E-Commerce Development in Armenia & FTA area in Post-Soviet states

E-Commerce Development in Armenia

& FTA area in Post-Soviet states

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E-Commerce Development in Armenia& FTA area in Post-Soviet states

Hussein Nowruzi, Business Development

ConsultantEmail:

[email protected]

January 2017

Golnar Shanehband, Market Analyst

Email: [email protected]

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Outlines

1. Economic Environment in FTA area in Post-Soviet states

2. ICT Environment in FTA area in Post-Soviet states

3. Armenia E-commerce Overview4. Appendix1: Investment incentives in

Armenia

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FTA area in Post-Soviet states

In 1994, the CIS countries agreed to create a free trade area, but the agreements were never signed.

On October 19, 2011 Armenia, Belarus, Kazakhstan, Kyrgyzstan, Moldova, Russia, Tajikistan, and Ukraine signed a free trade agreement.

Uzbekistan joined the free trade area in 2013.

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Russia and Turkey are selected as frontier countries in Eurasia for later comparisons

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Analysis Methodology

Economic Environment Analysis

ICT Environment Analysis

• Key Economic Indicators

• Economic Freedom Index

• Ease of Doing Business Index

• Global Competitiveness Index

• Enabling Trade Index• Networked Readiness Index

• UNCTAD B2C E-Commerce Index

Economic Environment Analysis8

Key Economic Indicators, 2015 9

Ref. world bank and trading economics

indicators

Kazakhstan

Ukraine

Uzbekistan

Belarus

Armenia

Tajikistan

Kyrgyzstan

Moldova

Russia

Turkey Iran

Population (mn) 17.4 42.8 31.2 9.5 2.99 8.5 5.9 3.6 146 78.7 79.1

Nominal GDP, $ bn 184 91 67 55 10.6 7.9 6.6 6.6 1,331 718 415

Real GDP growth (%) 1.2 -9.9 8 -3.9 3 6 3.5 -0.5 -3.7 4 1.3

GDP per capita (ppp) ($ thousand)

23.5 7.5 5.7 16.6 7.9 2.7 3.2 4.7 23.9 18.9 16.5

Inflation rate (%) NA 48.7 NA 13.5 3.7 5.7 6.5 9.7 15.5 7.7 11.9

FDI, net inflows (BoP, $mn) 6,585 3,050 1,068 1,652 179 426 1,139 234 6,478 16,957 2,050

Government debt-To-GDP(%) 10.8 37 N/A N/A 24.6 N/A 42.8 23.7 9.3 33.5 16

Global Ranking Indexes-1• Since 1995, the Index of Economic Freedom has provided an

economic policy road map for countries• The Index covers 10 freedoms – from property rights to

entrepreneurship in 186 countries grouped into four broad categories:

• Rule of law (property rights, freedom from corruption);• Government size (fiscal freedom, government spending);• Regulatory efficiency (business freedom, labor freedom, monetary

freedom);• Market openness (trade freedom, investment freedom, financial

freedom).

Index of Economic Freedom

• DBI, 2017 is the 14th in a series of annual reports investigating the regulations that enhance business activity and those that constrain it and presents quantitative indicators on business regulation and the protection of property rights that can be compared across 190 economies

• Including: starting a business, dealing with construction permits, getting electricity, registering property, getting credit, protecting minority investors, paying taxes, trading across borders, enforcing contracts, and resolving insolvency

Doing Business

Index (DBI)

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Global Ranking Indexes-2

• Since 2005, the World Economic Forum has published the GCI which combines 114 indicators that capture concepts that matter for productivity and long-term prosperity

• These indicators are grouped into 12 pillars: institutions, infrastructure, macroeconomics environment, health and primary education, higher education and training, goods market efficiency, labor market efficiency, financial market development technological readiness, market size, business sophistication, and innovation

Global Competitiv

eness Index (GCI)

• has been published since 2008, the index assesses the extent to which economies have in place institutions, policies, infrastructures and services facilitating the free flow of goods over borders and to their destination.

• the ETI consists of an aggregation of individual indicators measuring various trade-enabling factors which are organized into four larger groupings: Market access, Border administration, Infrastructure, Operating environment.

Enabling Trade

Index (ETI)

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Economic Environment Ranking

13 ICT Environment Analysis

The Global Information Technology Report

Since 2001, published by the World Economic Forum in partnership with Cornell University and INSEAD has measured the drivers of the ICT revolution using the Networked Readiness Index For 143 economies.

The framework translates into the NRI, a composite indicator made up of four main categories: Environment, Readiness, Usage and Impact

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The networked readiness Index framework15

Environment:political and regulatory

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Environment:business and innovation

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Readiness18

Usage:Individual usage

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Usage:Individual business usage & Government usage

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Impact:Economics and social

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Market Potential for ICT Investment22

Outline Detailed

TajikistanKyrgyz

Iran

Moldova

Armenia

Ukraine

RussianTurkey

Kazakhstan

Political and regulatory environment 4.2 3.3 3.5 3.0 3.2 3.2 3.6 3.8 4.0Business and innovation environment 3.8 4.2 4.2 4.0 4.6 4.3 4.5 4.7 4.5Infrastructure 1.6 3.1 3.0 4.2 4.4 4.7 4.7 4.5 4.4Affordability 2.2 6.1 6.0 6.1 6.3 6.6 6.6 6.9 6.6Skills 5.2 4.8 4.8 5.0 5.4 5.6 5.4 5.0 5.4Environment & Reediness 15.1 15.9 16.3 18.7 19.6 18.1 21.6 19.7 21.6Environment & Reediness(Ranke) 1 2 3 5 6 4 9 7 8Individual usage 2.3 3.5 3.3 4.3 4.1 3.9 5.3 4.3 4.8Business usage 3.4 3.2 3.1 3.2 3.4 3.6 3.6 3.8 3.6Government usage 3.1 3.0 3.5 3.9 4.4 3.1 4.4 4.1 4.8Economic impacts 2.9 2.7 2.9 3.1 3.4 3.4 3.7 3.2 3.5Social impacts 3.5 3.4 3.5 4.2 4.3 4.0 4.6 4.4 4.9Usage & Impact 17.0 21.5 21.6 22.4 23.9 24.5 24.7 24.9 25.0Usage & Impact(Rank) 1 2 3 4 5 6 7 8 9

Usage & Impact

Environment & Rediness

Note: scores are between 1-7(best)

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UNCTAD B2C E-Commerce Index, 2016assessment based on 137 countries, 99% of world GDP

Internet usersSecure servers • The number of secure Internet servers was selected as a proxy given that

most ecommerce sites need to employ security protocols to safeguard payment and personal information.Credit card penetration among the population aged 15 years

and older • Credit cards includes all card payment solutions like credit card, debit card,

charge card and prepaid cardPostal reliability score • delivery of both physical goods and services and digital products

Ref. UNCTAD b2c e-commerce index 2016

4 indicators:

UNCTAD B2C E-commerce Index, 201624

Share of individuals using internet25

Ref. world bank

Kazak

hstan

Belarus

Armen

ia

Moldov

a

Ukraine

Uzbekis

tan

Kyrgy

zstan

Tajiki

stan

Russia

turke

yIra

n0

1020304050607080 72.9

62.2 58.249.8 49.3

42.8

30.2

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73.4

53.744.1Pe

rcen

tage

Potential Countries for ICT Investment

Kazakhstan

Low Economic Environment Readiness

Mar

ket

Pote

ntia

l for

ICT

Inve

stm

ent

Belarus

Armenia

Russia

Moldova

Turkey

Kyrgyzstan

Ukraine

Uzbekistan

Iran

Tajikistan

Low

High

Hig

h

Most problematic factors in doing business

Most problematic factors in these countries are:

1. Inflation 2. Tax rate3. Corruption 4. Access to finance5. Policy instability

(Moldova and Ukraine )

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Note: Numbers are the rank of problematic factor in each country

28 Armenia E-commerce Overview

Armenia29

Armenia Key economic factors30

Ref. world bank19.1%

15.2%

43.5%

11.7%

10.5%

Factors: 2014 2015Nominal GDP, $ bn 11.6 10.6Real GDP growth 3.6% 3%GDP(PPP) PER capita, $ 8,118 8,419GDP(PPP) as share of world

- 0.02%

Inflation rate 3% 3.7%USD/AMD 416 478

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Nominal GDP structure

In 2015 GDP composition agriculture had the biggest share compounding 17.3%, followed by Manufacturing and Mining, and public administration both compounding 11.2% share each.

Telecom operators in Armenia

1. National operator, Public Services Regulatory Commission (PSRC)2. Karabakh Telecom (K-Telecom), a Lebanese-owned company, launched its

VivaCell service in 2005 reaching almost 50% coverage 4G presence across the country by early 2015;

3. Orange Armenia, 100% owned by France Telecom (Orange), launched a mobile service in 2009.

In August 2015, the Orange Group sold 100% of Orange Armenia to local service provider Ucom;

4. Ucom, a fixed-line and internet service provider, launched in 2013. Moving quickly into the fibre-based broadband market, Ucom was claiming

75,000 FttH subscribers by February 2015.The launch of 3G services by both ArmenTel and K-Telecom in 2008 and then Orange Armenia in 2009 gave the mobile sector a major lift

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Distribution of companies by specialization33

Ref. Armenian ICT sector 2015, Enterprise Incubator Foundation

IT market revenue

In 2015, IT market volume reached about $ 345 mn, comprising 61% of ICT industry’s total.

since 2010, sales volumes in the domestic market have increased by more than 253%

the ISP segment was at 39%, with an estimated $134 mn in total market revenues

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Ref. Armenian ICT sector 2015, Enterprise Incubator Foundation

Armenia mobile market

At the end of 2014, the mobile penetration was 116% the annual growth rate: 10% 100% geographic coverage In 5 years, mobile

penetration jumped from 80% to 116%.

Mobile broadband penetration in Armenia has reached over 30%.

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Online purchase in Armenia

As of June 2015, only 4.2% of Yerevan population made purchases from Armenian online stores or platforms.

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Based on the marketing research implemented by R-Insights Research and Consulting Company in the period of 20 May to June 4, 2015.

Some examples of popular e-commerce startups

Company Field of activity

1Online sale of Digital and electronic devices plus accessories

2collective shopping website has entered the market to introduce a variety of promotions and discount offers.

3~ a platform for all restaurants and cafe shops to place their menus and able the customers to order online (zoodfood)

4Offers discount coupons or gift in a cafe, restaurant, karaoke bar, beauty salon, entertainment center, cinema, favorite shop, fashion boutique or medical clinic

5established in 2008online sale of Professional Gaming tools, mobiles, notebook, PC, servers & networks, cameras and related accessories

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Some examples of popular e-commerce startups

company Field of activity

6 You can buy goods from US websites that only ship to US addresses. At the checkout, just use your "ShopInAmerica" personal American address for the delivery(offers AIR and SEA shipping)

7 an online mega-mall of products, services, coupons and a social network for online shoppersallow businesses to open their web store on the Crossroad platform, publish marketplace items, sell and advertise. Crossroad takes care of payments, delivery, returns, refunds and customer support.

8Eli.am- presents the world famous manufacturers, and also produced its own design of a series of gifts

91. Register and get an individual address in the USA, Russia and Great Britain

for free2. Use the shipping addresses that you have got while shopping online3. Get your orders in Yerevan

Successful Armenian ICT startups

To support the ICT industry, the Government of RA has initiated the introduction of targeted tax privileges for startup IT companies (ratified by 2015). A simplified procedure is set for creating start-ups, and the start-ups have to pay only 10% income tax and 0% profit tax during the first three years of operation.

Among the recently launched successful Armenian startups are: PicsArt – 75 million monthly active users and 300 million installs, PicsArt was named one of the

top 5 “Hottest Startups of 2015” by Forbes and Google Play ranked PicsArt as one of the “Best Apps of 2015.”

SoloLearn –a global coding community, has grown in popularity among millennials and students by providing an entertaining environment for young people to improve their coder ranking.

Shadowmatic – an iOS app developed by the Yerevan-based Triada Studio which won the prestigious Apple Design Award in 2015;

Joomag Company – providing integrated solutions for publishing, distributing, tracking and monetizing publications online (creating digital interactive magazines, newsletters, blogs, catalogues, brochures, and e-books) to more than 300,000 worldwide publishers and many more.

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Thank you for attention

41 Appendix 1 :Investment incentives in Armenia

Armenia Investment incentives

100% ownership permitted Companies registered by a foreigner in Armenia have the right to buy land VAT payments postponement for up to 3-year period for importing equipment and

goods within the scope of investment projects, subject to the Government approval Free exchange of foreign currencies Free repatriation of profit Free Economic Zones (no value added tax, no property tax, no profit tax, no custom

duties) No export duties and restrictions No screening and specific authorization required for making investment No restrictions on remittances No restrictions on staff recruitment No sector-specific or geographic restrictions on investments, except in certain

national defense-related sectors

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Investment guide Armenia-KPMG-sep. 2016

Armenia Investment incentives-continue

Customs duty exemption. Materials and equipment/ technology imported from non-EEU(Eurasian Economic Union) country that cannot be replaced by materials and equipment produced by EEU country to implement investment project in the priority sector of economy of Armenia and exceptionally in the territory of RA are exempted form customs duties.

Tax exemptions in close to border areas of Armenia Tax exemptions in Tavush region of Armenia (operations within the framework of

investment projects above 2 billion AMD (except those in mining and chemical production sectors)

Profit tax privileges for large exporters (exported goods and services for at least 40 billion AMD (about 84 million USD), except those in mining, jewelry, precious metals and stones processing, excisable goods production)

Foreign investments are allowed in wide sectors of economy and in various forms. Investments are protected for a period of five years from adverse legislative changes.

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Armenia has signed bilateral treaties on reciprocal promotion and protection of investments with 41 countries.

Armenia is also a signatory of the International Convention of Investment Disputes (ICSID), CIS Multilateral Convention on the Protection of Investor Rights.

has double taxation treaties with 41 countries as of 2016. Armenia has signed free-trade agreements with Georgia and most of the

CIS countries. Armenia currently enjoys GSP beneficiary status with Canada, Japan,

Norway, Switzerland, and the United States. Since 2009, Armenia has also been included in the list of countries

granted GSP+ by the European Union.

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Since January 2015 Armenia is a member of the EEU, which creates the following opportunities: Duty free import of raw materials from EEU member states. No customs formalities during mutual trade between EEU

member states, which leads to financial costs reduction and time-consuming for business.

No non-tariff measures of trade and trade technical barriers between EEU member countries.

Favorable import tariffs for about 750 products.

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