In August 2019, the Armenian government gave a green light to the establishment of a logistic and industrial free trade zone in the city of Gyumri. The initiative aims to serve the e-commerce logistics warehouses and export-oriented manufacturing processes. Creation of the free economic zone is also expected to promote the direct foreign investments, improve the attractiveness of the country and contribute to sustainable development.
Moreover, the FEZ that will be located next to Shirak International Airport is expected to create 13,000 jobs in 10-12 years. It is planned to complete the construction of this free economic zone in Armenia by 2022. In this article we will discuss in detail the benefits of incorporating a company in free economic zone in Armenia, specifically, the opportunities it brings to international investors.
Armenian FEZ in Gyumri – selection criteria for the deployment of a free zone
The Armenian-Israeli project has been under development since 2017. It was back then that the Logistic FTZ company first emerged in Yerevan, and in May 2019 it acquired a new name – “FEZ Eurasian Logistic Park ”. The director and founder of this company is the Israeli Tsvi Kan-Tor, who also holds the post of Chairman of the Israel-Armenia Chamber of Commerce.
Literally within three days after the registration of the aforementioned company in Armenia, the founder delegated a group of representatives to the head of the Main Directorate of Civil Aviation of Armenia. The main topic of discussion was the intention of Logistic FTZ LLC to create a new industrial park in the territory adjacent to the Shirak airport. Already in February 2018, agreements were reached between the mayor of Gyumri and the new director and co-founder of the company, Hayk Maghakyan.
Before investing in the Armenian economy towards establishment of a preferential zone, the company’s management carefully studied all possible methods of safely and quickly transporting products and goods, raw materials and commodities, in order to select the best option in terms of the zone’s location in Armenia. The choice fell on Gyumri for the following reasons:
- the neighborhood of the Shirak international airport, which serves flights to and from major destinations in Eurasia;
- the presence of the North-South road corridor;
- comfortable distance and venue of the railway and adjacent locations for the international business;
- optimal conditions for electronic commerce.
“Shirak”, as a large international airport, is designed to handle transportation of a large quantities of goods to countries in Asia and Europe. “Shirak” also plays a fundamental role in transit traffic through Armenia. According to Mr. Tsvi Kan-Tor, the main goal of establishing a FEZ in Armenia was to create attractive conditions for companies engaged in e-commerce. “For example, as it comes to e-commerce giants such as eBay and Amazon – these companies are engaged in the transportation of cargo by air, packaging of medical products and the assembly of electrical appliances. We believe that Gyumri is the right place to realize all these opportunities”, he says.
Armenian FEZ in Gyumri – geographical location and period of operation of the territory
Northwest Gyumri is the geographical location of the free economic zone of Armenia with an emphasis on air transportation of goods. According to data for April 2019, the design of the 14-kilometer bypass road has already been developed as promised by the city municipality.
A more detailed scrutiny on the location of the new free economic zone of Armenia shows that it involves the construction on both sides of the highway, which leads to the Armenian village of Marmashen. According to the design data, the following facts are known about the FEZ:
- total area will be 319 ha;
- there is a residential real estate in the “Sheram-1” block that will not be included in the free zone;
- “Sheram-2” block will be fully included in the FEZ;
- provides for a free customs zone in Gyumri;
- FEZ period of validity – 40 years.
When considering an establishment of a free customs zone, it is important to take into account that this territory is separate from the other customs territories of Armenia and allows the implementation of customs privileges attributable to free economic zones.
In terms of considering the creation of a free economic zone in Gyumri in Armenia, it is worth noting that several stages of construction and improvement are planned. Namely:
- Stage 1 – 30 hectares of land will be taken under development over a three-year period, which the design company will be entitled to subsequently buy back in ownership (the FEZ of Armenia is expected to start functioning in 2022 unless any documentary red tape delays construction);
- Stage 2, 3, 4 – it is planned to create a common infrastructure that will allow new logistics, transport companies, as well as enterprises manufacturing domestic and electrical appliances to fully deploy operations in the free economic zone;
- Stage 5 is planned to be implemented after obtaining the status of organizer/operator of FEZ in Gyumri over the next 12 years. It should be pointed out here, that in 2019, an Israeli company has already received this status, which was signed off by the Minister of Economy of Armenia. This means that the full implementation of the project should be finalized by 2031.
Will the investor encounter any issues with the government institutions and obtaining permits? It’s hard to say, but in 2019, the Committee for Urban Development of Armenia expressed concern about the allocation of such a vast territory of 319 hectares. According to Vahagn Vermishyan, the Chairman of the Committee, developed economies would not be allocating over a 200 hectares of land under a free zone, aiming to protect the economy, since operation on the territory of the FEZ in Armenia, as well as in and other countries, envisages 0% or low tax rates.
According to the official, up to 15 hectares should be sufficient to allocate under deployment of the FEZ in Gyumri. The Minister of Economy of Armenia intervened in the discussion, noting that the company will be able to claim ownership of the allocated land plots on a stage-by-stage basis, which will allow the government of the country to scrutinize more closely the long-term plans of investors and minimize possible economic risks.
Armenian FEZ in Gyumri – forecasts and expectations
Considering the Armenian-Israeli business project, it is worth noting that at the initial stage the FEZ of Armenia in Gyumri will create about 2 thousand jobs, with a gradual increase to 12.5 thousand. The data refer to the internal infrastructure of the free economic zone, another 56 thousand workers will be involved from beyond the zone borders.
Regarding the inflow of foreign investment, the plans are the following: the expected amount of investment at initial stage would be 540 million USD, with a gradual increase to 1 billion USD. The inflow of foreign capital will allow Armenia to improve its GDP (according to forecasts – by 200 million USD per year), as well as generate tax revenues in the amount of up to 140 million USD (in 2019 amounted to 1.5 million USD).
Currently, the structure of foreign direct investment in Armenia is as follows:
- Russia – 64%;
- Netherlands – 12%;
- Cyprus – 8%;
- other countries – 16%.
The free economic zone of Armenia is aimed at providing logistics services, as well as the production of certain goods. The potential lines of business are worth special attention. Among them are, in particular:
- manufacturing of textiles, leather, clothes;
- production of medicaments and chemical products;
- growing plants;
- production of plastic and ancillary products, rubber products;
- manufacturing of electronic and optical devices;
- processing harvested perennials;
- food industry;
- furniture manufacturing;
- information and financial services;
- automotive industry, car services;
- wholesale and retail electronic commerce;
- auto and air freight;
- leasing, rental of air transport.
Additionally, companies in the Gyumri FEZ in Armenia will be able to provide financial intermediation services, engage in engineering and architectural activities, and research.
Considering the enhanced opportunities of the FEZ of Armenia due to the proximity of the international airport, the sorting of goods and products will be the main activity of companies operating on the territory of FEZ. Thus, e-commerce, including international commercial organizations, upon registering in the free economic zone of Armenia, will not only benefit from the possibility of free transportation of products, but also be able to use modern warehouses for storing large and small batches of commodities. As for the reduced timing of dispatch, for example when sending goods to Russia, delivery will take a maximum 2-3 hours, instead of 2-3 days, as it is today.
Another area for development in the future free economic zone in Armenia is the deployment of packaging workshops, which will be attractive companies operating in the field of pharmaceutical packaging. And finally, the third important area will be the assemblage and transportation of household and electronic appliances, which is more economically feasible than to supply finished goods.
Furthermore, the free economic zone in Armenia in Gyumri will allow enterprises engaged in the field of non-food agriculture to produce from perfumery and pharmacological plants. It is specifically planned to have a large number of agricultural farming sites around the logistics park, which will allow agricultural farms to work in close cooperation with the production companies established in FEZ.
Armenian FEZ in Gyumri: what you need to know about the organizers and owners?
The said Israeli company is not just the principal investor in the creation of the FEZ in Gyumri, but also an experienced leader with previous success stories in terms of establishment of free economic zones and subsequently – fruitful cooperation with international organizations in these territories.
The founders’ plans were already widely acknowledged known during the creation of Logistic FTZ LLC: the main objective was the establishment of a new free economic zone that would allow international business to develop and at the same time reduce the tax burden. Until May 2019, the Israeli businessman Tsvi Kan-Tor was the owner of the LLC, and later Ashot Magakyan, a native of Yerevan, was appointed in co-chairman position. Currently, the company is called the “FEZ Eurasian Logistic Park”, which states its main directions of activities as follows:
- To leverage the FEZ law and the Eurasia Customs Treaty to become a leading logistic hub,
- To fully benefit from advantages of workforce and development potential of Armenia, Shirak and Gyumri,
- To build a leading, sustainable logistic park in Armenia as a gate the Eurasian Economic Union’s market,
- To position Armenia as a global leader in Air Based Logistics,
- To establish thousands of well-paid jobs,
- To create a paradigm shift towards Gyumri, Shirak & Armenia.
To summarize the focus of Gyumri FEZ project, below are the key industries in which the company intends to operate.
- e-Trade logistic – major giants such as FedEx, Amazon, eBay, Alibaba, etc. will be able to use the warehouses located in the FEZ to facilitate faster and more reliable distribution.
- Assembly companies will leverage Shirak location to enable service to Eurasia. This assembly industry is a global sector with exponential growth potential
- Packaging companies will be able to deploy their operations here, and benefit from reduced customs, tariffs and logistics costs while increasing accessibility and reliability and at the same time adding value to local economy.
- Non-Food Agriculture – Crops that can be used for Herbs & Spices, Medical, Colors and Flavor, Perfume & Cosmetics can be grown at industrial quantities, by involving farmers of the neighboring communities and contributing to development of agriculture as a profitable source of income for rural households.
Each of these areas have the discreet potential to provide many thousands of well-paid jobs, by employing people with a wide variety of skills.
If you are interested in registering a company in the territory of free economic zones of Armenia or investing in the development of FEZ in Gyumri, contact our consultants by e-mail email@example.com. If necessary, our lawyers will provide you full assistance in the process of opening bank accounts, buying real estate, obtaining citizenship and an Armenian passport.
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