges. There are technological advantages in the production of stone making and bentonite. Competitive and modern equipments are installed in the factories. The only state institute of Tavush marz is the Ijevan branch of Yerevan State University, the departments of which are economics, psychology, pedagogy, history, natural sciences, applied arts, tourism development, and foreign languages. There are more than 1800 students enrolled at this branch. Description of Economic Trends And Competitive of Ijevan 1. Production in the new fig and blood orange gardens will double in supply after three years. There are no opportunities for export and further processing of these products. 2. Most programs offered by the university do not correspond to the economy s demands, and the quality of the others do not correspond to international standards. 3. Carpet making has disappeared in the region, but there are specialists and raw materials. 4. Each of the sectors holds one or two successful examples; in some cases, companies even export products. But success does not apply to the whole of the sectors. However, if one enterprise partakes in export activity, this does mean that an international competitiveness is present. That enterprise can be used as an example to successfully further the development of entrepreneurial processes. Currently though, there is a great lack of entrepreneurial abilities. 24