Introduction

The potential reopening of the Armenian-Turkish border marks a historic and multifaceted opportunity for the South Caucasus region, with implications far beyond the immediate logistical and trade gains. This article, “Possible Armenian-Turkish Border Opening: Beyond Logistics Gains,” delves into the complexities surrounding this development, offering a nuanced analysis of its economic, social, and geopolitical impacts. Authored by the Nexus Intellect Research expert team, it examines this policy decision’s transformative potential ^[1].

Reopening the Margara checkpoint and eventually expanding cargo transportation and railway connectivity introduce a new dimension to Armenia’s economic strategy. While promising reductions in logistics costs and increased trade efficiency, the move also challenges vulnerable sectors such as agriculture and apparel manufacturing, particularly against regional currency volatility and shifting geopolitical dynamics. As the authors highlight, these shifts will not impact all communities equally, further exacerbating disparities between urban centers and rural areas.

The analysis explores the interplay of Armenian, Turkish, and Russian economic variables, presenting a data-driven projection of opportunities and threats for key stakeholders, including farmers, manufacturers, and medical service providers. It underscores the need for proactive government interventions to mitigate risks and leverage emerging markets. The realistic and worst-case scenarios offer critical insights into the strategic decisions required to foster resilience in Armenia’s economy.

This article aims to inform policymakers, businesses, and researchers by providing a comprehensive framework for understanding the broad implications of border normalization. By addressing both short—and long-term effects, the study invites a deeper reflection on how Armenia can navigate this pivotal moment in its economic and diplomatic journey.

Background: As of November 4, 2024, Armenia had spent 2.5 million US dollars renovating the Margara checkpoint on the Armenian-Turkish border.^[2] Initially, the border would be open to the citizens of third countries and those holding diplomatic passports^[3]. Later, it could be open to cargo transportation by land. On December 20, 2024, it was announced by the Foreign Minister of Armenia, Mr. Ararat Mirzoyan, that Armenia and Turkey had already agreed to jointly assess the technical requirements to cross the border by the Gyumri-Kars railway^[4]. Ground transportation could seriously reduce logistics and transportation costs and time while importing items of Turkish origin directly from Turkish manufacturers; however, various sectors of the Armenian economy could be hit after the border opening, which could vary across industries. Overall, the adverse effects on the different sectors would depend on the volatility of the Turkish lira, Russian ruble, and Armenian dram against the US dollar. The most vulnerable sector would be agriculture, followed by the manufacture of the wearing apparel, thus hitting the Armenian farmers and those working for the agricultural companies who account for about 19.2 percent of employed people (in 2023)^[5], if the Armenian dram doesn’t depreciate against the US dollar. Therefore, the growth disparity between the capital, Yerevan, and the rural communities will deepen, and the perspectives on the growth of this industry are pretty vague.

Meanwhile, Armenian producers, namely exporters and manufacturers of final goods focused on the domestic markets, could benefit from cheaper supplies of intermediary goods and equipment, thus making Armenian goods price-competitive. Under the worst-case scenario, the possible border opening in 2025-2026 on the economy would be rather painful if the Russian economy reports a substantial economic decline in the short and medium term. The recovery would be relatively slow, thus urging the Government of Armenia to assist producers and farmers to shift to the Western markets if the Armenian dram doesn’t depreciate.    

Merchandise Trade 

Exports to Turkey

Table 1. Merchandise Trade with Turkey and Georgia (million USD)

Source: Statistical Committee of Armenia

Armenia’s exports to Turkey are, generally, virtually non-existent (see Table 1). The highest peak was reported in 2022 when Armenia exported gold worth about 57.84 million US dollars to Turkey^[6]. This could be probably associated with Russian gold (HS Code: 7108) that entered Armenia and was exported to Turkey (possibly upon undergoing some processing in the territory of Armenia). Cautiousness (to avoid secondary sanctions) prevented further export possibilities of gold with exports of other articles of precious metal or metal clad with precious metal (HS Code: 7115) to Turkey, amounting to 3.1 million USD in 2023. Traditionally, importers of items included in the HS Chapters 84 and 85^[7], Armenia’s exports of these two chapters were among the top 3 chapters exported to Turkey (see Figure 1) in 2023. One of the possible explanations could be re-exports of the imported items included in those chapters. During 10 months in 2024, the exports of Armenian goods to Turkey reached 0.4 million US dollars, which could be considered a return to the expected and/or standard level. Since exports to Turkey are virtually nonexistent, the Armenian producers could reconsider their priorities and focus on Turkey as a large new market to penetrate, which could be beyond patriotic feelings. 

Figure 1. Armenia’s exports to Turkey in 2023 (US dollars)^[8]

Source: UN Comtrade Database

Imports of Turkish goods

It is interesting to note that Armenia imported Turkish goods (classified by a country of origin) both directly from Turkey (as a country of consignment) and from other suppliers of Turkish products based in another country (namely Georgia, with exported (re-exported) products being classified as of Turkish origin). In 2023, Armenia imported Turkish goods worth 337.13 million US dollars. However, Turkish goods worth 99.71 billion US dollars were directly imported from Turkey as the country of consignment. From 2019 to 2023, Armenia mainly imported items included in the HS Chapter 84 (Nuclear reactors, boilers, machinery, and mechanical appliances; parts thereof) worth 128.7 billion US dollars (see Table 2), wearing apparel items and accessories (HS codes: 61 and worth 62) worth 146.6 million US dollars, plastics and articles thereof (HS code: 39), and fuels (HS code: 27). 

The Government of Armenia imposed a 6-month ban on a list of mostly imported final goods from Turkey (as a country of origin) in 2020^[9] (effective from December 31, 2020), which was extended for 6 months^[10] and then finally lifted from January 1, 2022. However, Armenian businesses and individuals could import intermediary goods, and some items incorporated in the original list of banned goods were removed from that list, thus allowing the businesses to import supplies of vital importance (intermediary goods and equipment)^[11].

Table 2. Armenia’s imports of Turkish goods in 2023 (US dollars)

Source: UN Comtrade Database

Forecasts: Turkish Lira and Russian Rubble against the US dollar

In the medium term, it is forecasted that, under the presidency of Recep Tayyip Erdogan, the Turkish lira would continue to depreciate against the US dollar and could be traded as high as 85-90 Liras against 1 US dollar (over 30 Liras as of August 12, 2024).^[12] As of December 25, 2024, the exchange rate of the Russian ruble against the US dollar was 99.87 rubles^[13]. According to some forecasts^[14], the exchange rate won’t be as high as 120 rubles against 1 US dollar for 2025-2027. However, we assume that the exchange rate would be even higher than 120 rubles, and during 2025, it could even reach 150 rubles. Hence, in the case of Russia, we could assume that a currency crisis might be reported in 2025. 

Possibilities and Threats for Farmers, Manufacturers, and Medical Service Providers

Opportunities and Threats to Farmers

In 2023, about 19.2% of all employed people were engaged in agriculture, making this industry, and namely rural households, vulnerable to the influx of cheap products owing to the forecasted significant depreciation of the Turkish lira upon possible border opening. In 2023, the leading product line imported by Armenia was citrus fruit (see Table 4) since Armenia is not focused on cultivating citrus fruit, in general, owing to weather conditions. The second largest product line imported was tomato (see Table 4); meanwhile, during 2019-2023, Armenia exported tomatoes to Russia worth 164.1 million US dollars^[15]. The expected depreciation of the Russian ruble against the US dollar and the Armenian dram would cause a serious decline in the exports of tomatoes if the Armenian dram doesn’t depreciate against these two currencies. This would force the farmers to opt for three possible strategies or their combination. The farmers could focus on the exports to other destinations (if the tomatoes adhere to the strict requirements), channel the products to the domestic market (however, the small size of the domestic market would hardly be able to absorb the quantities supplied), and start cultivating other fruits and vegetables instead of tomatoes. However, the depreciated Turkish Lira would make Turkish tomatoes cheaper if the Armenian dram doesn’t depreciate against the US dollar and the Russian Rubble; hence, Turkish suppliers of tomatoes could capture the share of Armenian tomatoes in the Russian markets and Armenia as well, leaving the farmers two choices. The farmers either need to adhere to the rigid requirements to export to the western markets, quit cultivating any types of fruits and vegetables, not engage in agricultural activities, and migrate to the capital, Yerevan, or another country. This could be expected concerning other fruits and vegetables, thus causing a serious decline in the share of agriculture in the gross value added. The farmers could switch to cattle breeding to prevent migration from the rural communities if they don’t adhere to the other requirements.     

Table 3. Major agricultural products imported from Turkey (US dollar)

Source: UN Comtrade Database

Opportunities and Threats to Manufacturers

Overall, Armenian importers (manufacturers) could benefit from the border opening since the transportation cost could be significantly lower, especially for the imported vital supplies (intermediary goods) if the Turkish lira depreciates in the short- and medium-term. If these supplies are used in the exported items, they could make produced goods of Armenian origin price competitive if the Armenian dram continues to appreciate against the US dollar. The further depreciation of the Turkish lira could make the competition fiercer in the domestic market, thus forcing Armenian businesses to adopt such business practices (to ensure cost-efficiency) that would allow them to compete in the domestic market. Otherwise, they will lose that market share and be forced to penetrate new markets outside Armenia if they meet high product standards. Meanwhile, the competition could allow Armenian companies to export these goods cheaper if they undergo upgrading and business transformation and export them to third countries (outside the Eurasian Economic Union that Armenia is currently a member of). If the major export market of these goods is Russia, then the export perspectives could be ambiguous if the Russian ruble depreciates against the US dollar and the Armenian dram. 

Threats to the Manufacturers of Wearing Apparel 

One of the vulnerable sectors could be the wearing apparel manufacture. Due to the dual nature of the wearing apparel industry, the major export destination of the items of wearing apparel produced by the Armenian manufacturers of their brands (the producers that do not serve the outsourced contracts) is Russia (see Table 3), and they sell these items on the domestic market as well^[16]. The depreciated Turkish lira could make these items cheaper, and the suppliers of the Turkish wearing appeal items could penetrate the Armenian market even more aggressively and capture the share of the domestic market (although Armenian businesses rely on intermediary goods from Turkey, lower production costs would not allow Armenian businesses to withstand severe competition). The shrinking Russian market could also hit the producers due to a possible currency crisis in Russia in the short run and its aftermath in the medium term if the Armenian dram does not depreciate. Since consumer ethnocentrism wasn’t identified in the case of Armenia upon lifting the ban on the final goods of Turkish origin, Armenian consumers might opt for cheaper items available^[17]. The vulnerable companies could start cooperating with the companies that provide cut, make & trim services (CMT) to European fashion brands, thus enabling them to attract new outsourced contracts or attempt to attract new contracts separately.    

Table 4. Exports of the Wearing Apparel items to major destinations (US Dollar). 

Source: UN Comtrade Database. Note that exports in some countries (Germany, Italy, etc.) are mostly reexported.

Opportunities for Medical Service Providers

According to expert opinion,^[18] Armenia could be attractive as a medical tourism destination, especially for those residing in the eastern part of Turkey, namely the Kurdish population. The increase in spending of the visitors was accompanied by the rise of health-related expenditures by travelers from 2021 to 2023. This means that the medical service providers attracted more tourists than before the pandemic. During the first half of 2024, tourist spending on medical services increased compared to 2023, while overall tourist spending declined (see Figure 2). Hence, Armenia could attract visitors from the eastern part of Turkey upon the possible opening of the border. 

Figure 2. Spending on Travel and health-related (medical) services (million US dollars)

Source: Statistical Committee of Armenia

Possible Scenarios

We do expect two scenarios: realistic and the worst-case scenario. Under both scenarios, the decline of agriculture is inevitable if the Armenian-Turkish border opens in the short run and over the medium term if the Armenian dram does not significantly depreciate against the US dollar. However, a more profound decline is expected under the worst-case scenario if the Turkish lira and the Russian ruble severely depreciate against the US dollar, and the Armenian dram only slightly depreciates against the US dollar in the short and medium term. Under both scenarios, the crucial factor that could prevent a severe economic impact is the possibility of agricultural companies and farmers cultivating vegetables and fruits by adhering to rigid Western requirements. Under a realistic scenario, we expect the government to play an aggressive role in assisting the entities engaged in agriculture to adhere to best practices and penetrate new markets to prevent a considerable decline in agriculture. However, the government’s assistance would be limited in the worst-case scenario. Under both scenarios, the economy would report a decline in growth decline, and under the worst-case scenario, the decline in growth would be rather severe. 

Policy Implications 

Adopt an aggressive approach to assisting fruit and vegetable cultivators in adhering to strict requirements and gaining access to new markets in the EU and other countries. 

Authors: Anna Makaryan, Ph.D., Hamlet Mkrtchyan, Verej Isanians, Ph.D., Nexus Intellect Research NGO 

[1] Note: Our primary focus is on the fact of how the border opening would hit the Armenian economy and other industries, and not on the logistics benefits and the issues related to the exports of Armenian goods via the territory of Turkey, namely to third countries. Rather we focus on the imports from Turkey (goods of Turkish origin) and how it would affect Armenian businesses.

[2] Source: Armradio.am. Link

[3] Ibid.

[4] Source: Massispost.com. Link

[5] Source: Statistical Committee of Armenia. 

[6] Source: UN Comtrade Database.

[7] Ibid. Note: HS Code 84: Nuclear reactors, boilers, machinery, and mechanical appliances; parts thereof; HS Code 85: Electrical machinery and equipment and parts thereof; sound recorders and reproducers, television image and sound recorders and reproducers, and parts and accessories of such articles.

[8] Note: HS Code 71: Natural, cultured pearls; precious, semi-precious stones; precious metals, metals clad with precious metal, and articles thereof; imitation jewellery; coin;  HS Code 84: Nuclear reactors, boilers, machinery and mechanical appliances; parts thereof;  HS Code 85: Electrical machinery and equipment and parts thereof; sound recorders and reproducers, television image and sound recorders and reproducers, and parts and accessories of such articles; HS Code 05: Animal originated products; not elsewhere specified or included; HS Code 90: Optical, photographic, cinematographic, measuring, checking, medical or surgical instruments and apparatus; parts and accessories; HS Code 41: Raw hides and skins (other than furskins) and leather

[9] Decision of the Government of Armenia N 1708-N dated October 20, 2020. Retrieved from: https://www.e-gov.am/gov-decrees/item/34943/ (in Armenian).

[10] Decision of the Government of Armenia N 1048-N dated June 24, 2021. Retrieved from: https://e-gov.am/gov-decrees/item/36446/ (in Armenian). 

[11] Decision of the Government of Armenia N 674-N dated April 29, 2021. Retrieved from: https://www.e-gov.am/gov-decrees/item/36101/ (in Armenian).

[12] Source: Capex.com. Link.

[13] Source: Central Bank of Russia.

[14] Source: Cbonds.com. Link

[15] Source: UN Comtrade Database

[16] Source: Dokholyan & Makaryan (2023). 

[17] Ibid.

[18] Source: Expert opinion at the public discussion on the possible consequences of the potential border opening. Link