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Billions in turnover: Expert explains reasons behind "non-organic" growth of IT sector in Armenia

Armenia
Arshaluis Mgdesyan
02.04.24 19:32
110

Over the past 2-3 years, the field of Information Technology (IT) in Armenia has experienced a sharp growth, which can be characterized as an unusual phenomenon. This opinion was expressed in a conversation with BMG by Haykaz Fanyan, an economist and director of the consulting company Modex, which recently conducted a study of the IT sector in Armenia.

The expert describes the rapid growth of the sector as 'non-organic' due to the fact that it occurred not by internal potential but due to external influence. "That is, individuals and companies engaged in the IT sector, who moved to Armenia from Russia along with their capital, became the cause of the sector's growth and its turnover by multiples," he noted.

The expert pointed out that there are currently no clear signs that the IT sector will continue to grow at the same pace in the future, but he sees potential for the sector's development through investments by existing companies if they decide to expand their operations in Armenia.

"In essence, two major segments have emerged. The first includes companies that have been operating in Armenia for many years and have made investments. The second includes Russian IT companies that relocated to Armenia (after the Ukrainian war - ed.)," he explained, adding that he sees growth potential in the "Armenian segment of companies," but it strongly depends on global trends.

"The IT sphere in Armenia mainly depends on external markets, serving external demand, as the lion's share of the production in Armenia is exported," the economist stated.

Regarding the activities of Russian companies operating in Armenia, as noted by Fanyan, their future activities also depend on geopolitical processes.

"That is, how they will act depending on the evolving external situation - whether they will move back to Russia or want to emigrate from Armenia to third countries?" Haykaz Fanyan noted, nevertheless pointing out that over time, the probability of the 'migration' of these companies to third countries decreases.

"Employees of many companies are already planning their lives in Armenia, buying apartments, and their children attend local schools. That is, they are settling in the country. The data revealed in the course of our research also testify to this. The number of Russian IT specialists in Armenia reached its peak in June 2023, reaching 8613 people, and then slightly decreased to 8262 by the end of 2023," the expert reported, adding that there are thousands of Russian citizens engaged in the IT sector and living in Armenia, who act as individual entrepreneurs and are not included in this calculation.

Overall, as he noted, as of the end of 2023, the number of staff or contract employees in the IT sector in Armenia amounted to 33,980 people. "There is, of course, a certain trend of outflow of specialists and companies from Armenia, but this is not yet a significant figure, as in 2023, the turnover of 66% of all IT companies in Armenia significantly increased," the expert said.

According to the data of the study by the consulting company Modex, the turnover of the IT sector in Armenia in 2023 amounted to 837 billion drams ($2.12 billion), which is 252 billion drams (over $630 million) or 43% more than in 2022. At the same time, about 87% or 755 billion drams ($1.91 billion) of the turnover of the IT sector was realized in external markets (i.e., exported), and 13% or 114 billion drams - in the domestic market.

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