Armenia as an IT export powerhouse

Armenian economists, diaspora repatriates, and development evangelists offer many idealistic proposals about how Armenia can reverse its inexorable decline and parlay the forces of its gradual disintegration into positive economic growth and regional leadership. Most of these are plainly quixotic, at least to anyone with even cursory insight into everyday Armenian reality and demographic trends. They do not give one the sense of having been united with the probable.

However, on this spectrum of bright-eyed, bushy-tailed pronouncements, the idea of Armenia becoming a major IT centre is one of the less wholly implausible ones. Politicians and self-appointed diaspora luminaries say the darndest, most fantastical things; of all of their grandiose ideas, for Armenia to traffic in virtual goods is probably not the most far-fetched, if only because the messengers of progress have set a high standard with their pompous rhetoric.

I don’t have much experience working within the local IT market, though I do have plenty of colleagues in the IT field in Yerevan. Nevertheless, true to my well-established tendency, I’ll dubiously anoint myself enough of an authority to give an outsider’s impression about the merits of this thesis that Armenia should hitch its wagon to tech. Then, maybe insiders can tell me why I’ve got it all wrong.


The backdrop of strong Soviet-era fundamentals in science and engineering helps in Armenia, too. Armenian engineers are, classically, quite capable. Moreover, the hardships this generation of IT people have had to live through in the bedlam of the 1990s has given them a lot of adaptability, flexibility, and resolve. They’ve definitely got the stereotypical Soviet MacGyver-type knack for improvisation. Among my circle of acquaintances are many people who learned to program during the dark years of the electrical crisis and the Nagorno-Karabakh War, squeezing a few hours a day of power for their third-rate computers out of car batteries, charged by tenuous methods of dubious legality, at a time when Yerevan was plunged into near-total darkness and bitter winter cold. People were burning books and random objects at the time for heating fuel. They pioneered low-baud Internet connectivity through Moscow in extremely inhospitable conditions. They paid obscene rates for Internet and telephone service in the heyday of the ArmenTel monopoly, and still more obscene black market rates for aftermarket mobile devices. As far as the pampered, effete cubicle-dwellers of the “developed world” are concerned, these guys might as well have been working on punchcards by candlelight. They would’ve given a lot to have had mere Office Space problems.

But, for the most part these people left a long time ago. It doesn’t take a genius to recognise that with these kinds of skills, one could make proportionally better money abroad, even offset against higher living costs, while opening greater career development and life opportunities for themselves and their families. Moreover, these guys have an advantage that many other Armenians trying to leave the country don’t. Steeped in the Western-rooted shared culture of the Internet, they have a good command of the English language and soaked up a lot of globalist ideas that make them highly fraternal with their nerdy American and European counterparts. They’ve also got the Russian IT culture and language angle, which is very influential in Armenia as well, so they can migrate to Eastern Europe, too. Economically speaking, it’s a lot easier for foreign companies to plug clever Armenian technologists straight into their workforce, because they’re not so different from the domestic clever technologists. The homogenising force of the Internet definitely offers an efficiency benefit to both labour and management.

Understand, too, that there are ways to eke out a meager living doing IT in developing economies that effectively don’t exist in the developed world anymore, because they’ve been obsoleted, rationalised and optimised away. When’s the last time you saw a general, all-inclusive computer store in First World countries (Chinese importers notwithstanding)? Non-tech people may be forgiven for thinking that the guys at one of Yerevan’s innumerable computer stores that know how to repair PCs, clean spyware, make some simple web sites, and wire up small business LANs are pretty sharp, but their skill set is not globally competitive. They can’t emigrate on that basis. All that stuff is long commoditised. To find work abroad, one has to have specialised, nontrivial and current skills that are intra-industrially useful. However, the same applies to Armenia: this tier of technicians isn’t qualified to hold up the weight of Armenian infrastructure and economic development on their shoulders either. All in all, there may be a fair amount of computer-savvy guys in Yerevan, but there are actually very few, if you see what I mean.

So, as far as I can tell, the main limitation on any Armenian aspiration to become an IT major is the severe shortage of qualified people. Everyone prattles on about a shortage of qualified tech people in every market, but as with all other problems, in Armenia the problem is much more acute, sharp and concentrated, due to its tiny size. There’s a small skeleton crew of highly competent remnants holding down the fort (i.e. people who didn’t manage to leave for one reason or another, usually family or personal reasons rather than lack of opportunities to do so), but even among them, emigration is a major theme of discussion. As all other highly qualified specialists, productive workers and capable entrepreneurs in Armenia, they’re getting fed up and leaving. Many developing countries and ex-Soviet republics are bleeding specialists, but other countries have a lot more people to bleed. Armenia is haemorrhaging.

I don’t see a crop of up-and-coming youngsters that stand to viably replace the classic hackers of the 1990s. The few especially capable ones generally take the shortcut of leaving. It’s the same old song of Armenia: everybody’s leaving. Thus, I take no pleasure in elucidating the obvious conclusion to anyone thinking of turning Armenia into a globally competitive IT centre: where’s your globally competitive work force?

Domestic demand

Any IT business in Armenia with aspirations of making real money must, by definition, be export-oriented. There’s no money to be made in selling into the local market. The only IT companies in Armenia I’m familiar with that make any money–and I’m not counting outsourced development or engineering divisions of foreign companies here–are ones that service government contracts and foreign orders.

The local market has IT needs, of course, but they’re pretty pedestrian and connected to low-margin products and services–the kinds of things that are, in terms of their global cost structure, only viable at a large scale. The killer is a triple curse:

  • Small market size, and therefore, no economies of scale, as well as fierce competition and saturation;
  • Poverty; it is possible to sell into a small market, but only if it’s a rich economy. Armenia is basically city-state size, but it’s no Singapore;
  • Relatively undeveloped, traditional economy. There’s not that many businesses in Armenia that have a need for sophisticated technological capital goods.

There’s other problems related to the last point as well. Armenian businesses are, as a matter of cultural disposition, cheap quite apart from their relative poverty, as Armenians are historically given to commerce with an Eastern bent. Few proprietors seem to have made the shift to a post-industrial mindset that divorces the subconscious perception of “value” from the idea of “tangible goods” while strongly incorporating the idea of shopping on value rather than price.

Traditional economies have never lent themselves especially well to Western-style economic rationalism and efficiency, either. Say what you will about the humanistic effects of that rationalism (which I would characterise somewhat ambivalently), but the reality is that a strong cultural focus on optimising workflows and business processes drives much of the demand for IT universally.


Yerevan actually has rather good and ubiquitous FTTH-based consumer broadband. However, it’s easy to forget that the country’s connections to the outside world are tenuous and reflect its geopolitically precarious position. Armenia’s only real connection to the greater Internet is through the neighbouring republic of Georgia, and it’s quite easy to take the whole country offline, as the world learned in April 2011 (The Guardian).

I’m told that the fibre paths have got a bit more diverse now, but there’s not that much diversity you can add to a largely mountainous, landlocked country most of whose land borders are closed. Armenia’s border with Turkey has been closed since 1994 and has no cross-border telecommunication connections, and the border with Azerbaijan is ever-so-slightly militarised, you might say. Together with the Azeri exclave of Nakhichevan, that’s about 85% of Armenia’s land borders. As with many other things, Armenia clings to life through Georgia, subject to its whims and caprices, as well as the geophysical realities of doing so. To the south, Iran is connected to some very robust, high-bandwidth Persian Gulf cable systems, but, I’m told that for fairly obvious political reasons, the Internet link through Iran isn’t used much (if at all).

The inability to build redundant, multilateral physical connections to its neighbours makes Armenia quite ill-suited to the operation of any regionally significant Internet interconnection exchange or peering point. Armenian utility power is fairly reliable (as long as the Metsamor reactor keeps running), but definitely at “developing world” levels of redundancy. The power frequency isn’t terribly clean. There is high seismic risk. Wholesale IP bandwidth to the outside world is quite expensive. All these things likely preclude the possibility of Armenia hosting a real data centre or getting into the hosting or “cloud” business in a big way. So you want to operate a network? Who are you going to network with?

IT also depends on strong logistical links to the outside world and benefits from proximity to supply chains. Armenia is landlocked and largely blockaded, and, on account of its small size, constitutes an exotic, high-cost shipping destination. No access to open water means expensive transit through Georgia’s Black Sea ports, or even more expensive air cargo. Slow and unreliable internal logistics, as well as high import duties, are also a killer.


It takes more than just electricity, Internet connectivity and low labour costs to create or sustain a significant IT sector. IT is highly interdependent and horizontally allied with a variety of other inputs, all of which require a critical mass of economic activity and sophistication to sustain.

I hear all kinds of nonsense from diaspora tech people about how Armenia can be an incredible startup hub because of its low costs. However, startups need clean business climates, low barriers to entry, transparent financial institutions, easy access to relatively abundant financing, and a critical mass of other startups that concentrates talented, experienced people in one place. There must be some sort of established and humming growth, exit and/or liquidation track. Armenia doesn’t offer much of that. Cheap labour does not a startup hub make. Without the right factors of production (principally human ones), any spark will quickly fizzle out.

None of this is to denigrate the efforts of the Yerevan tech startup community to do what it can with what it’s got. However, the chances of an Asian Tiger-type economic miracle there are vanishingly slim in my estimation.

It seems to me that government officials haven’t actually caught onto IT as a source of wealth or value yet. For the most part, they are rather sclerotic, stuck in the mindset of twentieth century industrialists and in keeping with Armenia’s largely traditional economic composition: if it’s not a physical good, it’s not a real thing that actually matters. Actually, this is probably a good thing; if technology companies weren’t so “under the radar”, they’d be subject to the same harsh extortion and shakedown racket that the notoriously corrupt bureaucracy, in concert with large business interests, visits upon most businesses in Armenia. It’s only a matter of time until they fully realise that there’s more to IT than just a bunch of guys sat at desks typing or whatnot.

In light of this, talk of crafty government policy incentives to lure startups or foster a more teeming IT investment climate seems like a very distant pipe dream.

IT is a globally competitive field. If you want to compete, you have to answer the fundamental question of just what it is that you can offer that is better than other countries or locales, or at least on par with other countries and locales. Generally-accepted criteria for a market poised to break out in IT include:

  • Abundant human capital at a low cost (Armenia’s got the low cost, but not the abundant human capital);
  • Adequate physical infrastructure;
  • Logistical integration with the outside world — easy to travel to, ship to and do business with (this is particularly important if Armenia’s destiny were to become an “outsourcing centre” rather than a “startup hub”, and the “outsourcing centre” seems like a more practical step);
  • Relatively transparent regulatory and legal climate;
  • Location that is in some way central or regionally significant;
  • Established education pipeline to feed the human talent pool, in some significant volume;
  • Concentrated networks of financing resources, advisors, mentors and talent.

Does Armenia have any of this?


Rather than becoming a startup zoo, the more likely emergent development track for a place like Armenia is to work on becoming an offshore development centre, which is a simpler, dumber configuration that doesn’t make such enormous demands on its scarce and ill-prepared ecosystem.

This is the same sort of thing that propelled India to IT-led economic growth, and in principle, it seems possible. I’ve seen a number of American companies move their development offices to Yerevan, or acquire Armenian companies seemingly for the purpose of leveraging their existing engineering talent.

If this trend were to gain any traction, it might help to retain Armenian IT talent in Armenia. However, there is a natural tension between this and the downward wage pressure that gives offshoring its competitive edge from the point of view of the arbitrageur.

Still, I think if there’s any hope of IT taking a real hold in Armenia as an export, it’s probably going to proceed down this route. However, it would benefit a lot from government incentives to nurture it, as well as movement toward greater administrative and financial transparency that is going to be at odds with Armenia’s endemic corruption.

The biggest cause for pessimism is, in my mind, the lack of a critical mass of local talent. I don’t see where these companies are going to find enough local bodies. Seemingly in recognition of this fact, I’ve even heard proposals to convince IT-able diaspora Armenians to move to Armenia and ply their craft there for foreign companies, but when pressing for details on how to pull off this feat of psychological alchemy? I get crickets. Diaspora Armenians are sometimes strongly receptive to nationalist-irredentist demagoguery, though, so I suppose one could do it with ideological bombardment. The sorts of people who are easily persuaded by that sort of claptrap don’t tend to make very talented engineers, though; computing work requires good critical thinking.

A side note about Tumo

Tumo has occasionally been trotted out to me as a vanguard of Armenia’s high-technology future. I was fortunate to have the opportunity to take a very in-depth tour once and see it firsthand before passing judgment.

I’m afraid I have little to say in praise of Tumo as a job skills creation engine, at least from the perspective of an engineer. They’ve taken what was fundamentally a rather good idea, backed by very significant money, lots of good hardware, a nice in-house curriculum management and interactive lesson delivery platform, and squandered it on teaching kids “lite” stuff that doesn’t matter. This focus on animation, design and media may be sexy, but if they want to give kids the foundation for skills that will actually help them thrive in critical, high-value roles, they need to put all this fluffy multimedia away and focus on serious software engineering and operations. That would take a rather radical retooling away from what they’re set up for now.

I’m all for artistic endeavours, but if you want to talk about Tumo as a player in some possibility of a serious future for Armenia through IT, these design-oriented skill sets do not represent an effective vehicle for investment in that viewpoint. They need to learn a thing or two from the people that went to the 1990s school of hard knocks.

If there are still any left in Armenia by the time this goes to press.

Law enforcement: you can’t always have what you want

This article on how the FBI is seeking expanded surveillance powers for “cloud”-hosted Internet communication services reiterates the frustration of law enforcement agencies feel at the way technological evolution has caused many interception capabilities hitherto taken for granted to slip from their grasp.

First, let’s get something out of the way: people who are at least somewhat technologically aware understand and take for granted that security services and intelligence agencies have the means to intercept almost anything you do on the Internet–at least, if your means of doing it are even remotely conventional. I assume this is not a novel thesis to most readers. The difference is that this type of interception activity is rarely subject to the same kind of restrictions as evidence-gathering operations whose product must be admissible in court. So, we’re not talking about interception here per se; we’re talking about lawful interception”.

Essentially, what the police are mad about is that CALEA, the last big legislative initiative, passed in 1994 to force technical cooperation from service providers and provide standardised data interfaces for streamlined tapping, simply doesn’t keep pace with modernity in the way they would like. It originally applied only to phone companies. It has been expanded to VoIP providers and ISPs, of course, but it’s still a mechanism that was fundamentally designed with a view to the state of the telecommunications world in the early nineties. CALEA proceeds from a PSTN-oriented view of communications networks, which is one in which they are hierarchical, highly centralised, despotically controlled by a very limited cadre of individuals and entities, and meticulously standardised.

That paradigm doesn’t begin to cover all the diffuse packet-switched, federated, multi-jurisdictional, and above all, increasingly distributed and peer-to-peer communication transports that the world has diverged into since then.  Essentially, they’re upset that there’s no conveyor belt on which your Gtalk (XMPP) messages or your World of Warcraft voice-over conversations can be fed straight into a large-scale FBI tap, in real time, on demand.

Worse yet, this multi-protocol, multi-service, multi-topology landscape is only getting more complex and diverse, not less.  Fifteen years ago, how many different ways did you have to communicate person-to-person online? AIM, ICQ, e-mail? I could list dozens of mainstream methods now, and the list is only growing.

Of course, the technically minded among us have done these agencies a huge favour by opting for the convenience of “cloud”-hosted e-mail (Gmail), documents (Google Docs, Dropbox, etc.), messaging (Gtalk, Facebook Messenger, etc.). Those of us who have the knowledge and capability to run our own IM and e-mail servers, as we used to have to do, are, in my opinion, quite irresponsible for opting not to do so in the name of economics. However, this was never even a point of discussion for most people; most ordinary Internet users have always been stuck with whatever services some large company (AOL, Mirabilis, Google, Facebook, Twitter) fed them.

Certainly, the police and the FBI can–and do–subpoena your data from these companies. Their complaint here is really that the process is not streamlined or real-time. It’s not enough that they can, in principle, get at the data.  They want to get at it quicker, better, faster. In other words, they want to reap some of the same efficiency increases that you’re reaping. Why should you get to send encrypted IMs through dozens of services straight from a burner phone with a 3G data plan, while they have to chase their tail and jump through antiquated, time-consuming legal hoops to try to piece some of what you’ve just done together?

The only effective strategy for bolstering public support for increased surveillance ventures is through scare-mongering, invoking the usual bogeymen of terrorism, identify theft–pick your fashion of the hour.  Law enforcement asks you the rhetorical question: Do we really want IT to provide an unprecedentedly untraceable and profoundly effective mechanism for the next 9/11 hijackers to collaborate?

My view: yes, we do.

They government just needs to get over it. The march of technological progress often brings unpleasant realities for certain institutions. A significant and growing portion of the population of the developed world has an Internet-connected 1+ GHz multi-core computer in their left pocket. That’s going to put unprecedentedly powerful encryption and encapsulation capabilities in the hands of everyday people–capabilities that have increased by several orders of magnitude in just two or three decades.

For the most part, this is all good news for information privacy, civil rights, freedom of expression, and financial data protection. I am convinced that the net social benefit of being able to send information in ways that are not trivially interceptible greatly outweighs the downside of criminals also doing so.  On the whole, I feel much better about having a conversation with a friend now about politics, confidential family problems, and sensitive financial details than I did ten or fifteen years ago.

From a technical point of view, I don’t see a realistic way for government agencies to keep up with the magnitudinal increases in communication complexity.  It is starkly at odds with the way the distributed way the Internet and its constituent layers of abstraction are organised–even if it is more centralised at the physical layer than most of us think or would like to admit. Yes, I’ve heard of the Bluffdale Data Centre, but I cannot imagine how one would need to reorganise the Internet, topologically, or what kind of tentacular monstrosity one would need to build, in order to have a reasonable chance of actually tapping all of its communications.  The biggest obstacles are not physical, but rather the sheer diversity of protocols and applications that would need to be understood by The Behemoth in order to make this process anything like scalable, which is the real problem for law enforcement.  The resources already exist to spin their wheels on wiretapping someone as an expensive one-off.  As I mentioned above, what the government wants is something closer to the economies of scale that have been reaped everywhere else.  It stands to reason that in their ideal world, they’d want to force everyone to take their data, in all its heterogenous patchwork, and massage it into a standard format and spoon-feed it to them.  They want wiretapping to be easier, and are upset that instead, it’s gotten harder.

In an adversarial court system with a judicial presumption of innocence, they want you to make their job easier.

I don’t any reason why it would be socially desirable to allow law enforcement to try to move this immovable object.  I can’t see what good results can come from it, even if we completely sidestep the issue of massive abuses of law enforcement power and grant that there is a morally legitimate application of wiretapping by state agencies in at least some cases.

It seems to me that the greatest danger in all this is not that money launderers might use Tor to plot and scheme or that professional clubgoers might buy ecstasy on Silk Road, but rather the drag that costly bureaucratic boondoggles impose on economies and livelihoods. Anyone aware of the true state of CALEA compliance in the VoIP industry–or, to be precise, the elaborate motions of compliance–knows that there is no hope of achieving full compliance with such initiatives, and no hope that they will, in the grand scheme, achieve their ostensible goals.

Impossible boondoggles not only cost money, but have the effect of turning everyone into criminals or civil defendants, since nobody is actually in compliance. And, as usual, small companies suffer the most, since they don’t have the resources of large companies to put on elaborate charades of complying with Byzantine requirements. And, as usual, the big companies buy their way out, while the small companies are shaken down in the great cosmic lottery of selective enforcement.  It all starts to be reminiscent of the cynical “we pretend to work and they pretend to pay us” mantra in my native USSR. 

As progress moves forward, some institutions adapt, but some certain legal and civil artifacts of previous historical frames fall away. Sometimes they just have to. Maybe you can’t trivially tap one or two ubiquitous methods of communication anymore, but so what? You can’t own slaves or torture people anymore, either.