Armenia’s ICT advances: working or stumbling?
In the three decades since gaining independence, Armenia has had to deal with huge economic, political and security challenges. Regardless, it has registered a strong economic growth since 1995 and inflation has been almost negligible for the past several years. The landlocked country at the heart of Eurasia, has traditionally had a strong comparative advantage in fields of mathematics and natural sciences. Once known as “Silicon Valley of the former Soviet Union”, it is now styling itself as “The World’s Next Tech Hub”.
In recent years, the Information and Communication Technology (ICT) sector is one of the most productive and prominent sectors of Armenia’s economy. The country’s government has held this sector as one of the development priorities for its national economy.
In February this year, the Armenian government approved the country’s Digitalization Strategy that aims to achieve a complete digital transformation of the Government, the economy and the society. This strategy fosters the introduction and development of innovative technologies, cyber security, data policy, e-government systems, coordination of digitalization processes, and the creation of common standards. Such policy and tech innovations are expected to bring about high quality of public service delivery, efficiency and transparency of the public administration system, development of broadband and telecommunication infrastructure, increase of competitiveness of the private sector, efficient decision-making necessary for economic growth and instilling digital skills for the country’s workplace, especially among the youths.
On 1 February 2019, the Prime Minister Nikol Pashinyan announced the following at the “Konrad Adenauer Foundation” in Germany: “The IT field has grown 5 times for the last 7 years. IT becomes one of the driving forces of our economic growth with a huge potential for further development”. Starting from that year, the Ministry of High-Tech Industry has exercised oversight over the development and implementation of the government’s policies and strategies with respect to ICT and related industries.
In 2018, “Software and Services” and “Internet Service Providers” segments overall income reached $922.3 million, which contributed 2.8% or $99.1 million in Armenia’s GDP. The share of local and foreign IT companies was 52.5 percent and 31 percent, respectively. That year the number of “Software and Services” companies in Armenia reached about 800, out of which local companies and foreign companies comprised 52.5 percent and 31 percent, respectively. It is interesting that almost 80 percent of these companies are located in Yerevan! The boom in the economy was interrupted by a sudden bust, mainly due to the devastating war with Azerbaijan and the effects of Covid-19. The country is now attempting to self-heal the wounds it has borne in the past 2 years by rebuilding its economy with an even greater focus on ICT to “leapfrog” the development trajectory.
Since late 1990s, the ICT industry in Armenia, with its three sub-sectors: I) hardware, 2) software, and 3) media for collection, storage, processing, transmission, and presentation of information, has advanced at an accelerated pace. While the country’s software exports amounted to an estimated US$20 million in 2000, its ICT goods exports doubled between 2009 and 2017. The value of its ICT exports grew from about US$94 in 2009 million to US$212 million in 2017. Most of this export activity has been in software programming, building on a strong history of outsourcing services.
In 2000s, Armenia became a preferred location for several multinational companies to outsource R&D, operations, and of course software development. In more recent years, the country is moving away from a service model and toward product design and development. Several firms (e.g., Synopsys and Mentor Graphics) are already integrated into global value chains (GVCs) through foreign subsidiaries, and a vibrant high-tech start-up movement has produced high-profile firms that have achieved global success.
For example, PicsArt, valued at US$250 million, has developed an image-editing and social-networking app that has been downloaded 600 million times. Vineti, a cloud-based platform created to significantly simplify access to cell and gene therapy and personalized cancer vaccines, was rewarded as a Technology Pioneer by the World Economic Forum. Another mobile app developer with its origins and development team based in Armenia, SoloLearn, has 1 million active monthly users globally.
A wide range of economic reforms has been undertaken in the past three decades. Economic reforms, first initiated in the early 1990s, focused on land privatization, small-scale privatization of firms, and the liberalization of prices, trade, and the foreign exchange regime. Reforms in the late 1990s and in the early 2000s covered medium-and large-scale privatization, the tax and banking systems, the business environment, and the energy and water sectors. The policy level thrust to the ICT sector, more correctly the set of reforms to reboot the sector, came only in 2001 with the execution of the ‘ICT Master Strategy for Republic of Armenia’ that has acted as a guiding roadmap for achieving digital capacity-building in all sectors and regions of the country. Since then, Armenia has achieved significant digital advances, however the political hurdles that have come up at different times have slowed down the pace and scale of the digitization (or digital transformation is it commonly called today).
Present lacunae, and how could they be addressed
Ø Overwhelmingly concentration of capital in the Capital- Yerevan accounts for about 60% of the country’s total GDP. This has created a huge economic gap between regions in the county vis-à-vis the capital city. Here is an urgent need to develop industries in the rural areas and channelize foreign investments to different areas in the country with generous tax rebates, reliefs and modernizing basic infrastructures such as national highways, electrical grids, and telecommunications (including Internet connectivity and broadband access), etc.
Ø Lag of foreign private investments firms: Armenia has a positive and open attitude towards foreign investments, but the number of foreign investments companies working there, either directly with a physical office or through major investments in any project/ local companies, is very limited. Such private equity and venture capital investing firms have refrained from making large investments in the country due to various reasons, but mostly political. The Armenian government should make an extra efforts to connect with investors from around the world, especially from Asia who now have the excess capital and interest to go for overseas acquisitions, mergers and buyouts.
Ø Lags political elements of an enabling environment for sustainable enterprises- Armenia, as compared to other South Caucasus and neighboring countries, falls behind on government effectiveness parameters, like competence of civil service; effective implementation of government decisions, public service vulnerability to political pressure and ability to manage political alternations without drastic policy changes. Also, corruption and good governance problems are still widely prevalent in the country. If the government is serious about rebuilding the country’s economy, it urgently needs to take necessary steps towards addressing these problems, which otherwise would continue to hold back the optimal economic growth in the post-COVID-19 global boom phase.
Author: Dr. Hriday Sarma is the Team-Coordinator at the Caucasus-Asia Center.
[Disclaimer- The opinions expressed in this article are those of the author. They do not purport to reflect the opinions or views of the Caucasus-Asia Center or its members.]
References:
Armenia to go digital as government approves new strategy — Public Radio of Armenia (armradio.am)
5 Startups You Should Know Even If You Don’t Live in Armenia (itis.am)
Armenian ICT sector 2018. State of the Industry Report: Information and Telecommunication Technologies Sector in Armenia.
CHAPTER 1. Armenia After a Decade of Reform in: Growth and Poverty Reduction in Armenia (imf.org)
