BizCLIR

There is a debate in legal development circles whether foreign direct investment (FDI) Codes are needed. Opponents to codes argue that they are unnecessary, add no particular value, and can distract from the real issue, which is the overall climate for investment of any sort, not just foreign investment. Proponents insist that the code is a useful tool for identifying those issues that are important to foreign investors, and, by putting them all in one place, send a message that foreign investment is welcome. Armenia provides a solid case study for those who would do away with foreign investment Codes altogether.

One commentator has described the Armenian foreign investment regime as “The Cinderella Syndrome” in which the only real hope for the future is seen in marrying the prince – that is, attracting large foreign investors. The focus of investment promotion is on large risk-taking investors who will ignore local conditions and invest anyway, presumably then carrying the economy upward with them. Good foreign investment can certainly have such a positive development impact, but Armenia does not currently have the environment needed to attract such investment or to enable such investment, if attracted, to have the hoped-for multiplier effect. There appears to be a poor understanding of the factors that influence investment decisions among those guiding investment policy, with extensive tax breaks being offered to overcome the lack of attractiveness in the general investment climate.

Better foreign investment laws are unlikely to have much impact on the quality or quantity of foreign investment in Armenia. Better conditions – including the opening of the borders with Azerbaijan and Turkey – will.