Armenia's economy is in transition, with construction and services as the two main engines of its economic growth. The country's annual GDP has grown by an average of 12% for the past several years, providing an attractive market for foreign investors despite a 10% inflation rate and a growing trade deficit. According to the World Economic Forum Global Competitiveness Report 2011-2012, Armenia has already transitioned from an economy described as 'factor-driven' to one driven by efficiency. Over the past several years, Armenia has been implementing an ambitious programme of reforms, improving tax and customs regulations, restructuring the banking sector, and liberalising its economy. However, widespread and systemic corruption in government bureaucracy coupled with inconsistent implementation of laws, weaken state institutions and hinder their efficiency.

Positive developments in relation to corruption and investment:

• Armenia's anti-corruption strategy has led to the exposure of a number of high-ranking officials, who have been dismissed on charges of bribery and corruption.
• The GRECO Evaluation Report on Incriminations 2011 concludes that the 2008 amendments to Armenia's Criminal Code were a very positive step, even though the country still needs to further amend its legal provisions in order to fully comply with the Council of Europe standards.  
• Armenia has initiated a process of enhancing transparency and accountability in governance. In order to reduce bureaucracy and decrease the opportunities for corruption, one-stop shops have been established for companies to deal with public officials, and several governmental internet portals have been launched to make the regulatory processes more transparent.
• In December 2010, the WTO Committee on Government Procurement invited Armenia to join its Government Procurement Agreement (GPA), which makes Armenia the first CIS country to accede once required domestic legislation is passed.

Risks of corruption:

• SMEs primarily encounter two types of corruption in Armenia: high level corruption through the abuse of political authority and administrative corruption exercised through middle and lower-level public officials.
• The selective and non-transparent application of tax, customs and regulatory rules, as well as weak enforcement of court decisions fuels opportunities for corruption to occur.
• The US Department of State 2011 reports instances of unfair tender processes and preferential treatment within the Armenian procurement system.
• Relationships between high-ranking government officials and the emerging private business sector encourage influence peddling.
• The government reportedly failed to fund implementation of the anti-corruption strategy and devoted no money for anticorruption efforts.