US embassy cable - 04YEREVAN1473

UNCLAS SECTION 01 OF 03 YEREVAN 001473 
 
SIPDIS 
 
SENSITIVE BUT UNCLASSIFIED 
 
E.O. 12958: N/A 
TAGS: ECON, EFIN, EAIR, ETRD, AM 
SUBJECT: ARMENIA: SURPRISINGLY LITTLE TRADE WITH IRAN 
 
REFTEL:  YEREVAN 966 
 
1. (U) Sensitive but Unclassified.  Please protect 
accordingly 
 
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SUMMARY 
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2. (SBU) Despite Armenia's geographic isolation and 
closed borders, trade with its southern neighbor Iran 
remains surprisingly small.  While the April 12-13 
meeting between Armenian Foreign Minister Vartan 
Oskanyan and Iranian Foreign Minister Kamal Kharrazi 
and First Vice-President Mohammad Reza Aref focused on 
the proposed Iran-Armenian gas pipeline (reftel), new 
trade or investment agreements were noticeably absent 
from the meeting's agenda. The overall trade turnover 
of USD 100 million between Iran and Armenia has 
remained steady over the past six years with Armenian 
exports to Iran slowly decreasing and Iranian imports 
remaining steady.  A combination of an increase in the 
import of more western goods, an increase in Armenian 
domestic production, and obstacles to doing business in 
Iran will likely push down the overall trade balance 
between Iran and Armenia in the near future. End 
summary. 
 
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ARMENIAN EXPORTS TO IRAN: SMALL AND SHRINKING 
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3. (SBU) Recent statistics provided by the GOAM show 
that the total value of exports from Armenia to Iran 
during 2003 was USD 22.2 million (a decrease from USD 
31.3 million during the same period in 2002).  This 
latest information places Iran in seventh place for 
Armenian exports behind Russia, Belgium, Israel, U.S. 
and Switzerland. 
 
4. (SBU) Armenian Ministry of Foreign Affairs Middle 
East Division Chief Karen Mirzoyan and Ministry of 
Trade and Economic Development representative Gagik 
Kocharian said that the main Armenian exports to Iran 
are machinery and machine parts, copper, aluminum, 
scrap metals and a minimal amount of food products. 
Kocharian said the GOAM believed that the amount of 
machines and machine parts exported to Iran would 
probably stay at the same level for the near future, 
but the amount of export of scrap metal to Iran would 
drop.  He predicted this drop because much of the 
leftover Soviet era scrap in Armenia had already been 
sold, and Armenian scrap dealers are now looking toward 
European and Indian clients for better prices. 
 
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IRANIAN BUSINESS PRACTICES FRUSTRATE TRADE 
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5. (SBU) Samuel Bakimyan, Chief of the Armenian Chamber 
of Commerce, said that dissonance between Armenian and 
Iranian business practices also frustrated trade 
between the two countries.  He reported that an 
upcoming exhibition for Armenian exports will not 
include Iran.  Bakimyan stated that Armenian 
businessmen find the business climate in Iran 
frustrating and complain of cultural misunderstandings, 
a difficult Iranian bureaucracy and the inability to 
sign and keep agreements with their Iranian partners. 
 
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IRANIAN EXPORTS TO ARMENIA 
-------------------------- 
 
6. (SBU) Official GOAM statistics show that in 2003, 
Iranian exports to Armenia equaled USD 66.7 million (an 
increase of USD 62 million from the same period in 
2002).  Mirzoyan and Kocharian told us that the main 
imports from Iran consisted of fruits, nuts, light 
metals, textile home products, and plastics.  Kocharian 
predicted that certain imports from Iran will probably 
drop in the next several years due to the increased 
importation of foodstuffs from Europe and recently 
opened plastic and cement factories in Armenia. 
Kocharian believed that home textile products will 
probably remain steady and imported raw materials from 
Iran may actually increase as domestic production in 
Armenia increases.  Kocharian stated that many rank and 
file Armenians, however, had a perception that Iranian 
manufactured goods were of low quality.  GOAM contacts 
report that the increase of domestic goods and European 
imports, coupled with the bias against Iranian goods, 
is slowly pushing many Iranian plastics, foodstuffs and 
manufactured goods out of the Armenian domestic market. 
 
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BUILDING TEXTILES: STEADY IRANIAN IMPORT 
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7. (SBU) One consistent attribute in Iranian-Armenian 
trade has been the importation of Iranian building 
materials.  The President of building contractor RV 
Comfort, Ruben Shahmuradyan, told us that from 1994- 
2004, he increased the import of Iranian construction 
and building materials by twenty percent each year.  He 
said that RV imported about USD ten million worth of 
Iranian goods in 2004, making RV the leading importer 
of Iranian construction materials, tiles, bathroom 
appliances, radiators, stones and piping in Armenia. 
Shahmuradyan told us that more than half of his total 
inventory was made up of Iranian products, which he was 
able to consistently sell to local builders because of 
their affordable price.  Shahmuradyan predicted that he 
would increase the import of Iranian goods over the 
next several years and told us that after a multi-year 
relationship with Iranian factory owners, he can now 
buy up to USD 300,000 on credit.  He said that he has 
enjoyed support from both Iranian Customs officials and 
the Iranian Embassy in facilitating the purchase and 
shipping of his products. 
 
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IRANIAN INVESTMENT IN ARMENIA 
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8. (SBU) According to Tigran Sukiasyan of the Ministry 
of Trade and Development, Iran invested USD two hundred 
thousand in Armenia in 2003.  Investment in 2003 
dropped sharply from an unusual spike of over USD two 
million in 2002.  Sukiasyan stated that since 1991, 
Iran ranked eighteenth in total investments in Armenia 
following Russia, U.S., Greece, Cyprus and others.  The 
2003 investment figures put Iran in twentieth place for 
foreign investment in Armenia during the year. 
Mirzoyan told us that Iranian investors generally 
prefer to make smaller investments in Armenia because 
they are still uncertain about the local business 
climate and are often afraid to lose any large 
investment capital.  Kocharian said he believed that 
mid-level Armenian and Iranian businessmen founded the 
majority of recent joint ventures in Armenia.  As an 
example of a successful joint venture between the two 
countries, he pointed to Iran's Grand Sun Holding, 
which produces lamps in Iran as well as light 
industrial products, jewelry, and transportation joint 
ventures in Armenia.  A June 2004 visit by Armenia's 
Minister of Agriculture reportedly included discussion 
of new joint ventures involving leather goods and fruit 
products. 
 
9. (SBU) In a five-year (1998-2002) Iranian economic 
cooperation program outline, the Iranian government 
admitted that trade did not significantly increase from 
1998 to 2002, and felt this was hampered due to 
misunderstandings on both sides, frequent changes in 
Armenian officials, lack of transparency, and a lack of 
a long term investment strategy.  The outline also 
stated that the energy sector was a crucial area of 
bilateral cooperation because of Iranian interest in 
selling Iranian gas through Armenia and Georgia to 
Europe, as well as the import of electricity from 
Armenia to help develop the Iranian economy (reftel). 
The outline also suggests that Iran was interested in 
actively pursuing joint ventures in cattle breeding, 
poultry, milk processing plants, and leather processing 
mills. 
 
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COMMENT 
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10. (SBU) Even though Iran represents one of only two 
immediate open borders with Armenia, there are few non- 
energy joint ventures or investments currently under 
discussion between the two governments.  While trade in 
certain sectors such as Iranian building materials, 
Iranian fruits, and Armenian machinery and machine 
parts will probably remain steady or even expand in the 
near future, non-energy trade between the two nations 
will likely remain at the same level or even slowly 
shrink, due to cultural misunderstandings, bureaucratic 
obstacles, and a desire of Armenian businessmen to 
explore the more efficient and larger markets in Europe 
and the U.S. 
ORDWAY