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Armenia: Software Buzz Brightens Economic Gloom

Amid the gloom of Armenia's generally depressed economy, there is one bright spot that suggests a potential for recovery: The country's computer software industry has registered a major upswing in the past several years, due to strong Western investment. RFE/RL correspondent Emil Danielyan reports from Yerevan.

Yerevan, 8 September 2000 (RFE/RL) -- The computer software industry is now one of the rare areas in Armenia's economy where Western -- largely, U.S. -- firms pull the strings. That provides the country with a chance to preserve some of the sophisticated technical orientation it boasted in Soviet times.

At least 12 U.S. software companies have subsidiaries in Armenia at present, and their number is due to grow in coming months. European firms are said to be following suit, with several of them already installed in the country.

For Armenia's unemployment-stricken economy, this has meant hundreds of jobs and good prospects for the creation of new ones. Government officials now view computer programming and wider information technologies as one of the main potential engines of future economic growth.

"Herein lies our future," says Aleksandr Adamian, deputy directory of HPLA, the Armenia subsidiary of the California-based Heuristic Physics Laboratories. Founded in 1995, HPLA is one of the pioneers of Western high-tech investment in Armenia. It started off with only five programmers and now boasts more than 60 of them.

It was HPLA's successful experience that inspired another California Silicon Valley company, Credence Systems, to launch operations in Armenia two years ago. Credence's Yerevan branch now employs about 50 people. The business is "very promising," according to its manager, Manuk Gevorgian.

Chilli Technologies, a Yerevan-based company also owned by Americans, was opened six months ago, but already has more employees than Credence. Its manager, Vasily Turovtsev, believes that "this is one of the best ways of developing our economy."

The West is an important -- but not the only -- market for Armenian-made software. Bever Computers is one of several local firms that get orders from Russia. Bever produces computer programs of automated financial management for Russian defense enterprises, capitalizing on its managers' old Soviet-era connections.

Most of Bevers' programmers used to work for Yerevan's well-known Mergelian Institute of Mathematical Machines, the once secretive research center that produced electronic equipment for the Soviet military. Thousands of former Mergelian specialists left jobless by the end of the Cold War and the Soviet collapse are a valuable human resource, which foreign and domestic firms are now exploiting.

Computer industry officials agree that the low cost of skilled labor is the primary factor attracting foreign investors to the sector. An experienced programmer working in a U.S.-owned firm in Armenia is paid an average of $500 a month, up to 20 times less than his counterpart in the United States.

The amount of investment needed for launching a software subsidiary is fairly low compared with other sectors of the economy. High transportation costs due to Armenia's geographical situation and the Nagorno-Karabakh conflict are irrelevant to information technologies.

In the words of HPLA's Adamian, this makes the software business "all the more beneficial for the country. What we need to have" he says, "is some industries that are unaffected by the transportation problems as much as possible. What we produce here is delivered within seconds."

Also important is the fact that the sector is export-oriented thanks to foreign companies. Adamian says: "You cam lose five or even 10 years trying to enter the Western market on your own." Information technologies are now one of the few areas where Armenia may soon be faced with a shortage of skilled specialists. The government has already increased the number of places in computer-science programs at state-run universities to keep up with the demand. Entry into any one of them is highly contested in the country. But even so, industry executives says, many university graduates are not qualified enough to work for software companies because of a general decline in educational standards.

Despite its robust growth, Armenia's software industry is still of modest size. Its annual production volume is no more than $15 million -- a drop of water in the sea of a global market worth billions of dollars. HPLA Chief Executive Andranik Hovannisian says: "Most Western software firms don't even know of Armenia's existence."