Gold Fever: Half of Armenia's Exports are Re-exports
Analysis of Armenia’s Official Re-export Data
Armenia’s exports grew by 79% in 2022, to Russia by about 3 times (197.9%), and in 2023 exports grew by 55.3%, to Russia by 43.3%, to the United Arab Emirates by 4.2 times (316.8%). This also testifies to the growth of re-exports, mainly conditioned by the Russian-Ukrainian conflict. The purpose of this analysis is to form a new methodology by which Armenia’s true re-export indicator can be assessed.
To assess re-exports let us first examine Armenia’s official re-export data. The first chart presents Armenia’s official re-export indicators. The percentage indicators shown in the chart illustrate the specific weight of re-exports in the total. According to official data, re-exports in 2023 made up just 3.3% of the total. Officially the highest re-export was recorded in 2011 with an indicator of 15.5%. However, it is understandable that especially the significant, sometimes tenfold growth of technologically highly saturated indicators that has not been recorded in official re-exports cannot be considered pure export.
Chart 1.
The next chart depicts the distribution of official re-export indicators for 2023 by two-digit TN VED (commodity nomenclature of foreign economic activity) commodity types. As can be seen, officially the largest specific weight of re-exports is 62. textile clothing, which in 2022 was officially 44.3% of re-exports or 123.8 million USD, and in second place officially are 71. precious and semi-precious stones and metals at 20.2% or 56.5 million USD.
Chart 2.
We note that significant changes have occurred in the export and import structure in 2022 and 2023, and it is difficult to view the official re-export data as consistent with reality. Let us assess and present the true volumes of re-exports.
You may also be interested in the following analysis:
📈📉❓ Export Growth of 55.3 Percent or Decline of -12.2 Percent.
The True Picture of Re-exports in Armenia
The third chart presents the estimated re-export indicators by year. We note that the re-export methodology developed by us is presented in the next section.
Chart 3.
As can be seen from the chart, using the methodology developed by us, re-exports in 2021 amounted to 5.6% or 167 million USD, and 27.7% of exports in 2022 or 1.47 billion drams worth of exports was assessed as re-exports. If we consider only pure exports, then true export growth in 2022 was 37%, while re-exports grew by about 9 times. Let us recall that the official export indicator during 2022 grew by 79.0%. We note that even pure exports recorded record growth this year compared to previous years. This shows that the export growth in 2022 was not secured solely at the expense of re-exports.
Half of 2023’s exports was re-exports.
In 2023, half of the exports (49.4%) or 4.14 billion dollars was assessed as re-exports. If we consider only pure exports, then true export growth in 2022 amounted to about 10% compared to the official export growth of 55%. We note that estimated re-exports in 2023 grew by 2.8 times (from 1.5 billion dollars to 4.1 billion dollars).
Chart 4.
As can be seen from the last chart, precious stones and metals (TN VED 71), mainly the export of gold, have become the predominant branch of exports with about 1/3 of total exports comprising the re-export of precious stones and metals. The rapid growth of gold re-exports began in November 2023 and is still continuing. Within re-exports 2/3 is occupied by the re-export of this commodity type. We also note that as of January 2024 re-exports for the previous 12 months make up 51.3 percent of total exports.
If you want to know why gold re-exports have become the primary cause of economic activity growth, then read the following analysis:
Developing an Accurate Re-export Assessment Methodology
To accurately calculate re-export data the following methodology was used: Six-digit codes or subheadings of the commodity nomenclature of foreign economic activity (TN VED) were examined on a monthly basis. We note that to perform more accurate calculations it is expedient to use ten-digit TN VED codes, but they are not standardized and are unique to each country, and also that data is not accessible.
The TN VED six-digit commodity groups were divided into two parts. The first group includes goods that are resource-intensive or produced by light industry, these goods include the following TN VED codes: from 10129 to 702000. The second commodity group includes heavy machinery and metallurgy production, these goods include the following TN VED six-digit codes: from 710110 to 999999. A different methodology was used for these 2 groups to reveal the true re-export indicator. This was done because Armenia currently has resources and capabilities to produce goods that fall into the first group. Therefore it is difficult to separate the goods in this group that can be considered re-exports. For example, in 2022 Armenia imported 225 million dollars of butter (TN VED 40510) and exported 176 million dollars of butter, which constituted 0.3% of 2022 exports. Butter was mainly imported from New Zealand, Iran, Finland, as well as France and was exported to Russia. We note that the export and import dynamics of this commodity are equivalent in 2022, but this cannot be considered a sign of re-export because Armenia has a developed dairy industry and exports its production to Russia. The same applies to women’s coats (TN VED 620240). In 2022, 12.8 million dollars of women’s coats were imported to Armenia, mainly from China, and 35.4 million dollars of women’s coats were exported to Italy and Russia. It is understandable that there is significant light industry potential in Armenia and the comparison of these figures cannot be considered re-export. Since it is difficult to determine with clear methodology to what extent the light industry and resource-intensive goods in this group can be considered re-exports, it was decided to use the official re-export indicator as a characteristic for this group. Thus officially the re-export of the commodity marks of this group in 2022 amounted to 122.3 million USD.
The second group of goods includes metallurgy and heavy industry goods. The true proportion of re-exports for this commodity group can be determined with clear methodology because in this commodity group either exports are not equivalent to imports, or Armenia does not yet have the capacities to produce goods with high technological intensity. For example, in 2022 Armenia exported 173.0 million dollars of iron and steel (TN VED 72, 3.3% of exports) and imported 7.8 million dollars of iron and steel. Since exports and imports are not equivalent and exports exceed imports by several times, this cannot be considered re-export. Also included in this group are goods that require a high degree of technological saturation, one of which is for example TN VED code 85, which includes household appliances. In 2021, 382.2 million dollars of household appliances were imported to Armenia (7.2% of imports) and 24.9 million dollars of household appliances were exported (0.8% of exports), and in 2022, 865.0 million dollars were imported (10.0% of imports, 2.3 times growth) and 507.1 million dollars of household appliances were exported (9.6% of exports, 20 times growth). There are not yet household appliance manufacturing plants in Armenia, and it is understandable that the export of this code is in all likelihood re-export, the volumes of which need to be assessed. The same situation exists with the export of 87 transport vehicles, whose export in 2022 unexpectedly grew by more than 20 times.
We note that the re-export of goods was assessed according to the following five trade partner regions: EAEU, EU, Middle East, Greater China (which includes Hong Kong) and other states. Below is the specific weight of exports by year for these regions.
Chart 5.
To assess the re-export of this group, a methodology was used that can be characterized by these steps:
- To get a clearer picture, TN VED six-digit subheadings were examined on a monthly basis and by trade partner regions.
- Only technologically saturated goods or mining industry goods were examined, i.e., TN VED chapters 71-99.
- We note that within the six-digit commodity groups there are goods that were exported and imported from the same region in the same month in comparable volumes. In all likelihood this cannot be considered re-export, because a certain commodity in a certain month will in all likelihood not be imported and then re-exported back to the same country. Thus to exclude this, exports from each region were compared with total imports, which excludes imports to that region, broken down by each month and six-digit commodity mark.
- Since a certain six-digit commodity might be imported in a given month but re-exported in the following month, a 2-month difference lag was used, which compares the given export and import, and if the import is more than the export, the surplus is distributed between the next two months. The imported indicator distributed by regions and six-digit commodity groups, from which imports from the given region have been subtracted, we shall call the adjusted import indicator.
- The adjusted import and export indicators from a given region were compared. If the export is less than or equal to the adjusted import and the export-import ratio is greater than 33%, then the six-digit export of that commodity for that month is considered re-export. The logic here is as follows: if Armenia imported more than it exported of a highly technologically saturated or mining certain TN VED six-digit code during a given month, then that export can be considered re-export if it is primarily not intended for the domestic market. Thus if 1/3 of that commodity exits the domestic market, that commodity is considered a re-export. For example in 2022, 331.6 million dollars of passenger cars with 1.5 to 3 liter spark-ignition engines were imported (TN VED 870323, 2.5 times growth compared to the previous year, 3.8% of exports) and 131.4 million dollars (25 times growth) of the given type of cars were exported. In this scenario the export-import ratio was 39.6%. It is understandable that 60.4% of imports were officially consumed in the domestic market, and 39.6% was re-exported.
- For those six-digit goods whose exports exceed adjusted imports for a given month by no more than 2 times, the adjusted import indicator was taken as the re-export indicator. Thus in 2022, 246.9 million dollars of non-industrial worked but unset diamonds (TN VED 710239) were imported into Armenia. This constituted 2.9% of total imports and registered a 4.5 times growth compared to the previous year. In 2022, 336.0 million dollars of diamonds were exported from Armenia under this code, 6.3% of total exports, a 3.9 times growth. In this scenario exports are 1.63 times larger than imports. It is understandable that Armenia has a developed diamond cutting branch, but in this scenario the import volume was in all likelihood intended for re-export.
- In the final step, indicators whose re-export ratio to exports is lower than 33% are ignored from the re-export data.
- After these calculations, the estimated re-export indicators for TN VED chapters 71-99 are merged with the official re-export indicators for chapters 1-70 into an overall database.
We note that this is the first study in a series of re-export studies. Wait for the continuation of this study in the coming weeks.
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