The Armenian Government has set out on an ambitious journey to transform the country’s economy. Armenia’s GDP in 2022 was $19.5 billion, which is almost double its GDP in 2012 of $10 billion. According to ArmStat (Armenia’s Statistical Service), the wholesale and retail trade sectors contribute the largest share to Armenia’s GDP at 11.8%, followed by the manufacturing industry at 11.7% and agriculture at 10.4%.
The government aims to increase the production of high value-added goods and improve the economic complexity index (ECI) of Armenia to compete in international markets. Economic complexity, which is determined by a country’s diversity of exports and their ubiquity, is a crucial factor in long-term growth.
Armenia’s economic complexity ranking dropped from 35 to 77 between 2000-2020, which indicates a decrease in the export of ready-made products, machinery, equipment, and technologically complex products. To address this issue, the government plans to upgrade enterprise technology, enter new international markets, and strengthen existing positions to increase economic complexity.
The government has set ambitious economic targets to achieve by 2026, including a minimum annual GDP growth of 7%, with a target of 9% in favorable external economic conditions. To promote income equality, the government aims to increase wages and related payments in the private sector to 25% of GDP, reduce unemployment rates to below 10% through job creation and human resources development and establish a knowledge-based and innovative economy to support international competitiveness.
Small and medium enterprises (SMEs) will be prioritized by expanding their share in GDP to 55% within five years, diversifying the support toolkit, increasing access to finance, enhancing entrepreneurial skills and knowledge for innovative entrepreneurs. This will boost economic activity and create alternative sources of income in the regions, while ensuring inclusive growth.
Armenia’s top trade partners include Russia, China, Iran and Germany, while its main exports go to Russia, the UAE, China and Georgia. Armenia is a member of the Russia-led Eurasian Economic Union while also maintaining strong economic ties with the EU through the Comprehensive and Enhanced Partnership Agreement (CEPA).
The Textile Industry: A Promising Sector
The Armenian government has recognized the manufacturing industry as a priority development sector and intends to utilize it to advance its economic policies, with the textile industry being regarded as one of the fastest growing sectors.
In 2023, the government adopted The Program for the Development of the Textile Industry for 2023-2026 along with an action plan. Although textiles currently only make up a small share of the total industry (2.8% in 2021), there is great potential for its development in economic growth and job creation. The export of textile products from Armenia grew at an average rate of over 40% annually between 2011 and 2020.
Magazine Issue N28
In this issue, we explore Armenia’s diverse manufacturing industries, from food production to textile manufacturing to diamond processing. We delve into the challenges and opportunities facing each sector, the innovations driving growth, and the impact on Armenia’s economy and society.
The textile industry, particularly clothing and accessories, is seen as an important export-oriented sector and a significant source of employment, especially for women, who comprise 90% of the workforce, and include those in rural areas who otherwise would not have inroads to the labor market. As of 2022, 52% of Armenian women aged 15-74 are not formally employed.
In 2022, the global textile market amounted to just over $1 trillion and is anticipated to reach over $1.4 trillion by 2030.
The rapidly changing trends in the fashion industry and the rise of e-commerce platforms that support sales and distribution of various textile products are projected to drive market growth.
In 2021, China, the EU, India, Turkey, and the United States were the top textile exporting countries worldwide. China was the world’s leading textile exporter, with a value of approximately $146 billion. The European Union ranked second, with an export value of around $64 billion, which is almost half of China’s value. China’s exports accounted for almost 41.4% of the total global textile export market.
In recent years, the global textile sector has faced serious challenges, such as the shift in production towards low-cost markets, the discovery of new consumer markets, and the demand for innovative raw materials and eco-friendly production. Additionally, the sector has been affected by global inflation, supply chain transformations, sanctions against Russia, and a global economic and political crisis. These challenges will have a significant impact on the future development of the sector both locally and internationally.
The Current State of the Textile Industry in Armenia
Armenia’s textile industry currently serves primarily as a labor force for foreign companies — Armenian companies receive materials to assemble and re-export the finished products. The industry manufactures clothing such as jackets, uniforms, and underwear for brands like Prada, Zara and Max Mara.
In 2020, 94.5% of the 7,400-strong workforce in the textile industry worked in garment manufacturing, which includes the production of leather and related products, earning an average annual salary of about 102,000 AMD ($208). This is lower than the country’s overall average annual salary in 2022, which was AMD 249,278 ($630).
The number of companies in the textile sector increased from 96 to 153 between 2011 and 2020. However, that number fell to 89 in 2022. Most of the companies in the sector are small and medium-sized enterprises. In 2021, 11 textile companies were included in the list of large taxpayers. Over the last two decades, large producers and well-known brands have emerged in Armenia’s textile sector. The largest companies are Alex Textile, Tavush Textile, and Gloria sewing factory.
Textile and clothing production accounted for 2.8% of all manufacturing and 1.8% of total industrial output in 2021. The sector has experienced an average annual growth rate of 9%. Clothing production reached 40.6 billion AMD in 2021, a 30% increase from 2020. Textile production amounted to 1.9 billion AMD, a 39% increase from 2019. The sector produces a variety of products, including cotton fabrics, bed linens, pants, shirts, pullovers, and other items.
Armenia has seen a significant increase in textile product exports, with an average annual growth rate of 40% from 2011 to 2020. The member states of the Eurasian Economic Union (EEU) and the European Union are the main markets for Armenia’s clothing and clothing accessory exports, with Russia, Germany, and Italy holding the largest share.
In 2020, 50% of textile and clothing exports were sent to Russia. Uzbekistan and Vietnam are Armenia’s main competitors in the Russian market. However, individual Armenian textile companies operating in Russia have significant niche markets. For example, Tavush Textiles specializes in work gloves and Alex Textiles focuses on children’s knitwear sold in the Russian market.
The European Union is one of Armenia’s main export markets, accounting for 21.7% of its exports in 2021. However, Armenian clothing and apparel comprise only a small portion of textile imports to the EU, while China, Bangladesh, and Turkey leading the way.
While Armenia has the right to enter the markets of EEU member states without restrictions and customs duties, it lost the privileges of the GSP+ (Generalized System of Preferences) provided by the EU in 2022, as it was classified by the World Bank as an upper-middle income country in 2018, 2019 and 2021. This means that Armenian companies must pay a 12% customs duty when exporting textiles and clothing accessories to the EU.
Armenia imports most of the raw materials needed for its textile industry. From 2018 to 2020, it imported over $380 million worth of raw materials, primarily from Turkey, China, and Italy, which together account for 90% of Armenia’s imports. Specifically, around 36% of imported textile products are from Turkey, 31% from China, and 23% from Italy.
The Way Forward
The Action Plan of the Program for the Development of the Textile Industry aims to transform the sector through institutional solutions, improve worker skills and productivity, modernize production facilities with high technology investments, and promote the development and representation of Armenian brands in new markets.
For the Armenian government, creating economically complex, high value-added textile products is the key to competitiveness in international markets. However, the added value index of the textile sector in Armenia has decreased over the last three years, indicating a decline in productivity. The government attributes this decline to poor working conditions. To address this issue, the government plans to promote better working conditions and higher wages.
The textile industry faces a lack of qualified workers and the current Armenian education system is unable to produce professionals for the industry, including designers and core laborers. The government reports that 62% of producers do not collaborate with educational institutions, indicating a lack of institutionalized collaboration between the two, for example through apprenticeships, that could adequately prepare students for work in the industry. To address this issue, the government plans to partner with educational institutions to train local, high-quality workers for the textile industry.
According to Narine Haroyan, Light Industry Expert at Armenia’s Ministry of Economy, they have prepared a program to address the shortage of skilled workers by aiming to incentivize companies to hire and train individuals with no prior experience in the industry by offering a refund of income tax.
“To ensure a fair return on investment for the employer, we propose refunding income tax paid for each employee in their first year of employment, as the employer invests time and resources into developing the worker’s skills and knowledge,” she noted, adding that the program is ready to be presented for the government’s consideration. Steps are also being taken to bring international expertise to Armenia. The Ministry is negotiating to establish cooperation between the Milan Polytechnic University and Armenia’s Polytechnic University.
Most of the programs stemming from the textile development program and action plan are still in the initial stage and it remains to be seen what results their implementation will yield.