Sanctions Hit Russian Investments in Armenia Hard

Russia accounts for 40 per cent of financial outlay, and some companies are already suffering.

Sanctions Hit Russian Investments in Armenia Hard

Russia accounts for 40 per cent of financial outlay, and some companies are already suffering.

VTB Armenia, a subsidiary of VTB Bank, one of Russia's largest financial institutions, is feeling the bite of sanctions introduced against Russia in the wake of the invasion of Ukraine. Sanctions are impacting Armenia's economy, which is tightly interlaced with Russia's.
VTB Armenia, a subsidiary of VTB Bank, one of Russia's largest financial institutions, is feeling the bite of sanctions introduced against Russia in the wake of the invasion of Ukraine. Sanctions are impacting Armenia's economy, which is tightly interlaced with Russia's. © Arshaluis Mghdesyan

Stinging sanctions imposed against Russia in the wake of its invasion of Ukraine have had ramifications beyond the country’s border, affecting its investments abroad and the economies tightly intertwined with it.

The consequences have been particularly severe for Armenia, where a weak Russian economy affects the remittances that thousands of Armenian workers send home, trade volumes and foreign direct investments (FDI). In 2021, Russia accounted for about 40 per cent of all FDIs in the country, amounting to an estimated three billion US dollars.

Armenia is also part of the Eurasian Economic Union (EAEU) and the only member of the Moscow-led bloc with relevant trade agreements with the West, such as a comprehensive and enhanced partnership agreement with the EU.

Emmanuil Mkrtchyan, director of the rating agency AMRating, said that the impact of sanctions would be felt more in some sectors than others.

“Russian investments may increase in the [food] processing industry…to replace imports as large European manufacturers have refused to supply their goods to the Russian market,” Mkrtchyan told IWPR. “There are no restrictions [in Armenia] on the import of new technologies to organise such production, so we can expect that Russian investments in the field of processing agricultural products in Armenia will grow.”

Mkrtchyan was less optimistic on the financial sector, infrastructure and mining. Two large companies with Russian state capital, VTB-Armenia - a subsidiary of VTB Bank, Russia’s second largest financial institution - and Teghut Copper-Molybdenum mine have already been hit.  

VTB Bank was one of the Russian banks excluded from the SWIFT messaging system on March 2 and additional sanctions in early April blocked all transactions with it. The Teghut copper-molybdenum deposit, owned by VTB, suspended operations in early March.

As sanctions were enacted, customers of VTB’s Armenian subsidiary, which has 60 per cent of state capital, started to face difficulties.

The bank’s stability is vital for Aremnia’s financial system: it is one of the ten largest banks with a network of 73 branches across the country. Technically, it is a separate legal entity from its parent company in Russia, but the use of Visa and Mastercard and international money transfers has become arduous.

“I can’t use my bank cards to pay for goods and services even in Armenia, I can’t receive money transfers either,” Anahit Gevorkyan, a Yerevan resident in her 40s, told IWPR. According to Gevorkyan, customers were only able to take loans from the bank or deposit money into their bank account.

On February 28, Armenia’s central bank issued a statement emphasising that it regulated and controlled VTB-Armenia and that “[its] services and instruments…will be fully available to our customers, except for some restrictions related to money transfers”.

As a measure to tame panic, VTB-Armenia launched a new type of deposit account in the national dram currency with an annual interest ratee of 15 to 17 per cent, twice as high as the average interest rate of 8-8.5 per cent on deposits in other banks.

On March 30, it was reported that as part of a process of digital transformation and optimisation, VTB-Armenia CJSC (Closed Joint-Stock Company) had signed an agreement with Ardshinbank CJSC, one of Armenia’s leading banks, to sell about 11 per cent of its retail loan portfolio. VTB Armenia said in a statement that the transaction amounted to 24 billion Armenian drams (50 million dollars).

While the bank stated that the sale was a result of “changes in the strategy of the retail business and the optimisation of business processes,” experts believe that, due to the sanction regime, the bank wants to get rid of its dollar loans, which under the current circumstances can cause operational problems.

The lender is also looking for alternative means to partially circumvent the sanctions and make card payments available for its customers.

“Currently, VTB Bank [Armenia] is working on the launch of Mir and UnionPay payment cards,” said Ivan Telegin, CEO and chairman of the bank’s board of directors. In 2014, Russia developed these bank cards for residents of Crimea in the wake of the sanctions which were applied after Moscow annexed the peninsula.

The lender’s challenges, however, stretch beyond its retail operations. In a statement released on March 30 as part of the justification for the mine’s closure, VTB Bank in Russia stated that it owned the Teghut copper-molybdenum deposit, which suspended its activities in early March. In 2021, the mine contributed 30 million dollars to the state coffers, making it Armenia’s tenth largest taxpayer. The company cited technical reasons for the suspension, but did not deny the difficulties it faced in delivering products to European buyers due to the war in Ukraine and resulting sanctions.

“Employees were notified that operations were suspended and they were sent on leave. We will be paid two-thirds of our salary,” one of the company’s workers told IWPR on condition of anonymity.

Meanwhile, the management said that mining had been temporarily suspended due to necessary repair works on the tailings dam.

“The company had planned to halt mining and ore processing in May-June 2022, but due to the new political and economic situation in the world, the supply chain of products to consumers has been disrupted, so some adjustments were needed,” Vladimir Nalivaiko, the mine’s general director, told Heqt online newspaper.  

VTB Bank has controlled the mine since September 2018, when it took over from former owners the Armenian Vallex group in lieu of overdue loans amounting to about 380 million dollars. In summer 2019, the lender resumed the exploitation of the Teghut deposit, Armenia’s second largest copper mine, which had been suspended by the previous owner due to financial difficulties and the poor condition of the tailings dam.

VTB Bank has denied claims that the dam was cracked, meaning that it could release tailing content with serious environmental consequences.

However, government officials have indirectly confirmed that the mine halted its operation due to international sanctions against Russia.

“The Teghut deposit is currently under the management of VTB Armenia…Works are ongoing to resolve the issues the company is facing. [We] expect soon the visit of representatives of VTB Russia and this issue will be discussed with them. The buyer of Teghut is the Swiss company VTB Trading, which is currently under sanctions,” Armenia’s minister of economy Vahan Kerobyan told IWPR.

The sanctions may also affect the South Caucasus Railway (SCR), a subsidiary of the Russian state company Russian Railways, which has been operating the Armenian lines since 2008.

In August 2021, the company promised the government investment worth 80 million dollars in upgrading the infrastructure until 2024. Ruben Grdzelyan, SCR’s press officer, told IWPR that despite the sanctions, “the company continues to carry out its planned investments”.

Experts remain sceptical, as sanctions continue to curb the import of key components to maintain and repair infrastructure, including that of the SCR system.


“The process of unblocking transport communications with Turkey and Azerbaijan is underway,” economist Suren Parsyan told IWPR. “If implemented, components can also be imported from China and India, since they are also beneficiaries of projects linking these countries with Europe via the north-south transport route.”

This publication was prepared under the "Amplify, Verify, Engage (AVE) Project" implemented with the financial support of the Ministry of Foreign Affairs, Norway.

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