My experience and knowledge gained over 25 years in the mining sector, many years of communication with a variety of international investors, connections and exchange of experience with the international mining community allow me to make comparisons between the mining industries of different countries, see the strengths and the potentials that Armenian mining industry has, as well as highlight the problems the solution of which will enable to develop the sector.
Mining as the key to economic development
For years, we have been looking for the key to economic development in Armenia, giving priority to the IT sector, tourism or agriculture. However, every time after global and regional upheavals, it becomes obvious that these sectors are not enough for sustainable economic development and for competing with neighboring countries. The COVID-19 pandemic, the war, the strengthening of Armenian dram and the regional instability have shown that the abovementioned sectors are much more sensitive to such upheavals and cannot be the pillar that the domestic economy can rely on.
The opposite can be said about the mining sector. During this difficult period, the sector remained stable and assumed the main financial burden of the country. So, there is no need to reinvent the wheel to find the key to economic development. All one has to do is study the path and experience of developed economies and see how the mining industry has contributed to the further development and diversification of the economy.
In this regard, the United Arab Emirates has been particularly prominent over the past two decades. In a short span of time, a desert-like country, using its natural resources, has become one of the most developed countries in the world, and the Emirate of Dubai became the most attractive financial, trade and tourist center of the world.
Back in the 1960s, Sheikh Rashid bin Saeed Al Maktoum of Dubai found the key to economic development - oil. By the 1990s, oil accounted for 95% of Dubai's economy. Later, as visionary rulers, Saeed Al Maktoum and his son, the Sheikh’s successor, used this key to build a truly diversified, leading economy. They developed and implemented the idea of "Three T" (trade, tourism, transport)։ financial resources generated from oil were directed to the development of transport, tourism and trade, attracting international investors. Today, Dubai is home to the world's two largest ports, one of the world's largest airports by international standards, and the world's tallest skyscraper. Today, in Dubai and all the United Arab Emirates, the desert sand is a symbol of luxury tourism, rather than a symbol of poverty. And the key was the exploitation of natural resources.
There are many such examples. In the 19th century, mining became one of the core directions of the economy of the United States of America, on the basis of which the current economic system was formed. Today, the United States is the largest economy in the world by nominal GDP. And though almost all sectors of the economy are developed in the USA today, the mining industry continues to have its constant and important role, providing an average of 2% of GDP over the last 20 years.
Armenia’s untapped capacity
Armenia also has this key to economic development. Our subsoil is rich in natural resources, the country has a huge unexplored potential that can become attractive to international investors. However, the discussions about the mining industry in Armenia were mainly on the level of having or not having a mining industry. This sector has been targeted unduly and discredited while taking on the bulk of the country’s tax burden. Surely, we must admit that there are problems in this sector and there is a need for upgrading and tightening standards, which should actually be the subject of discussion. But both a government and public approach and attitude appropriate to the sector are required. The key should be used properly to keep the economy on solid foundations, develop it, and not lose the country’s competitiveness in the region.
How did our neighbors succeed?
I think it is out of the question that developed economies determine the outcome of wars, ensure the territorial integrity of states and their geopolitical and regional role.
Over the past few decades, we have witnessed the rapid economic development of our neighbors. Turkey has become the country that today dictates regional developments, whose opinion is taken into account by everyone. The city of Batumi in Georgia was transformed and developed over the course of several years, becoming the "little Dubai" of the Caucasus. Azerbaijani gas forced the world to reckon with it, and Iran, while isolated from the world, continues to be one of the important players in the region thanks to oil and gas production. And we haven't even finished the construction of the North-South road started yet in 2009.
The success of our neighboring countries is also based on the mining industry, which enabled them to diversify the economy and become a leader in various areas.
In the last 20-30 years, Turkey’s economy has undergone significant changes. If earlier 85% of the mining sector was controlled by the state, today the picture is completely opposite. Over the past decade, Turkey has created favorable conditions for investors, paving the way for international mining companies to carry out large-scale geological exploration in its territory. Today, Turkey is the largest gold producer in Europe with 27 tons per year. A number of reputable foreign companies (Eldorado Gold, First Quantum, Alacer Gold, Centerra Gold, etc.) are operating here.
Iran’s economy is also based on the exploitation of natural resources, particularly, gas and oil. Iran ranks second in the world in terms of oil reserves. Although Iran’s economy is heavily dependent on mining, this has enabled to diversify its economy sufficiently. It is no coincidence that in the previous 5-year development plan of Iran, the distribution of oil and gas revenues and the development of science, technology, and the financial and banking sector were noted as a priority.
After the first Artsakh war, Azerbaijan buckled to the exploitation of natural resources, developing its economy within 30 years and becoming one of the main gas suppliers in Europe. It wasn’t even discussed whether there should be mining or not. They invited reputable international companies (e.g., British Petroleum) and created favorable conditions for doing business. More than 60 billion US dollars have been invested in Azerbaijan through BP alone. Even today, we can see how Aliyev rushes to distribute mining licenses to international companies in the occupied territories. This policy and the viable economy based on natural resources perhaps predetermined the outcome of the 44-day war and also the cautious and neutral stance of the main international actors during the war. After all, they had their own financial interests in Azerbaijan.
As for Georgia, the reforms that began here after the revolution in 2003, aroused great interest among foreign investors, and a large influx of investments predetermined the future rapid economic growth of the country. A significant part of investments was directed to mining and infrastructure development. As a result, Georgia became an important link between Asia and Europe, ensuring its competitiveness in the region.
Unfortunately, Armenia is lagging behind in this top five today, because we did not fully value and use our mineral potential.
How to become competitive in the region?
In recent years, there has been a significant increase in the prices of gold and silver. Due to growing instability in the world, countries continue to purchase large quantities of precious metals as the main security guarantee. The development of renewable energy has led to the expansion of mining around the world. The demand for copper, nickel, lithium, cobalt and rare metals has increased. Today we are witnessing the formation of a new world order, which is also based on the management and control of natural resources. As a result, the countries that have something to offer the world in terms of natural resources will benefit.
Although Armenia does not have oil and gas reserves, our subsoil is rich in copper, molybdenum, gold and rare metals. Armenia has a huge potential of natural resources, which is almost unexplored in terms of current global demand. There are mines that require a clear government approach to operate them.
These opportunities need to be developed and turned into a material output. To do this, first of all, it is necessary to recognize the sector as a priority industry and provide the private one with the opportunity to explore the mineral potential. In addition, consistent efforts should be made to form the right public perception and attitudes towards the sector. Both the government, the private sector and the public have the stuff to do here. Investments, a stable legal framework, reasonable tax policies to avoid tax overloading for mining companies, and a predictable business environment are needed. These are primary preconditions, only upon the availability of which it will be possible to make the mining sector the basis of a developed and diversified economy. In this way, many countries of the world, including our neighbors, have achieved economic success, becoming competitive actors on the political map of the world. Now it's our turn.
Hayk Aloyan is the managing director of Lydian Armenia.
These views are his own.