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February 23, 2022

Perspectives of the information technology industry in Armenia

This article presents the Information Technology (IT) industry in Armenia. This industry is considered one of the major forces behind economic development and growth. This article also provides an overview of the IT industry in Armenia, as well as spreading light on its perspectives. Nowadays, many young Armenians choose this discipline due to the high income, mobility and the multitude of job opportunities it offers. Over 17,000 specialists or 2.5% of the total employed population work in this sector, with an average annual salary of about 12,000 USD. Due to infrastructure development, the number of IT companies has grown in other parts of the country. Armenia-based IT companies specialise in software development, semiconductor design, multimedia and web design. The steady growth of the IT industry increasingly attracts new players. Investors acknowledge Armenia as a hotspot for high-quality IT product development and start-ups. However, some disadvantages still remain, including disintegrated regional ecosystem, lack of financing, and corruption.

Industry in Armenia

Armenia is a landlocked country in the South Caucasus region that shares borders with Azerbaijan, Georgia, Turkey and Iran. The country covers an area of 29,800 square kilometres. Three million Armenians live in the country and three times this number make the Armenian Diaspora, with major populations living in the USA, France and Russia.

The Armenian economy is growing at a healthy level despite political unrest. In fact, it is estimated that the economy will grow at a rate of 4.5% in 2019. The Information Technology (IT) industry, has high potential in the context of enhancing competitiveness, economic development and growth. It comprises 6.25% of the GDP with over 650 companies operating in this industry with an average annual growth rate of 20%. The majority of IT companies operate Armenia’s capital, Yerevan.

A large number of IT specialists, or approximately 2.5% of the total working population are employed in this sector, with an average annual salary of about 12,000 USD. Due to the development of appropriate infrastructure, other areas of the country are benefitting from an increase in the number of IT companies, and not only the capital. Armenia-based IT companies specialize in software development, semiconductor design, multimedia and web design.

Armenian exports

The total export of IT products from Armenia amounted to 338 million USD in 2017 [1]. The main export destinations in the current day are the USA and Canada (45%), the European Union (25%), Russia (10%) and Asian countries (10%). The remaining 10% of the exported IT products are consumed by the former Soviet republics, where 3D modelling, animation, game and mobile apps dominate the market. Being in the early stages of developing artificial intelligences, the market for technological solutions is limitless. Armenia, in spite of its small IT community, is well-equipped with the necessary resources to offer and export technological solutions. Its high potential for growth is influenced by the following factors:

  • Collaboration between higher education institutes, the IT industry and the state has resulted in high-quality IT programmes being provided at universities;
  • The availability of highly skilled specialists, with knowledge of English;
  • Collaboration between local companies and diaspora has created synergistic effects;
  • The availability of a competitive IT workforce and low operating costs;
  • A large number of multinationals have opened branches in Armenia, including CISCO, Synopsys, National Instruments, etc.

Foreign investors can benefit from the following advantages:

  • IP protection regulations;
  • Free economic zones (FEZs). Residents of FEZs are completely exempted from profit tax, VAT, property tax and customs duty. Services on behalf of the state bodies are delivered on “one stop shop” basis;
  • Right of 100% property ownership;
  • No restriction on staff recruitment;
  • Duty free import of personal goods;
  • Armenia is a member of the Eurasian Economic Union and enjoys Generalized Scheme of Preferences status with USA, Canada, Japan, Switzerland and Norway in addition to the European Union states. Armenia implements an open-door policy as a result of a positive attitude towards investments from overseas.

Table 1. Key economic indicators

Economic growth measured as % change of GDP Nominal GDP(USD
bln.)
GDP per capita (Currency) Inflation (CPI, annual variation in %) Investment measured as % change from previous year Unemployment
measured as    % of activepopulation
 2014 3.6      11.8 3,966 3.0 -2.2 17.8
 2015 3.2      10.7 3,574 3.7 2.5 19.5
20162   2016 0.2  10.7 3,569 -1.4   -11.4 17.1
 2017 7.5  11.6 3,862 1.0 7.7 18.0

Source: Economic Outlook by FocusEconomics [2]

The economy grew by 7.5% in 2017 and reached approximately 11.60 billion USD, while the per capita GDP reached 3,862 USD.  Stable high growth is positive in terms of attracting new investors who acknowledge the country as a hotspot for high-quality IT product development and start-ups. However, due to varying conditions, this is not always an attainable goal, especially when taking into consideration the volatility of the South Caucasus region.

Conclusion

This article provided a brief description of the Armenian IT industry where 2.5% of the total workforce is employed. The IT industry is considered a priority by the Government of Armenia, which has taken effective steps to improve the quality of specialised education and develop the relevant infrastructure for both local and foreign IT companies, as well as start-ups. In order to support its IT industry, the government has defined 0% profit tax for 3 years of operation. Given the availability of high-quality workforce along with improvements in investment climate, this industry promises a high return for the development of other industries. The country exported IT products and services worth $338 million to the USA, the EU, Russia and other countries in 2017. Armenian IT companies mainly specialize in software development, semiconductor design, multimedia and web design. In spite of being recognized as a lucrative place for development of IT products and services, a number of challenges still remain as a result of the country’s location and geopolitics.

In order to read full article(pp 214-223), please visit: 58b293af-xviii-international-triple-helix-conference-proceedings4.pdf (tuni.fi)

References

EIF, STATE OF THE INDUSTRY REPORT: INFORMATION AND TELECOMMUNICATION TECHNOLOGIES SECTOR IN ARMENIA, 2018.

FocusEconomics, Armenia Economic Outlook

IDC Research Consultancy

A. P. Foertsch, Workplace Innovation Today: The Coworking Center, 2013

Formica, The Innovative Coworking Spaces of 15th-Century Italy, Harvard Business Review, 2016.

Export.gov, Armenia - Information Technology, 2019

H. Etkowitz, Professor, in Triple Helix Conference, Daegu, Korea, 2017.

Written By

Ashot Davoyan
Yerevan State University

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