Once considered the Silicon Valley of the Soviet Union, Armenia is having a revival. Nestled in the Caucasus Mountains, the landlocked country is becoming internationally recognised for its improving economic situation and tech scene. 

In the wake of the Ukraine war, multinationals with operations in Russia have moved their offices to Armenia, while an influx of Russian émigrés to the country has brought in new talent.

“Guided by sound macroeconomic policies amid significant global and regional challenges, Armenia is on course to achieve growth of about 11% in 2022,” Iva Petrova, division chief at the IMF, said in a statement in November. This is “in part driven by large inflows of external income, capital and labour into the country”, she continued, as “fiscal overperformance and dram appreciation” have led to falling public debt in the country.

In the first half of 2022, foreign investors announced a record 14 FDI projects in Armenia, which represents a seven-fold increase from the two projects recorded over the same period of 2019, according to fDi Markets — marking the highest percentage increase tracked worldwide. So far this year, 21 projects have been tracked into Armenia.

Unicorns and multinationals

The country’s domestic tech sector has matured over the decade, growing from 1.2% of the country’s gross domestic product (GDP) in 2010 to 5.1% in 2020. US-based Nvidia is due to open a new research and development centre in the capital Yerevan, according to media reports and government sources. US-based Advanced Micro Devices (AMD) is also set to expand operations in Armenia. 

“After Covid-19, we decided to dramatically improve our investment support system and digitalise the decision-making process, bringing more investors to the country,” says Vahan Kerobyan, Armenia’s minister of the economy. 

Mr Kerobyan says that the main reason for Armenia’s appeal is “education and talent”. With a specialised multilingual workforce, Armenia has emerged as a cheap destination to set up high-tech sector subsidiaries.

“We have evolved from just being an outsourcing country to a product country. Now, there are new companies and ‘unicorns’ in our country, and we see that multinationals like AMD and Nvidia are coming to Armenia,” he says. Unicorns are companies valued at more than $1bn.

One homegrown company has come to symbolise the growth of the country’s tech scene. With more than 150 million monthly users, Picsart has become a shining beacon for Armenia’s success story and burgeoning tech scene. 

Hovhannes Avoyan, CEO of Picsart, is no stranger to start-ups: he started his first company in 1997. But, he says, it was “unique” in 2015 when Sequoia Capital invested in Picsart, which gave other local companies inspiration and helped Armenia regain some lost recognition (see interview opposite). Armenian start-up Krisp, which uses artificial intelligence to suppress background noise, is another success story of the country’s tech scene. 

Aside from tech investments, the country is making strides to attract investments in renewable energy. It is targeting up to 15% of solar energy by 2030.

UAE-based Masdar has won contracts to build up to 400 megawatts (MW) of solar plants in Armenia. In August, the Eurasian Development Bank (EDB) announced it will provide up to $37m to fund 11 solar power plants in the Gegharkunik and Aragatsotn regions, with a total capacity of up to 65MW.

Levon Ohanesyan, CEO of Enterprise Armenia, says that Armenia is “starting to possess itself as an investment destination” in sectors ranging from high-tech to renewable energy, highlighting that the “sun shines 306 days a year in Armenia”.

Talent bottlenecks

But as much as the country has enriched itself on the quality of its talent, many point out that one of Armenia’s main bottlenecks is the availability of talent. On top of this, signs of an economic recession and the ongoing conflict on the border with Azerbaijan may well hamper future investment into Armenia. 

With rising uncertainty in the region, Mr Kerboyan concedes that many investors are waiting in the wings for a conflict resolution in Nagorno–Karabakh, a disputed region within the territory of Azerbaijan. War broke out last year between Armenia and Azerbaijan over the region and despite the cease-fire last November, fighting has persisted, notably with an attack on the border in September that killed some 100 soldiers. “The most important element for large-scale investments is peace,” he says. 

“We are very much focused on boosting the productivity of the Armenian economy,” he says. “Our aim is to improve and catch up considerably. First, we are targeting that GDP per capita will jump from $4000 to $7000. For this we want to engage more multinationals.” 

For Mr Avoyan, the path to future growth resides in boosting the talent supply and bringing in more value-added, high-tech business to the country.

“Armenia has no other choice,” he stresses. “If we want to become a prosperous country, we only have talent. We have no oil, no access to the sea. The only way to be prosperous in Armenia is through the high-tech sector.” 

This article first appeared in the December 2022/January 2023 print edition of fDi Intelligence.