The Story of the Emerging IT Cluster in Armenia

EV Case study, 2010

 
 

The beginning of 1990s ... The breakdown of Armenia’s ICT industry, a major R&D and production center of the former Soviet Union,  sometimes called “Silicon Valley of the USSR”,  gave birth to a class of thousands of jobless and abandoned, but highly qualified professionals. Being exposed to market forces these people had to find their way out of the crisis. Networks of immigrant professionals from Armenia created the basis for industry development within the country, contributing to the rebirth of IT by going abroad and later on sending contracts to their compatriots in Armenia.

After declaring independence from the Soviet Union in 1991, the government of Armenia launched a comprehensive reform program aimed at building a democratic society with a market-driven economy. Reforms were carried out in an environment of sharp economic decline, hyperinflation, and severe shortage of energy, accompanied with a blockade of transportation routes. In 1994 the economic decline was stopped.  Since then and until 2000, annual economic growth averaged about 5 percent.

During the first decade of ongoing reforms, Armenia’s IT industry was left without any attention from the government. However, small groups of talented and enthusiastic IT professionals managed to breathe life into the totally disrupted IT industry and make it the most dynamic, productive and fastest growing sector of Armenia's economy, with CAGR of 30 percent. Many well-known western, mostly US-based, companies, mainly of Armenian origin and/or participation, established development centers in Armenia. 

At the beginning of the 2000s, local as well as foreign IT companies, recognizing the need for concerted action and collaboration, established industry unions and initiated joint programs with educational institutions. These realities stimulated the government of Armenia to announce the IT sector as a priority at the end of 2000, and establish an IT Development Support Council in 2001.

2005-2008 were marked as the most favorable years for IT sector development. The industry witnessed a sharp increase both in terms of newly formed companies and in terms of growth of revenues with number of operating companies reaching 210 enterprises by 2008. Emergence of new players on mobile and internet markets, as well as recognition of the development of IT sector as government priority are other highlights of the last four years.

Despite the adverse impact of the global economic crisis and deep economic decline in Armenia the industry recorded 17% growth in 2009.