Tech-oriented Armenia could be lucrative market for Israel
YEREVAN, Armenia —After 30 years of bilateral diplomatic relations, Azerbaijan—a predominantly Muslim nation that uses its vast oil wealth to buy Israeli drones and other weaponry—on Wednesday formally established its embassy in Tel Aviv.
Israeli Foreign Minister Eli Cohen and his counterpart from Baku, Jeyhun Bayramov, led the opening ceremony, with Bayramov highlighting their strong relationship built on “dialogue and mutual understanding.”
Yet with far less fanfare, the Jewish state is also quietly restoring its political and economic ties with Azerbaijan’s arch-enemy, Armenia.
Rising interest in this ancient landlocked nation coincides with Armenia’s booming economy, fueled by an influx of software engineers from nearby Russia who are eager to escape deteriorating conditions at home ever since their country invaded Ukraine more than a year ago.
At least 150,000 Russian professionals, and maybe more, have fled here—often with their families in tow—since the war broke out on Feb. 24, 2022. But Russia’s loss is Armenia’s gain. This mountainous, landlocked Caucasus republic of 3 million—an imperfect but lively democracy with an ancient alphabet and a fledgling tech sector—has benefitted handsomely from Russia’s brain drain.
For one thing, the new arrivals have helped push Armenia’s GDP growth to 13% last year, even as it remains mired in a simmering conflict of its own with neighboring Azerbaijan; the last major war between the two ex-Soviet republics erupted in 2020 and killed an estimated 6,000 people on both sides. Meanwhile, Armenian exports to Russia tripled to $2 billion in 2022 compared to a year earlier, and remittances in the other direction quadrupled to $3.2 billion.
“This influx of Russians is a mini-version of what happened in Israel after the Soviet collapse,” said Ashot Arzumanyan, a partner and co-founder at SmartGate VC, a venture capital fund that invests in startups involved in everything from AI and robotics to biotech manufacturing.
“So many scientists and engineers left the USSR and settled in Israel. That set off a very strong wave of talent and initiative,” said Arzumanyan, whose fund is currently seeking $15-30 million from high-net worth individuals, including many in southern California’s large and influential Armenian diaspora. “Something similar is happening in Armenia—lots of really talented people moving here and becoming part of Armenia’s tech scene.”
Russian IT companies rush to relocate to Armenia
It helps that Russian citizens need only a national ID to travel here, with 8-10 flights operating daily between Moscow and Yerevan’s Zvartnots International Airport. And most importantly, digital nomads and “online gypsies” can freely receive money from abroad in Armenia, which is no longer possible in Russia due to international sanctions.
Some of these new arrivals have since left, but “those who stayed are overwhelmingly IT people,” said Arman Akopian, Armenia’s Hebrew-speaking ambassador to Israel. “They came with a lot of money. It was unprecedented. We’ve never seen this kind of growth before.”
Drawn by the ease of doing business here and eager to avoid sanctions, about 1,300 Russian companies have relocated here in just in the past 12 months, says Armen Baldryan, president of Armenia’s Union of Employers of Information and Communication Technologies (UEICT).
“International companies in Russia have relocated their offices to Armenia because of the sanctions. So have Russian companies actively working with US or European clients—as well as those working for the Russian market—for the same reason,” said Baldryan, interviewed at his office on the seventh floor of the Polytechnic University of Armenia.
They’re also lured here by Armenia’s long-established reputation as the “Silicon Valley of the Caucasus.” During Soviet times, each of the three Caucasus republics excelled at something: Georgia in tourism, Azerbaijan in oil and gas, and Armenia in computers. In fact, it was at the Yerevan Research Institute of Mathematical Machines where Soviet scientists constructed the USSR’s first computer, Nairi, in 1964.
“It’s interesting that all three countries have continued on the same path. We inherited these patterns, and today, IT is about 20% of Armenia’s economy,” said Akopian, whose country’s total GDP of around $21 billion is still only 1/27th that of Israel, with a GDP of $564 billion.
Average salaries in Armenia are higher than in Georgia or Azerbaijan—even in these condition—so you can imagine what it would be if we didn’t have to buy weapons and defend ourselves,” said the ambassador. “We understand the Jewish pain. That’s the irony. Armenians are much closer to Jews than we are to Georgians or Azerbaijanis.”
‘There’s business between Israel and Armenia, but it’s undercover’
Akopian’s counterpart in Yerevan is Achot Chakhmouradian, who since 2013 has been Israel’s honorary consul here. His office, on the second floor of his family-owned auto dealership, is decorated with framed certificates in Hebrew and Armenian, along with his pet python, which he keeps in an enormous glass tank.
“It’s no secret that the main reason for our economic boom right now is the war in Ukraine,” says Chakhmouradian, who’s not Jewish. “Of course, it’s not good to build our financial model on disasters, but this is our reality.”
Vahe Baloulian, who divides his time between Los Angeles and Yerevan, is the former CEO of SoftConstruct; he was also once director of gaming for the Israeli company, 888 Holdings.
“A lot of companies do business in Armenia without advertising that they are from this or that country,” he said. “They just establish their branches and keep a low profile.”
Added a prominent Tel Aviv-based businessman who asked not to be named: “There is business between Israel and Armenia, but it’s undercover. Israeli companies don’t want to be identified with Armenia today, either because it’s allied with Russia, or because it raises negative sentiment in Azerbaijan. It’s not a wise marketing strategy to say, ‘we’re doing business with Armenia.’”
For example, he said, “Some of the Russians that fled from Russia used to work for Israeli companies, and now they continue to work for them, but from Armenia.” Likewise, a number of Israeli firms are involved in greenhouses, irrigation and crop storage, but operate through subsidiaries in the Netherlands.
“At the end of the day, a good businessman will find a way to meet demand without pushing his finger into the eye of someone else,” he quipped.
Jeep tours to mountains and ancient temples
In 2017, the newly created Israel-Armenia Chamber of Commerce proposed establishing a $30 million free zone at a 320-hectare site in Gyumri. The idea was to lure investors in e-commerce, electronics assembly and pharmaceutical packaging. But after half a million dollars in feasibility studies and two years of fruitless talks, coronavirus arrived and the plan was shelved.
“Political cooperation between Israel and Armenia is very weak,” said Artak Maghakyan, the chamber’s vice-president. “This weakness, in my opinion, didn’t allow the two countries to develop strong economic and cultural relations, and has pushed Israel to have economic relations with Azerbaijan instead.”
Maghakyan, 39, made aliyah in 2000. He served in the IDF and settled in Haifa but six years later returned to his native Armenia to study mathematics at Yerevan State University. He’s also deputy director of Gardman Tour—the family business he runs with his 46-year-old brother Haik—and vice-chairman of the Armenia-Israel Chamber of Commerce.
The largest company of its kind in Armenia, Gardman offers trekking, mountain biking, bus tours and Jeep tours to all the country’s key attractions, from Garni Temple—the only preserved example of Greco-Roman architecture anywhere in the former Soviet Union— to the ancient Jewish cemetery in Yeghegis containing over 40 tombstones inscribed in Hebrew and Aramaic.
Before the pandemic, Artak and Haik were bringing around 1,000 Israeli tourists annually to their native country. This year, the brothers hope to exceed that number. For now, their biggest competitors are the other two Caucasus republics: Georgia and Azerbaijan.
Late last year, Moldovan-registered airline FlyOne launched direct service between Tel Aviv and Yerevan. The flights, which take just over two hours, currently operate three times a week, will soon be expanded to four weekly flights. Chakhmouradian says they’re currently filled with Armenian Christian pilgrims visiting Jerusalem, as well as traffic the other way around.
“Israeli tourists want to see Armenian culture, enter peoples’ homes in villages and understand how they really live. More than 90% of them go to the Jewish cemetery,” Maghakyan said, adding that his main markets are higher-income couples who can afford the week-long NIS 6,500 package (per person, double occupancy including airfare from Tel Aviv), as well as closed groups such as friends who travel to a different destination each year.
From 3D scanner software to drip irrigation
Another young entrepreneur, 31-year-old Suren Abrahamyan, spent two weeks last year in Israel visiting customers as CEO of 3D Fascination, which develops the software used in 3D scanners.
Clients in over 30 countries use his company’s products for everything from aesthetic surgery and correcting skeletal deformities to creating miniature bridal models as cake toppers at weddings. After Armenia’s bruising war with Azerbaijan, Abrahamyan also visited Karabakh and—with the help of laser scanners and drones—was able to capture much larger objects like buildings to assess damages.
Another potential area of Israeli-Armenian cooperation is agriculture, which accounts for 15-20% of Armenia’s GDP and employs about 30% of its people. Armenia is a key exporter of apples, apricots, peaches and grapes—mainly those used in wine and brandy. It also supplies Israel with table grapes and livestock.
Gagik Sardaryan is director of the Yerevan-based Center for Agribusiness & Rural Development (CARD), which was established in 2005 with funding from the US Department of Agriculture.
CARD currently has 125 employees and operates on a $3.9 million, five-year USDA grant.
“I initiated cooperation with Israel more than 15 years ago, because I realized the kibbutz model could be easily adapted to Armenia after seeing what Israel achieved in the desert,” said Sardaryan, who has visited the Jewish state many times along with top Armenian officials, including the country’s minister of agriculture.
In 2017, Sardaryan organized the visit of six farmers to Israel. In addition, some Armenians have participated in the Mashav program, while others have attended classes at the Galilee International Management Institute at Moshav Nahalal.
“We started to import greenhouses and drip irrigation equipment from Israel. We also invited two Israeli experts for a one-week workshop. We hoped these types of contacts could help Armenia establish a long-term relationship and build real bridges,” he said. “Unfortunately, little has happened since then. I don’t know why. This is a problem on the Armenian side, not Israel.”
Armenians urge more active outreach to Israel
Even so, the IT sector is still by far the largest draw for potential Israeli investment in Armenia—and the arrival of so many Russian experts makes it even more appealing.
“We have no problems between Armenia and Israel, but our relationship must be much more active than it is now,” said UEICT’s Baldryan. “There must be an exchange of companies on many levels, not only in IT. We have very good friends in Israel working in that sector, and our thinking processes are very similar. We have the same mindset, but our government policies are very different.”
He added: “Armenia must begin to think globally, not locally. I do see some elements of such a transformation, but I’d like to see more. The first stage is cooperation with Israel in education. Secondly, create some trust between our countries. That would make it easier to do business together. We’ve been saying this for many years, but unfortunately, it’s happening very slowly.”
It’s much the same at Synopsys, a $5 billion IT conglomerate with 19,000 employees, 3,386 patents and 125 offices worldwide. A leader in silicon chip electronic design, verification and software security—Synopsys came to Armenia back in 2004 and hired 129 workers. Today it boasts a staff of 1,200 at a six-building campus in Yerevan that during Soviet times was a factory producing elevators and transistors.
The company collaborates with many higher learning institutions worldwide including Tel Aviv University; recently, TAU’s Yosi Shacham—an expert on silicon-based nanotechnologies—came to the Synopsys campus to lecture. Since 2004, the company’s educational department in Yerevan has awarded 1,188 bachelor’s degrees, 972 master’s degrees and 71 PhD’s.
Synopsys cherry-picks the best students from two local institutions to enroll for their last two years of the bachelor’s program and first two years of graduate studies. At the moment, 61% of the company’s engineers are graduates of this program, said Dr. Hovik Musayelyan, director of Synopsys Armenia.
“Armenia and Israel are very similar geographically. Both are surrounded by enemies. Neither have natural resources, yet we have very strong diasporas,” said Musayelyan, who keeps a copy of “Start-Up Nation” at his bedside and is now reading the book for the second time. “Jews are very imaginative in business, and Armenians also have a keen eye in spotting trends. We need to start working together and spread the word.”