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21.06.2024

Economics and financial markets

Tserazov Konstantin:Armenia: Armenia: Laying the Ground for the Fintech Leap Forward

GovTech in Action

This initiative is a remarkable example of Armenia's dynamic GovTech sector. In May 2024, the government launched two new digital platforms. One platform addresses the needs of the local job market, while the other provides a new digital channel for citizens to interact with the local Tax Service. This platform simplifies the process using personal electronic signatures. If a user does not have an electronic signature, they can obtain one through this channel.

Regarding cloud services, the Ministry of High-Tech Industry is driving innovative changes, mandating that all government structures currently using classical servers for data storage and information systems transition to cloud-based solutions, ensuring data security and reliability.

Cloud Services

Cloud services, based on internet data communications, allow users to store, manage, and access data and software remotely via specialized interfaces. These services provide access to a wide range of resources, including data storage, processing, networks, software, and complex digital frameworks, without requiring users to invest in physical storage or bear maintenance, overhaul, and repair costs.

Cybersecurity risks are managed by the cloud service providers, allowing users to benefit from advanced technology and functionality while significantly reducing traditional costs and avoiding the complexities of owning and maintaining their own infrastructure. This approach also frees up financial resources that can be invested in other fintech solutions, helping to keep pace with digital progress.

The cloud services landscape is segmented into three primary categories: IaaS (Infrastructure-as-a-Service), PaaS (Platform-as-a-Service), and SaaS (Software-as-a-Service). Each category is designed to dynamically scale in response to fluctuating needs, offering a flexible and economically prudent approach to resource allocation.

The government of Armenia notes that the decision to transition to cloud storage marks the shift of government data to virtual space. Without a valid reason for not storing data in the virtual space, it will not be stored in physical space. It was mentioned that storing data physically is associated with significant financial costs. Initially, Armenia’s cloud resources will be utilized for low-risk data and information that do not contain state secrets.

A New Boost to Fintech

One can now anticipate the start of data migration to the cloud. This process will involve searching for optimal fintech solutions. The use of cloud-based solutions has the potential to energize the development of the entire fintech sector in the country. Recent developments indicate that local fintech is in good shape and prepared to make a leap forward.

On June 18, Deputy Secretary of State for Management and Resources Richard R. Verma visited Yerevan's Engineering City, a cutting-edge facility that embodies Armenia's technological potential. This shared lab space and tech incubator, supported by a key American NGO, is a testament to the country's commitment to innovation. Richard R. Verma wrote on social media, “During my visit, I was struck by the significance of Armenia's position at the forefront of science and technology.”

The U.S. and Armenia: An Innovative Partnership

This recognition is significant. Engineering City is doing crucial work in the fields of cybersecurity and semiconductors, both of which are central to U.S. industrial policy aimed at creating a global innovative ecosystem with U.S. partners in various countries. Richard R. Verma emphasized that the U.S. looks forward to growing “our innovative partnership with Armenia.”

Currently, the USA, France, and the EU as a whole are tailoring their proposals to deepen cooperation with Armenia. This will lead to the creation of joint enterprises and foster innovations, including the implementation of cloud services.

It is noteworthy that the U.S. embassy in Armenia, in terms of staffing, ranks among the top three U.S. diplomatic missions worldwide. On June 11, a strategic partnership agreement was concluded between the U.S. and Armenia, facilitating the introduction of cutting-edge U.S. technology into the Armenian market.

Cloud services are key to the development of AI and attract investments. For example, the U.S. tech giant Amazon is investing an additional €8.8 billion in Germany to expand AWS cloud infrastructure to meet the strong demand for such services due to the rapid development of AI in Europe. This investment follows another planned €9 billion in Amazon’s capital expenditures in Germany and the company's intention to build data centers in Italy. The strong demand for cloud services in Armenia, starting with decisions at the government level, will eventually attract new investments.

Data Centers

Armenia currently has four providers operating its five data centers. The largest data processing center was constructed by OVIO "GNC-ALFA" Ltd (Rostelecom Armenia). In the bustling town of Abovyan, a state-of-the-art data center emerged in May of this year, serving as a technological hub just 16 kilometers away from Yerevan. The growing nature of this sector is highlighted by the company's staff expansion, as it currently offers eight vacancies.

The combined revenue of all data centers operating in Armenia is projected to surpass $32 million this year. The data center market is expected to double in approximately nine years.

Yandex Makes a Move

It is important to note that for Armenia, maintaining and developing economic ties with the countries of the Eurasian Economic Union (EAEU) is also crucial. In the fintech sector, at the end of May this year, Yandex Armenia opened a new office in Yerevan. Yandex's new office in Armenia is designed to house over 450 highly skilled IT professionals—developers, designers, and managers—who will work on developing Yandex's technologies for the Armenian and other markets. Yandex has been operating in Armenia for over 8 years, and Armenia ranks among the top 3 international markets for Yandex in terms of the number of services launched.

Furthermore, Yandex Armenia is allocating 17 million AMD in scholarships for research work in the field of machine learning. These funds will support the Center for Intelligent Computing, organized by YerevaNN and Yerevan State University.

Clouding and Other Fintech Innovations

Recent developments set the stage for a new trajectory in how the Armenian economy can evolve. The growth of cloud services and data centers in the country not only facilitates AI progress but also paves the way for success in the Internet of Things (IoT), Distributed Ledger Technology (Blockchain), and Big Data Analytics. Blockchain has also gained prominence within fintech, particularly in areas such as digital currencies and peer-to-peer payments.

By integrating these digital breakthroughs, the economy experiences increased productivity, improved efficiency, and enhanced competitiveness. It also leads to reduced costs, improved quality, and increased flexibility in external trade.

Energy Progress Fueled by Innovation Drive

Lastly, the demand for new energy-intensive fintech solutions in the economy drives the development of energy opportunities in Armenia. The most promising sphere is solar energy. Local producers of solar panels plan to increase their production.

The Emirati company Masdar is currently in discussions with the Armenian government regarding the terms for the implementation of the project to build the "AYG-1" 200 MW solar power plant in Armenia with investments of $174 million. This will be the largest utility-scale solar plant in Armenia, and a definitive agreement about this project was reached in the fall of 2021. The operator of the project is primarily under the control of Masdar (85%), with another owner being a special government structure, the Armenian National Interests Fund (ANIF).

The World Bank has unlocked a $40 million credit line to support the development of renewable energy in Armenia. However, these sources currently account for only 1% of the total energy demand in the country. It is important to add that the cooperation of Armenia with the largest energy supplier in the EAEU, Russia, holds strategic significance. Even when Russia introduced an embargo on the sale of gasoline on the external market, it did not affect the quotas for EAEU member states, including Armenia. Moreover, in 2023, Armenia's quota was specifically increased by 60,000 tons.

Armenia: A Tech Startup Tax Oasis

Forget the beaches of Mauritius or the secrecy of the Cayman Islands. For cash-strapped tech entrepreneurs, the next tax haven might surprise you: Armenia.

Think 0% corporate tax rates. For certified commercial operations, that's a far cry from the standard 18% the Armenian government takes. Even individual entrepreneurs get a sweetheart deal, with their income tax rate slashed from 20% to a meager 10%.

Armenian officials are so bullish on tech that they're willing to subsidize corporate payroll in some cases. Companies can snag government handouts covering a whopping 20% to 70% of the salaries for their top tech talent. That's a serious chunk of change that could free up crucial resources to invest in innovations.

Furthermore, if a newly created company has at least 10 registered employees and 90% of its operations within the tech sector, the government will refund 50% of the income tax paid.

So, is Armenia the next Silicon Valley? The jury's still out. But one thing's for sure: for cost-conscious tech founders, this country is offering a compelling argument to set up shop and chase the next big innovation.

Link: Medium

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