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Armenia: IT Firms See Continued Growth, But Urge Government Help

Armenia's nascent IT, or information technology, industry saw further expansion in 2001, making it the most rapidly growing sector of the nation's struggling economy, according to official figures. But industry officials caution that it still has a long way to go before becoming an engine of broader economic recovery -- a key goal of the Armenian government.

Yerevan, 28 February 2002 (RFE/RL) -- Government officials estimate that the aggregate output of IT products in Armenia soared by 30 percent in 2001, with exports alone exceeding $20 million.

According to Armen Grigorian, executive secretary of the government's IT Promotion Council, the growth rate will at least remain the same in 2002.

"There has definitely been progress," Grigorian says. "Several new firms have been created, while some of the existing ones have increased their staffs."

Company executives are more skeptical, however. The Armenian government, they say, has yet to take meaningful steps to spur an IT boom like that seen in other parts of the world during the 1990s.

Hovik Musayelian is the chief executive of the Armenian subsidiary of the Texas-based firm LEDA Systems, a worldwide supplier of semiconductor components.

"There is more talk about developing the sector, more populism, than real action [by the Armenian government]," Musayelian says.

Musayelian adds that the government's IT promotion efforts have largely been irrelevant to LEDA's rapid expansion in Armenia. The Yerevan branch had only 20 employees when it was launched in mid-2000. It now employs some 100 well-paid specialists and Musayelian says it plans to double or even triple its staff in the coming years.

LEDA is a relative newcomer to the Armenian IT sector. At least a dozen U.S. firms -- including such Silicon Valley names as HPL, Virage Logic, and Credence -- already had branches in Armenia when LEDA established its presence in the country.

The Union of Information Technology Enterprises (UITE), a local business association, estimates that about 200 IT companies were active in Armenia as of September. That includes small firms involved in computer hardware sales and user training. Their number has shot up in the last two years, reflecting a much stronger demand for computers. About 60 companies in Armenia deal with software development. According to the UITE, 26 of them operate with foreign, mostly American, capital.

Between 3,000 and 4,000 professionals are thought to be employed in Armenia by the IT sector. The government has declared development of the IT sector as one of its chief economic priorities.

Business executives, however, complain that the main obstacles hampering growth are still in place. They warn that Armenia may, in the near future, be faced with a shortage of skilled labor -- its main trump card until now -- unless it revamps its education system. With most of the available IT specialists already having jobs in or outside Armenia, the high-tech industry's further growth requires a sustained influx of skilled laborers -- but the majority of young university graduates in Armenia do not meet industry demands.

This fact is what prompted LEDA to sponsor a new IT program at the Armenian State Engineering University. Under an agreement signed in 2001, the company's Armenian branch is pledging to select 30 third-year students each year who will continue their studies under a special LEDA curriculum and join the company upon graduation.

Another factor stifling the IT industry in Armenia is the lack of cheap and reliable Internet access. Industry executives unanimously put the blame on the Greek-owned telecommunications monopoly ArmenTel, on which they are heavily dependent. Government attempts to abolish the legal monopoly have failed so far.

Industry complaints about Armenia's business environment are less frequent. A UITE report issued in 2001 concluded that IT firms in Armenia face "comparatively fewer problems" than other businesses.

Jan Kloos, a Dutch businessman based in Yerevan, believes that problems with the rule of law in Armenia are "not as big as they are being presented" by Western donors. Kloos's Daily Sports Holdings group, which runs one of the world's leading football websites, moved most of its operations from Holland to Armenia in 2001 as part of its expansion strategy.

Kloos and other IT chiefs agree that the Armenian government could give a strong boost to the sector by giving locally owned IT startups tax breaks and supplying appropriate infrastructure. One way of doing that is to create more so-called "technoparks" or "IT incubators" that would provide new firms with office space, computer facilities, training, and relevant information.

The first such "incubator" in Yerevan, called the Viasphere Technopark, opened in the summer of 2001 and now accommodates seven mainly U.S.-owned firms that employ about 300 people. The biggest of the technopark's companies is a subsidiary of America's Epygi Technologies, which has pledged to invest $20 million to produce software, laser, and fiber-optic equipment and semiconductors to Armenia.

In the words of the technopark's director, Aram Vartanian, all seven firms are enjoying what he called "greenhouse conditions" at Viasphere.

"We and our American partners are also playing the role of a catalyst," Vartanian says. "We are providing information about opportunities in specific IT fields where one can breed a successful company."

Another such incubator is expected to be created later in 2002 with a $5 million loan provided by the World Bank last December.

The Armenian government is also pinning big hopes on a major international conference on information technology to be held in Yerevan in April, under the auspices of the European Union. It says the EU now regards Armenia as a regional IT hub and is ready to support its development.

But Grigorian of the government's IT Promotion Council reckons the country needs to generate at least as many new IT jobs as it already has if the industry is to have a beneficial impact on the country's otherwise depressed economy.