by Haykaz Baghian and Narine Khachatrian, Special from ArmeniaNow.com
Whether Armenians prosper or suffer may in many ways be linked to their ability to utilize and exploit the resources put at their disposal. Principle among those are natural resources, a legacy of craftsmanship, and intellectual resources.
As old as the very soil of Armenia and as new as exploration and development of cyberspace, here is a look at how some of those resources play a part in the well-being of present-day Armenia.
Cuts and carats and the shining craft of diamond polishing . . .
It is a country tarnished in many ways by the dulling effect of post-soviet poverty, but over the past six to eight years Armenia has become a sparkling participant in the diamond industry. In that billion-dollar business, there is even a finishing method known as "the Armenian cut".
The diamond processing trade has been more or less active since the 1960s in Armenia, when the Soviets operated one factory. The first post-independence operation opened in 1991.
But it was around 1997, when changes in legislation made foreign investment more appealing, that a surge of companies taking interest in Armenia led to 53 factories that currently operate.
A major player in Armenia's diamond business is DCA, established in 1997 by British and Armenian investors. The company consists of seven enterprises in various provinces, employing about 1,000 workers and producing 12-15,000 polished carats per month.
"The diamond business is a business of confidence and surety," says Gagik Abrahamyan, chief executive officer of DCA. "Our work is entirely based on maintaining an upright business. Otherwise, neither De Beers nor other authoritative world firms would ever work with us."
But Abrahamyan adds that the big names in the jewelry business also need assurance that their precious product enters a country from which it will safely be returned.
"Potential partners need to give credence to the country and have a firm belief in its stability and safety," he says. "Otherwise, no one will ever do business in the country. All our partners are fully confident of Armenia's stability."
Names of significance in the diamond trade—Lev Leviev (Israel), Tashe (Israel), Rosy Blue (Belgium), Arslanian Brothers (Belgium)—are among companies whose diamonds and precious jewels are sent to Armenia for processing.
Currently 50 countries are involved in such work; Armenia is ninth on the list according to output of cut diamonds. In 1997, Armenian craftsmen cut diamonds valued at $22 million. By last year the value amount had grown more than eight times, to $120 million.
Jewelry making has been an Armenian tradition since before the Urartu settled Yerevan nearly 3,000 years ago. But it is not just a heritage of workmanship that attracts the diamond business.
Armenia's legislature has created a friendly environment for the diamond trade, with laws that are the most liberal among Commonwealth of Independent States and Eastern European countries.
Neither customs duty nor value-added-tax are applied to imported rough diamonds or the finished exported product.
And, a foreign investment law stipulates that an enterprise pays no profit tax for three years if foreign investment in a company exceeds 500 million Drams ($885,000).
Still, the industry is not functioning to capacity.
First, the 53 factories have a potential to produce 1.5 million carats per year. Last year, the industry produced one million carats—a third short of its capacity.
Secondly, only a handful of those companies are stable enough to purchase raw diamonds and sell the finished product. The rest simply fill orders. (Some have complained that the Armenian banking system is not powerful enough to serve the needs of the industry, should the diamond business reach its potential.)
Optimists in the industry say there is, nonetheless, more grounds for confidence than for concern.
They point to recent interest by key industry companies as a sign of a bright future.
Zang enterprise has opened the first regional gemological school (2001, in Yerevan) where 40 students are being trained in the trade.
And, by the end of the year, it is expected that the Belgians will expand to create 1,000 new jobs in Talin; that Lev Leviev will grow by several hundred jobs in Nor Achin and that Martik Asatrian will hire 400 additional workers in Charentsavan.
Over the past two years, the International Business Center (a conglomerate of Russian and Armenian businessmen) has invested $12 million and created 1,000 jobs in three artificial diamond synthesis and two electronics plants in Armenia.
Such production plants have become a prerequisite for development of diamond electronics (a process whereby diamond dust is used to make cutting tools).
"This is an absolutely new technology and a new stage in the science," says Khachatur Zakaryan, general director of IBC.
Science and nature and the chemistry of mining . . .
Armenia's oldest industry, mining, is experiencing significant renewal. Three years ago only Zangezur Copper-Molybdenum mining plant was operating in all of Armenia. However:
• In 2001, ore mining in the southern regions of Agarak, Kapan and Shaumian and processing enterprises of Armenia's south region were restarted, after being dormant for up to a decade.
• In October, 2001, a seven-month renovation was completed and, for the first time in its 50-year history, Akhtala Enterprise, in the Lori province (central Armenia), operated at a profit, producing 25 percent copper concentrate.
• Metal Prince, owned by six Armenian businessmen from the U.S. and Canada, has invested $2 million within the last two years into modernization of Akhtala Ore Mining & Processing Enterprise and Shamlugh mine and created some 1,000 jobs in the north-east region of Armenia.
The total output of Armenia's mining and metallurgy industry in 2002 reached 65 billion drams (about $113 million), which was up 21.8 percent compared to 2001.
In 2000, Armenian scientists at the Institute of Non-ferrous Metallurgy discovered a new method of processing minerals, making it easier to extract molybdenum (a metallic chemical element used in alloys, copper and poly-metallic materials). The scientists found a combination of chemicals that extracted the elements with a higher percentage of processable material and less byproduct. And, the chemical combination was significantly less expensive than previously-used mixtures, making the Armenian process more attractive to cost-conscious investors.
The infusion of new investment led to new challenges. For example, the owner of one of the renovated companies says his plant, quite literally, needed a new face.
"When we started we had a competent staff of engineers who fell in love with their work, and were devoted to it," says Serop Der-Poghosian, one of six owners of Metal Prince. "But the youngest among our drill men was 73 years old. I wanted them to enjoy retirement, but in that case there would be nobody to replace them."
So the company started a training program, with veterans as teachers, and now the average age of a drill man is 26.
Because of its low percentage of toxic substances and high percentage of precious metals, Armenia's copper concentrate is in high demand in European countries. However the Metal Prince investors say they are not interested only in quick profits.
The company has elaborated a long-term, $110 million program, the successful fulfillment of which would guarantee new jobs and potential changes in the unfavorable socio-economic conditions of the entire Lori province.
"We aimed at developing the whole industry" says Der-Poghosian.
According to Metal Prince's plan, in five years the company will be mining poly-metallic ore, ferrous and rare-earth metals (selenium, cadmium) and producing finished products such as copper cables, pipes and machine accessories.
The company has restarted operations in Akhtala and Armanis poly-metallic mining areas and is installing new production lines at the Akhtala enterprise to process copper and poly-metallic ores.
Copper and iron production are among industries responsible for Armenia's creeping but noticeable industrial recovery.
In 1998 Armenian Copper Program (ACP) restarted operations of Alaverdi Copper-Chemical complex (in northern Armenia) at about 15 to 20 percent of its capacity. Last year the company produced 7,100 tons of copper and operated at a profit, due partly to an international increase in the price of processed concentrate.
ACP has a three-year plan to finish the basic reconstruction and technical refurbishment of the plant's production facilities and expand capacities to 30,000 tons per year. Last year ACP put into commission Alaverdi Copper Mine and Concentrating Mill and in February of this year, produced the first ore at the Drnbon Copper-Gold Mine in Nagorno Karabakh.
With eight percent of world reserves of molybdenum (a metallic chemical element used in alloys), Armenia did not have its own processing facilities during Soviet times. That changed in 1994 when the Plant of Fine Iron opened a production facility in Yerevan and now it supplies about a quarter of the European market for ferromolybdenum (an alloy used in the manufacturing of steel). Earlier this year a $20 million contract was signed with the Khronimet company of Germany, for export of fine molybdenum and ferromolybdenum.
Perhaps less revolutionary, but more significant in dollar figures, $40 million has been invested over the past two years in ArmenAl, a Yerevan aluminum plant. RusA1, a Russian enterprise with $4 billion annual turnover, made the investment.
New technology—including British VAI UK automated control systems—and new management have made it possible for the factory to produce aluminum goods for export to North America and Europe.
Chief executive of ArmenA1 Movses Dzavarian calls Armenia "an excellent base for new-market entry".
Mining minds for an "IT" future . . .
Armenia's intellectual resources are also being mined, by an industry that does not require great factories and is not constrained by physical borders.
Information Technology (IT) is an estimated $300 million market (including everything from the sale of computers to teaching, to software design, etc.) in Armenia, with more than 60 foreign countries engaged in development of software, programming and software export.
Some 320 companies have started research and/or production in Armenia since 1990—most within the past five years—currently employing about 5,000 specialists.
Forty-five of the companies are engaged in software development, of which 28 are U.S.-based. Others are from Great Britain, Canada, France, Ireland and Russia.
Last year World Bank allocated $5 million toward development of a "business incubator" in the field of Information Technology in Armenia.
According to a survey by the private research group Arkas, Armenia is among the highest-rated countries in the world active in the IT industry in terms of quality and price ratio (a high technical level and a low cost of development).
However Armenian experts and investors share the opinion that labor price is an additional, but not basic, factor attracting investment.
"When we place orders in India, we receive accurately and on time the things we have ordered," says Tony Moroyan, president of ViaSphere International from Silicon Valley and a major investor in IT world-wide. "When we place orders in Armenia, we receive accurately and on time the things we have ordered plus 10 more suggestions for the development of new products."
In 2001 Moroyan opened a technology park on the grounds of the Yerevan Transistor Plant. Presently 14 high-tech companies are operating out of the complex, engaged in chip design, software development for telecommunications, energy-saving technologies and energy transformers.
The technology park is home to "Epygi Labs Am LLC" owned by Sam Simonian, a venture investor from Texas, who projects to build his own techno-park for 500 specialists and also a free Internet access center intended for 1,000 users.
Known as the "Soviet Silicon Valley", pre-independence Armenia had more scientists and degree-level specialists per capita than any other Soviet Union republic. Nearly 30 percent of hi-tech computer and electronic equipment used for Soviet defense and space systems was developed and produced in Armenia.
These years later, grandsons and granddaughters of those engineers are applying their generation's knowledge and know-how toward development of Information Technology, the world's more accessible means of discovering its universe.
Last year Cadence Design Systems and Leda Systems launched a program that will invest $25 million into the study and development of microelectronic circuits and semiconductor software design at the State Engineering University of Armenia.
Founded by Yerevan Polytechnic Institute (now SEUA) alumnus Vahram Mouradian, Texas-based Leda Systems employs 200 at its facility in Yerevan.
"At first even the idea of opening a subsidiary in Armenia was met with skepticism by the directors, but it took us less than two years to prove that our staff can provide solutions to difficult tasks," said Hovik Musaelyan, the executive director of the Armenian branch.
Two years ago, a product with main components that were developed in Armenia won "Product of the Year" by Electronic Products magazine, published in the United States.
Virage Logic produced the award-winning "Self Testing And Repairing" (STAR) memory system, utilizing its 100 engineers at its plant in Yerevan.
"The high professional standards and original thinking of the professionals of Armenia's branch fit to that product like a hand to a glove" says Adam Kaplanian, President, CEO and Director of Virage Logic.
In December, 2000, the Government of Armenia announced the IT industry as a priority sector for economic development. In April 2001, it adopted the Concept on Sector Development, an initiative intended to exploit IT potential.
But while the Government concerns itself with IT development for business, some say it excludes a crucial segment of society, namely students.
"Who is this desired information future for, society, or a new elite?" asks Hrach Bayadian, president of IT Foundation, a non-governmental organization that focuses on IT for educational purposes.
The United States Agency for International Development and the United Nations have sponsored programs to help equip Armenian schools with computers. No resources, however, have come from Armenia's national budget. Of about 1,500 schools in Armenia, only 300 have computers.
(There are an estimated 50-60,000 computers in Armenia and the demand grows by 15 percent annually. The growth of Internet subscribers is about 10 percent annually.)
Some positive steps are being taken in Armenia's universities toward preparing IT specialists. Last year the American University of Armenia added IT education to its curriculum, whereas before specialists had been trained only at Yerevan State University and the Engineering Academy of Armenia.
Such changes, however, benefit only a portion of Armenia's 60,000 university students, and the republic's education system lags behind the market needs in producing IT specialists.
LEDA is currently building a $3 million educational and business center in Yerevan as part of its cooperation with the Science and Engineering University of Armenia.
"LEDA Systems hasn't come to Armenia to solve social or educational problems," says executive director Musayelyan. "However, investments made by LEDA are the largest ones that have ever been made in independent Armenia's educational system."
The success of the software industry has fueled the expansion of other IT sectors such as Internet services, electronic data processing hardware, and training courses.
But while much of Armenia's recent business development is linked to high technology, the country still suffers from telecommunication that is decidedly low-tech.
Arminco, one of about 35 Internet service providers in Armenia supplies 45 percent of Internet connections. Its general director, Andranik Alexanyan, says the company hopes to invest $10 million over the next three years to modernize the country's communication network.