Challenges Facing Armenia's IT Sector: An Expert Analysis
Since 2022, Armenia's IT sector has seen substantial growth, largely driven by an influx of relocators from Russia. This growth has contributed 1-3 percentage points to GDP. However, recent data reveals concerning trends, indicating that the sector is now facing significant challenges.
Agasi Tavadyan, an economic analyst and lecturer at the Armenian State Economic University, highlighted these issues on his Facebook page. According to the State Revenue Committee, the percentage of IT sector taxpayers registered as Armenian citizens has dropped from 88.3% in 2019 to 12.6% in the first half of 2024. Meanwhile, the number of IT companies with local registration is projected to fall from 5,163 to 1,174, while foreign-registered IT companies surged from 5,511 to 8,180. Despite this, the workforce in registered Armenian companies has only decreased by 5.5%, suggesting potential data inaccuracies or changes in registration status.
Tavadyan attributes the significant disparity in employment numbers to the existence of "mailbox companies," which primarily exist for tax or legal purposes. He notes that average salaries in the sector have increased from approximately 550,000-600,000 drams in 2018-2019 to 1-1.1 million drams in 2023-2024. However, growth rates have slowed recently. The decision to establish IT companies in Armenia was influenced more by membership in the EAEU than by internal advantages.
Several factors contribute to the sector's decline, including the revaluation of the Armenian dram, which has led to increased living costs and bankruptcy among local companies. Additionally, changes in tax policy, such as the expiration of preferential rates for IT companies and planned increases in turnover taxes, further complicate the landscape. Tavadyan suggests that the government should reconsider its tax policies to stimulate growth and maintain the sector's viability.
To address these challenges, Tavadyan recommends managing the exchange rate and ensuring affordable housing, as these factors significantly impact the attractiveness of Armenia for IT specialists. The coming months will be critical for the future of Armenia's IT sector, he concludes.
Agasi Tavadyan, an economic analyst and lecturer at the Armenian State Economic University, highlighted these issues on his Facebook page. According to the State Revenue Committee, the percentage of IT sector taxpayers registered as Armenian citizens has dropped from 88.3% in 2019 to 12.6% in the first half of 2024. Meanwhile, the number of IT companies with local registration is projected to fall from 5,163 to 1,174, while foreign-registered IT companies surged from 5,511 to 8,180. Despite this, the workforce in registered Armenian companies has only decreased by 5.5%, suggesting potential data inaccuracies or changes in registration status.
Tavadyan attributes the significant disparity in employment numbers to the existence of "mailbox companies," which primarily exist for tax or legal purposes. He notes that average salaries in the sector have increased from approximately 550,000-600,000 drams in 2018-2019 to 1-1.1 million drams in 2023-2024. However, growth rates have slowed recently. The decision to establish IT companies in Armenia was influenced more by membership in the EAEU than by internal advantages.
Several factors contribute to the sector's decline, including the revaluation of the Armenian dram, which has led to increased living costs and bankruptcy among local companies. Additionally, changes in tax policy, such as the expiration of preferential rates for IT companies and planned increases in turnover taxes, further complicate the landscape. Tavadyan suggests that the government should reconsider its tax policies to stimulate growth and maintain the sector's viability.
To address these challenges, Tavadyan recommends managing the exchange rate and ensuring affordable housing, as these factors significantly impact the attractiveness of Armenia for IT specialists. The coming months will be critical for the future of Armenia's IT sector, he concludes.