A zerbaijan’s ongoing complete blockade of the only road linking the Republic of Artsakh with Armenia and the world has led to serious problems in a number of fields of the economy. The 120,000 population of Artsakh is simply deprived of the right to meet their vital needs. Under the blockade, the economic situation is getting worse day by day. The normal work in the areas of trade, service, agriculture, construction, tourism, restaurant and hotel management, communications and the mining industry has been disrupted. This “economic shutdown”, in turn, leads to rising prices, inflation, unemployment, food shortages, poverty, reduced production and trade turnover, state budget deficits, reduced tax revenues and a number of other issues. The above-mentioned social and economic issues completely undermine the pillars of the economic security of the Republic of Artsakh.

The economic picture of a humanitarian catastrophe

M ost of the food products are missing from Artsakh stores, vegetable and fruit shops are closed, meat products are not imported at all and there is a significant shortage of milk due to the seasonal situation. Lack of feed can cause a reduction in the number of cattle, which will lead to an increase in the already existing shortage in the dairy market. Agricultural work, particularly the spring sowing, is almost not carried out because of the lack of diesel fuel, seeds, as well as fertilizers, pesticides and the acute lack of electricity also prevents the irrigation work. It should also be noted that gas heated greenhouse facilities also suffer significant losses today. 

The construction industry also faced serious problems: the blockade forced the suspension of construction work, with the exception of those construction sites, where the work can be continued with pre-purchased building materials.

Many companies ceased their activities under the current situation and mainly some organizations continue to work with pre-purchased building materials, despite the lack of imported materials. 

It is natural, that under the blockade, tourist flows stopped, which leaves its negative consequences in the hotel and restaurant sectors. Public catering enterprises do not hold mass events due to food shortages and energy savings. 

Although the mining industry of Artsakh meets international standards, the mining operations at Kashen were temporarily suspended, leaving its serious consequences on the economy of Artsakh. Along with the supply of electricity, the Internet outages create serious obstacles not only for some part of online works, but also for organizing distance learning for 20,000 pupils in Artsakh. Before the blockade, there was a significant activity in the economy of Artsakh. According to the National Statistic Service of Artsakh, economic growth of over 18% was recorded in the first 9 months of 2022, compared to the same period of last year. Further growth was expected, however, it is clear that economic performance will be lower than envisaged due to the blockade. 

Chart 1. The structure and development dynamics of the economy of the Republic of Artsakh.


Chart 2. GDP structure of the Republic of Artsakh

It is noteworthy, that Artsakh exclusively imports a number of essential goods, and before the blockade, 400 tons of essential goods were imported from Armenia to Artsakh daily, including grain, flour, vegetables, fruits, household goods, etc. Currently, the regular delivery of food, medicines and energy have been completely stopped in the country, and only the peacekeeping contingent of the Russian Federation and the International Committee of the Red Cross have the opportunity to enter and leave Artsakh. It should be noted that more than 18,400 tons of essential goods were to be delivered to Artsakh as a result of the blockade lasting for almost 2 months. It is necessary to draw the attention of international structures, including the UN World Food Organization to this issue.

Owing to the blockade, the population faced challenges of food self-sufficiency, forcing people to resort to savings and restrictions. The necessary food was supplied to stores from the state reserve and a coupon system was introduced. According to the Artsakh Information Center, before the blockade, 400 stores were serviced by suppliers in the republic, and the rest of the stores were reselling, whereas now to ensure equal distribution and uniformity of prices, the number of stores serviced by the suppliers has increased, reaching 600.

Since January 9, the electricity supply from Armenia to Artsakh has been cut off from the territory under Azerbaijani control and the Azerbaijani side does not allow specialists to carry out emergency repair work. Earlier, on December 13, 2022, Azerbaijan periodically interrupted gas supply, depriving the population of Artsakh of the opportunity to use gas. Due to rolling blackouts of the electricity and the lack of gas supply, the number of accidents increased in Artsakh. Hence, in these winter days, the citizens of the Republic of Artsakh are actually deprived of uninterrupted gas and energy supply, and the supply of the latter is carried out only at the expense of internal, extremely limited resources. Under such conditions, priority is given to providing fuel to ambulances, public transport, special services, as well as gas-powered enterprises for the production of bread and other vital facilities. In order not to disrupt the production cycle, 2 diaries and a bakery are supplied with electricity on a 24-hour basis. 

• 4700 people lost their jobs
• 6828 children do not attend kindergartens,
• 20,000 schoolchildren do not attend school
• 508 citizens are deprived of the opportunity of surgical operations
• The Road of Life of 120,000 people is closed  

A number of institutions and enterprises were forced to stop their activities, and more than 4700 people lost their jobs and source of income, thus leading to a decrease in tax revenues. In this situation, the regulation of money turnover, in particular, the activation of non-cash transactions also becomes necessary. As it was informed at the meeting of operative headquarters, there is a sufficient amount of cash in the republic, just in connection with the situation, organizations and individuals began to cash more funds, which affects the volume of cash turnover. Naturally, in such risky conditions, foreign direct investment (FDI) is excluded.

According to the bulletin of the Government of the Republic of Artsakh, 41 kindergartens and 56 pre-school groups have been partially or completely closed since January 9, because of the worsening food shortage under the blockade. As a result, 6828 children can no longer attend kindergarten, pre-school and after-school child care programs, being deprived of the opportunity of getting proper care, nutrition and education. Since January 18, due to problems with heating and electricity, all 118 schools in Artsakh have been closed, depriving more than 20,000 children of the right to education. It should be noted, that 508 citizens were deprived of the opportunity to undergo surgery, because of the suspension of scheduled operations in all medical institutions under the jurisdiction of the Ministry of Health of the Republic of Artsakh.

It should be noted, that tax revenues and duties of the state budget of the RA in January 2022 accounted  for 2,656.8 million AMD, which went beyond the scheduled index of 2,500 million AMD by 6.3%. The collected revenues were over-executed by 2,5 times as compared to the same period of the previous year. Data for 2023 has not yet been published, but it is clear that due to the current crisis, tax revenues for this month will be lower than planned.

W e consider it necessary to address also the problems that will arise as a result of the temporary suspension of the activities of the “Base Metals” company, since it plays an important role in the economy of Artsakh, being a major taxpayer of the republic and providing employment of the population. By monitoring tax revenues, we note that, for instance during 2021, 300 large taxpayers of Artsakh paid 24 bil. 892 mil. AMD of taxes, duties and other mandatory payments to the state budget, which is 72.7% of total state budget revenues. In the list of 300 large taxpayers, the first three are “Base Metals”, “Kapavor” and “Karabakh Telecom” companies, with a total amount paid of about 12 bil. 252.2 mil. AMD. For comparison, let’s note, that 8 bil. 870.3 mil. AMD or 72% was paid by the “Base Metals” company. It is natural, that the suspension of the activity of the company even for a short time, can lead to a significant decrease in state budget revenues, as well as the increase in unemployment, since the company has almost 1300 employees.

To mitigate the current situation, NKR Information Center carried out a number of anti-crisis measures, particularly, the introduction of a coupon system, rolling blackouts of electricity, curbing price increases through inspections by inspection and other control bodies, servicing bank cards without intermediary commission, as well as regulating the cash turnover through restrictions.

Summing up, we should note, that the blockade undermines the economic security of Artsakh and its consequences can be long-term, which implies the prompt development and implementation of new state priorities and structural reforms. After the blockade, the implementation of steps aimed at increasing local production and raising the level of self-sufficiency, as well as ensuring the use of alternative energy sources, should be a priority in Artsakh. To minimize such-like manifestations of the food crisis as much as possible, all agricultural territories should be cultivated, and measures must be taken to cultivate crops that are in high demand in Artsakh’s market. Thus, the impact of the blockade are noticeable in all sectors of the economy, and overcoming them will require an urgent and clear revision of economic policy, increasing the level of food self-sufficiency and strengthening energy “independence”.

Below is the consistent picture of the economic events, which took place as a result of the blockade as of 25.01.2023, compiled on the basis of publications and bulletins of the NKR Information Center.

 

 

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