Nerd Nation: The People Factor behind Armenia’s Tech Prowess

Tiny landlocked Armenia is best known in the region for apricots and brandy, and is the source of long-running Caucasus rivalries as to which nationality first invented winemaking, whose mineral water and dolma are superior, and whose Olympians are better at wrestling and weightlifting. However, Armenia has a more recent claim to fame: it was a major technology hub of the Soviet Union.

Over 150,000 ethnic Armenians from the diaspora settled in the Armenian Soviet Socialist Republic at the invitation of the Soviet government after the Second World War (partly to compensate for the massive loss of life among Armenia’s male population). As a result, while quite mono-ethnic, Armenia was cosmopolitan in ways that other Soviet Republics were not. Armenian settlers from Iran, Lebanon, Syria, Egypt, Palestine, France and USA integrated into Soviet Armenia’s life, with the academics among them working effectively alongside their USSR-born colleagues in hardware and software development, rocket science and medicine.

The cross-fertilization of ideas and concepts from East and West in Armenia’s institutions bore fruit. Armenia played a key role in the development of the first Soviet atomic bomb, and produced around 40% of the USSR’s computer hardware. The Armenian-developed “Sevan” OS powered the Soviet Union’s ICBM inventory as well as its nuclear submarines; a great deal of dual-use technology was developed in Armenian state institutions, and significant investments in hardware manufacturing and assembly were made.

By the late 1980s, Armenians wryly referred to themselves as a “Nerd Nation”, seeing a career in IT as both prestigious and politically uncontroversial.

DIASPORA-LED DEVELOPMENT

The dark days of the 1990s brought much of this momentum to a halt, but the past decade has seen a renaissance in Armenia’s tech sector. On the one hand, the steady inflow of diaspora Armenians from all over the world has brought capital, export market networks, access to latest technologies and modern project management knowhow. On the other hand, ethnic Armenians in STEM disciplines abroad, many of whom are members of the Philadelphia-based Armenian Scientific Diaspora Association, serve as a bridge for talented Armenian developers looking to commercialize their products or perform outsourcing services to foreign companies.

Several donor and government-financed initiatives also play a role. Established in 2002, the Enterprise Incubator Foundation (EIF) attracted to its facility such technology giants as Microsoft, Sun Microsystems, IBM, Cisco, HP and Intel. EIF also hosts a venture capital fund Granatus, a source of equity and guidance to early stage tech companies which are also to be found on EIF’s premises. Importantly, EIF has set up a technology center in Gyumri, Armenia’s second largest city.

Investment promotion by Business Armenia is becoming more polished and customer-focused, signaling that the Armenian tech sector is open for business. Indeed, global players find Armenia an increasingly attractive location. An example is Synopsys, a developer of “secure everything”, from silicon chips to AI, to cloud computing and IOT applications. With over 13,000 staff worldwide, Synopsys has a large presence in Yerevan with several hundred employees and its own training center. Another US-headquartered company with a base in Armenia is National Instruments, operating in the test/measure/control system segment.

As a result of all the above, over the past decade Armenia’s tech exports have been growing at an average pace of 23%/year, reaching 15% of total exports. The tech sector’s overall output currently accounts for 6% of GDP, similar to agriculture.

While Georgia’s architect-designed Tech Park in Mtatsminda looks like a transplant from Silicon Valley, much of Armenia’s IT sector work has been done in crumbling Soviet-era buildings, with decent cable internet connection but neither aesthetically pleasing nor very comfortable. That is set to change.

THE PEOPLE FACTOR

While the arrival of foreign tech companies was a great boon for the development of Armenia’s tech personnel, qualified labor remains a key constraint for the industry.

Armenia may have integrated chess into its general school curricula, however the teaching of STEM disciplines in primary and secondary schools remains weak, particularly in rural areas. Several non-governmental, diaspora-financed initiatives are working to close the gap in IT, tech and creativity skills while operating outside the formal school system. Still, a solid foundation in mathematics and basic sciences is very important at school level, and this responsibility largely lies with government.

One example of a non-governmental initiative to promote computer literacy is the in-school robotics initiative by the Union of IT Enterprises, piloted in Armath. A more comprehensive approach is represented by TUMO, an innovative after-school training program providing free-of-charge “IT and Creativity” training for more than 14,000 youngsters in Yerevan, Gyumri, Stepanakert and Dilizhan (three new centers will be launched in 2019). The brainchild of a US-based IT entrepreneur, Sam Simonyan, TUMO has just opened its first international franchise (in Paris) and is soon to go global.

Given the weakness of government systems, individual people, prominent philanthropists and social entrepreneurs, play an oversized role in the transformation of Armenia’s Nerd Nation. For many of these individuals, including TUMO’s Sam Simonyan, the focus on education goes hand-in-hand with regional development and the building of an ecosystem for science and tech innovation.

With their fortune originating in Russia’s financial sector, Ruben Vardanyan and his wife Veronika Zonabend are behind several philanthropic enterprises, the best known of these, iDEA Foundation, has established an international boarding school in Dilijan, tourist attractions in the remote southern region of Syunik, and the Aurora Humanitarian Initiative. Another offspring of iDEA is the Foundation for Armenian Science and Technology (FAST) co-founded in 2017 with a successful life sciences investor Noubar Afeyan in order “to mobilize the scientific, technological, and financial resources of the Armenian and international communities.” FAST’s current offering includes an incubator, an Angel Investor network, a travel grant program, a fellowship program, and internships for undergraduates in established IT firms. Their 2018 public events have been a great success, with the NSF-FAST Conference in October 2017 well attended and the Global Innovation Forum a very interesting and thought-provoking event covering Life Sciences and IT (the full catalogue of presentations can be seen here). FAST is now working to convert a large land parcel in inner Yerevan into a special technology zone that will host ICT-related faculties of Armenia’s universities as well as innovators and investors from around the world.

CHALLENGES AHEAD

• Rather weak STEM teaching in primary and secondary schools results in a scarcity of teenagers eligible for tertiary education in STEM.

• Vocational-level instruction for technicians is inadequate.

• The growth of Armenia’s tech sector is causing rapid inflation in salaries as vacancies exceed qualified candidates. To an extent the gap is being filled by Iranian programmers fleeing their country, but that is not a long-term solution. It is anticipated that Armenia will need an extra 25,000 programmers by 2025, but the current supply pipeline cannot meet that need.

• In the face of rapid wage growth, the sector must refocus on quality products and a great return on investment for clients. This will require investment in branding and marketing, not just a race to the bottom on price.

• There is negligible state funding for early-stage commercialization of research, unlike Europe, USA and China, and this is a stage that few commercial entities will touch.

• There is not yet a deep enough pool of VC’s and Angels operating locally.

If these challenges are addressed, the technology sector in Armenia could be a major contributor to the national economy and employer of talented young people, effectively ending the process of brain drain that has plagued Armenia for two decades. Combined with modern agriculture and a prudent approach to tourism development, Armenia’s lack of natural resources and problematic relations with its two Turkic neighbors would no longer be a significant impediment to development and prosperity.

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Eleanor Roosevelt is known to have said: 'Learn from the mistakes of others. You can't live long enough to make them all yourself.' While we are quick to recognize the mistakes of our neighbors, this week’s Tbilinomics toast is to our ability to recognize and learn from their successes.

About the author: Based in Armenia, Dr. Appleby is an Australian veterinary scientist and agronomist, and has been operating Hong Kong-based agribusiness group Yu Feng Nong Holdings since 1997. His companies are engaged in M&A consulting, agricultural engineering, farm and asset management.

By Dr. Simon Appleby