Consequences of Loss of Karabakh for Armenian Economy

Discussing the blow that the Armenian economy received from the war in 2020, Yerevan media often report on the border conflict in the area of ​​the Zod gold mine. The second topic they are discussing is the energy crisis in Karabakh due to the private small hydroelectric power stations left behind to the Azerbaijani side. But there are less discussed, but perhaps more important, losses to the Armenian economy.

The mining industry in Karabakh was considered by Armenian economists to be the only difficult and, undoubtedly, promising. By 2020, not all of the gold in the depths of the Zod deposit had been mined and exported to Armenia, and the Armenians had plans to increase production and exports. The growth curve of gold mining in Karabakh has been growing in recent years. Since 2017, the volume of the mining industry in the occupied lands has been more than 50% of the total industrial production.

The mine in Zod gave work to the Armenian railway (experts report about 50% utilization) and a processing plant in Ararat, which together amounted to 1-1.5% of Armenia's GDP. With the transfer of the mine, which constituted 70% of the disputed territory, about 900 Armenian citizens lost their jobs in Azerbaijan. On the Armenian side, there is a plant, for which there is almost no ore now.

During the years of occupation, the Armenians built 36 small power plants in Karabakh, which, together with electricity from Sugovushan and Sarsang HPP (the capacity of the latter is 50 MW), fully covered the energy needs of the occupied region. Even part of the electricity was sent to Armenia. As a result of the war, 30 operating hydroelectric power plants came under the control of Azerbaijan, said Levon Gabrielyan, head of the Energy Department of the Ministry of Economy and Industrial Infrastructures of the occupation regime. Along with the Sarsang HPP, the Armenians still have five HPPs, and their total capacity is 5.5 MW. “But due to the low water level in the rivers, now the total generated capacity is 5.5 MW,” Gabrielyan told the Armenian edition of Armtimes.com.

"Now there is a shortage of electricity for domestic consumption. Work on the restoration of power transmission lines from Armenia is at the final stage, after which the load on the hydroelectric power station will decrease, and it will be possible to cover all the need for electricity," Gabrielyan said.

Armenian economist Hrant Mikaelyan is not so optimistic. He writes: Armenia will need to subsidize Karabakh. But even from the point of view of logistics, this will be difficult to implement, since the "Lachin Corridor" does not really exist and is not under the control of the Armenian side, while the Azerbaijani Armed Forces regularly appear there and impede its normal functioning. The main communications were laid via the Vardenis-Martakert road, and now they cannot operate due to the surrender of this territory to Azerbaijan. Only in the last few years Karabakh has come to self-sufficiency in electricity, and now it has again turned into a serious problem.

From this information it becomes clear that the electricity capacities that have been transferred to Azerbaijan by now are not only sufficient to provide energy to Azerbaijani-populated cities and villages in Karabakh, but energy may also remain to supply the country's neighboring settlements with Karabakh.

The agriculture of Karabakh during the years of occupation not only fully met the needs of the local population, but also supplied Armenia with food. Karabakh had 132,000 hectares of sown area, of which 100,000 hectares were used. The Azerbaijani army liberated 70% (70 thousand hectares) - these are the estimates of the agricultural department of the occupation regime. Of the 7 thousand hectares of gardens, of which there are especially many in the Araz riverbank regions, 2 thousand hectares remained for the Armenians. Azerbaijan returned to its agricultural asset 50 thousand hectares of land used for growing grain crops.

Let's compare these figures with the agricultural potential of Armenia. In 2019, this country harvested from 228 thousand hectares. And in Karabakh, 89 thousand hectares were sown. In particular, this will have a negative impact on the production of legumes, 26.7% of the sown area of ​​which has been lost, including 25.6% of wheat.

Armenia will have to subsidize the economy of the territory of Nagorno-Karabakh, which remained under its control, and buy more food products to compensate for the termination of imports from NK. Also, gold mining in the Zod deposit, the products of which were exported, practically ceases. This will affect the balance of payments. According to Investing.com, the exchange rate of the Armenian dram at the start of the war was 484.27 against the dollar, and as of December 17 it was 522 drams. In reality, the Central Bank rate is already at the level of 525, in Yerevan exchange offices the dollar could be bought at 533, and after foreign exchange interventions - at 529. That is, after the start of the war, the dram depreciated by 9.3%, G. Mikaelyan specified.

On December 10, the National Assembly of Armenia adopted the bill on the state budget for 2021. As the Minister of Finance of Armenia Atom Janjugazyan told the press, the income item did not change, remaining at the level of almost $ 2.93 billion, and the expense item increased from over $ 3.57 billion to almost $ 3.59 billion. The budget deficit was formed - 4.1% of GDP.

Usually reality differs from plans. For 2020, the ratio of deficit to GDP was planned at 2.3%, however, it is expected that by the end of this year this figure will reach 7%, the Minister of Economy of Armenia said.

Armenia will face difficult times in the economy, which will certainly affect a significant increase in migration of the population from Armenia and Karabakh after the opening of the borders closed due to the pandemic.