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ARMENIA: IT BOOM BOLSTERS ECONOMIC PROSPECTS
EurasiaNet.org
June 19 2014
June 19, 2014 - 1:51pm, by Emil Danielyan
Photo: A man examines some software at Digitec 2007, an Information
Technology exhibition in Yerevan. Armenia's IT sector grew by an
average of 22 percent annually from 2008 to 2013, much faster than
any other industry in the unemployment-plagued country. (Photo:
Anahit Hayrapetyan.)
After almost two decades of rapid expansion, Armenia's
information-technology industry is becoming a rare economic success
story for this small, blockaded South-Caucasus country.
Oriented toward exports, the information-technology (IT) sector grew
by an average of 22 percent annually from 2008-2013, much faster
than any other economic sphere, according to government data. With
a combined output of almost $380 million, the nearly 400 IT firms
operating in Armenia accounted for 3.8 percent of last year's Gross
Domestic Product of almost $10 billion. The sector currently employs
over 10,000 computer programmers and software engineers -- a figure
comparable to the total workforce of the Armenian mining industry,
the single largest source of export revenue.
Yet, according to the Ministry of Economy, more than half of these
tech firms have come into existence since 2007. "This is the only
area where Armenia is successfully competing on a global, not even
regional, scale," said Yeva Hyusian, the director of the Microsoft
Innovation Center Armenia (MICA).
A dozen relatively large firms, most of them subsidiaries of American
hi-tech heavyweights, dominate the sector. The Armenian subsidiary
of Synopsys Inc., one of the world's largest microchip designers,
now employs more than 500 engineers, making it the sector's largest
enterprise. Other US software giants with an Armenian presence include
National Instruments, Mentor Graphics and VM Ware.
Armenia also has been making its mark on the global IT scene through
home-grown talents like Artavazd Mehrabian, the 40-year-old developer
of PicsArt, one of the world's most popular mobile photo-editing
applications. Another Armenian startup supported by an American partner
is expected to release soon a vocal-presentation platform, Voiceboard,
intended as an alternative to the ubiquitous Powerpoint software.
Meanwhile, a US-Armenian joint venture plans to start manufacturing
Armenian-designed tablet computers later this year.
So far, Armenia's longstanding problems with corruption, a lack of
competition and closed borders with neighboring Azerbaijan and Turkey
have had little bearing on the sector's rapid growth. That leads some
experts to conclude that the knowledge-based industry represents the
best economic hope for the future.
Part of the reason could lie in the past.
During the Soviet era, Armenia was home to dozens of enterprises that
produced about a third of the microelectronic equipment used by the
Soviet defense industry. The now defunct Yerevan Research Institute
of Mathematical Machines, which designed one of the first Soviet
computer systems in 1959, alone had about 10,000 employees as late
as in the 1980s.
The Soviet collapse spelled the end of this state industry, but its
specialists' strong skills and modest wage demands offered fertile
ground for a new hi-tech sector that emerged after Armenia regained
independence. A dozen or so US software companies mostly owned by
diaspora Armenians largely drove the trend.
One such firm, Vienna, Virginia-based Synergy International Systems,
set up shop in Yerevan in 1999. "We started out with only four people
working in a Yerevan apartment," said Ashot Hovanesian, Synergy's
Armenia-born founder and president. With clients in 55 countries,
Hovanesian's company now has 160 employees and plans to double their
number over the next few years.
The rapid emergence of such startups has prompted the Armenian
government to expand efforts to support the industry. Over the past few
years, the government has teamed up with foreign donor agencies and
corporations, including Microsoft and Nokia, to open nine centers in
Yerevan providing logistical, technical and even financial assistance
to IT entrepreneurs. A government-backed "technopark" serving the
same purpose began operating in Armenia's second largest city,
Gyumri, early this year. The sector gained a further boost when
the government recently launched, together with private investors,
a $6-million venture capital fund for startups.
Tax breaks are in the works too. Parliament is expected to pass later
this month a government bill that would give new IT outfits with up
to 15 workers a three-year exemption from 20-percent corporate income
taxes. It would also grant a heavily discounted 10-percent income tax
rate for their employees. The government predicts that between 40 and
60 IT startups will emerge each year as a result. Hi-tech firms are
already able to move into Armenia's first-ever tax haven that began
functioning last year on the Russian-owned premises in Yerevan.
"Opening a new IT business in Armenia is now very easy," commented
MICA's Hyusian. "We didn't have this infrastructure and [such]
opportunities four years ago."
Newer and better training facilities are still needed: the Armenian IT
sector's number one problem at the moment is the inadequate quality
of instruction at Armenia's underfunded universities. Few graduates
from Armenian universities and institutes are qualified enough to join
established firms without undergoing additional training, industry
executives say. The lack of qualified graduates has translated into
an estimated 2,000 job vacancies in the IT sector, a highly unusual
phenomenon for a country beset by unemployment unofficially estimated
to run well into the double-digits.
Industry executives warn that, without improvement, education standards
could affect the sector's growth in the longer term. The government has
repeatedly pledged to address the issue. As a step in that direction,
in 2013 it inaugurated a $6.2-million state-of-the-art IT laboratory,
mostly financed by the US Agency for International Development and
the US firm National Instruments, at the State Engineering University
of Armenia.
The private sector is also taking measures. Synopsys, using its own
curriculum and technical facilities, sponsors a computer science
chair at the State Engineering University of Armenia. Synergy hires
new staff from among university students taking its shorter IT courses.
Despite the shortcomings, officials are optimistic. The sector's
average annual growth rate of 22 percent should "at least remain the
same in the coming years," predicted Naira Nikoghosian, head of a
Ministry of Economy department dealing with IT.
http://www.eurasianet.org/node/68691
EurasiaNet.org
June 19 2014
June 19, 2014 - 1:51pm, by Emil Danielyan
Photo: A man examines some software at Digitec 2007, an Information
Technology exhibition in Yerevan. Armenia's IT sector grew by an
average of 22 percent annually from 2008 to 2013, much faster than
any other industry in the unemployment-plagued country. (Photo:
Anahit Hayrapetyan.)
After almost two decades of rapid expansion, Armenia's
information-technology industry is becoming a rare economic success
story for this small, blockaded South-Caucasus country.
Oriented toward exports, the information-technology (IT) sector grew
by an average of 22 percent annually from 2008-2013, much faster
than any other economic sphere, according to government data. With
a combined output of almost $380 million, the nearly 400 IT firms
operating in Armenia accounted for 3.8 percent of last year's Gross
Domestic Product of almost $10 billion. The sector currently employs
over 10,000 computer programmers and software engineers -- a figure
comparable to the total workforce of the Armenian mining industry,
the single largest source of export revenue.
Yet, according to the Ministry of Economy, more than half of these
tech firms have come into existence since 2007. "This is the only
area where Armenia is successfully competing on a global, not even
regional, scale," said Yeva Hyusian, the director of the Microsoft
Innovation Center Armenia (MICA).
A dozen relatively large firms, most of them subsidiaries of American
hi-tech heavyweights, dominate the sector. The Armenian subsidiary
of Synopsys Inc., one of the world's largest microchip designers,
now employs more than 500 engineers, making it the sector's largest
enterprise. Other US software giants with an Armenian presence include
National Instruments, Mentor Graphics and VM Ware.
Armenia also has been making its mark on the global IT scene through
home-grown talents like Artavazd Mehrabian, the 40-year-old developer
of PicsArt, one of the world's most popular mobile photo-editing
applications. Another Armenian startup supported by an American partner
is expected to release soon a vocal-presentation platform, Voiceboard,
intended as an alternative to the ubiquitous Powerpoint software.
Meanwhile, a US-Armenian joint venture plans to start manufacturing
Armenian-designed tablet computers later this year.
So far, Armenia's longstanding problems with corruption, a lack of
competition and closed borders with neighboring Azerbaijan and Turkey
have had little bearing on the sector's rapid growth. That leads some
experts to conclude that the knowledge-based industry represents the
best economic hope for the future.
Part of the reason could lie in the past.
During the Soviet era, Armenia was home to dozens of enterprises that
produced about a third of the microelectronic equipment used by the
Soviet defense industry. The now defunct Yerevan Research Institute
of Mathematical Machines, which designed one of the first Soviet
computer systems in 1959, alone had about 10,000 employees as late
as in the 1980s.
The Soviet collapse spelled the end of this state industry, but its
specialists' strong skills and modest wage demands offered fertile
ground for a new hi-tech sector that emerged after Armenia regained
independence. A dozen or so US software companies mostly owned by
diaspora Armenians largely drove the trend.
One such firm, Vienna, Virginia-based Synergy International Systems,
set up shop in Yerevan in 1999. "We started out with only four people
working in a Yerevan apartment," said Ashot Hovanesian, Synergy's
Armenia-born founder and president. With clients in 55 countries,
Hovanesian's company now has 160 employees and plans to double their
number over the next few years.
The rapid emergence of such startups has prompted the Armenian
government to expand efforts to support the industry. Over the past few
years, the government has teamed up with foreign donor agencies and
corporations, including Microsoft and Nokia, to open nine centers in
Yerevan providing logistical, technical and even financial assistance
to IT entrepreneurs. A government-backed "technopark" serving the
same purpose began operating in Armenia's second largest city,
Gyumri, early this year. The sector gained a further boost when
the government recently launched, together with private investors,
a $6-million venture capital fund for startups.
Tax breaks are in the works too. Parliament is expected to pass later
this month a government bill that would give new IT outfits with up
to 15 workers a three-year exemption from 20-percent corporate income
taxes. It would also grant a heavily discounted 10-percent income tax
rate for their employees. The government predicts that between 40 and
60 IT startups will emerge each year as a result. Hi-tech firms are
already able to move into Armenia's first-ever tax haven that began
functioning last year on the Russian-owned premises in Yerevan.
"Opening a new IT business in Armenia is now very easy," commented
MICA's Hyusian. "We didn't have this infrastructure and [such]
opportunities four years ago."
Newer and better training facilities are still needed: the Armenian IT
sector's number one problem at the moment is the inadequate quality
of instruction at Armenia's underfunded universities. Few graduates
from Armenian universities and institutes are qualified enough to join
established firms without undergoing additional training, industry
executives say. The lack of qualified graduates has translated into
an estimated 2,000 job vacancies in the IT sector, a highly unusual
phenomenon for a country beset by unemployment unofficially estimated
to run well into the double-digits.
Industry executives warn that, without improvement, education standards
could affect the sector's growth in the longer term. The government has
repeatedly pledged to address the issue. As a step in that direction,
in 2013 it inaugurated a $6.2-million state-of-the-art IT laboratory,
mostly financed by the US Agency for International Development and
the US firm National Instruments, at the State Engineering University
of Armenia.
The private sector is also taking measures. Synopsys, using its own
curriculum and technical facilities, sponsors a computer science
chair at the State Engineering University of Armenia. Synergy hires
new staff from among university students taking its shorter IT courses.
Despite the shortcomings, officials are optimistic. The sector's
average annual growth rate of 22 percent should "at least remain the
same in the coming years," predicted Naira Nikoghosian, head of a
Ministry of Economy department dealing with IT.
http://www.eurasianet.org/node/68691