This is a best prospect industry sector for this country. Includes a market overview and trade data.
Last Published: 9/23/2016

Overview

Armenia has maintained its competitive advantage in technology development as a known hub for software development, industrial computing, electronics, and production of semiconductors. The sector has remained significant in the Armenian economy due to a competitive labor force, its share of GDP, constant growth in the number of companies, and total turnover.

According to Armenian ICT Sector 2015 report, the total industry revenue, which consists of the Software and Services, and Internet Service Provider sectors, reached $559.1 million USD in 2015, an increase of 17.7% over 2014's total of 474.9 million USD.  In 2014, it increased 25.2% over 2013. In 2015, revenues generated by the software and services sector, along with internet service providers, have increased to 5% of Armenia’s GDP. From 2010 to 2015, the average annual growth in the industry amounted to nearly 20%. The industry’s share in total exports increased from 8% in 2010 to 11% in 2015, confirming the growing importance of the software development sector to the Armenian economy. Exports increased in 2015, reaching 214.4 million USD, comprising 50% of the Software and Services segment (without ISPs) total. With 76% of exports' share, foreign companies were still prevalent in exports. The largest software and services companies are branches of foreign firms, which almost completely export their output. In addition, many domestic enterprises also export a significant portion of their products and services. The largest share of exports, almost 79.5%, goes to the United States and Canada; 10.8% goes to Europe; and Russia and CIS countries are third, with 8.4%.

About 450 ICT companies operate in Armenia, growing at an average annual rate of 10%. The majority, about 88%, of these companies are Yerevan-based. However, the number of companies operating in other regions of Armenia is growing due to the development of educational and scientific infrastructure, particularly in Gyumri and Vandazor, respectively the second and third largest cities. In 2015, 70 new companies were established, creating nearly 400 new jobs. Armenian ICT companies specialize in embedded software development and semiconductor design, customized software and outsourcing, financial software, multimedia, web design, information systems, and system integration. Armenia has made significant gains in semiconductor design, which are registered as Intellectual Property.
 
Around 162 companies with foreign ownership operate in Armenia, constituting about 36% of the industry total. In 2005, these companies represented only 25% of Armenian ICT companies. US companies constitute the majority of foreign companies (44%) operating in Armenia. This number has increased by 2% as compared to the numbers recorded in the previous year. European companies, or companies with a European share, make up 35% of companies with foreign ownership.
 

The workforce is one of the most important competitive advantages of the Armenian ICT sector. The relatively low cost combined with high levels of productivity of Armenian IT specialists make Armenia attractive to foreign investors. In 2015, the share of the workforce employed in the IT sector grew about 10%, reaching 12,685, which is around 2.3% of the total employment in Armenia. The number of technical specialists such as software engineers, analysts, developers, IT project managers, and others reached 10,250. Altogether, including support staff, employment in the sector has reached about 15,000. The ICT sector creates up to 1700 jobs for technical specialists annually. However, Armenian universities graduate 2,000 IT and high-tech specialists each year.

Sub-Sector Best Prospects

In 2015, the volume of the domestic market for software and internet services reached about 344.7 million USD, or 61% of the industry’s total turnover. This is less than the 2014 domestic market share, due to an increase in exports and a slowdown in the telecommunications market. In general, since 2010, sales volumes in the domestic market have increased by more than 253%, which has been the result of the substantial growth in the Internet services area. The share of the software sector constituted 61% of the domestic market, while the ISP segment was at 39%, with an estimated $133.6 million USD in total market revenues. The share of locally owned ISPs and overall ISP market increased considerably, due to entry into the market of new, large ISP firms, as well as acquisitions of telecom players.

The industry’s domestic turnover volumes have tripled during the last five years. The reason is the growing demand for IT sector services in other industries. There is a growing demand for IT services in the domestic market; however, this is a slow process due to a number of factors, including low margins, low wages as well as low demand for productivity enhancement tools, financial constraints, high software piracy rates, and other factors. The majority of software packages sold on the domestic market include accounting and financial software for large enterprises and banks. Other products and services with the largest demand were enterprise resource planning solutions, e-commerce, web development services, tools for the healthcare industry, and distance learning programs.
 
In 2014 the Armenian government adopted a bill providing tax privileges for new IT companies until 2020. The bill gives newly established IT companies a 10 percent income tax break and exempts them from profit tax. These incentives are offered to new companies with fewer than 15 employees and for a period of three years or less. Individual entrepreneur startups are fully exempt from the income tax. The privileges are in place until 2020. A 5-member certifying commission determines eligibility for the tax privileges.
 
Several large-scale projects have been carried out with multinational IT companies to promote innovative ideas in the ICT field, increase access to venture funding and investment, and improve training for technical personnel.  The projects involved collaboration between the government, educational institutions, international donors, and multinationals companies such as “Microsoft”, “D-Link”, “National Instruments”, “Synopsys”, “Mentor Graphics”, “Nokia”, “Intel”, “Cisco”, “IBM”, “GFI”, ORACLE, VMWare and others.
 
In November 2014 Cisco Systems acquired Memoir Systems Armenian Company and are planning to open an office in Armenia. The acquisition will enable the company to increase manufacturing of affordable and high-speed memory for existing ASIC-Cisco switches and circuits.
 
On June 20, 2014, U.S. based multinational computer technology company Oracle announced that it signed an agreement to acquire LiveLOOK to strengthen Oracle Service Cloud with leading co-browse functionality to improve customer experiences through connected real-time engagements. Following the acquisition Oracle announced it was planned to keep the LiveLOOK office in Yerevan and grow it into a 200-300 person R&D center.
The PicsArt mobile photo editing application, developed in Armenia, was included in Forbes Magazine's 2015 Hottest Startup list, ranking fifth in the standings. The estimated valuation of the startup is 250 million USD. At the same time, Google Play recognized the application as one of 2015's best applications. PicsArt is an American brand, designed by Silicon Valley-based company Open Soft Consult, but the programming and marketing are carried out in Yerevan.

Shadowmatic, an iOS application developed by Yerevan-based Triada Studio, won the prestigious Apple Design Award during Apple’s World Wide Developers Conference in San Francisco in June 2015. Triada Studio is a computer graphics and animation studio with over 20 years of industry experience. Shadowmatic is the company’s first project that bridges its vast computer graphics experience with an experimental in-house 3D engine.

Opportunities

There is an increased demand for IT services in the domestic market, however the small size of the domestic market, low wages, low demand for productivity enhancement tools, financial constraints, high software piracy rates, and other factors make growth in this sector a slow process. Relatively small domestic demand creates insufficient inducement for companies to develop software packages or offer new and quality services domestically.  However there are opportunities for selling standard software packages in the domestic market including accounting and financial software for large enterprises and banks. Other products and services with the largest demand are enterprise resource planning solutions, e-commerce, web development services and tools for the healthcare industry.
 
Armenia is a favorable country for foreign direct investments in ICT. It offers the following competitive advantages relative to other countries of the region:

  • World-class R&D capabilities in engineering, computer science, physics, and mathematics;
  • Well-educated and talented workforce with technical skills and English language proficiency;
  • Strong university programs with specializations in IT and related sciences;
  • Highly competitive cost of labor and low operating costs;
  • Solid government support to the sector and commitment to improve the investment climate;
  • Sustainable and continuous growth of the IT sector;
  • Extensive experience with large multinational companies;
  • IP protection laws and regulations meeting international standards.

Web Resources

The Armenian government has actively supported Armenia's growing IT industry. With the support of the World Bank, the Ministry of Economy established the Enterprise Incubator Foundation (EIF) to improve the competitiveness of Armenian IT firms in the global marketplace and to assist Armenian firms in attracting investors. 

Enterprise Incubator Foundation
123 Hovsep Emin street
Yerevan 0051, Armenia 
Tel: +374 10 219 797 
Fax: +374 10 219 777 
Email: info@eif.am
http://www.eif.am

Armenian ICT Sector 2015 Report  - http://www.eif.am/eng/researches/report-on-the-state-of-the-industry/
Guide to Armenian Information Technology Companies - http://itguide.eif.am/#top

http://www.mineconomy.am/eng/index.html
 
Gyumri Technological Center Establishment Program- http://gtc.am/  
 
Vanadzor Technological Center Establishment Programhttp://vtc.am/am/
 
Armenian-Indian Center for Excellence in ICT - http://www.armindia.am/
 
Microsoft Innovation Center - http://www.mic.am/
 
Regional Mobile Application Laboratoryhttp://www.mlabeca.com/
 
Armenian National Engineering Laboratories (ANEL)- http://www.anel.am/
 
IBM Innovative Solutions and Technologies Center - http://www.istc.am/en/

Trade Events and Business Forums

Digitec Expo -http://www.digitec.am/
 
ArmTech Congress -http://www.armtechcongress.com/eng


Unit: USD thousands

 

2013

2014

2015

Market Size

311,400

321,700

462,900

Local Production

355,225

474,900

559,100

Exports

110,500

129,800

130,500

Imports

43,400

44,500

34,300

Exchange Rate: 1 USD

410 AMD

416 AMD

480 AMD

Data Sources: EIF’s Annual State of the Industry Report and Central Bank of Armenia

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Armenia Information and Communication Technology Trade Development and Promotion