A GLOBAL IT HOTSPOTINDUSTRY OVERVIEW

INNOVATIVE TECHNOLOGIESINDUSTRY IN ARMENIA

KEY FACTS

1

Domestic market grew 5 times

in 2017 compared with 2010

Export increased 6 times in 2017 compared

with 2010

IT and high-tech industry leader in the region

More than 150 new startups emerged in 2017

64.8% of the ICT sector is exported to USA,Canada and Europe

2

SECTOR OVERVIEW

£ Main products and services: embedded software development, semiconductor design, customized software, outsourcing, financial software, multimedia, web design, information systems, system integration

£ There were 650 companies in the Armenian Information & Communications Technology (ICT) sector in 2017. 21.6% of the companies specialized in customized software and outsourcing, while 13.7% in web design and development

Number of companies by area of specialization, % of total Innovative Technologiesindustry

121%EXPORT GROWTH

2014 2017

32.6%DOMESTIC MARKETGROWTH

2014 2017

LABOR FORCE 15.000 professionals

More than

Source: Enterprise Incubator Foundation 2017

Industry total % Local companies % Foreign branches %

Customized so�ware and outsourcing 21.6 17.8 3.8

Web design and development 13.7 11.8 1.9

IT services and consul�ng 10.7 8.7 1.9

Mobile applica�on development 9.8 7.7 2.2

System design and automa�za�on 9 7.7 1.4

Internet service providers 8 2 6

Databases and MIS 7.7 6 1.6

Internet applica�ons and e-commerce 7.4 7.1 0.3

Accoun�ng, banking, and financial so�ware 5.2 3.8 1.4

Computer graphics, mul�media, and games 3.3 3 0.3

Networking systems and communica�ons 3.3 3 0.3

Chip design, tes�ng, and related sectors 2.5 1.4 1.1

Other 6 5.5 0.5

3

EXPORT

Source: Enterprise Incubator Foundation 2017

EXPORT DESTINATIONS OF ARMENIA'S ICT SECTOR IN 2017

Other 19.8%

Russia & CIS 15.4%

USA & Canada

28.4%Europe

36.4%

37.6%AVERAGE ANNUAL GROWTH

2014 2017

8% IN 2010

16% IN 2017

$338.6 MLN IN 2017

EXPORT VOLUME

ICT INDUSTRY SHARE IN EXPORT

£ ICT export’s share in the total export of Software and Services segment (excluding internet service providers) was 55% in 2017

Main export destinations are USA and Canada

£ ICT export to Europe and CIS countries increased by 6 and 4 times respectively in 2017 compared with 2014

Constant export growth in the ICT sector

4

DOMESTIC MARKET

£ Domestic market was worth about $426.5 million in 2017£ The average annual growth of ICT industry was 20.6% between 2014 and 2017£ There were 650 companies, of which over 200 foreign ones in 2017

Competitive labor force

£ The ICT sector employs more than 15.000 professionals. The majority of technical specialists are engaged in the Software and Services segment, while the rest works in Telecommunications

Source: Enterprise Incubator Foundation 2017

AVERAGE HOURLY LABOR COST IN THE ICT SECTOR IN 2016ARMENIA COMPARED WITH THOSE OF WORLD’S TOP ICT SECTOR EXPORTERS

Average 44.2$

82.5$57.2$

53.5$53.2$

48.7$47.9$

India*Armenia

ChinaUnited Kingdom

NetherlandsIrland

GermanyFrance

USASweden

Switzerland*

44.9$39.3$

9.3$5.4$

4.5$

Average monthly salary in IT sector

Source: International Labor Organization & National Bureaus of Statistics* Latest available data

The cornerstone of the Armenian Innovative Technologies industry’s success is its talented, well-educated and professional workforce

£ 45% of the Armenian ICT workforce hold graduate degrees£ 8 universities in Armenia o�er IT specializations: National Polytechnic University of

Armenia, Yerevan State University, American University of Armenia, European Regional Academy, Armenian-Russian (Slavonic) University, National University of Architecture and Construction of Armenia, French Higher Institute of Engineering in Armenia, French University in Armenia

£ There are IT professional training programs implemented by Microsoft Innovation Center (MIC), Armenian-Indian Center for Excellence in ICT and Regional Mobile Application Laboratory (mLab)

£ A growing number of international students from CIS, the Middle East, and Europe study IT in Armenia

£ Armenian National Engineering Laboratories (ANEL) fosters engineering, electronics, precise engineering and high-tech

£ Armath Engineering Laboratories works to establish a program of engineering club-laboratories within the public school system of Armenia

£ TUMO Center for Creative Technologies inspires and educates Armenian teenagers on all aspects of tech and design free of charge

That stems from an institutional system that encourages innovation and startup establishment!

£ Research and business-oriented academia Ø Yerevan State University, with the following departments: Mathematics and

Mechanics, Applied Mathematics and Informatics, Physics, Radiophysics (in collaboration with Synopsis)

Ø State Engineering University of Armenia, which houses the Armenian National Engineering Laboratory in collaboration with Sun Microsystems, as well as R&D centers of IBM, Nokia and Oracle

Ø American University of Armenia Ø National University of Architecture and Construction of Armenia: Cybernetics,

Computer Systems and Informatics£ 2 IT technoparks: Gyumri Technology Center (GTC) and Vanadzor Technology

Center (VTC)£ Incubator: Enterprise Incubator Foundation (EIF) as one of the largest technology

business incubators£ Foundation for Armenian Science and Technology (FAST), aiming to build an

ecosystem that drives technological innovation and scientific advancement in Armenia and beyond

£ The creation of new free economic zone (FEZ) for a modern high-tech center, Armenia's “Silicon Valley” in 2018, which will create 250-300 new high-paying jobs and attract at least 120 million USD investments

5

6

£ Global Competitiveness Index 2017-2018 has placed Armenia in the group of e�ciency-driven countries

£ Based on the Global Information technology report 2016 among low to average income countries Armenia has significantly higher scores. One of the most significant advantages is the high level of the competitiveness in telephone and the Internet industry, as well as the mobile phone coverage

Quality of math and science education (out of 137)rd33

COMPETITIVE ADVANTAGE IN INTERNATIONAL RANKINGS

Global Innovation Index (out of 127)

Innovation E�ciency Ratio

th59th17 ICT services exports, % total tradend22

Trademarks by origin/bn PPP $ GDPth11

ICTs & business model creationth68

ICTs & organizational model creationth58

£ The Global Innovation Index 2017 has ranked Armenia as an innovation achiever: a category comprising 17 economies, which outperform in innovation relative to their level of development

Networked Readiness Index (out of 139)th56

Internet & telephony competitionst1

Mobile network coveragest1

Adult literacy rateth8

BUSINESS ENVIRONMENT

7

OUT OF 190 COUNTRIES

ECONOMIC FREEDOM INDEX 2018

OUT OF 180 COUNTRIES Source: World Bank, Doing Business Database Source: Heritage Foundation Database

Takes 3 days to open a company, 7 days to register property

E�cient e-governance services in place

No restrictions on investment sectors

100% foreign ownership permitted

Five-year investment protection from changes in legislation

Free exchange of foreign currencies and repatriation of profit

Well-regulated banking system

Foreign companies registered in Armenia have the right to buy land

st41STARTING A BUSINESS

th8 REGISTERING

PROPERTY

th14

th44MODERATELY

FREE

75%

INVESTMENTFREEDOM

MOSTLY FREE

DOING BUSINESS 2019

8

6 IT companies founded by Armenians attracted $1 million or more investments in 2017

£ The World Congress on Information Technology (WCIT) 2019 will be held in Armenia

£ TUMO Center for Creative Technologies received an award for “Fulfilling the Promise of the Digital Age” from Chairman of the Commission Yvonne Chiu at the World Congress on IT (WCIT) in Hyderabad, India in 2018

£thTUMO Paris center opened its doors on the 25 of September in 2018. Paris is the

first international location of the TUMO Center for Creative Technologies. It will provide free education to around 1500 Parisian teenagers. They will be able to study filmmaking, computer programming, animation, graphic design, game development, 3D modeling, drawing and music

£ Armath Engineering Laboratories won the "Sustainable Growth" nomination at WITSA Global Excellence Award and "The best provider of IT education" award in GITI-2016 regional event in Tbilisi

£ In 2018, UITE (Union of Information Technology Enterprises) and Lexicon PR Management Service of India signed a memorandum of cooperation, according to which the initial project of the Armenian “Armath” engineering laboratories will be implemented in Indian schools

Innovative Technologies Ecosystem

£ Access to finance: venture capital funds, support of donor organizations (USAID, EBRD, EU), loan guarantees provision for small and medium size companies

£ The government will support 427 companies in the IT sector until 2020-2022, freeing them from corporate tax and collecting only 10% income tax

USD 297.9 million

There are 3 Free Economic Zones (FEZ) in Armenia: Alliance (specialized in ICT, engineering and pharmaceuticals), Meghri (on the Armenian-Iranian border with no sector limitations), and Meridian (specialized in jewelry making). Residents of FEZ are exempt from all taxes except payroll taxes. There are also on site “one stop” services and custom registrations.

9

Over 200 foreign companies, from small development centers to R&D, design, coding, and testing centers, operate in Armenia. This is where companies prefer to relocate their business-related functions, such as marketing and customer support.

D-Link Armenia is one of the company's three global research centers, along with those in Taiwan and Russia.

Microsoft Innovation Center opened in Armenia in 2012. Its main focus areas are skill development, organization of trainings based on the technical needs of the IT companies looking to hire and startup acceleration.

VOLO, a fast-growing Armenian IT company, specializes in software development. It was founded in 2006 by an American entrepreneur, according to whom the skilled workforce available in Armenia’s IT industry is one of the main comparative advantages of the country compared to its neighbors.

THEY CHOSE ARMENIA, TOO!

10

The PicsArt mobile photo editing application, developed by Armenian experts in 2011, thwas included in Forbes Magazine's 2015 Hottest Startup list, ranking 5 in the standings.

The estimated value of the startup is $250 million. Google Play recognized the application as one of 2015's best apps. It is an American brand, designed by the Silicon Valley-based company Open Soft Consult, but the programming and marketing are carried out in Yerevan. It is one of the most popular photo editing apps for Android and the best-rated app on Google Play. With 500 million+ installs and 100 million monthly users, PicsArt spans the globe and is available in over 30 languages. PicsArt employs more than 350 people in Armenia.

Founded in 2009, Joomag is an all-in-one platform o�ering a suite of integrated solutions for interactive content creation and distribution for all marketing, digital publishing, corporate communications and sales engagement needs. Headquartered in San Jose, CA, the company delivers a unique, solution-based approach with its powerful flagship Crater™ Editor. Over 500.000 leading businesses are already creating, distributing, tracking and monetizing their online content from a central platform, streamlining workflows and increasing their productivity in the process.

Artashes Vardanyan, Director of Microsoft Innovation Center, Armenia “The huge success of several startups motivates innovative IT companies in Armenia to think about establishing their own startups of globally scalable business models. The MIC Startup Acceleration program could be one of the driving forces with other players like acceleration programs and venture funds contributing to the local startup ecosystem. This will lead to building the “Silicon Mountains” in the country.”

Nitzan Yudan, Co-founder and CEO of BenivoWhen Nitzan Yudan is asked about the strengths of Armenia, he mentions human capital: “Armenian engineers are hardworking, talented, flexible, business oriented and committed”.

Yervant Zorian, President of Synopsys Armenia“Founded in Armenia in 2005, the company is now rapidly expanding. Due to the success of the projects, the innovativeness and creativity, Synopsys attracts more and more projects to the country. Currently, several key products created in Armenia are used all over the world. Furthermore, semi-conductor companies are using Synopsys products made in Armenia. The workforce in Armenia is quite reliable.”

SUCCESS STORIES / PICSART

SUCCESS STORIES / JOOMAG DIGITAL PUBLISHING SOLUTIONS

5 Mher Mkrtchyan Street, Yerevan 0010, Republic of Armenia Phone: +374 11 597 888

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