Review of the Development of IT Industry

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Photo:https://www.dreamstime.com/

Currently, the IT sphere is among  the fastest developing spheres in the whole world. In the last decade the high tendencies of global economic growth were principally conditioned by the progress in the field of information technologies, innovations, and localization of the latters in various fields of economy. The Republic of Armenia cannot help but being a part of all these processes.

In case of the Republic of Armenia, the experience in software development, industrial calculations, electronics, and semiconductor production inherited from the soviet period, served as a good base for the development of the sphere. Below we will make an attempt to review the development of the IT industry in Armenia, its present preconditions, and draw parallels between comparable countries in order to clarify whether we can be content with the growth rates or not.

In the beginning of the 2000s the IT sphere of Armenia entered a new stage. In 2002 the Enterprise Incubator Foundation was established, which is now one of the biggest technological business incubators and counselling companies in the region and is designed to contribute to the growth of the sphere of information and telecommunications in Armenia, by creating an appropriate environment for the development of innovativeness, improvement of technologies and expansion of IT companies. Over the years the company has shaped partnership relationships with some of the RA official bodies, Armenian universities, and with such solid international companies in the IT sphere as Microsoft, IBM, Hewlett Packard, the Intel Corporation, development agencies in the IT sphere of different countries, as well as with international financial companies, thus having brought into life numerous investment programs aimed at the development of the sphere.

Since that period this branch of economy has recorded a significant growth every year, annually 18-23 %[i] on average.

Over the years various centers have been opened: Microsoft Innovation Center (was founded in 2011), Armenian-Indian Center for Excellence in ICT in YSU, which is a joint program by the governments of the Republic of Armenia and India and is realized by the Enterprise Incubator Foundation (Armenia) and C-DAC Center (India). In Yerevan the Viasphere Technopark operates, which was established in 2011. Many companies (both local and foreign) in the sphere of IT operate in this technopark, the vast part of which exports services. There is a technopark in Gyumri as well, which was established in august 2005. It is a science educational foundation in the sphere of IT which is mostly aimed at the development of the sphere in the northern regions of the republic, thus decentralizing the market of information technologies. Nevertheless, we think that the sphere is strongly centralized mainly in Yerevan.

Tumo Center for Creative Technologies also operates in Armenia: it was established in 2011 and since its opening it has provided 12000-18000 teenagers with extracurricular education in the sphere of digital media. Oriented by skillful teachers and media experts, as well as having at their disposal the latest digital equipment, the students fulfill their personal curriculum via Tumo world (a special educational platform which prepares them for practical tasks). We believe that IT learning centers  are one of the most important factors in the development of this branch.

Thus, we can assume that the infrastructure necessary for the development of the sphere is sufficient.

And in 2008 the government of the Republic of Armenia approved the conception of the N 35 recorded decision concerning the development of the Iinformation technologies. We will try to highlight the main important provisions. This document establishes the procedure of annual money allotment for the development of the sphere: in particular, the conception is meant to process and reconsider the legal acts that boost the IT sphere development in Armenia and the realization of the information public of primary importance, as well as  to define and provide mechanisms of its  efficient implementation according to certain directions; for example, stimulation of investments, assistance for the  realization and further development of newly founded enterprises, legal defence of authors’ rights in the IT sphere, simplification of the procedure of registration of the new enterprises, reformation and improvent of tax and customs administration, processing and simplification of the mechanisms of importation and exportation  of IT products and services.

Below the changes in quantitative data of the sphere during the last years are presented:

  The number of Companies Circulation (million drams) The number of workers IT/GDP
2008 175 194,508.90 4890 1
2012 360 207,195.60 9354 3.3
2013 380 222,882.40 11154 4.8
2014 390 223,161.90 13800 4.62
2015 450 238,594.70 15000 5
2016 540 261,327.60 16000 6

 

On December 17, 2014 the Parliament of the RA adopted a law concerning “the state assistance for the information technologies sphere”. By this law certain tax privileges are established for newly founded IT companies: according to the mentioned law the following tax privileges are available for newly founded IT companies from the moment of their registration to a 3 years period – 0% rate for profit tax, and 10% rate for income tax, regardless of the amount of monthly taxed income. In the above inserted table the large number of newly founded IT companies is conditioned by the very adoption of the law about ICT. We think that these numbers also include the companies that entered tax field as a result of the adopted law: before the adoption of the above mentioned law they operated in the shadows, mainly avoiding responsibilities concerning profit taxes for salaries.

For comparison we can mention that in 2015 in neighbouring Georgia the share of IT sphere in GDP comprised 4.8 % (5% in the RA)[ii], 5.2 % in the Republic of Belarus (there are branch offices of internationally known IT companies in this country), and 6 % in Moldova.

We can notice that in 2016 the circulation of IT sphere already surpassed the amount of 500 million US dollars (growing by about 20% as compared to the previous year), respectively forming over 6 percent of the GDP (the digital data of 2016 has not been introduced by NSS yet, however the EIF has presented the results of its own calculations).

As we see, the IT sphere is rather progressive in the Republic of Armenia and holds a significant share in GDP, which still has a growth tendency. However this sphere has a high level of development in the whole world altogether, including the other countries which are comparable with Armenia. Therefore, in this case official measures (as, for example, the law concerning tax privilege that was adopted in 2014) and incentive mechanisms for investments in the sphere are compulsory for boosting the development rates. As today this sphere has a high level of capital floating, the development is widely dependent on the social-economic state of a country, patricularly on the “cost of living”: the cheaper the “cost of living” in a given country, the more capital will float to that country (in this case we mean the human resourses), and, most likely, it will be sufficient for precluding emigration of specialists.  Consequently the prices of software provisioning, software development, and technical services will be more affordable, as a result of which more compatible. In this case the degree of attractiveness of investments and foundation of companies will increase in a given country.


[i] Account of the research of the sphere of information and telecommunication technologies in Armenia– 2008, 2012, 2013, 2014, 2015

[ii] Data about Azerbaijan are unavilable.


Author: Narek Muradyan. © All rights are reserved.

Translator: Lilit Maghakyan.


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