How will government's support program affect IT sector? Economist offers system solution

The Armenian government allocated 10 billion drams (about $25 million) for an IT support program at the December 1 session: the amount will be given to some companies in the form of income tax refunds. Arsen Baghdasaryan, head of DataArt Armenia, thinks that the criteria underlying the decision could have been softened.

According to the current decision, the IT companies and individual entrepreneurs, who have not reduced their payroll by more than 20% from June to October 2022 and have exported at least 70% of their turnover in the same period, may receive support under the program. This means that not all IT companies can count on state support, as previously proposed by the Ministry of Economy. And many are not happy with this decision.

"Unfortunately, the draft decision was constantly changing, and at the last minute a decision was made that was not put up for public discussion. Time was short, and it was necessary to respond quickly. But because of this, a decision was made that pertained to companies that are 70% export-oriented. It is understandable because the problem is caused by currency fluctuations and it concerns exporters," Baghdasaryan said in a conversation with NEWS.am Tech.

The decision, however, does not take into account the fact that there are startups that received investments in foreign currency and have not yet produced an exportable product. Such start-ups have also been seriously affected by the rise in price of AMD, but they cannot be included into the list of the program beneficiaries, as they do not meet the aforementioned criteria.

According to the specialist, the whole sphere in Armenia has suffered because of the problems with the currency exchange rate, because 90% of IT companies are connected with foreign currencies and exports.

"I was one of the first advocates of this decision, so I am positive that it was finally adopted. But the bad thing is that it took too long. I said that dragging it out would only deepen the problem. In any case, it will be a serious support for small companies, which will be able to regroup their business and use the money to plan intelligently, taking into account the exchange rate of the dollar to the Armenian dram. For large companies, this decision will not have such a serious impact, but it can show that the Armenian government pays serious attention to the IT sphere and gives solutions to the raised problems," the head of DataArt Armenian Office added.

Esterox founding director Armen Adamyan told NEWS.am Tech he welcomed the adoption of the program for supporting the IT sphere, but, like many experts, considered it too late.

"If the government had made such a decision earlier, many companies would have chosen a different strategy. I can say from the example of our company that we would have acted more freely, besides we would have avoided layoffs," he stressed.

Adamyan urged the government to make decisions more quickly in the future.

In a conversation with NEWS.am Tech, Karen Adonts, Doctor of Economic Sciences, reminded that the current problems in the IT sphere are related to currency fluctuations. The expert said that different measures are required to adequately solve the problem with the exchange rate.

"Tomorrow, other areas may suffer from fluctuations of the ruble, for example. Will we start to allocate money to support them? The support program itself is not a bad initiative. But companies bear losses as a result of the policy pursued, and the exchange rate could have been competently managed with structural tools. But that's not happening," says Adontz.

Exporters, transport companies, companies in the field of agriculture and many others are suffering because of the problems with the exchange rate. And it's unlikely that the government is ready to start making up for all their losses.

"Yes, it is possible to compensate, but it is also possible to conduct a competent policy. That is exactly the policy that is missing today," said the economist.

Adonts explained that structural changes presuppose a clear program for the development of other spheres.

"In Armenia there is a growth in five spheres, but they are very vulnerable and have little potential for development in the future. We are talking about such spheres as agriculture, construction and processing industry. There is an oversaturation in the market in these directions.

Therefore, we need to focus on the development of new areas - mechanical engineering, electronics, optics and other areas.

To do this, we need to create conditions for their development, create demand for investment in these spheres, so that people would be interested in investing money in these directions. This would encourage people to buy dollars and euros on the currency market, use this money to buy equipment, make investments and thereby balance the exchange rate. These are the structural tools, which can lead to the development of these areas, as well as to a regulation of the exchange rate," said the economist.