This is a best prospect industry sector for this country. Includes a market overview and trade data.
Last Published: 2/12/2019

Overview

ICT Sector in Armenia; Unit: Thousand U.S. Dollars

 2015201620172018 (Estimated)
Total Local Production457,309462,900484,053495,500
Total Exports130,500173,100210,100211,500
Total Imports34,30023,60026,90027,500
Total Market Size361,109313,400300,953315,500
Exchange Rates478480483485
Data Sources: National Statistic Service: Yearbook 2017, Social Economic Situation in Armenia, 2017, January-December and Central Bank of Armenia.

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 National Statistics Service the Information and Communication Technology (ICT) Sector in 2017 grew by 5.3%. However, within the sector, IT servcies grew by 27.3% from the previous year and volume was $170,092 million in 2017.

According to data by the the Enterprise Incubator Foundation (EIF) 2017 report, the number of actively operating ICT companies reached almost 650 (800, if start-ups are included), which indicates that Armenia maintained an annual 10 percent growth rate in the ICT sector. Based on the EIF 2017 report in Armenia, 17,700 people currently work in the IT Sector, made up of 31% international and 69% local companies. The annual profits comprised $765 mlnl. (36.8% growth), whereas IT workers earn on average $3,300 per month (25% growth). From 2007 through 2017, an estimated average of 43 ICT companies were established each year.  For comparison, in 2017, export of IT products from Armenia increased by 57.8% reaching to $338.5 mln., with the main sources of investment coming from the USA and Canada (36.4%), the EU (28.5%), Russia and CIS (15.5%).  The highest registered demand in 2017 stemmed from Australia and Asian countries.  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.

Per the EIF report, around 202 ICT companies with foreign ownership operate in Armenia, constituting about 36% of the industry total. The U.S. companies constitute the majority of foreign companies (52%) operating in Armenia.  European companies, or companies with a European and Russian share, make up 21% of companies each.   The majority of foreign branches were purely development centers for the parent companies. These were usually established as small development centers that first formed effective teams, began to increase their employee numbers, and then moved on to activities of greater value to Armenia.  It has been a common practice to eventually move the entire cycle of a company’s technical activities to Armenia, including R & D, design, coding, testing, and other functions. In addition, some companies have begun to relocate portions of their business-related functions, such as marketing and customer support, to Armenia. The practice of sending local professionals to customer sites outside of Armenia to provide implementation and customer support was also prevalent.

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 2017, the share of the workforce employed in the IT sector grew about 21% over 2015, reaching 17,700, which is around 2.5% of the total employment in Armenia. The number of technical specialists such as software engineers, analysts, developers, IT project managers, and others reached 12,400.  Among local companies, the average monthly salary of a junior technical specialist amounts to 300 to 400 USD, while the salary of a senior specialist may be as high as 3,500 USD a month.  Foreign-owned companies pay technical specialists from 400 to 3,500 USD.   From 2016 through 2017, more than 2,700 well-paid ICT sector jobs were created for technical specialists, and the number of new jobs increases each year.  Armenian educational instiutions are working to meet the demand.  In 2016-2017, over 7,000 students enrolled in Armenian higher education institutions offering specializations in information and high technologies.
 

Leading Sub-Sectors

The industry’s domestic turnover volumes have increased significantly 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.
The number of Armenian ICT companies that develop their own products and invest in Research and Development (R&D) increases every year.  This indicate that Armenia's ICT sector has been transforming from an outsourcing destination for foreign companies to a hub for technology development.

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 30 employees and for a period of three years or less. Individual entrepreneur startups are fully exempt from income tax. A five-member certifying commission determines eligibility for the tax privileges. At the same time, as approved under the 2016 tax legislation and effective from 2018, the implementation of R&D activities corresponding to criteria defined by the RA Government will be considered a VAT-exempt transaction.

In 2010, the Government of Armenia established the e-Governance Development Strategy. The Government has since initiated and implemented several projects to modernize e-governing, financed through both the State Budget and financial aid by international organizations (i.e. EU, UN and The World Bank). The goal is to ensure effective communication between citizens, businesses and the Government (www.e-gov.am). In 2017, the Digital Armenia Foundation was established to create a unified digital environment across all public administration areas based on contemporary information technologies.  The future of the Foundation is in some doubt with the change in government in May 2018.

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”, “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 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.

ViaSphere Technopark was established in 2002.   It provides business incubation services and created a fertile business environment for the development of already thriving technology companies and for start-ups. The Teamable online platform, which helps companies quickly find employees by creating teams from groups of existing employees, received a five million USD venture investment from True Ventures in 2017.  Teamable cooperates with a number of well-known American companies, including Uber, Facebook, Lyft, Hipanalitics, Stripe, Oracle, Intuit, and others.

The TUMO Center for Creative Technologies is a free of charge digital media learning center established in 2011 in Yerevan. The center has provided thousands of students aged 12–18 an open environment where they can use the latest in digital tools, learn from media professionals, and explore the intersection of technology and art (www.tumo.org).
During the Armenia Investment Forum 2016 in New York, the RA Government and National Instruments signed a Memorandum of Understanding to establish the Engineering City Technopark in Armenia.

The World Congress on Information Technology (WCIT) is the largest and among the most high-profile international gatherings of worldwide IT leaders.  Armenia was approved as the hosting country for WCIT 2019 during the meeting of the WITSA’s board of directors at WCIT 2014 Mexico. It is expected 2,000-2,500 delegates from more than 80 countries of the world will attend the Congress in Yerevan in 2019.  WCIT 2019 will be the first Congress held in Europe since 2010.

EIF organizes the annual ArmTech congresses intended to highlight growth in the segments of the high-tech industry that have strategic importance for the Armenian economy; to promote international collaboration in order to attract investments; foster cooperation between IT specialists; and increase the international visibility of Armenia’s high-tech industry. The annual forum is alternately organized in Armenia and the United States.

UATE conducts annual DigiTec Expo aimed to create a favorable environment for communication between high-tech companies, business consumers, and the general public. The expo aims to provide experts and sector participants with a clear picture of the sector in Armenia; facilitate market entry for IT companies; and exhibit companies’ new offerings.

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;

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. 
 
Web Resources
Enterprise Incubator Foundation
Armenian ICT Sector 2015 Report
Guide to Armenian Information Technology Companies
Ministry of Economic Development and Investments of the Republic of Armenia
Gyumri Technological Center Establishment Program
Vanadzor Technological Center Establishment Program
Armenian-Indian Center for Excellence in ICT
Microsoft Innovation Center
Armenian National Engineering Laboratories (ANEL)
IBM Innovative Solutions and Technologies Center
Digitec Expo
ArmTech Congress
Armenian IT Industry Report  (http://www.eif.am/eng/researches/report-on-the-state-of-the-industry)
Tumo Center www.tumo.org
The World Congress on Information Technology  (http://wcit2019.org/)
Business Armenia- (https://www.businessarmenia.am/en/site/index)

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Armenia Information and Communication Technology Trade Development and Promotion