foreign direct investment : privatization and restructuring : investment policy and incentives : investment opportunities

Privatization and restructuring

By August 2000, 83 per cent of (1533) medium sized and large enterprises and 90 per cent of (6829) small enterprises had been privatized. The voucher program, covering the majority of SMEs, ended in December 1998. The majority of vouchers were bought by enterprise insiders, leaving them effectively in control of privatized firms. Privatization now takes place only through cash sales. The 1998-2000 Privatization Program envisages completing the bulk of privatization by the end of 2000. However, the privatization process has decelerated since late 1998 partly due to the economic slow-down that followed the Russian crisis and the reduced reform momentum during the campaign for parliamentary elections in May 1999. In late 1998 the government started liquidation procedures for 22 unsold firms. By August 2000 the liquidation completed for 10 large enterprises, and 170 large enterprises are in the process of liquidation. These enterprises failed to be privatized at least twice.
Some 54 large and medium and 196 small enterprises were privatized in 1999. During the first eight months of 2000 19 large and medium and 24 small enterprises were privatized. By mid- 2000, 9 out of 17 firms offered through international tender had been privatized. Sales to foreign investors included holdings in tourism, a diamond factory, a chemical complex (sold to Russian investors) and the Yerevan Cognac Factory, which was sold for US$ 28 million to Pernod Ricard (France).
To date, total revenue from privatization so far is estimated at more than US$ 260 million. Of this amount, half was paid in cash and half in the form of privatization vouchers. Foreign investors have bought into about 60 companies. Five hundred companies are slated for privatization in 2000, including 75 strategic ones. These include the national airline, hydropower and thermal generating plants, power transmission enterprises (energy distribution networks), two major goods and passenger transportation concerns, hotels, the leading electronics firms, the main mining and metallurgy factories, the Yerevan Jewelry Factory, and companies in the construction materials, chemicals, textiles and wood processing sectors.
Industrial output grew by 5.2 per cent in 1999, but is still less than 50 per cent of the 1990 level. Industrial restructuring has been limited due to the accumulation of tax and energy arrears and limited capacity for bankruptcy enforcement, which have allowed insolvent enterprises to continue operations. Other factors hampering enterprise restructuring are the low levels of foreign investment, limited access to domestic finance and difficulties in accessing foreign markets, in part because of lack of border security. Moreover, the insider-dominated privatization process has left enterprises with little new capital to undertake modernization investments and no injection of new management skills.

Major foreign investment