(Red Herring) – Stepanakert, the capital of Nagorno Karabakh, is nestled among the green hills and mountains of the southern Caucasus. It is home to around 50,000 people, its main streets are wide and clean-slabbed, and there are plenty of agreeable hotels for the weary traveler. It’s hard to tell that just miles away is the front line of a war that began almost 30 years ago, and hasn’t ended.
Nagorno Karabakh (preferred by Armenians to be known as Artsakh) has been one of the hottest of all the former Soviet Union’s frozen conflicts. The conflict for its control began before the USSR even broke up, in 1988. Then, the Kremlin was losing its grip on the Caucasus, as Gorbachev pursued his restructuring policy of Perestroika.
The Azeri region, heavily populated by ethnic Armenians, that year voted to side with Yerevan, prompting an all-out war that claimed 30,000 lives and displaced a million people on both sides of the border. In 1994 a Russia-brokered ceasefire ceded Nagorno Karabakh to Armenia. But no peace deal was signed. And violence on a border upon which soldiers can see each other just 1,000 ft apart is commonplace.
The region, which its government calls the Artsakh Republic, is recognized by no single UN member state – including Armenia itself. The size of three Rhode Islands and home to 150,000, it remains in the cache of ex-Soviet ‘breakaway states’, alongside South Ossetia and Transnistria. Blockades of Armenia by Turkey and Azerbaijan haven’t helped things, either. Which is why tech, many are realizing, may be the perfect path to economic success.
Nagorno Karabakh was once a prosperous agricultural region. In Soviet times it was famed for its fresh produce – and its mulberry vodka is still known throughout the Caucasus. But years of war and isolation has left its economy precarious: its GDP is currently $480 million, a figure that has been rising by 8-10% year-on-year. But between one-third and half of that comes directly from Yerevan, a fact that sits uneasily with many in the local government.
Transport, too, is difficult. Nagorno Karabakh has just two highways, one running east to west; the other, its ‘backbone’, going from north to south. Infrastructure is “still much better than in Yerevan,” says Alexander Papko, a journalist and political scientist who last visited Stepanakert in 2014. “But it’s difficult to put their name on products. Each unrecognized state has problems with exports.”
Renewable energy has also become a huge part of the Karabakh economy. The Sarsang Hydroelectric Plant, on the Sarsang Reservoir, was built on the Tartar River by the Soviet Union in 1976. According to Artak Beglaryan, spokesman of the prime minister, it produces 220m kW, or 90% of the region’s electricity demand. Between 250 and 300 people are employed onsite.
More is planned. “We are going to make Artsakh completely independent energy-wise,” says Beglaryan. “13 plants, 12 small plants and one big one. That’s the plan.”
Nagorno Karabakh, like Armenia, has received hefty financial assistance from the Armenian diaspora. California has recognized its right to independence, and its biggest benefactor, Vartan Sirmakes, is a Swiss-Armenian magnate who heads the luxury watch brand Franck Muller.
Sirmakes, who was born in Istanbul, has piled financial and diplomatic clout into the region. His mining ventures employ 2,000, while a sturgeon farm recently founded will, according to Karabk prime minister Arayik Harutyunyan, “produce and export tons of black caviar.”
Yet diaspora money is also birthing a small, but fast-growing, tech industry. Since 2012 Synergy International Systems has been operating in Stepanakert, employing 70 people alongside its Global Learning Center in Yerevan. Instigate Design, a design company also headquartered in the Armenian capital, has a presence in Stepanakert, as does software firm Synopsys.
“I think that Armenians have enough resources to develop an IT industry there,” says Papko. “IT is the industry which does not require heavy capital investments and can give quite quick returns.”
“Synergy invested over $1 million to open its technological facility,” says Tigran Grigoryan, a member of the region’s opposition National Renaissance Party. “But the problem is the lack of people going there. During all these postwar years, the technical knowledge has been lost.”
That could change with last September’s arrival of a branch of TUMO, Armenia’s center for creative technologies. The center, which Red Herring profiled last year alongside Armenia’s surging tech sector, has thrilled education experts worldwide, offering kids as young as 12 the chance to study courses including web design, digital media and game development for nothing more than a $25 deposit.
TUMO is “a big step” towards technological development,” says Armen Grigoryan, a Karabakh-born Yerevan resident, who works for mobile development firm e-Works. “The main problem of the Artsakh economy is that it doesn’t have big private sector.”
That, he adds, will help notorious corruption in the region, which is consistent with that across the whole of Armenia (the country ranks 95th of 168 on Transparency International’s Corruption Perceptions Index). “Since the ruling elites are very interconnected, the problem of corruption and oligarchization is omnipresent,” says Papko.
Beglaryan argues that graft is “not as influential as in Armenia or Azerbaijan…it’s more a problem of weak management.” TUMO, he adds, will help build a private industry parallel to the government and, perhaps more importantly, the Army – which remains the most powerful institution in a region at seemingly perpetual war. “TUMO doesn’t play a big role, because it started its work in September and it doesn’t have alumni and hasn’t affected the economy yet,” adds Beglaryan. “But in three-four years it will, and we will see how young people are prepared, talented and have much more passion in changing the economy.”
That drive is not lacking from a region used to struggle, adds Papko. “The very goal of Karabakh existence is to show that Armenians are able to fight,” he says. “In some way Karabakh is a decoration, a Potemkin village, a propaganda story.
“The Karabakh for Armenians is a symbol of their national pride, a Jerusalem.”