What remains after the end of Armenia’s “gold rush”?
A change in the taxation of Russian gold exports created a temporary business model that allowed Russian gold producers to save taxes by routing their exports through Armenia. This led to the so-called “gold rush”, which resulted in a surge in the Armenian gold and jewellery trade.
Between October 2023 and May 2024 – the period during which the Russian gold export duty was in place – around USD 6.9 bn of gold and jewellery was exported from Armenia, mainly to the United Arab Emirates. Although this was a very significant trade shock, not much of it remained in Armenia. As there was no significant value chain behind the “gold rush”, unlike in the case of car re-exports, there was no tangible economic and fiscal impact.
Origin of the “gold rush”
After the start of the war in Ukraine and the subsequent Western sanctions, Russian gold producers had to look for new export markets, which they found in the United Arab Emirates, China and Hong Kong. In addition, from October 2023 they were faced with the introduction of temporary duties on gold for all exports to countries outside the Eurasian Economic Union (EAEU). As the tariffs, which ranged from 4% to 7% (depending on the exchange rate), would have further reduced their profits, there was a strong incentive to find new solutions. To save on export duties, Russian producers began to channel their gold exports through Armenia – a member of the EAEU, which does not levy export duties on gold. This marked the beginning of the so-called “gold rush”.
Surge in Armenian gold and jewellery trade
Starting in October 2023, Armenian companies began importing gold from Russia on a massive scale and then either re-exporting it directly or processing it into jewellery first. As a result, Armenia’s imports and exports of gold increased in parallel, both reaching USD 1.8 bn in 2023, with growth rates of 7 and 4 times, respectively, compared to 2022. The “gold rush” intensified further in 2024, with imports and exports of gold reaching unprecedented levels of USD 4.9 bn and USD 5.2 bn respectively in 9M 2024. In terms of destinations, all imports came from Russia, while around two-thirds of gold was exported to the United Arab Emirates, with the remainder going mainly to Hong Kong and China. The latter correspond to the new destinations that Russian gold exporters have found for themselves after the recent shift due to Western sanctions.
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As gold was also processed into jewellery (e.g. in the form of massive gold chains), a significant increase in jewellery exports was also observed. Albeit smaller in size, jewellery exports reached USD 500 m in 2023 and amounted to USD 776 m in 9M 2024. The main destination, once again, were the United Arab Emirates. In contrast to gold, however, there was no surge in jewellery imports.
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It is also evident that the “gold rush” has lost its explosive momentum since May 2024. This was due to the Russian government’s announcement that it would abolish export duties on gold from June 2024. In practice, this meant the end of the business model behind the “gold rush”: exports via Armenia no longer offered any tax-saving incentives for Russian gold producers. Nevertheless, gold and jewellery exports via Armenia have continued to this day, but at a much lower level – probably due to still outstanding contracts.
Potential rent generated by the “gold rush”
The surge in exports shows that Russian gold producers have been able to take advantage of the opportunity presented to them. Looking at the overall size of the “gold rush”, we are talking about Armenian exports of jewellery and gold worth USD 6.9 bn in the period from October 2023 to May 2024 (duration of the Russian gold export duty). If these exports had been taxed at the same rate as in Russia (average tariff of 5.3%), Russian gold exporters would have had to pay an additional USD 352 m. This figure can also be interpreted as the “potential rent” of diverting exports via Armenia. Did any of this money remain in Armenia? Looking only at the average prices of gold imports and exports to and from Armenia, the average margin in the gold trade was 3.3%. Given the size of the “gold rush”, this would amount to USD 180 m. Thus, slightly more than half of the potential rent could have remained on the Armenian side.
Economic and fiscal implications for Armenia
To analyse the economic and fiscal impact, it is necessary to look at sectoral data. Based on in-depth interviews with stakeholders and investigative research by third parties, it became clear that most of the companies involved in the “gold rush” on the Armenian side were registered in the jewellery sector. We therefore focused our analysis on this sector.
Economic perspective
While the scale of the “gold rush” was considerable, there was no real value chain behind it, although some processing took place in Armenia. As a result, there was neither a positive impact on employment nor a direct contribution to growth. This is in stark contrast to the recent re-export of cars, where part of the value chain was created in Armenia and therefore there was a positive impact on both employment and GDP. In addition, the reclassification of companies involved in the “gold rush” from jewellery producers to exporters of metals has led to a downward revision of 2023/2024 GDP. This was technically due to the fact that the assumed value added in the jewellery sector is significantly higher.
Fiscal perspective
The turnover of companies in the jewellery sector increased significantly. However, this has not yet translated into tangible additional tax revenues. While we expect a significant part of the potential rent to remain in Armenia, this is not yet reflected in increased profits of Armenian companies. Data for the full fiscal year 2024 is needed to further monitor this issue.
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Conclusions
As the business model behind the “gold rush” came to an end, the question remains whether this major trade shock brought significant benefits to Armenia. From an economic perspective, the “gold rush” did not generate any additional value added and thus had no positive impact on employment and GDP. At the same time, it created significant reputational risks and misleading GDP estimates. And while there appears to be a potential windfall for companies involved in the business, not much of it has so far been seen in the form of tax revenues. However, the “gold rush” has shown once again how quickly the Armenian business community can adapt to creative solutions. In order to benefit from such short-lived shocks in the future, the government may want to carefully examine cases like the “gold rush” and make adjustments to tax policy if necessary.
This newsletter is partly based on the Policy Study Armenia’s “gold rush”: reasons and economic implications.
