Transport Sector Link to CAS and PRSP
The World Bank’s Country Assistance strategy (CAS) supports reforms and investments in the three key areas identified in the Government’s Interim Poverty Reduction Strategy (I-PRSP): improving the business environment; strengthening public sector management and reducing corruption; rebuilding human and physical capital. I-PRSP emphasized improving the quality of infrastructure, particularly road, rail and air transportation and strengthening regulatory capacity to support privately-owned operators in energy and infrastructure as a precondition for the improvement of the business environment.
Macroeconomic Overview
The Armenian economy has been growing at an average rate of about 6% since 1994. The positive improvements were supported by improvements in the external situation of the country. By the early 1990s, a conflict over Nagorno-Karabakh had led to a trade and transport blockade by Azerbaijan- traditionally Armenia’s principal transit route for oil, gas and other products- and the closure of the Turkish border. Armenia’s isolation from international markets has been eased since a cease-fire was signed in 1994. Armenia has benefitted from greater stability and economic recovery in Georgia, expanded trade with Iran and increased informal trade with Turkey. Despite the large reliance of the economy on agriculture (28% of GDP) rather than industry (22%) over 67% of the population lives in the cities. High-tech industries such as diamond cutting, electronic production and software development are promising. However there are less than 10 computers and 230 phone lines per 1000 citizens. The mining and metallurgy sectors are also important and have been undergoing restructuring. The chemicals sector offers potential, with a strong pharmaceuticals sector. Despite Armenia’s rather stable economic performance the last several years have not brought a noticeable improvement in living standards for the majority of the population. Over 51% of the Armenian population is poor. Thus the challenge ahead for Armenia is to sustain high growth rates for the next years and to change the quality of growth – migrating to a growth path that would have a stronger correlation between economic expansion and improvements in living standards, reduction in poverty and recovery in employment (see WB paper Armenia Growth Challenges and Government Policies).
Transport Sector
Transport sector development, together with trade facilitation are an effective means to achieve sustainable economic growth and to alleviate the pervasive poverty in Armenia. Mining and construction, the industrial sectors in Armenia with most growth potential, rely heavily on affordable and reliable transport. Agriculture and food processing have large export potential. There is also a viable potential to revive the tourism industry. Radically improved transport infrastructure and logistics services, and, for tourism, upgraded facilities and transport and hospitality services are needed to realize this potential.
Railways
The country's railway infrastructure is old and out of date. Rail transport has been slow and unreliable. Transport work in Armenia is only 345 million ton-km and 47 million passenger-km. The size of the staff is large compared to the level of transport performance. The operating environment for the railways deteriorated dramatically during the 1990s: between 1989 and 1999 the Armenian railways lost about 93 percent of its traffic volume. However after recent changes in tariff structure, disposal of obsolete assets and staff reduction, the financial performance of the railway has shown improvement. The first six months of 2002 ended with a net profit of $1.2 million, compared to a net profit of $0.2 million for the same period of 2001. The GoA expects further growth of freight traffic. Armenian railways (ARD) were restructured in 1998, when they were divided in three State Closed Joint Stock Companies: "Rail freight", "Rail rolling stock", and “Rail infrastructures". In 2002, ARD the Railway Department in the MOTC was abolished, and the three railway operating companies were combined back into one company with full responsibility for the operation of the railway. In parallel, The World Bank has allocated USD 15 million from the Transport Project for the renovation of portions of the road bed, electrical system, communications system, and overhaul of locomotives and wagons for the line between Yerevan and the Georgian border, along with the restructuring of the railway company. Service and financial performance has already improved somewhat recently. However, massive improvements will be needed in future years to replace old bridges and other basic physical works, as well as replacement locomotives and wagons as the present equipment already exceeds the normal useful life span. Thus, while the Transport Project will provide a temporary respite for rail traffic to Georgia and the Black Sea, additional support will be necessary in the not too distant future. Also, poor cooperation with the railway system in Georgia is a related transport constraint beyond the control of the Armenia authorities. Establishment of a Board of Directors for the operating companies which includes representatives from the private sector is essential for keeping better touch with the needs of railway customers. Means to improve the profitability of railways include, but are not limited, to the following: (i) improvement of management system, ensuring independence of joint stock companies, (ii) improvement of transport services and reduction of energy-consumption, (iii) diversification of services, (iv) application of flexible tariffs, (v) creation of fair and even conditions for all freight forwarders and shippers while providing transport services, and (vi) implementation of procurement only on the basis of tendering.
Roads
Armenia has a relatively well-developed road network, serving all areas of it's economy with a road density of 257.6 kilometers per 1,000 square kilometers. The road network consists of 7,700 kilometers of interstate roads, regional roads and local roads. Of these, 1,400 kilometers are interstate roads, 2,520 kilometers are regional roads, and 3,780 kilometers are local roads. The interstate and regional roads are administered and managed by 'SSCC Armenia Roads', a Government entity. SSCC Armenia Roads has received technical assistance in the World Bank supported projects and is technically competent and contracts out most of its civil works, including the engineering design and contract supervision. In Armenia, most of freight and passenger transport is by road. The Highway Project and its successor, the Transport Project, have kept Armenia's main roads in good to fair operating condition. However, it is important to mention that the internationally very important road that provides access to Armenia from Georgia is in extremely poor condition in the Georgian side. This situation will improve soon as the World Bank supported Roads Project in Georgia includes the rehabilitation of the most damaged segments. Financing of road maintenance and rehabilitation from Armenia's state budget has been extremely limited. Armenia has no Road Fund and the level of Armenian road spending has reduced dramatically after the independence. This raises doubts about the country's ability to keep the roads in operating condition without outside assistance. There is a need to develop a mechanism and a program for adequate financing of road maintenance in 2004 and beyond, when the presently foreseen external financing is no longer available. In particular, the road user charges could be increased, especially for the trucks, to mobilize local resources for maintaining roads. The local roads that provide access from the villages to the markets are in poor condition in several areas of the country and will require improvement if the living standards and conditions in the rural areas are to improve.
Urban Transport
In Armenia, buses and minivans offer the most reliable form of transportation. There is a small metro system in Yerevan, but it is quite limited and not very reliable. Financial needs to upgrade the metro system are very high compared to its traffic potential and potential for revenue generation. Also the trolley buses still run in Yerevan but prove very unreliable due to lack of maintenance and sporadic disruptions in electricity supply. The ticket prices are set by the municipality and cost recovery on ticket income is very low and does not allow for full depreciation and equipment renewal.
Air Transport
Civil aviation infrastructure consists of three international airports, at Zvartnots (Yerevan), Erebuni, and Gyumri, and nine local (non-military) airports, although most of the domestic airports are not functioning. Air services suffer from inadequate physical infrastructure, as the runway and landing lights are old and need major upgrading, and the air terminal lacks modem conveniences expected by international business travelers and tourists. Aviation is allegedly one of the Armenian government’s priority areas for development. Modernization, including replacement of practically all airport equipment, and purchase or lease of passenger aircraft is needed. In 2002 Armenia's government and an Argentine company, Aeropuertos Argentinos 2000, signed a contract on a 30-year concession of Zvartnots airport. The Argentine company is mainly owned by a businessman of Armenian origin. The company manages 32 airports in Argentina. The state carrier, Armenian Airlines, was offered for privatization in 2001 by international tender, but this did not attract investors. In 2003, the company was sold to Siberian Airlines, Russian company.
Trade Facilitation
The World Bank has been active in promoting Trade and Transport Facilitation (TTF) issues in Armenia, Georgia and Azerbaijan. The region faces a high direct and/or opportunity cost of not acting in terms of high transport costs and low credibility as trading partners. The objective of the World Bank’s TTF work is to improve the detailed understanding of soft barriers to trade and transport and working out mechanisms, through active public-private interactions, and to remove those progressively. Please also visit our Regional Initiatives in South Caucasus site.
On-going Projects
Much work and progress has taken place in liberalizing the transport market and in adjusting to the market economy but just as much remains to be done regionally and in Armenia to bring transport infrastructure and services to the level of those in the rest of Europe. The World Bank financed Transport project assists in alleviation of key transport bottlenecks that restrain trade and reduce investment prospects for the private sector. The project has three objectives: (i) improve the main road network, with commensurate reductions in total transport costs, to improve road safety and to increase the operational efficiency of Armenia Roads; (ii) to improve the rail service between Yerevan and the Georgian border, and the financial and managerial performance of the Armenian Railway Department; and (iii) to strengthen the planning capabilities of the Ministry of Transport and Communication.