Armenia's economic growth has been accompanied by significant disparities in labor productivity both between and within sectors, with top-performing firms in some industries outpacing lower-performing counterparts by over 35 times. Advancing Armenian firms’ digitalization can drive productivity growth, narrow the technology gap with wealthier economies, reduce costs across multiple dimensions, and enhance the private sector’s resilience to shocks.
Key Findings
Low Digital Technology Adoption: Over 60% of Armenian firms have not adopted modern technologies, with limited digital maturity compared to European peers. Advanced digital technologies are underutilized in critical business functions such as production and service delivery (7% adoption rate).
Sectoral and Size Gaps: Internet speed is critical for firms’ ability to efficiently use digital solutions, yet over 75% of firms lack access to high-speed internet, a key enabler of digital transformation. Larger firms and sectors like ICT and hospitality have higher digital adoption rates compared to smaller firms and other industries.
Productivity Challenges: Armenia faces low labor productivity compared to peer countries, with a large performance gap between top and bottom firms within sectors. Digitalization has the potential to significantly enhance productivity and resilience by reducing costs including logistics, ordering, oversight, and transportation. These advancements streamline business processes, improve efficiency, and enhance competitiveness.
Drivers of Adoption: Firms struggle with uncertainty, skilled workers, lack of information and awareness about the appropriate digital technologies for their business needs and are uncertain about the returns in investing in them. Management quality and integration with global markets are two additional drivers that explain adoption.
Shortage of skilled workers and political instability: In-depth interviews indicate firms lacking the specialists needed to implement and utilize new technologies effectively. This skills gap has led some businesses to delay investments in digitalization, while others hesitate to train employees, fearing they may leave after being upskilled. This issue is especially pronounced among firms that have already adopted digital technologies, highlighting the need for complementary measures, such as workforce development and retention strategies, to maximize the benefits of digital tools.
Recomendations
Addressing these issues through targeted interventions can bridge Armenia's technology gap, drive economic growth, and enhance firms' resilience to shocks. By leveraging connectivity, skills development, and improved management, Armenia can unlock the full potential of digital technologies to foster innovation and competitiveness.
Challenge | Recommendation |
Limited connectivity of the private sector to high-speed internet | Expand Digital Connectivity. Increase competition in broadband services and reduce infrastructure costs to make high-speed internet more affordable and accessible. |
Lack of support mechanisms to integrate digital solutions | Enhance Business Advisory Services. Provide MSMEs with support for integrating digital solutions and share peer experiences to reduce uncertainty about technology adoption. |
Lack of skilled workers | Address Skills Gaps. Leverage educational initiatives to upskill workers and introduce voucher schemes to incentivize workforce training in digital technologies. |
Lack of management practices | Strengthen Management Practices. Implement capacity-building programs to improve firm-level management quality, which complements digital technology adoption. |
Financial constraints | Increase Financial Support. Introduce targeted financial incentives like vouchers to reduce the cost of modern technologies and promote adoption, particularly for smaller firms. |
Lack of information about missing digital tools at the firm-level | Raise awareness and provide information. Conduct digital maturity assessments and benchmarking studies to guide firms in selecting appropriate technologies and maximizing their impact. |
Limited public experience and fiscal constraints | Support public program implementation. Improve public sector capacity to design and roll out effective digitalization programs, focusing on policy experimentation and cost-effectiveness |