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Tatul Manaseryan: We are on the right way but somehow stuck in the jam…

Interview of Tatul Manaseryan, professor, well-known Armenian economist, the promoter of Alternative Research Center with ArmInfo News Agency

  • by Emmanuil Mkrtchyan and Elita Babayan

  • Monday, February 13, 07:16

 “Transfer economy will be fading away and this is inevitable.” Tatul Manaseryan, professor, well-known Armenian economist, the promoter of Alternative Research Center, makes such unpromising forecasts in an interview with ArmInfo. The expert urges construction of self-sufficient economy and not autocratic trends. He is for the competitive market model that will not lead to deformations. On the way to such economy, the expert recommends defining the conceptual framework before setting long-term and ambitious goals.

Last year the envisaged economic growth totaled 6.1%.  A question arises: do we create a new value having such an economic growth? No, probably, given our high inflation, the recovering transfer economy and growing prices in the mining industry. All these factors almost by half “eat away” the real GDP growth, though we are told quite the opposite. There is certain paradigmatic absurdity of figures. What do you think about it?

The 6.1% economic growth is of recovery nature, but economy is recovering very slowly, especially after the slump in 2009. As for the basis of this growth, it is mining industry. This is what Armenia is “boast of”.  In Armenia we call in processing industry. You’d probably ask if one can call processing the recovery of minerals, clean a little and export. Today we call processing even just recovery of mineral without any processing. But, let’s not dwell on this issue and just call it partial processing industry.

Now, let’s speak of the agricultural sector. Last year’s growth in this sector was good enough, but the sector greatly depends on weather conditions and rural residents have no guarantees or confidence in the future. It is a psychological factor that has rather a serious economic effect. There was certain activation also in the IT-sector, tourist industry, which is specific and cannot be compared with the achievements of any other post-Soviet countries. Even in Iran there is a free tourist zone – Kish.

Turning to the GDP structure, I’d like to say that it has not been formed at all. Moreover, we have no idea of the structure the domestic product should have. Therefore, we do not think of what GDP growth is based on. The growth is episodic and depends on several factors. We have not decided about the locomotive sectors yet. Neither we know what are the criteria for determining competitive advantages.

The conference of the ruling party touched upon the sectors of diamond cutting, pharmaceutics, brandy production and precision engineering…

It is very good that the government is setting priorities, though I am a little skeptical about engineering, a sector that was once our pride. As for pharmaceutics, we successfully combined the traditions of pharmaceutical science and practice, and managed to continue them with a help of the private sector, unlike engineering industry that we have been “killing” within 20 years.

There were certain efforts to revive machine-tool plants, but they failed not for lack of financing or brains, but for lack of such specialists as millers. We did not estimate our potential in the given sphere and didn’t throw out a feeler.  Therefore, before setting any priorities, we should reveal the competitive advantages. We will have no progress until this fundamental problems is settled. This is what hinders our development.

Second, very few know about our economy’s raw materials potential. We do not know out potential either. In the meantime, determination of the quantity and quality of the national values, such as natural resources, is an issue of strategic importance for every country. By the way, in the Soviet Union they regularly estimated natural resources.  This is an uneasy task for us now, because very few relevant specialists are left in the country.

Turning to the resources, I’d like to say that in conditions of development of the science-intensive economy, it is not sufficient to have relevant knowledge. It is necessary to efficiently use that knowledge.  The key factor of such new economy should be human development and human resources improvement. It requires, first of all, exact information on the specialists in the country. For instance, we have announced the IT-sector a priority, but we have no exact data on the number of IT-specialists in the country and their skills. There are many such examples.  How many lawyers and economists do we have? I do not speak of their skills so far. How many unemployed do we create every year, and part of them is “ordered” by the state. Needless to say how many good specialists we “gift” to our countries.

Economic diversification is much spoken of today. It should hold us from lagging behind even in case of unfavorable foreign market environment and falling into crisis extremities like in 2009. What do the economic and political authorities think about that?

Here we have lack in two aspects. First, today the government really wants positive changes, which is very important. If the country was once considered industrially developed, though it was in different conditions and format, we believe that it achievable today as well, especially that there is relevant potential for that. The second aspect is that the government has finally begun to speak of the national model of economic development, something I was speaking about many years ago.  No matter that the given initiative has got negative response by some international structures. 

There is another positive decision of the government that implies financial assistance to the students studying in abroad. The program is not so effective so far, but it will be quite fruitful in future.

But, we have no system to reveal and select talented human resources, which cannot but affect the social-economic and political development of the country…

Well, there are many talented people who are “left out in the cold”. This problem needs a comprehensive solution.

Fundamental decisions are probably necessary also for development of SMEs. Much is still to de done here…

We lack conceptual framework also in the given sector. What do we understand saying small and medium-sized enterprises? Unfortunately, most people think that SME is, first of all, trade. In this light, Russia’s experience in creation of own “Silicon Valley”, a system supporting the science-intensive small and medium-sized enterprises, is very relevant.

That is, to create some not big projects and raised funds for their implementation…

Precisely, and it is not possible without the state support. As for the native economy, I reiterate that we must determine the conceptual framework and reveal our advantages and set priorities, believe in their realization and be consistent in our undertakings. It is possible in the country with such a small and compact economy in a rather short period of time.

What about the monopolies? It seems that the given problem will never get solution. In such situation, no tangible changes are possible in the given economy sector. Don’t you think so?

We have two serious problems with monopolies.  The first problem is the oligopolies killing SMEs. The second problem is the capital outflow. The point is that monopolies began to “gasp” in our small market and gradually outflow from the country in terms of the capital, indeed.

What are the annual volumes of the capital outflow?

I think, capital outflow is a much more serious threat to the economy, than the problem of SME. As for the capital that has already flown out, there are certain difficulties with its calculation. We have no data where to and for what purposes the capital flows out of the country.  Our compatriots invested a part of this capital in the real estate in abroad, but they suffered big losses because of the crisis. In the meanwhile, that capital could be invested inside the country and in implementation of various projects in the sphere of industrial production and agriculture as well as of joint projects with Russia, for instance.

In what circumstances may the problem of monopolies get a solution?

It is known that when two businessmen meet even to have a cup of coffee, the first thing they speak about is to unite their businesses and create a monopoly. It is obvious that the private sector cannot fight monopolies i.e. to curb its appetite.  It is rather a political task that has its legislative and economic solutions. There is a law on protection of economic competition, and there is a commission for protection economic competition, which we used to call an anti-monopoly commission. But, these are two different conceptions. Protection of economic competition does not imply fighting monopolies. The given law needs exacts and tough measures of punishment and relevant political will.

The second task is lack of human resources in the given structure. The commission lacks specialists to study all the sectors of economy and launch an efficient fight against monopolies. Monopolies do not emerge independently, but in such a small economy they are formed quite naturally. If we fail to settle that problem, we will never build a healthy economy with competitive market.

 

Turning to the outflow of capital, are there any approximate data on the volume of the capital outflow for the last few years? In Russia they calculate this index and publish it at the highest level, while in Armenia everyone is silent as if nothing happens in the country.

We can arm with three methods to calculate this indicator, but we will get only approximate figures. The first method is calculation on the basis of the payment balance, and the second is calculation on the basis of the existing resources, and third on the basis of the shadow economy. 

By the way, you have voiced the real volumes of shadow economy for many times…

Yet a few years ago I reported a 75% shadow economy, but the authorities have never accepted it. Now, even officials speak of this percentage. Now, shadow economy has exceeded even this extremely high bar. Why? The taxable economy is growing with the shadow growing trice as much.

The outflow of capital is close to the volume of transfers i.e. some 1 billion USD. Transfer is another serious problem of our economy. It is a phenomenon that allows keeping consumer demand high. We must no longer rely on the resources of the Diaspora Armenians. Their mentality is changing. In the new world everybody cares for himself.

Do you mean that the transfer economy will fade away?

Yes, I do. It is inevitable. The social market economy that I suggest, the economy of future Armenia may gather pace in succession of time. This process will start when economic science and ideas are claimed.  I am confident, we will see the fruits of those times during our life.  

Thanks

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