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2
Review of Selected Sectors

This chapter sets forth an overview of those sectors of the Armenian economy in which science and technology (S&T) can play an important role in promoting economic development. The committee did not review all sectors or all institutions within selected sectors, but rather focused on those areas of particular relevance to S&T capacity and on those organizations they were able to visit. For each sector, the market for S&T products and services, impediments to development, potential payoffs in terms of job creation and other economic benefits, and potential sources of funding are discussed to the extent information is available. Several existing and potential examples of regional collaboration are also identified.

As far as technology development was concerned, the committee concentrated on applied research institutes and small firms and was unable to identify any large public- or private-sector firms. The large technology-oriented firms that existed during the Soviet period either downsized sharply or ceased operations, while the firms created since Armenia’s independence remain small.

ENERGY AND ENVIRONMENTAL SCIENCES

The energy sector is stable at present after serious difficulties in the early 1990s due to the shutdown of the Armenian Nuclear Power Plant (ANNP) at Metsamor and the disruption of natural gas pipelines in the wake of disputes with neighboring Azerbaijan. This stability is threatened by political pressure from the international community to close the ANNP within the next decade and by the continuing reduction in hydroelectric power generation due to environmental problems caused by the lowering of the water level of Lake Sevan.



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Science and Technology in Armenia: Toward A Knowledge-Based Economy 2 Review of Selected Sectors This chapter sets forth an overview of those sectors of the Armenian economy in which science and technology (S&T) can play an important role in promoting economic development. The committee did not review all sectors or all institutions within selected sectors, but rather focused on those areas of particular relevance to S&T capacity and on those organizations they were able to visit. For each sector, the market for S&T products and services, impediments to development, potential payoffs in terms of job creation and other economic benefits, and potential sources of funding are discussed to the extent information is available. Several existing and potential examples of regional collaboration are also identified. As far as technology development was concerned, the committee concentrated on applied research institutes and small firms and was unable to identify any large public- or private-sector firms. The large technology-oriented firms that existed during the Soviet period either downsized sharply or ceased operations, while the firms created since Armenia’s independence remain small. ENERGY AND ENVIRONMENTAL SCIENCES The energy sector is stable at present after serious difficulties in the early 1990s due to the shutdown of the Armenian Nuclear Power Plant (ANNP) at Metsamor and the disruption of natural gas pipelines in the wake of disputes with neighboring Azerbaijan. This stability is threatened by political pressure from the international community to close the ANNP within the next decade and by the continuing reduction in hydroelectric power generation due to environmental problems caused by the lowering of the water level of Lake Sevan.

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Science and Technology in Armenia: Toward A Knowledge-Based Economy Privatization of the energy sector is nearly complete, and energy efficiency, metering, and cost recovery have been improved in the past few years. The distribution of natural gas and electricity in Armenia is controlled, or at least influenced, by private interests outside the country. A joint venture of the government of Armenia, Russia’s Gazprom, and the Itera International Energy Corporation controls the distribution of natural gas. The electrical distribution company of Armenia was recently privatized and purchased by Midland Resources Holding, a company registered in the Channel Islands. The government is seeking investment partners to expand the thermal-steam production of electricity. The contribution of renewable energy sources to the national energy pool is insignificant, and except for small hydropower plants, the government does not give high priority to development of these technologies. Because of its geology, topography, and climate, however, Armenia has the potential to develop renewable energy from water, wind, solar, and geothermal sources. Small private companies are developing and producing solar hot water and photovoltaic systems, biomass gas generators, fuel cells, and long-term uninterruptible power supplies. There also is private interest in developing pilot wind-driven power generation sites, but the economic benefits are not clear. There are about 7,000 renewable energy companies and organizations around the world. The renewable energy sectors of national economies worldwide are usually based on small firms, at least in application. Some investments in this field in the United States and elsewhere have proven profitable. There are at least two examples of interesting private initiatives in Armenia. SolarEn is a company that employs about 25 people and produces solar-electric, solar-thermal, and biogas systems. The company also provides consulting services to the government, nongovernmental organizations, and the private sector. H2 ECOnomy is a company involved in the production of prototype hydrogen fuel cells, backup power supplies that function over extended periods, and related electrical conversion and stabilization equipment. The domestic and foreign markets for environmental assessment and consulting should also be a source of employment and contribute to economic growth. Domestic use of renewable energy is potentially quite high. With the lack of fossil fuels and eventual closing of the ANNP, Armenia must either develop the financing and infrastructure to import oil, gas, and electricity or develop independent internal energy sources. High-capacity, centralized internal sources will require investments in large facilities and extensive distribution systems. Small-scale, but widely used, renewable energy sources might substantially advance Armenia’s energy independence. The key question is: Can a significant small-scale renewable energy sector be established on a commercially feasible scale without subsidies, either to the developers and manufacturers of the generating equipment or to the customers who will purchase the products? This is difficult to determine without the development of a detailed and credible business plan, without greater insight into plans of

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Science and Technology in Armenia: Toward A Knowledge-Based Economy major power companies for the development of electrical and natural gas transmission networks in Armenia, and without a stable cost structure for energy from conventional sources. It is difficult to imagine that apartment dwellers in larger cities could provide a large customer base for alternative energy sources. The greatest application of small-scale renewable energy sources would probably be found in rural areas, but the ability of subsistence-level farmers to purchase the necessary equipment may be limited. Thus, it appears that the development and wide application of small-scale energy sources seem unlikely without subsidies at some level in the product chain. The foreign market potential for renewable energy products such as fuel cells might be quite high, particularly if Armenian companies can develop a competitive edge based on technological innovation. Regional markets in nearby countries and perhaps in more distant states might create opportunities for Armenian entrepreneurship in this field. In 2002, the Armenian government identified new energy sources as one of the S&T priorities for the country. The extent to which this action will direct research toward renewable energy is currently unknown. Also, large energy importers may be reluctant to permit the growth of renewable energy capacity that would threaten their profits. The potential for job creation in renewable energy, although not large, could be significant, not only in the manufacture of renewable energy systems but also in their installation at home and abroad. Potential funding for the development of this sector will likely have to come from foreign sources, either as assistance, investment, or both. The Armenian government could help stimulate the sector with investment in research and development. Because of past and present emphasis on the rapid development of Armenian natural and agricultural resources, there are domestic needs for environmental research and consulting services. These needs relate to support of environmental restoration efforts by the government and to expansion and development activities undertaken by private investment. Attention to the latter is of particular importance so that mistakes of the past are not repeated and exacerbated. The competition in foreign markets for environmental consulting is expected to be high, and the potential for Armenian interests to capture a large part of this market is limited. However, with regional knowledge and experience, there should be some opportunity for international environmental consulting. Energy- and environment-related research is conducted in the Ministry of Energy, with its Institutes of Energy Research and Atomic Energy, the Ministry of Nature Protection, and the Center for Ecological-Noosphere Studies of the National Academy of Sciences of the Republic of Armenia (NAS-RA). The Ministry of Nature Protection has laboratories for monitoring and sample analysis but has little interest in developing new techniques or monitoring equipment. The Center for Ecological-Noosphere Studies is an active group with strong leadership carrying out fundamental and applied studies in ecology and the health

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Science and Technology in Armenia: Toward A Knowledge-Based Economy of the environment. These studies involve South Caucasus river monitoring, quality assessment of nontraditional forages, and research on the paleoecology of Lake Sevan. The staff is relatively young, with many university students using the laboratory and computer facilities of the center for research. Of particular relevance to the interests of the two ministries mentioned above is the Armenia Tree Project. Established in 1994 by a U.S-based foundation, the project is intended to reverse the denudation of forested areas that have been indiscriminately cut to provide urgently needed fuel during the past 15 years. In 2004, the project focused on expanding fruit tree production, extending community tree planting to local villages, and renewing devastated areas by regenerating abandoned stumps through the use of coppicing. As the result of a gift provided by a private donor, the American University of Armenia (AUA) has created an Environmental Conservation and Research Center that offers courses and conducts research in environmental conservation and sustainable development. One of the center’s recent products is the comprehensive book A Field Guide to Birds of Armenia.1 It has a format familiar to generations of amateur ornithologists in the United States. It is hoped that the Armenian people will use the publication in birding and other outdoor activities and will increase their awareness of the problems of habitat preservation. The Institute of Energy Research concentrates on domestic issues and does not engage in regional cooperation. The Center for Ecological-Noosphere Studies had six active grants from international organizations in 2003 that led to cooperation with scientists in the United Kingdom, Japan, Georgia, Belgium, and Norway. The Environmental Conservation and Research Center at AUA has cooperative efforts with the Ministry of Nature Protection in Armenia, the University of California at Santa Cruz, and Johns Hopkins University. In principle, the countries of the South Caucasus—Armenia, Georgia, and Azerbaijan—could derive mutual benefits from cooperative studies of alternative energy sources and environmental issues. Energy transmission and distribution facilities might be more effective and efficient if considered in a regional context. Similarly, environmental problems caused by pollution of the atmosphere or hydrosphere in one country could have impacts in a neighboring state. Remedies for large-scale environmental problems are likely to require concerted regional actions. However, such cooperation in the near future seems unlikely due to the political standoff over Nagorno-Karabakh. AGRICULTURE Agriculture in Armenia changed dramatically when the highly centralized planning and production of the Soviet system was replaced by private ownership. 1   Martin S. Adamian and Daniel Klem, Jr. 1997. A Field Guide to Birds of Armenia. American University of Armenia: Yerevan.

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Science and Technology in Armenia: Toward A Knowledge-Based Economy Land reform resulted in a large number of very small farms. Some new landowners had never been involved in managing or operating a farm. Another result of this restructuring was that much of the farm equipment and infrastructure designed for large-scale production was suddenly obsolete, and the agricultural production system had to be rebuilt to meet the constraints of disaggregated farm ownership. Despite these challenges, agricultural production is gradually increasing, and agricultural products are being exported to several markets. Although Armenia is not fully self-sufficient in food production, it has the potential to gain economically through the export of high-value agricultural products. Historically, Armenia has exported significant amounts of fresh fruit and vegetables; however, many nearby markets for fresh produce are now closed to Armenia due to regional conflicts. Also, the transport of fresh produce to distant markets has become more complicated. As a result, the focus of current export efforts is on processed foods such as wine, preserves, smoked meats, dried fruit, and cheese. The U.S. Department of Agriculture (USDA) and the World Bank have implemented a successful, integrated marketing program aimed at agricultural products that may serve as an example for programs in other sectors. The USDA program takes a holistic approach, one that considers the entire value chain from markets back through processing and production to education and research. After the dramatic restructuring in the agricultural sector, it became evident that there is a lack of training, technology, and information throughout the value chain. The USDA approach begins with identifying potential markets and working not only to provide marketing assistance but also to educate a new generation of people in appropriate marketing skills. In working back from markets to production, critical weaknesses related to financing, training, and technology are identified and solutions are designed to build local capacity. The USDA has responded by implementing a set of integrated programs designed to address the specific infrastructure, resource, or personnel needs at each stage in the value chain. Many of the same vital value chain components that are missing in the agricultural sector are missing in other technology sectors. Indeed, skills, resources, and institutions critical to science- and technology-based economic development—such as knowledge of marketing, finance, and intellectual property protection; access to capital; and product development skills—are missing or undersupplied throughout the technology sectors of the Armenian economy. In Armenia, successful economic development based on S&T will require more than merely identifying research and technologies that seem to have economic potential and would readily realize this potential in more mature market economies. It will require helping to build the value chains that have the capacity to finance, develop, and market those promising technologies in a manner that returns value to the Armenian economy. In addition to the traditional food products that are at the core of the USDA marketing program, the agriculture sector can produce goods with significantly

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Science and Technology in Armenia: Toward A Knowledge-Based Economy more added value. Functional foods or nutraceuticals—foods that provide health benefits beyond simple nutrition—represent a range of such products in the early stages of development in Armenia. Some examples are margarine with cholesterol-lowering natural additives, tea and juice enhanced with antioxidants reputed to prevent disease, and yogurt with added cultures to stimulate the immune system and promote healthy digestion. The Armenian Drug and Medical Technology Agency has developed several such functional food products based on apricots and other plants native to the region. Since the raw materials for producing these functional foods have traditionally grown in Armenia, the farming infrastructure is already in place. Scientists at the NAS-RA Institute of Molecular Biology and the Microbial Repository are working on projects utilizing nitrogen-fixing bacteria that could result in useful products for agriculture. For example, researchers at the Microbial Repository have mixed nitrogen-fixing bacteria with zeolite, a volcanic material found in Armenia. They report that this product has increased yields of certain crops in field experiments and has been tested by a French company. Other scientists have been developing methods for producing cyclodextrins, oligosaccharide compounds used in pharmaceuticals, flavors, and fragrances. One method has been implemented in a production facility in Malaysia. The microbial culture collections of the Microbial Repository and other institutes represent a resource that may have potential for development. There is a continuing need for novel strains of bacteria and fungi, particularly in the pharmaceutical and agricultural industries. There are Western companies that specialize in finding novel enzymes for diverse applications such as health care, food processing, oil recovery, and paper manufacturing. These firms find novel biochemicals by sampling microbial diversity all over the globe. Assessing the quality of the culture collections in Armenia will require additional effort, but licensing agreements might be possible between Armenian institutes that isolate and characterize microbes and companies that are seeking unusual microbes. Although promising, the projects mentioned above involving implementation of technology related to nitrogen-fixing bacteria and cyclodextrins illustrate a fundamental weakness in the Armenian scientific community that must be remedied if economic development of such processes and products is to be successful. This weakness is the lack of expertise in protecting intellectual property rights. In both cases, technology was apparently revealed and transferred without proper intellectual property right protection or even clarification of payment terms. There is a need for scientists and engineers to understand intellectual property right issues and have access to expert help in gaining protection for their intellectual property and placing an appropriate economic value on it. Another significant barrier is the lack of access to up-to-date information regarding scientific developments and markets. Armenian scientists are isolated due to regional conflicts and limited budgets and, as a result, are unable to keep up with the latest scientific developments and unaware of market possibilities in

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Science and Technology in Armenia: Toward A Knowledge-Based Economy other parts of the world. The lack of up-to-date equipment in research laboratories also hinders their efforts. The potential for economic development in the non-food agricultural sector, although not large, could be significant. International markets in this area are growing rapidly, and functional foods, for example, are high-value products that are easily exported. Funding for development of the agriculture sector is now coming from foreign assistance. Funding for non-food agricultural research and development might also be linked to foreign investment if intellectual property rights are protected so that the value of such investment can be captured. COMPUTERS AND INFORMATION TECHNOLOGY The general technological level of the computing and telecommunications infrastructure in Armenia is rather limited in terms of modern computer hardware, software, and bandwidth. Limited fiber-optic telecommunications exist; however, issues of monopoly control of the telecommunication systems in Armenia inhibit both access and development. Computing use in general is widespread but mostly at the level of personal or desktop computers. There are no large computer facilities available even in research laboratories. Also, there is very little integration of modern computing equipment into research laboratories, in terms of either controlling equipment or recording data. This situation reflects the lack of resources for such equipment. On the other hand, developments in the software industry have been impressive, and the government has given high priority to this general area. Growth in information technology (IT) sales has been nearly 20 percent per year for the past several years, and IT sales now account for 2 percent of Armenia’s gross domestic product.2 Many small, private software firms have emerged in recent years, working primarily through outsourcing contracts with large Western software firms. Some Western firms have established branches in Armenia. In general, IT is a natural high-technology growth area in Armenia. As long as connectivity is adequate, the land-locked nature of the country presents less of a problem for IT than for other types of research and development activity. The large Armenian diaspora in Europe and the United States has facilitated contracts, connections, and business partnerships. Armenia has a highly educated and talented workforce requiring comparatively low salaries. Foreign-owned software firms pay higher wages and are better financed and thus more stable than domestically owned firms. However, all are typically small (fewer than 100 employees) and therefore subject to the fluctuations of external 2   As reported by André Andonian, Avetik Chalabyan, and Pierre Gurdjian in Armenia’s Software Advantage, McKinsey Quarterly 1, 2004.

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Science and Technology in Armenia: Toward A Knowledge-Based Economy contracts. In contrast, in India, where the IT industry has thrived, very large companies have created stability in the industry. Since there are about 200 small IT companies in Armenia,3 some consolidation probably will occur, although such a process is not yet apparent. The pipeline to produce future IT workers appears quite good, with an estimated 200-500 qualified specialists in this field graduating from Armenian universities each year.4 The availability of jobs and relatively good salaries, combined with the promise for a growing and bright future, is attracting talented young people to the field. According to IT company managers, however, these new graduates have little hands-on experience and require months of on-the-job training to meet the specific needs of their companies. Increasing opportunities for student internships at IT firms and other technology-oriented companies could help improve the productivity of new hires. Although this industry is expected to continue to grow in the future, some limitations are apparent, mainly on the business management side. New small companies are being developed with the help of incubators, and the Union of Technology Enterprises brings entrepreneurs together to address common goals and problems. Despite these bright spots, however, a general lack of business and technical management skills and experience makes it difficult for Armenian IT firms to compete in the international market. The talented young entrepreneurial directors of these small companies are typically technical specialists with little or no business or management background. Within these companies, low salaries are linked to the low productivity of the workforce, a reflection not of any weakness in the technical skills of the workers but of the lack of efficient project management practices. With better sales and management practices, the Armenian share of this market should be able to maintain its impressive growth. How to integrate good practices is a challenge and possibly an attractive target for economic development funds. Another area of concern is the lack of experience with intellectual property rights, which inhibits the development of products. This limitation leads to contracting difficulties because of the inability of companies to guarantee proprietary use of developed software. Western companies are reluctant to invest or even to outsource portions of projects if they fear their intellectual property is not secure. In the longer term, perhaps an even more serious consequence is the inability to develop profitable software products with ownership vested in Armenia. In conclusion, IT is an area of successful, albeit limited, economic development, with further expansion possible. The sector exemplifies the way in which high-tech international business, combining Western experience and investment 3   Data from the Ministry of Trade and Economic Development of the Republic of Armenia, 2003, posted at http://wwww.minted.am/en/information_technology.html. 4   Ibid.

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Science and Technology in Armenia: Toward A Knowledge-Based Economy with native technical skills, can be successful in Armenia and how the lack of business and managerial expertise and problems with intellectual property rights can have a negative impact. BIOTECHNOLOGY AND HEALTH CARE Thanks to contributions from Armenian-American groups and other international donors, substantial progress has been made toward construction of a high-quality health care infrastructure. The existing infrastructure, and particularly expertise from the Yerevan State Medical University (YSMU) and the Center for Medical Genetics, might provide a base for clinical trials for U.S. and European pharmaceutical companies. The ethnically homogeneous nature of the Armenian population could make it an appropriate site both for trials of medications to treat diseases specific to Mediterranean peoples and for tests of the effectiveness in this population of drugs used to treat conditions common worldwide. The country already has the necessary infrastructure for such trials, and there is no shortage of physicians to run them. For this type of undertaking to be feasible for Armenia, it would first be necessary to establish connections with U.S. and European pharmaceutical companies. Financial support and guidance in facilitating such connections could be productive. Yerevan State Medical University has identified two areas of opportunity that might be expanded. The first is medical education for foreign students. Further investments in multilingual professors, curriculum enhancement, and laboratory upgrades should in turn yield increased income from more foreign students paying higher tuitions. Second, with assistance from the U.S. Agency for International Development (USAID), YSMU is developing resources that could make it a leading medical center in the South Caucasus region. Services ranging from ultrasound to heart surgery are already well developed and might be expanded not only to serve Armenians, but also to attract people from other countries, much as Singapore is a magnet for patients from other countries. The Center for Medical Genetics, a small research and clinical facility that specializes in genetic screening procedures, is also an important institution in the biomedical field. It was built with support from Armenian-Americans in California and continues to receive funding from them. The facility and its staff are impressive, and the center could serve as a resource providing pre-cancer screening and tests for various genetic disorders. The center has developed the capacity to do genetic testing as well as molecular testing for infectious diseases, activities that might also be expanded as a service not just to Armenians, but also to the populations of nearby countries. Arrangements would have to be worked out with the Institute of Health, which controls certain aspects of laboratory testing, if the center is to be brought into this type of activity. A second issue is the cost of genetic tests. Currently, the fees that the center can charge for its genetic testing services are lower than the actual costs of the tests. Local patients are simply

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Science and Technology in Armenia: Toward A Knowledge-Based Economy unable to pay more. Improved access to reagents at lower prices, perhaps through a cooperative arrangement with a Western clinical testing organization, might address this problem. Another key organization is the Armenian Drug and Medical Technology Agency (DMTA), which develops and tests products related to human health and offers laboratory testing and consulting services. Approval by the DMTA is required for a pharmaceutical product to be sold in Armenia. With help from a grant from the U.S. Civilian Research and Development Foundation (CRDF) supporting the acquisition of modern analytical instruments, the DMTA is now a well-equipped operation that is functioning at an impressive level. On the development side, the DMTA specializes in nutraceuticals, including ApricoTabs, an herbal supplement in chewable pill form that according to DMTA reduces cholesterol and provides anticancer compounds such as carotenoids. It has also developed health-enhancing oils from apricot, grape, pumpkin, and sunflower seeds. This agency’s activities provide a possible model of how agricultural products and fruit and vegetable wastes might be processed to create high-value products that could be transported economically. Potential markets include South-east Asia, China, the United States, and Europe. Expanding output would require investments in production facilities as well as more marketing research to identify niche markets in health food stores or Internet sales. Although education is not usually thought of as a product, it is worth considering seriously as service that could produce significant income. YSMU and the Academy of Agriculture both have a potential market in the education of foreign students. YSMU is already involved in this endeavor, as described in Chapter 1, and the rector of the Academy of Agriculture is interested in admitting students from elsewhere in the South Caucasus and China into its agribusiness program. Fostering such programs, for which a strong foundation has already been laid, is recommended. Armenia might also serve as a regional center for certain types of medical procedures such as cardiosurgery, gynecological procedures, and hip replacement. Armenian-Americans have generously donated a good deal of relevant state-of-the-art medical equipment to Armenia, upgrading the facilities of the privately-run Erebuni Hospital and establishing advanced dental and ophthalmological programs, to name only a few examples. The expertise needed to run and maintain the equipment already exists in the country, although in some cases individual physicians and scientists may require additional training in the United States or Western Europe. EARTH SCIENCES Mineral deposits and surface and underground water are the principal natural resources of Armenia. The estimated economic value of the known mineral resources is more than $120 billion. About 30 percent are metallic ores; the rest

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Science and Technology in Armenia: Toward A Knowledge-Based Economy are nonmetallic ores and construction materials.5 Foreign corporations and investment interests are heavily involved in the development of these resources. Mineral deposits are considered state property, but they are leased to private interests for 20 to 50 years, with the government receiving royalties of about 2 percent of the value of the extracted ore. A closed state-owned joint-stock company called Geoeconomics is engaged in the economic evaluation of mineral deposits and mines for all of Armenia. The Ministry of Nature Protection conducts environmental monitoring of mining operations and has a role in the regulation of mining activities. Renewable surface water resources amount to about 7 billion cubic meters per year and underground water resources to about 4 billion cubic meters per year. Total water use is about 1 billion cubic meters per year; however, local conditions such as availability, storage capacity, microclimate, and weather can cause shortages. Hydroelectric power provides about 7 percent of the energy consumed.6 Efforts are under way to increase the use of hydropower through the development of small hydropower plants with capacities of several hundred megawatts. There do not seem to be any particularly promising scientific and technological innovations that can be applied to general mining operations or water distribution systems and then easily and competitively exploited. Although rich, undiscovered deposits of minerals and fossil fuels may exist, most of the mineral wealth of country has been adequately assessed, at least on a reconnaissance basis. Therefore, it is unlikely that an extensive, new national exploration effort would find rich, easily exploitable deposits. Similarly, no previously unconsidered or unavailable mining, recovery, or transportation techniques appear to offer inexpensive exploitation of existing resources. Most difficulties and impediments have complex causes, related to the lack of local manufacturing and markets, world metal prices, and costs of transporting ores and construction materials to outside markets. “Quick fixes” from new discoveries or applications of heretofore untested recovery and distribution techniques are unlikely. Therefore, Armenia must attempt to use its current knowledge in light of the realities of domestic and world markets. Responsibilities for assessing, developing, and regulating natural resources are distributed widely throughout the government. Financing for the development of natural resources usually involves foreign investment interests, which are not directed to the overall economic growth of Armenia. Thus, the current approach 5   Armenian Ministry of Nature Protection. 2003. Ministerial Report—From Aarhus to Kiev. Yerevan, p. 37. 6   Figures on water resources and consumption are taken from pages 40 and 41 of the Armenian Ministry of Nature Protection, 2003, Ministerial Report—From Aarhus to Kiev. Yerevan. Figure on hydroelectric consumption is taken from U.S. Embassy, 2003, Armenia: Energy Market Brief, April, Yerevan.

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Science and Technology in Armenia: Toward A Knowledge-Based Economy to managing natural resource development does not seem to be effective in contributing to the development of the national economy. A new model is needed that considers all aspects of the development of existing natural resources. How can the innovative application of modern concepts in science, technology, management, and business be used to develop these resources in economically viable and environmentally safe ways and in the best interests of Armenia? A comprehensive and integrated approach is needed, involving many skills: geology, hydrology, mining engineering, ore processing, mineral product development, water resources distribution and use, business management, and market economics. Currently, independent activities in the relevant fields should be more effectively linked and more sharply focused on commercial goals. Two options for putting such changes into effect should be considered: reorganizing and consolidating existing institutions and functions within the government, and creating a nongovernmental enterprise (or enterprises) with the flexibility to assemble and direct diverse talents to work on the rational development of Armenia’s natural resources. Perhaps the government will be unable to stimulate the economy through development of natural resources. These activities might best be left to private enterprise, mostly foreign, and centralized national study and planning might have no place in a country trying to enter a modern global economy. In any event, detailed study and planning could potentially identify certain national policy changes or programs that would improve the climate for development of resources. If Armenia could realize economic rewards each year from a small fraction of its known mineral wealth and unused water resources, a substantial impact on the national economy is possible. Without some bold, new approach, however, it is unlikely that these dormant resources will have a major effect on the economy. The Institute of Geology has a strong tradition of classical geological research, and a small cadre of young scientists is building on this tradition and expanding it with new tools and applications. This group has established a private geological consulting company, Georisk, which has conducted small-scale (regional) mineral exploration and assessment studies for the government and foreign interests. The company could be a model for the private enterprise approach. It has worked on a fee basis on natural resource and natural hazard assessments. The staff seems competent, but they lack the ability to develop the practical applications identified in their studies. Their assessments of mineral deposits currently are given to other government agencies or private concerns for action. Georisk or a similar entity should have the capability to address all issues related to realizing the economic potential of discovered deposits and other resources. It should be able to provide holistic recommendations and plans—from discovery, to development, to market—for intelligent exploitation of the natural resources of the country. It should have the ability to bring in outside and foreign technical experts to address specific problems. Also, it should be asked to

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Science and Technology in Armenia: Toward A Knowledge-Based Economy determine what can be done through the application of innovation and modern technology to realize the actual value of rich mineral deposits, valuable construction materials, and excess water resources. No single organization will possess all of the skills, knowledge, and experience necessary to address all the issues, systems, and technologies requiring study and analysis. However, a single organization is needed to integrate results from appropriate centers of expertise. The integrated approach will benefit from the participation of university faculty and students. For example, the College of Engineering and the School of Business and Management of the American University of Armenia could bring fresh perspectives to development and environmental issues. The Department of Mining Engineering and Metallurgy of the State Engineering University of Armenia and the Department of Geology at Yerevan State University should also make valuable contributions. All institutions must be convinced that a new approach is needed and that the status quo is not sufficiently flexible or focused. With regard to regional and international cooperation in this field, the Institute of Geology has contacts with universities and institutes in Georgia, Russia, Tajikistan, Kazakhstan, Iran, Greece, France, Italy, and the United States. The National Seismic Protection Survey and four other Armenian institutions participate in the Caucasus Seismic Information System, a major project funded by the International Science and Technology Center that involves collaboration with partners in Georgia, Greece, France, and the United States (see Appendix I).7 The Ministry of Nature Protection has an active international section. These collaborations have included joint field studies and joint publication of papers in English in European scientific journals. The state universities and AUA have attracted international students and faculties that can help develop wider and stronger regional collaboration. This collaboration demonstrates a respect for and appreciation of foreign research and approaches to problem solving. Knowledge of resource development experience in other countries cannot but help similar efforts in Armenia. In addition to the potential benefits from resource utilization, there are opportunities for economic benefit and job creation in the area of geological consulting, another avenue in which Armenian specialists can apply their knowledge and expertise to problems of interest to domestic and foreign entities in both the government and the private sectors. Some countries in southwestern Asia have a similar geologic setting and face economic challenges analogous to Armenia’s, as well 7   This initiative is probably the best developed regional program in any field at present. In August 2004, CRDF announced a new effort to encourage regional cooperation in this area. Funded by the U.S. Department of State under its Freedom Support Program, the South Caucasus Cooperative Research Program will award one grant for up to $250,000 to support a collaborative project involving researchers from the United States, Armenia, Georgia, and Azerbaijan. Projects may be in any field of basic or applied science and will be selected on a competitive, peer review basis.

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Science and Technology in Armenia: Toward A Knowledge-Based Economy as similar natural resources and resource development problems. Many international firms would offer the same type of services, but the regional experience and knowledge, as well as lower costs, should make Armenian efforts competitive. The potential for job growth in fields involved in resource development studies is not great. However, implementation of the recommendations of such studies could potentially have an enormous impact on future employment. Job creation in mining, product development, and manufacturing could contribute greatly to the country’s economic recovery and development. CHEMICAL AND ASSOCIATED PROCESS INDUSTRIES At present, there is little activity in Armenia in the chemical, petrochemical, and petroleum process industries. Production of chloroprene for markets in other Soviet republics and Iran before the breakup of the Soviet Union, as well as limited production of polyvinyl acetate, has been severely curtailed. Production of acetylene and of ammonia for fertilizer use is limited, as is the volume of electrolytic refining of metallurgical copper. Specialty chemicals are mostly imported at present, although Armenian production of specialty chemicals such as catalysts, intermediates for pharmaceutical production, and specialty research reagents might be possible. Such specialty chemical syntheses are technical-manpower intensive, and lower labor costs as well as existing expertise in this area might be a competitive advantage for Armenia. The chemically oriented institutes of the NAS-RA conduct little research that would be competitive in worldwide markets. Initiatives in chemical synthesis will have to come from investments by large international corporations in research and development facilities in Armenia, early-stage start-up ventures seeded from research programs at the universities, and initiatives coming from outside Armenia led by successful members of the Armenian diaspora. ELECTRONICS During the Soviet period, the vast majority of Armenian research in such fields as computers, semiconductors, lasers, acoustics, and mathematics was oriented to meeting the needs of the Soviet military complex. When this market ceased to exist, these sectors were left without major customers, and they have had difficulty reorienting themselves. For example, in the field of consumer electronics there are currently no facilities of significant size or economic importance. A number of small companies engaged in chip design and associated research and development have sprung up in the past few years, including both Armenian-owned firms and branches of foreign companies. However, the local Armenian market is far too small to support a sizable consumer electronics industry, so these enterprises have no choice but to aim to serve a broader regional or even international market as well.

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Science and Technology in Armenia: Toward A Knowledge-Based Economy One promising firm, Mshak, is a small but growing company making automated, computer-controlled machines and a variety of computerized controllers and custom software. It has designed and built a high-precision machine for punching holes in multilayer boards for mounting electronic circuits and claims that this is the fastest machine of its type in the world. Mshak managers are working to build ties with foreign firms to increase potential markets for their products. They claim strong demand for their goods but feel their sales and growth potential to be severely constrained by the lack of available credit. OBSERVATIONAL PHYSICS The most famous twentieth-century scientist in Armenia was Victor Ambartsumian, who founded the Byurakan Astrophysical Observatory in Armenia. This observatory was one of the most important astronomy centers in the world and was known for its studies of Seyfert galaxies and observations of supernovae and flare stars, as well as for having conducted some of the earliest important survey work under Benjamin Markarian, another famous Armenian astronomer. The main scientific instrument at Byurakan is a 2.6-meter telescope placed at an altitude of 1,500 meters. The observatory also includes several smaller instruments. After the disintegration of the Soviet Union, conditions at the observatory became very difficult, and at present its much reduced staff does not have funds to conduct an active observational program. Neither are they able to modernize the instrumentation on the telescope. Nevertheless, the 2.6-meter instrument is a world-class single-mirror telescope and installation that represents a valuable financial investment, worth probably on the order of $50 million. The core scientific staff of internationally known astronomers who remain at Byurakan is also first rate. Given these strengths, this observatory is a good candidate for investment in basic science. The Cosmic Ray Station conducts a rather broad program in cosmic-ray physics. This program is centered on fundamental science using cosmic rays—research studying the astrophysical sources of cosmic rays and acceleration mechanisms through ground-based surface detectors. In addition, this research group studies solar energetic particles, detected on earth by low-latitude neutron monitors and muon telescopes, as well as the acceleration and transport of such particles. The group has developed instrumentation for monitoring and forecasting space weather and investigating modulation effects of coronal mass ejections, and it is sophisticated in multivariate data analysis using Monte Carlo techniques. This cosmic-ray program operates with funding of approximately $250,000 per year, including salaries, overhead, and infrastructure upgrades. The program involves extensive international collaboration and is supported by a combination of international grants from CRDF, the National Foundation of Science and Advanced Technologies, the North Atlantic Treaty Organization, and the Euro-

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Science and Technology in Armenia: Toward A Knowledge-Based Economy pean Community’s INTAS (International Association for the Promotion of Cooperation with Scientists from the Newly Independent States of the Former Soviet Union) program, as well as significant diaspora funding. This cosmic-ray program is among the most advanced and scientifically productive research programs in Armenia, having found a niche in which it competes well internationally. Although this work has few direct practical applications and is not likely to generate technology that could help promote economic development, the program is doing well with the funds it has obtained. It represents a good investment in basic research as well as in the education of the next generation of scientists and engineers. CANDLE CANDLE (Center for the Advancement of Natural Discoveries using Light Emission) is an ambitious proposal to build a 3 GeV synchrotron light source facility in Armenia. The goal of CANDLE is to develop a third-generation light source as an international facility. Several such light sources are being developed around the world, but none in the Caucasus. The motivation is to provide a springboard to help revive Armenian science to its previous standing and reverse the “brain drain” from the region. Such a facility would have a broad research and education program that would include work in the areas of physics, chemistry, biology, geology, electronics, crystallography, and medicine. This proposed synchrotron radiation source would yield a type of radiation that has extremely high flux and other features for studies at the molecular and submolecular levels. The continuous spectrum of synchrotron radiation provided by such a facility would be more than five orders of magnitude increased in flux and more than ten orders of magnitude increased in brightness over more conventional sources. The wavelengths of emitted photons could be varied from atomic to cell structure dimensions, enabling a very broad research program. A group in Armenia has completed a design study for CANDLE, and in August 2002 a committee of accelerator experts issued a favorable technical review of the project for the U.S. Department of State.8 The CANDLE facility is housed in a remodeled laboratory and office complex outside Yerevan. About 25 technical staff members are located on-site. This group includes a team of experienced accelerator experts, some of whom have returned to Armenia from Western Europe and the United States. The quality and dedication of the team and its articulation of the goals of CANDLE are impressive. In addition to the design report, team members have successfully produced a first prototype magnet. They envision a complex of science centers in different fields on this site, with the centerpiece being the synchrotron radiation facility. 8   Report to the U.S. Department of State Relative to the CANDLE Project, August 20, 2002, posted at http://www.candle.am/revrep/revrep.PDF.

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Science and Technology in Armenia: Toward A Knowledge-Based Economy Financing is a major issue. Not only are there the initial construction costs, but there must be enough interested users and research activities to sustain the facility’s operations. These issues, of course, deserve priority during further consideration of the technical feasibility of the project. The Armenian government has provided the site and physical support facilities, while funding to develop the proposal was provided by the U.S. government as well as an Armenian-American advocate. The present estimate of construction costs is about $50 million, and expenses for operating the facility are projected at approximately $7 million per year. For this to be a robust project, it will require up-front funding that would cover construction with adequate contingency, plus the first few years of operations. This requirement probably means that at least $75 million is needed to undertake the project with a reasonable chance for success. The CANDLE initiative would be unique among the research and technical development efforts under way in Armenia. It has already drawn young, technically skilled Armenians home from abroad. If Armenia is to build a successful, technically oriented economic sector, it will be essential that there be centers of excellence for science in the country. Potentially, CANDLE could be such a center. Research in many disciplines can be carried out with a synchrotron source, which would help to break down the stovepiping that characterizes Armenian research activity. Significantly, the project has received the endorsement of the rector of Yerevan State University, even though his own institution has serious financial needs. There is potential value in having a major regional facility in Armenia. For these reasons, it may have the kind of inspirational value needed to reinvigorate all of Armenian science and technology. It is also possible that international funding organizations, which view S&T as an essential element in the development process, might be interested. CANDLE has created a singular bright spot of enthusiastic young people who have done a fine job thus far on the synchrotron design. Yerevan State University and the NAS-RA strongly support the project. The next step, probably costing about $4 million and requiring about two years, would be for the CANDLE team to carry out a design and prototyping phase for the major components, including having Armenian companies acquire the capability to make dipole magnets and, if successful, quadrupole magnets and other items.9 Once the team knows whether such components can be built to specifications in Armenia, it can perform a realistic cost estimate and try to attract the large amount of 9   [Footnote added in final editing.] The cost and time estimates for the next step are the result of the committee’s preliminary analysis of the project requirements and are consistent with Armenian projections. Of course, more precise costs will depend on detailed negotiations among the organizations that would participate in project implementation during the next step.

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Science and Technology in Armenia: Toward A Knowledge-Based Economy money that would be needed to build such a machine and provide for initial operations. In sum, CANDLE is a place where investment to enable the next step might lead to a major improvement in the S&T infrastructure in Armenia.