Since Armenia acceded to the Eurasian Economic Union (EAEU) in 2015, service trade between Armenia and the EAEU has become a critical aspect of its economic integration. Despite numerous policy frameworks aiming to facilitate mutual service exchanges and diversify industry participation, the service trade landscape between Armenia and its EAEU partners remains largely underdeveloped. Dominated by transport and travel sectors, the trade patterns reflect low diversification, pointing to structural weaknesses that could hinder long-term growth.

This article provides a detailed analysis of the trends in mutual service trade between Armenia and the EAEU from 2014 to 2022, focusing on trade volumes and the industry structure. It examines the development of trade relationships within the EAEU, identifying key service sectors that influence overall performance. By highlighting trade volume fluctuations and the structural composition of exports and imports, the article sheds light on the opportunities and challenges faced by Armenia in leveraging its EAEU membership for economic advancement.

While positive trade balances and emerging opportunities in business services and information technology hint at potential growth, the dominance of traditional sectors such as transport and travel suggests a need for policy reforms to encourage diversification and resilience. This analysis aims to offer insights into Armenia's structural challenges and strategic possibilities within the framework of the EAEU, ultimately contributing to informed decision-making to enhance the nation's service trade prospects.

Background

One of the main areas of cooperation among the EAEU member states is creating a single market for services, which aims to expand the free movement of various services between member states. The single market for services provides a unified and regulated framework that allows service providers from any EAEU member state to operate throughout the union without obtaining permits or licenses in each country. This integration aims to reduce trade barriers, increase competition, and improve the overall efficiency of service provision within the Union. The establishment of the single market for services commenced with the gradual liberalization and integration of a comprehensive list of service sectors in the market. The EAEU legal framework, which includes harmonized licensing rules, standards, and technical regulations for service providers, regulates this process. The single market for services aims to create a level playing field where companies from different countries can compete fairly, and consumers benefit from a broader range of high-quality services at competitive prices.

Examining Service Trade Volumes

In recent decades, the trade growth rate in services has significantly outpaced that of goods in world trade. In 2022, global exports and imports of services increased by 14.5% compared to the previous year, while the corresponding growth in trade in goods was 11.5% and 13%, respectively. Moreover, most of the world's trade in services occurs in developed countries. However, China is the world's third-largest exporter and the second-largest importer of services. According to Trademap, the five largest exporting and importing countries account for 36.8% of global exports and 35.2% of service imports.     

The share of developing countries in services trade is modest; however, this group reached a record high of 30% in 2022 (Handbook of Statistics, 2023). The share of EAEU countries in global service exports and imports is only 1% and 1.4%, respectively, indicating their service markets are underdeveloped. From 2012 to 2022, Armenia’s trade balance for services was negative only in 2014, 2015, and 2019. In other years, service exports exceed imports, resulting in a positive trade balance in 2022, which amounted to 1,630 million US dollars. 

The crisis caused a significant drop in Armenia's service exports and imports in 2020, with exports down 55% and imports down 61%. Recovery did not occur in 2021. In 2022, the Russian military operation in Ukraine boosted service exports by 140.7%, outpacing a 90% rise in imports. 

Between 2014 and 2022, the highest increase in service exports was $2,442 million in 2022, while the largest decline was $1,334 million, or 55%, in 2020. The average growth rate of service exports was 22%. The highest increase in imports occurred in 2022, totaling $1,208 million, while the largest decline happened in 2020, with a decrease of $1,539 million, representing 61%. The average growth rate of service imports was 12%. From 2014 to 2022, Armenia’s trade in services grew by 14.5% annually. Regarding the prospects of the single EAEU services market, it is necessary to assess the percentage of  Armenia’s trade in services that falls on the EAEU member countries (Table 1). 

Table 1. Volumes of export and import of services of the Republic of Armenia with the EAEU countries in 2014-2021 (in millions of US dollars) 

Source: (OECD database, 2024)

The trade of services between Armenia and the EAEU did not show any significant positive trends during the study period. In Armenia's first year of EAEU membership (2015), services exports to EAEU countries decreased by 14.7% and 1.1% in the following year, respectively. Despite growth in 2017–2018, exports fell 9.7% in 2019; however, total service exports from Armenia rose 10.5% from the previous year. During the crisis year of 2020, the export of services to the EAEU decreased, similar to total exports, but at a slower pace (by 40%). However, in 2021, the growth rate of service exports to EAEU countries lagged behind Armenia's total service export growth rate.     

The import of services from the EAEU countries shows no stable trends. In the first year after joining the EAEU, the volume of services imported from the EAEU to Armenia decreased by 8.9%. Over the next three years, growth trends were observed. However, in 2019, a 15% increase in gross imports of services by Armenia was accompanied by a 9.5% decrease in imports from EAEU countries. In the crisis year of 2020, imports of services from the EAEU decreased by 40%. In contrast to the growth rate of service exports, in 2021, the growth rate of imports from the EAEU exceeded the overall growth rate of service imports by Armenia, reaching 55%. 

Examining Service Trade Structure

The structure of global trade in services shows significant differences between developed and developing countries. In 2022, services exports from developing countries totaled $2.1 trillion, with 46.3% consisting of transport services (27%) and travel (19.3%). Meanwhile, in the same year, service exports from developed countries reached $5 trillion, with transport services accounting for 18% and travel for 14%. Insurance, financial, intellectual, and other business services account for the largest share of the structure of services exported by developed countries.  A similar trend is observed in the import of services. In 2022, service imports in developed countries reached $4.4 trillion, with 35.5% attributed to transport services (20.6%) and travel (14.9%). In developing countries, the share of these services in the $2.2 trillion of imported services was 36.6% and 17.3%, respectively (Handbook of Statistics, 2023). In Armenia, similar to other developing countries, transport services (13%) and travel (58%) dominate the structure of services exports. 

Armenia-Belarus

An analysis of trade in services by EAEU countries shows that in 2021, Belarus accounted for 3.3% of the total Armenia-EAEU trade in services. During 2014-2022, transport services and travel accounted for the largest volume of service exports, reaching 64.5% of total exports in 2021. Despite an increase in trade for transport services, travel saw a decline of 26% compared to 2014. In 2021, exports of telecommunications, computers, and information services reached $1.16 million, or 13%. The fourth largest group in Belarus's export structure is other business services, the exports of which grew steadily throughout the review period and registered a 170% increase in 2021 compared to 2014.

The import structure of services from Belarus to Armenia is less diversified. Transport services accounted for over half of imports in all years reviewed, peaking at 69% in 2021. Over the same period, the volume of travel services decreased by half, and in some years, the share of imported travel services reached up to 30%. In fact, in 2021, 80% of imported services from Belarus consisted of the two mentioned service groups. The next group includes telecommunications, computers, and information services, imports of which in 2021 rose fourfold from 2014, reaching $0.71 million. The import of construction services did not show a sustainable trend, overall increasing by 10.8% compared to 2014. Although trade in services between Armenia and Belarus does not reach the necessary level in volume or structure, it remains less profitable for Armenia, as the trade balance has been in deficit over the years examined.

Armenia-Kazakhstan

Kazakhstan's share in EAEU-Armenia trade does not exceed 2%. The export structure is highly concentrated. Travel accounted for the largest share of exports throughout the years under review, reaching 64.4% in 2021. Before the 2020 crisis, transport services were the second largest segment in the export structure. However, since 2020, telecommunications, computers, and information services have surpassed them. The latter's share of the export structure in 2021 was 11.9%, while the share of transport services was 9.4%. The volume of imports from Kazakhstan is insignificant. Although imports increased by 2.5 times in 2021 compared to the base year, they still did not exceed $2.5 million. Transport services and travel account for 71% of imports. The trade balance between Armenia and Kazakhstan is positive for most services.

Armenia-Kyrgyzstan

Armenia-Kyrgyzstan trade in services remains very low, not exceeding $2.88 million. Two services—travel and transportation services—accounted for 91.3% of exports. The volume of services imported from Kyrgyzstan is even lesser. 2019 recorded the highest value for the 2014-2021 period: $0.86 million. Kyrgyzstan imports only five types of services from Armenia, with travel and transportation services accounting for 91% of these. The trade balance of services between Armenia and Kyrgyzstan was constantly positive and reached a maximum of $1.98 million in 2021.

Armenia-Russia

Russia is Armenia’s leading partner in services trade with the EAEU, accounting for 94-95% of Armenia-EAEU trade. However, from 2014 to 2021, Armenia-Russia trade turnover was unstable. In 2018, trade turnover peaked at 688.3 million dollars but decreased significantly in the following two years. Despite some recovery in 2021, the trade turnover fell short of the 2018 figure by 21.5%.       At the same time, unlike other partners in the EAEU, Armenia-Russia's services export structure is more diversified. Although transport services and travel accounted for 62% of exports in 2021, other services also have a significant role in the export structure. In particular, from 2014 to 2021, the share of construction services varied from a minimum of 20% in 2021 to a maximum of 30% in 2018. The volume of telecommunications, computer, and information services exports remained stable, accounting for 8% of exports in 2021. In 2021, the export of other business services increased by 4.2 times compared to 2014, reaching $37.6 million, or 6% of total exports.

In 2021, the export structure maintained a nearly identical volume for personal, cultural, and recreational services, as well as for manufacturing services using physical inputs owned by others. However, while the export volumes of the first group of services did not change significantly over the reviewed period, fluctuating between 2 and 3 million dollars, the export volumes of service manufacturing using physical inputs owned by others increased nearly 22 times in 2021 compared to 2014 (OECD database, 2024).

The export of maintenance and repair services was unstable from 2014 to 2021. In the crisis year 2020, export volumes increased tenfold compared to 2014, then decreased by 71.5% the following year. The export structure also shows slow growth in the volumes of the following services: insurance and pension services, financial services, government goods and services, and charges for the use of intellectual property.     

The import structure lacks diversity, with transport services and travel being the dominant sectors, similar to exports. These services represent 72% of imports, with transport services making up 37%. During the review period, transport services exhibited a growth trend over several years; however, due to the crisis, they declined to 62 million dollars in 2020. In 2021, transport service imports increased by 1.5 times compared to the previous year and 12% compared to the base year.

Travel imports rose in some years. However, in 2020, they fell by half compared to the base year. In 2021, travel imports recovered by 53%, yet were still 22% below the base year. Other business services represent the third largest group in the import structure, making up 13% of the total. During the observed period, the volume of these service imports increased fourfold to reach $37.7 million. Although the share of telecommunications, computers, and information services in imports was only 4% in 2021, these services accounted for 8% of imports before Armenia acceded to the EAEU and in its first year of membership. Other services account for only 4–5% of the import structure.

The trade balance of services between Russia and Armenia was mainly positive during the reviewed years, with negative balances occurring only in 2016, 2017, and 2021.

Conclusive remarks

The service trade between Armenia and the EAEU countries has not yet reached the desired level. Despite Armenia's membership in the EAEU, the volume of exported and imported services remains relatively low. The growth rate of service trade mainly depends on external economic conditions and does not indicate sustainable growth trends. Most services exported and imported between Armenia and EAEU countries are transportation services and travel. This means a lack of diversification in service trade, which can negatively affect the economy by creating dependence on specific service sectors. Armenia's membership in the EAEU has not significantly increased trade in services.

Conversely, negative trends have emerged, particularly with the decline in export volumes during specific years. This indicates that membership in the EAEU has not created sufficient opportunities in the services sector nor contributed to economic growth. Armenia's trade in services often faces external economic and political factors. For instance, the 2020 crisis impacted both export and import volumes, leading to a significant decline. At the same time, in some years, trade in services increased sharply due to external events, such as the Russian-Ukrainian conflict.

The services trade balance between Armenia and EAEU member states was primarily positive. This indicates that Armenia has competitive advantages in exporting services to EAEU countries. Armenia needs to develop these advantages by increasing the volume of exported services or exporting new services. Discussing opportunities for exporting specific services, it is important to note that Armenia's business services sector is expanding due to newly established and rapidly growing companies providing professional consulting, financial services, and marketing solutions. The travel sector has faced difficulties due to the COVID-19 pandemic, but Armenia is successfully recovering its position, attracting tourists and business visitors. The export of telecommunications, computers, and information services plays an important role in the Armenian economy, thanks to the development of the high-tech sector. Armenian companies offer high-quality software, web design, data analysis, and other services in demand in the EAEU market. State programs and initiatives also support the development of these sectors by enhancing their technological and innovative potential.

References

UNCTAD Handbook of Statistics. 2023.

OECD Database.

trademape.org

Authors: Diana R. Galoyan, Ph.D., Verej Isanians, Ph.D., Nexus Intellect Research NGO