Armenia, like the other five countries in Eastern Europe and the South Caucasus (EESC) - Azerbaijan, Belarus, Georgia, the Republic of Moldova and Ukraine - has grown rapidly following a difficult transition from a centrally planned to a market economy over the past decades. This momentum, however, is slowing across the sub-region as current growth drivers wane and countries must sustain and ramp up governance and market reforms. The heavy reliance on remittances and unstable public finances, compounded by political instability and on-going territorial conflicts leave the region exposed to external shocks. The COVID-19 pandemic alone triggered an estimated decline in Gross Domestic product (GDP) of up to 4.5 per cent in Armenia in 2020, according to a recent estimate by the International Monetary Fund.
The new Innovation Policy Outlook (IPO) is a pilot flagship publication of the United Nations Economic Commission for Europe (UNECE) and reviews and compares innovation performance and governance across the EESC sub-region. Complementing quantitative composite indices, such as the Global Innovation Index (GII) developed by the World Intellectual Property Organization, the IPO compares innovation ecosystems in six countries with similar economic, structural, legacy and institutional features, challenges, and opportunities. It is an essential part of UNECE support for trade and economic cooperation among its member States.
Overreliance on remittances, low levels of productivity and contracting investment pose structural challenges to the Armenian economy, making it vulnerable and preventing the country from fully realising its potential for sustainable growth.
Innovation, specifically the systematic experimentation with new ideas, is an essential component in creating a well-integrated and diversified foundation for sustainable economic growth of Armenia. The IPO highlights that engaging the diaspora, one of the largest in the world, poses a substantial opportunity for the country: out of 11 million ethnic Armenians across the world, only 3 million live in Armenia itself. The 8 million members of this diaspora that live abroad, many of which are highly educated and successful, are important not only as a source of personal remittances, but also as sources of and intermediaries for investment, ideas, skills, and networks important for broad experimentation with new ideas, in other words: innovation.
Recognizing this potential for innovation, Armenia has taken several important steps to reform innovation governance over the past years. These include:
- Support for innovation is a national priority of Armenia, showing strong political commitment towards innovative development. The country made progress in fostering public sector innovation across government agencies.
- Various mechanisms to promote innovation and to support research and education are available. There are competitive programmes for research, development and innovation across the country, supported by international organizations, which stimulate start-up growth and job creation.
- The legal framework for innovation policy preparation is in place. The Government has adopted a new law that sets out, in further, the steps that need to be taken for drafting legislation.
Far-reaching, though far from complete, reforms have ensured sustained growth in GDP and have ensured renewed dynamism in sectors such as tourism and information and communication technology services, the latter primarily catalysed through the country’s diaspora. However, there is ample room for effective public support to exploit the potential even more.
Further progress towards a diversified, increasingly knowledge-based economy is constrained by several factors. These include weak investment into research and development, low levels of competitiveness and absorptive capacity in the private sector at large, declining quality of educational outputs and labour market skills mismatches.
The IPO points to three important areas to address:
- Existing legal frameworks for innovation are outdated and some regulations and coordination mechanisms are missing. Innovation policy lacks the full support of long-term planning arrangements and innovation procurement frameworks are not yet implemented. Mechanisms for coordinating innovation policy are largely missing at the central level, and between national and subnational authorities.
- The elements of the innovation infrastructure do not sufficiently support industry-science linkages and knowledge transfer. For example, business and innovation networks are not sufficiently developed and lack matching services to support Small and Medium-sized Enterprises (SME) with limited resources.
- Innovation policy foresight, monitoring and evaluation mechanisms are underdeveloped. Monitoring and evaluation is overly focused on outputs, with few systemic linkages to ensure that learning feeds into policy design.
In this spirit, recommendations of the IPO for Armenia include:
- Update legal and regulatory frameworks and encourage coordination efforts between relevant ministries. The IPO recommends to establish a national council for coordinating innovation policy and joint working groups among ministries, to strengthen synergies among innovation policy initiatives. Leveraging the potential of public procurement can also accelerate innovation growth.
- Strengthen industry-science collaboration. Introducing supplier matching services, for instance, can facilitate business linkages and accelerate innovation to create synergies between fundamental and practical knowledge to meet industry needs.
- Establish more systematic linkages of monitoring and evaluation to policy design, including in government bodies responsible for innovation policy. Building coherence mechanisms into the legislative design process can ensure that laws and sector strategies are aligned with overarching, central planning documents.
For more details on findings and recommendations, please find the Innovation Policy Outlook chapters for Armenia here. UNECE developed the Sub-regional IPO under the guidance of the UNECE Team of Specialists on Innovation and Competitiveness Policies and with the generous funding of the Swedish government. The publication was launched sub-regionally at a high-level event on 25 November 2020. The IPO was launched in Armenia on 9 February, where country-specific findings and recommendations for Armenia were presented and discussed.