Velvet Commotion and Organizational Change

This week we decided to explore the change in organizational forms in Armenia, as a result of which we discovered two interesting stories about economic activity and velvet commotion. Our research is divided into two parts:

1. The state of the Armenian business world: Observing recent business registration trends, which shows the country’s economic health and entrepreneurial activity.
2. Velvet Commotion: A study of the growth of NGOs and media outlets before the 2018 Velvet Revolution, which provides insight into the societal foundations of political changes. If you are more interested in the 2017 change in velvet organizational-legal forms, which was followed by the 2018 Armenian revolution, you can skip to the second part. However, the first section provides useful context on the broader organizational changes taking place in the country. You can use and reference each of these two presented materials separately.

Part 1. Decline in Organizational Activity

Armenia’s organizational landscape reflects the country’s economic state. The number of registered organizations serves as a unique economic thermometer reflecting the attractiveness of the economy to entrepreneurs. Chart 1.

Growth of the Business Environment

2022 was a year of significant growth for the Armenian business sector. Many new companies entered the market; 28,000 sole proprietors and 11,700 LLCs were registered. What was the reason for this growth? This was mainly due to the significant outflow of capital and labor leaving Russia registered in 2022, which temporarily made Armenia a hub for new business activity (read more: 💸🔚🏦 From Capital Influx to Outflow: The Inner Kitchen of Armenia’s Economic Miracle).

Chart 2.

The Decline of 2024

In 2024 we see a significant shift. Compared to last year, fewer new businesses were formed in the first eight months. The number of sole proprietors decreased by 6.2% compared to the previous year, and LLC registrations by 23.4%. Overall in the current period, compared to the previous year, the number of organizational forms has decreased by 11.3%. This speaks to the decreasing attractiveness of the overall investment landscape in Armenia, because in the current economic situation, the desire of entrepreneurs to create an organization has decreased. This could also lead to a further reduction in tax revenues (Read more: 🧮⏳🎲 Armenia is Taxing Time: Playing with Economic Growth).

The Big Picture

Looking at a longer period (Chart 2), we see a pattern. Between 2019 and 2022, about 27,000 new organizations were regularly registered annually in Armenia. The 2022 surge stands out as an unusual phenomenon. Now that we see a return to lower numbers, the question arises: is this a sign of economic decline, or just a return to the long-term average, in which case the 2022 growth simply had a short-term exogenous impact?. These changes in business registrations tell more than just numbers. They show how confident investors feel, how many economic opportunities exist, and what risks Armenian entrepreneurs are ready to take. The recent slowdown could mean that business owners have become more cautious, possibly due to broader economic uncertainties. Chart 3.

The third chart shows the monthly breakdown of registrations by organizational-legal forms. What is memorable here is that in December 2017 more Non-Governmental Organizations (NGOs) were registered than LLCs. This month is the only one in the time series when the number of registered NGOs exceeded the number of LLCs registered on a monthly basis. During this month, 512 NGOs and 284 LLCs were registered; almost 2 times more NGOs were registered than LLCs. Following these trends, important questions arise: what will encourage the creation of more new businesses, as we saw in 2022? How can Armenia create a favorable environment for business growth? And interestingly, how do these business trends connect with the larger social and political changes that took place in Armenia?. This brings us to our next section: a look at how another type of organizational growth might have prepared Armenia’s Velvet Revolution.

Part 2. Pre-Revolutionary Velvet Commotion

The 2018 Velvet Revolution is one of the most important events in Armenia’s modern history. However, as the official data highlighted in this analysis shows, the foundations for this political change had begun to form back in the previous year. In 2017, an unprecedented growth of civil society organizations occurred in Armenia, which can be called a “velvet commotion”.

Chart 4.

As can be seen from Chart 4, 1029 Non-Governmental Organizations (NGOs) were registered in Armenia in 2017, four times more than in 2016, and more than double the 2018-2023 average. And that’s not all; half of these NGOs, 512, were registered in just one month: December 2017. This not only exceeds the figures of other years, but also raises questions: what was happening at that time?.

But NGOs weren’t the only ones. The number of foundations also recorded a leap: in 2017, 175 foundations were registered, mainly in the period from August to October, 50% more than in previous years.

Chart 5.

Chart 5 reveals an even more interesting picture: in 2017, 112 new mass media outlets (media) were registered, whereas in other years this figure was almost zero. It seemed as if suddenly everyone had decided to make their voice heard.

In terms of political party registrations, 2021 is noteworthy, when 34 new parties were registered, following the 44-day Artsakh war.

All of this raises numerous questions. Why exactly in 2017? Why so many new organizations? Was this a coincidence, or preparation for coming changes?.

History shows that such “commotions” often precede major political changes. Recall Georgia’s 2003 “Rose Revolution”. Civil society and independent media played a decisive role there as well.

In Georgia’s case, the “Rustavi-2” television company particularly stood out. It not only covered events but also became the mouthpiece of the opposition. Former President Saakashvili even declared: “Most of the students who came out to the street were brought out by Rustavi”.

Interestingly, “Rustavi-2” and a number of other independent media outlets had formed and developed thanks to Western, especially American, assistance. The US Agency for International Development (USAID) and several other organizations had supported the establishment of independent media in Georgia for years. Saakashvili even declared: “The Americans helped us the most by supporting Georgian independent media. That was more powerful than 5000 marines” (Anable, 2006).

All this raises questions about Armenia’s 2017 “velvet commotion”. Was there similar external support here as well? And if so, how did it affect subsequent events?.

Undoubtedly, the activation of civil society can be a driving force for democratic changes. However, at the same time, it can raise concerns about the potential influence of external forces.

The 2017 “velvet commotion” in Armenia showed that political changes often begin precisely at the level of civil society. This once again emphasizes the important role of NGOs and media in democratic processes and in creating public opinion. At the same time, it raises questions about the limits and power of external influence on those processes.

Bibliography

1. Wilson, A. (2006). Ukraine’s Orange Revolution, NGOs and the role of the West. Cambridge Review of International Affairs, 19(1), 21-32.
2. Anable, D. (2006). The Role of Georgia’s media—and Western aid—in the Rose Revolution. Harvard International Journal of Press/Politics, 11(3), 7-43.

P.S. (15-10-2024)

‼️ Clarification of the Material from a Legal Perspective

In December 2016, the organizational-legal form of “union of legal entities” (ULE) was abolished.. It was established that all such organizations had to re-register as a non-governmental organization (NGO) within one year (until the end of 2017).

However, it should be noted that:

1. As of June 2023, ULEs were still being registered..
2. A total of 347 ULEs were registered before the end of 2017.

Statistics show that:

It is important to note that the number of 347 ULEs registered in Armenia by the end of 2017 is significantly smaller than the number of 737 NGOs registered in November-December 2017.

This legal clarification must be taken into account in future analyses.