Two hundred million market in the Armenian IT sector for SaaS vendors

Two hundred million market in the Armenian IT sector for SaaS vendors

Sector outlook

In the CIS and Middle East region, Armenia is one of the leading IT country with the ICT sector being one of the fastest adopted industry due to the highly skilled labor force and the infrastructure available. There more than 400 ICT companies that operate locally with an average annual growth reaching 23% and 90% of these businesses being established in the Yerevan region.

The software and services verticals have seen an explosive growth over the last 12 years during which they grew about 27% and the industry’s share in the total national GDP is around 2%, making it one of the most dynamic and promising sectors. More than half of the ICT companies are resellers, importing software and hardware products for the local market.

Software development and outsourcing are the two main verticals that attract most of the activity and approximately two thirds of the Armenian IT products are being exported to over 20 countries, among which US and Canada are the leaders, Russia and the CIS area as a second destination and the EU. As a competitive advantage it could be noted that the average monthly salary of an experienced software developer is around $750.

The past 10 years, the startup scene has seen some notable growth with the launch of new businesses both from local initiatives and also from foreign companies setting up local presence. The total revenues of the industry have exceeded the $200 million and the majority of which are driven by customized software and outsourcing, about 40%.

From the total revenues, 30% are exports to major destinations such as North America and Europe with an average of $32,000 in productivity revenue per employee (there are more than 10,000 IT specialists currently). The past have decade the local government has started many projects to upgrade significant infrastructure and services, such initiatives include e-government, e-education, e-health and other e-services.

 

Strategic direction

The local government wants to make the country a regional leader and ICT hub strengthening the infrastructure and providing incentives to create a global Armenian brand. There are two IT parks, the Viasphere Technopark in Yerevan, managed by Silicon Valley based incubator Viasphere and Gyumri Technopark, launched recently in 2012, that will foster the local entrepreneurship. Also, there is under discussion a project to exempt innovative companies from tax on profit instead of 10%.

 

Business opportunities

The business opportunities in the sector are various and include R&D outsourcing, software development, networking systems and communications. Apart from that, there are opportunities in the point of sale vertical as well as in the virtual network operator sector.

 

Some success stories

Synopsys (USA) is an example of a company that entered the local market through the acquisition of two companies and managed to establish a successful presence in the Electronic Design Automation software sector. The company employs several hundred qualified Armenian engineers and has run some great cooperation programs with major universities.

D-link (Taiwan), an enterprise with more than 2,000 employees globally, established in October 2011 a lab in the Gyumri Technopark with a 60 staff members.

The Enterprise Incubator Foundation (EIF), a technology business incubator established in 2002 within the framework of the World Bank’s “Enterprise Incubator” project, supported many successful projects such as the Regional Mobile Applications Laboratory for ECA, the Microsoft Innovation Center, the Science & Technology Entrepreneurship Program (STEP) in Armenia, the India-Armenia Center of Excellence in ICT, the Cisco Systems Network Academy, the SUN Microsystems Development and Testing Laboratory and the ArmTech Congress.

 

Business environment

For companies considering establishing a local presence in Armenia below are some major taxes to take into account (lower compared to many countries):

  • Personal income has the maximum rate of 20%
  • Value added tax (VAT) is 20%
  • Corporate tax rate is 20%
  • Employer’s social security tax rate is 3%

A percentage of companies, 20%, are subject to licensing, i.e. data transfer and internet access services. For the complete list of business activities that require licensing the RA Law “On Licensing” provides the full list of activities. Armenia offers various incentives to attract foreign investors including no duties on statutory capital, no barriers on investment entry and the option to carry forward the tax losses to the following financial year.

 

Competitive advantages

Compared to other regional countries, Armenia has shown great advantages in the ICT sector that will continue to boost the growth in the coming years. Such competitive advantages are:

  • World class R&D capabilities in engineering and computer science.
  • Well-educated and talented workforce with technical skills and English language proficiency.
  • Strong university programs with specialization in IT and related sciences.
  • Highly competitive labor costs and low operational costs.
  • Solid government support to the sector and commitment to improve the investment climate.
  • Sustainable and continuous IT growth.
  • Extensive experience with large multinational companies

Regulatory framework for IP protection corresponding to international standards

 

Distribution of companies and their revenue by specializations, 2012 data
Specialization Companies, % Revenue, million USD
Software and Services 327 244.35
Software publishing 17.7% 22.8
Publishing of computer games 8% 7.1
Other software publishing 9% 15.7
Computer programming, consultancy and related activities 82.3% 211.4
Computer programming activities 64% 138.2
Computer consultancy activities 23% 29.8
Computer facilities management activities 24% 27.7
Other information technology and computer service activities 13% 25.7

 

Some useful contacts:

Armenian ICT Industry Association (UITE)

Gyumri Information Technologies Center

Armenian CCI

Armenian Development Agency (ADA)

SME Development National Center of Armenia

More information on the Armenian IT Sector can be found at www.eif.am

 

Sources:

http://mineconomy.am/uploades/20132106123005548.pdf

http://www.east-invest.eu/en/investment-promotion/armenia-2/RA-ICT

https://www.awex.be/fr-BE/Nos%20services%20%C3%A0%20l’export/Tous%20les%20services/Documents/Armenwal/ICT.pdf

http://www.bsec-tech.com/eng/knowledge_hub/armenia/ict_profile

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