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. Last Updated: 07/27/2016

Cease-Fire Allows Armenia to Develop

YEREVAN, Armenia -- Armenia's economy has made impressive strides in recent years but is still badly handicapped by a 10-year conflict with neighboring Azerbaijan.

The landlocked former Soviet republic was an economic disaster in the early 1990s, gaining international attention for crippling electricity shortages, a wave of emigration and even talk of famine.

Radical structural adjustments have since put the glow back into the light bulbs and thriving small businesses have emerged.

Bright spots have appeared in sectors such as mining. Foreign firms plan to invest $200 million over 10 years to upgrade two gold mines and build a tailings processing plant. Production is expected to reach 18 tons per year by 2000.

Investors have also expressed interest in Armenia's diamond refining industry and privatization via international tender of some expensive items has begun.

The Greek telecoms company OTE won a tender last month for 90 percent of the ArmenTel company that handles most of the country's telecommunications with the outside world.

A majority stake in the Yerevan Cognac Factory, whose legendary products were favored for decades by Kremlin leaders, is also on sale.

Perhaps the most impressive achievement is the restoration of plentiful supplies of electricity, once rationed to less than two hours a day in the capital Yerevan. Higher power rates and a strict payments regime has eliminated blackouts.

But most Armenians remain mired in poverty, and 1997 saw higher inflation and lower growth than was forecast.

Analysts and some government leaders say the country cannot fulfill its potential without resolving a 10-year conflict with oil-rich Azerbaijan over the enclave of Nagorny Karabakh, which cost 35,000 lives before a 1994 cease-fire was signed.

"The Armenian economy is like an infant who isn't getting enough vitamins. Its growth is being stunted by the war," said one Western diplomat in Yerevan.

Armenia's traditional trade routes through Azerbaijan were cut when the war began and Turkey shut its border with Armenia after a 1993 Armenian offensive.

Today Armenia has only a thin stretch of border with Iran to the south and two road links with Georgia to the north that are in bad condition, hampering the development of export industries and driving up importing costs.