The economy relies heavily on investment and support from Armenians abroad. Before independence, Armenia’s economy was largely industry-based – chemicals, electronics, machinery, processed food, synthetic rubber, and textile – and highly dependent on outside resources. The republic had developed a modern industrial sector, supplying machine tools, textiles, and other manufactured goods to sister republics in exchange for raw materials and energy.
Agriculture accounted for less than 20% of both net material product and total employment before the dissolution of the Soviet Union in 1991. After independence, the importance of agriculture in the economy increased markedly, its share at the end of the 1990s rising to more than 30% of GDP and more than 40% of total employment. This increase in the importance of agriculture was attributable to food security needs of the population in the face of uncertainty during the first phases of transition and the collapse of the non-agricultural sectors of the economy in the early 1990s. As the economic situation stabilised and growth resumed, the share of agriculture in GDP dropped to slightly over 20% (2006 data), although the share of agriculture in employment remained more than 40%.
Yerevan is the economic and cultural centre of Armenia.
Armenian mines produce copper, zinc, gold, and lead. The vast majority of energy is produced with fuel imported from Russia, including gas and nuclear fuel (for its one nuclear power plant); the main domestic energy source is hydroelectric. Small deposits of coal, gas, and petroleum exist but have not yet been developed.
Access to biocapacity in Armenia is lower than world average. In 2016, Armenia had 0.8 global hectares of biocapacity per person within its territory, much less than the world average of 1.6 global hectares per person. In 2016 Armenia used 1.9 global hectares of biocapacity per person – their ecological footprint of consumption. This means they use double as much biocapacity as Armenia contains. As a result, Armenia is running a biocapacity deficit.
Like other newly independent states of the former Soviet Union, Armenia’s economy suffers from the breakdown of former Soviet trading patterns. Soviet investment in and support of Armenian industry has virtually disappeared, so that few major enterprises are still able to function. In addition, the effects of the 1988 Spitak earthquake, which killed more than 25,000 people and made 500,000 homeless, are still being felt. The conflict with Azerbaijan over Nagorno-Karabakh has not been resolved. Shutdown of the nuclear power plant in 1989 lead to the Armenian energy crisis of 1990s. The GDP fell nearly 60% between 1989 and 1993, but then resumed robust growth after the power plant was reopened in 1995. The national currency, the dram, suffered hyperinflation for the first years after its introduction in 1993.
Nevertheless, the government was able to make wide-ranging economic reforms that paid off in dramatically lower inflation and steady growth. The 1994 cease-fire in the Nagorno-Karabakh conflict has also helped the economy. Armenia has had strong economic growth since 1995, building on the turnaround that began the previous year, and inflation has been negligible for the past several years. New sectors, such as precious-stone processing and jewelry making, information and communication technology and tourism are beginning to supplement more traditional sectors of the economy, such as agriculture.
This steady economic progress has earned Armenia increasing support from international institutions. The International Monetary Fund (IMF), World Bank, European Bank for Reconstruction and Development (EBRD), and other international financial institutions (IFIs) and foreign countries are extending considerable grants and loans. Loans to Armenia since 1993 exceed $1.1 billion. These loans are targeted at reducing the budget deficit and stabilising the currency; developing private businesses; energy; agriculture; food processing; transportation; the health and education sectors; and ongoing rehabilitation in the earthquake zone. The government joined the World Trade Organization on 5 February 2003. But one of the main sources of foreign direct investments remains the Armenian diaspora, which finances major parts of the reconstruction of infrastructure and other public projects. Being a growing democratic state, Armenia also hopes to get more financial aid from the Western World.
A liberal foreign investment law was approved in June 1994, and a law on privatization was adopted in 1997, as well as a program of state property privatization. Continued progress will depend on the ability of the government to strengthen its macroeconomic management, including increasing revenue collection, improving the investment climate, and making strides against corruption. However, unemployment, which was 18.5% in 2015, still remains a major problem due to the influx of thousands of refugees from the Karabakh conflict.