Armenia gained its independence in the course of the disintegration of the Soviet Union in 1991. It is in the direct neighbourhood of Georgia, Iran, Turkey and Azerbaijan, although foreign policy relations with Azerbaijan in particular are regularly overshadowed by the conflict over the Nagorno-Karabakh region, which has flared up again most recently since the military conflict in 2020. The "Velvet Revolution" in 2018 caused a political upheaval in Armenia, set a sign for democracy and the rule of law as well as for a free market economy. In the course of the "BMZ 2030" reform process, Armenia was included in the series of bilateral cooperation countries and is now one of the transition countries of German development cooperation to support them in their transformation towards a social market economy, rule of law and democracy.
Major development challenges exist in connection with energy supply, the financial sector, municipal urban and regional development and natural resource protection.
In the 1990s, a very large number of micro, small and medium-sized enterprises (MSMEs) emerged in Armenia, which mainly lacked modern equipment, management experience and capital. Other challenges exist in relation to Armenia's municipal infrastructure. Due to a lack of investment over many years, drinking water supply and sanitation are still inadequate. Yet water is one of the key resources in Armenia. It is not only used for drinking water and agriculture, but also for the production of electricity and in fish farming. In the absence of efficient monitoring of water use, Armenia risks overexploitation of the resource. In addition, especially in rural communities, the high dependence on natural fuels is causing the depletion of forest stands and natural resources.
KfW Development Bank has been active in Armenia since 1998. On behalf of the German Federal Government, it supports projects in the areas of:
Private sector development is a priority area of German Development Cooperation with Armenia. On behalf of the BMZ, KfW Development Bank, in cooperation with the Central Bank of Armenia, has established the German-Armenian Fund (GAF), through which, for example, loans are granted to MSMEs and private households, and investments in renewable energies and the rural sector are financed.
Whereas in the 1990s a large part of the funds in the energy sector was used for emergency aid, KfW Development Bank currently mainly finances investments that allow for a sustainable energy supply of the country. This includes the establishment of an integrated electricity grid between Armenia, Georgia and Iran as well as the promotion of renewable energies and energy efficiency.
Due to the considerable risks to the environment and health resulting from the lack of minimum standards for drinking water supply and wastewater disposal, another focus of German development cooperation is on establishing hygienically safe water supply and wastewater disposal systems. In addition, the establishment of integrated water management systems is intended to prevent water losses, illegal water withdrawals and excessive and inefficient irrigation.
The Caucasus is one of 25 global and one of two European biodiversity hotspots. Through KfW Development Bank, the BMZ supports Armenia in fulfilling its international obligations to maintain them. Among other things, the was established as a regionally oriented nature conservation foundation that provides pro rata funding for the operating costs of nature conservation areas.
Overall, German financial cooperation, with its commitments in the energy and financial sectors and in the implementation of environmental protection measures, makes an important contribution to sustainable economic development and an improvement in living standards in Armenia.