Armenia’s tech sector receives strong boost from Russian migrants

Armenia’s tech sector receives strong boost from Russian migrants
Armenia's technology sector has seen remarkable growth over the past decade, with a fourfold increase in its IT workforce to around 44,000 professionals by late 2022. / bne IntelliNews
By Adrien Henni of International Digital News November 22, 2023

Can a small, economically fragile and geopolitically vulnerable country bet on technology development to forge a brighter future? The answer is yes, believe top Armenian researchers, industry leaders and decision-makers within and outside the country. 

Armenia's technology sector has seen remarkable growth over the past decade, with a fourfold increase in its IT workforce to around 44,000 professionals by late 2022 – more than 5% of the country’s workforce – fuelling a growth rate exceeding 20% annually. High-tech now contributes nearly 6% to the country's total exports, according to the World Bank. 

Industry developments started in the 2000s with the emergence of IT outsourcing companies. Global corporations followed: they established no less than 18 innovation hubs to date in Armenia, tapping into local talent from programming to chip design.

Armenia hosts around 500 active startups today. A dozen local funds and a few business angel networks are there to cover the funding needs of the best ones at the initial stage. Mature Armenian startups are often backed by international VCs after they move abroad – essentially to the USA – to gain traction. 

Some Armenia-focused funds have received support from foreign LPs, both private and institutional. These include Tim Draper and One Way Ventures, which invested in SmartGate VC, while the World Bank and UNDP backed Granatus funds. 

This ecosystem has given rise to several globally recognised companies, closely connected to the US market. The unicorns Picsart and ServiceTitan either originated in Armenia or were founded by Armenians. 

The industry received an unexpected boost in 2022, as cohorts of Russian and Belarusian fled the war and political repression in their home country. Some 20,000 techies settled in Armenia, allowing local companies to hire highly skilled IT workers. Meanwhile, Russian or ex-Russian tech companies – including such big ones as Miro, Nvidia, Sber and Yandex – established development facilities in Armenia. 

The tech landscape in Armenia also benefits from a supportive diaspora. Estimated at 5mn to 10mn Armenians residing outside the country, this diaspora provides expertise, connections and investments. 

Thus Noubar Afeyan, an American-Canadian inventor and billionaire who co-founded Moderna, has backed the Foundation for Armenian Science and Technology (FAST) and its angel network. Armen Aghajanyan, principal scientist of AI research at Meta, is guiding the development of an AI institute in Armenia, while Sam and Sylva Simonian have sponsored the TUMO technology and design education programme as well as a computer science programme at the American University of Armenia.

“Armenians are known for their strong sense of community. This cultural trait extends to the tech sector: they actively support one another through mentorship, investment and business partnerships,” explains technology investor and entrepreneur Alexander Smbatyan. “But the diaspora also contributes to cross-fertilising ecosystems and cultures across the world, stimulating Armenians’ creativity and favoring their successes.”   

Supportive measures from the government in the field of science and technology include tax exemptions for startups and reduced income tax rates for employees in the IT industry. State funding of science has almost doubled since 2018, reaching some AMD25bn (nearly $65mn) in 2022.

While spending just 0.3% of its GDP on R&D, Armenia aspires to become a globally-integrated tech hub. FAST believes Armenia can be “among the top five data science and artificial intelligence innovator countries” around 2040. 

“Huge efforts should be made in the fields of education and research,” which have been largely neglected for the past three decades, concedes FAST’s CEO Armen Orujyan. But Armenia – once referred to as 'the Silicon Valley of the Soviet Union’ – and its diaspora have a proven track record in science and technology development, he argues. 

“Look at Israel, South Korea and Singapore, which have become tech nations despite their limited size and/or geopolitical exposure. We believe that, if we build our own ecosystem successfully, the nation will respond and perform at a very high level,” says Orujyan. 

In the field of artificial intelligence – a relatively non-capital-intensive area – Armenia’s potential is manifest. SmartGate VC’s partner Ashot Arzumanyan cites the “breakthrough applications” brought by Armenian startups Picsart, Krisp and SuperAnnotate in computer vision, noise suppression and natural language processing. 

Armenians also excel in computational biology, chip design, electronic design automation, robotics, advanced engineering, new materials and more. For advancements in these fields, Armenia needs to develop further its international co-operation programmes and diaspora-enabled technology partnerships in the USA and Western Europe. 

Beyond economic goals, technology development carries implications for the very survival of a country whose geopolitical vulnerability has never seemed as high for the past hundred years. From cybersecurity to drones and digital imagery, technology is key in contemporary warfare. 

Orujyan concludes: "There are monumental obstacles on Armenia’s way to a high-tech future. But this long-term goal can become a rallying point for the nation.“

This article is an abridged and adapted version of a Crunchbase country overview.