“What would you do if you had ten million AMD?” Currently, many people have been asking this question to one another. Most people who haven’t thought about this seriously say that they will either buy an apartment or a car. What if this money is in your hands? Now there are many people in Armenia that have good money in cash, but they don’t know where to invest it.
We talked to a citizen by the name of Hakob, who has saved several thousand dollars during many years. He has a good apartment, a car and has also paid for his children’s education. How to invest this money in order to get profit? Hakob says that he has thought about this very long, but hasn’t found a good solution. He also understands that if he doesn’t invest it soon he may waste that money.
When investing, we should pay attention to two things: profitability and risks. Usually the bigger the risk is the more profit you get. So when making investments people should calculate whether they will be able to make up for all possible risks or not. In spite of this, it is very difficult to calculate both the profitability and risk levels in Armenia. It seems that bank credits are the most secure investment. “I have thought about this too, but I don’t trust in our banks”, says Hakob. This way of thinking was formed after the collapse of the Soviet Union, when people lost their bank credits in Soviet banks, and it is hardly possible to recover people’s trust to banks now. As for bank investments, according to Hakob the profitability level is very low here. Currently banks offer about 3-8% interest rates. Usually AMD has the highest interest rate. “If I invest 50.000 USD in a bank I will receive only 3-3,5.000 USD per year. So it is better for me to give this money directly to citizens for 12% interest rate than to invest in banks”, says Hakob. This mechanism of borrowing money directly from relatives is applied in Armenia long. It is also worth mentioning that in case of taking out the invested money sooner than the proposed date banks usually pay either very little interest rates or not pay it at all. Taking into account all these facts, Hakob says that it is not profitable to invest money in banks.
We asked Hakob whether he had tried to found his own business and he answered, “What would you offer for example?” We offered him to found a trade hall because this small business brings the invested money back in a short period. In this case Hakob is afraid of strong competition. “It is very important to find out whether certain trade halls will work well in a chosen territory or not. For instance recently a very good big shop was found in a near territory, which had very good service. Even though there were no other competing shops nearby, it was closed soon”, says Hakob. He has also thought about founding a café, but in this case he is afraid of administrative bodies and their pressure. “You need to have a good financial status to found such a café if you are not backed by a powerful person from the municipality. If you don’t have anyone to back you, nobody will give you territories. As for the territories, the most profitable ones are already taken”, says Hakob. There is one more obstacle here; before starting a business investors need qualified specialists, but Armenians don’t trust anyone. “How can I be sure that they will not cheat me? If I had such friends I would work with them for sure”, says Hakob.
Besides small businesses and bank deposits there are other fields of investment in Armenia too. The income of bank credits has been cut down during the last several years, but in spite of other fields there are no risks in this field. Even now, when the profitability of such credits is very low, the turnout capacity of the secondary market (when buyers are physical or juridical persons) has increased in 2005.
So, which is the main obstacle on the way of making investments? There is no market of cooperative stocks in Armenia. This is the main obstacle in our economy. Everyone saves money to buy stocks from different companies and this is a very good field of investment. As for Armenia, that market doesn’t exist. Who knows what it means to buy stocks and have share in a company? Most of our economy is owned by some people and ordinary people can’t become stock holders of those companies. We may assume this if we pay attention to the structure of Armenian joint stock companies: the stocks are distributed between the members of their families.
As for the authorities, they don’t care about this. Politicians say that it is very important to develop small and medium businesses. They are right, it is very important, but people will not feel any economical development until they get an opportunity to invest their money.
Hakob assures that he has discussed all these options. “My financial status is not enough to start a big business, besides that, financial tools contain many risks in Armenia and don’t have good level of profitability. I’d like to buy stocks from a developing company, but I don’t have this opportunity in Armenia. Someone wants to borrow money from me, I may agree with him”, says Hakob.