Armenia Sets Sights On Becoming A Post-Soviet Silicon Valley

By Marianna Grigoryan

When Apple co-founder Steve Wozniak went whooshing through the streets of downtown Yerevan on a Segway last month, he got nary a wide-eyed stare. And with Armenia now boasting an official 25-percent growth rate in its Information Technologies (IT) sector, that’s how it should be, proud bureaucrats might say. But for all the optimism, industry executives caution that many a speed bump lies on Armenia’s journey to IT fame and fortune.

In 2010, Armenia’s IT sector, focused primarily on software exports, shipped out $120-million-worth of information-technology software and services, largely to the United States, Canada, and the European Union, with a sliver to Russia and other former Soviet republics. The sector, which contains some 300 companies, added $200 million to the country’s $9.39-billion economy that year, according to government data.

Those figures might appear miniscule compared with the muscle of India, South Korea or Taiwan, but they are significant enough to gain attention from international funders. Armenia and India in November set up a joint Center for Excellence in information Communication Technologies at Yerevan State University; the Armenian capital also contains a Microsoft Innovation Center and a “creative technologies” center for young people, financed by the US-based Simonian Educational Foundation.

Addressing fellow members of the ruling Republican Party of Armenia on December 4, President Serzh Sargsyan took the attention in stride. “While other countries are working on the extraction of their natural resources, we have to extract our talents and rely on our brains,” he commented in an apparent jibe at Armenian rival and foe, hydrocarbon-rich Azerbaijan.

But don’t look for Yerevan to turn into the next Hyderabad just yet. Although the government made IT an economic priority over a decade ago, not long after American IT companies run by diaspora Armenians opened shop in newly independent Armenia, company executives complain that excessive taxes and export duties, and an inadequately trained labor pool, remain handicaps.

“We’re overloaded with bureaucratic issues and reports [related to income taxes], and taxes are high; meanwhile, we need privileges and support as a newly created and developing industry,” elaborated the director of one newly-opened programming company. IT companies face corporate tax rates of up to 30 percent.

The government’s enthusiasm for its budding IT sector only goes so far, agreed another company director. “We demanded that tax and customs privileges be given to us, but we never got them, “ complained Hovik Musayelian, the director of Synopsys Armenia, a 1,000-employee-strong company specializing in electronic design automation [and semiconductor-related software. Such issues are particularly important for IT start-ups, he added.

“If the IT sector is considered to be a priority branch, then at least tax privileges must be provided, and other benefits should be offered to investors,” asserted information security expert Samvel Martirosian.

The Ministry of Economy did not answer EurasiaNet’s query regarding the reason for the refusal to give tax and export tariff benefits to IT companies.

Unlike many of their Silicon Valley counterparts, Armenian entrepreneurs, however, often look for a more interventionist role by the government. “One government-run venture capital fund can change the situation completely,” advised Edgar Khachatrian, the president of iCity LLC, a company dealing in business analysis and audit software programs.

So far, there appears to be no indication that the government is considering such an option. While Sargsyan has called for IT companies to hold “leading positions in the world market,” the degree of detail with which the government has analyzed Armenia’s IT business is unclear.

Asked to identify the source of Armenia’s global IT advantage, the Ministry of Economy named annual IT award ceremonies (the reason for Wozniak’s visit), the two-day Armenian Technology Congress in Silicon Valley, “affordable” rates for Internet access, and, for some reason, Armenia’s e-government portal. No mention was made of tax rates, export tariffs, access to start-up capital, product cost comparisons or local know-how.

Nonetheless, the government understands that IT means jobs. With an average monthly salary of 456,000 – 570,000 drams (about $1,200 to $1,500), according to industry sources, Armenia’s IT specialists can earn roughly four to five times more than the official national average. In a country with an unofficial employment rate well into the double digits and a poverty rate estimated at over one-quarter of its population of roughly 3 million people, that grabs attention.

The Information Technologies Council attached to Prime Minister Tigran Sarkisian’s office has advised the government to ensure that state-run Armenian universities supply at least 1,000 graduates per year qualified to work in the IT industry, the prime minister told the Republican Party of Armenia seminar on December 4. Currently, the sector employs a mere 5,500 individuals, according to government data.

With any increase in the number of qualified university graduates, IT industry executives also look for “serious” investments in higher education to provide students with practical training in IT development, up-to-date equipment in computer labs and lecturers with the experience to encourage entrepreneurialism.

For a tiny, relatively poor country trying to make its mark overnight in a ruthlessly cutthroat, ever-changing global market, that might seem like a drop in the bucket. But hope among Armenian IT executives continues on.

“We are very ambitious,” explained Synopsys Armenia’s Musayelian. “We want to make a leap in development.”