Author: Emil Lazarian

Dec. 8 (UPI) — Armenia and Azerbaijan have agreed to exchange prisoners as they recommit to normalizing relations with intentions of reaching a peace treaty, their two governments said.

The announcement comes months after Azerbaijan violently seized the breakaway Nagorno-Karabakh region from Armenia in a resumption of fighting that threatened to restart the deadly war of 2020.

A joint statement Thursday from the Office of Prime Minister Nikol Pashinyan of Armenia and the Office of President Ilham Aliyev of Azerbaijan states that following talks between the Caucasian nations, they have agreed to take "tangible" confidence-building steps, including the exchange of prisoners.

The countries said that "driven by the values of humanism and as a gesture of goodwill" Azerbaijan will release 32 Armenian military servicemen and Armenia will release two Azerbaijani soldiers.

"The Republic of Armenia and the Republic of Azerbaijan share the view that there is a historical chance to achieve a long-awaited peace in the region," the statement said.

"[The] two countries reconfirm their intention to normalize relations and to reach the peace treaty on the basis of respect for the principles of sovereignty and territorial integrity."

In another gesture of goodwill, Armenia said it will also support Azerbaijan's bid to host the 29th Session of the Conference of Parties, better known as the COP29 United Nations climate change conference, by withdrawing its own candidacy.

And in turn, Azerbaijan said it will support the Armenia's candidacy for Eastern European Group COP Bureau membership.

The development was welcomed by the United States, which commended Aliyev and Pashinyan in for their efforts "to lay the groundwork for a more peaceful and prosperous future for the people of the south Caucasus," State Department spokesman Matthew Miller said in a statement.

Charles Michel, the European Union's top diplomat, said he was "delighted" to welcome the "major breakthrough" in Armenia-Azerbaijan relations.

"Establishing and deepening bilateral dialogue between sides has been a key objective of the [EU]-led Brussels process: today's progress is a key step," he said in a statement on X, formerly known as Twitter.

"I now encourage the leaders to finalize the [Armenia-Azerbaijan] peace deal ASAP."

EU chief Charles Michel on Thursday hailed a "major breakthrough" in relations between Armenia and Azerbaijan after the arch-foe Caucasus neighbours agreed to exchange prisoners of war and work towards normalising ties.

"Delighted to welcome a major breakthrough" in relations, Michel wrote on X, formerly Twitter. "Welcome in particular release of detainees and unprecedented opening in political dialogue."

The EU appears set on including prohibitions on the sale of Russian diamonds in its upcoming 12th package of sanctions against Moscow over its invasion of Ukraine. 

The move, aimed at exerting pressure on Russia's economy and depriving it of financial resources to wage its war, is certain to have an effect on Armenia's important and growing diamond-cutting industry. 

Whether that effect is negative or positive will depend on how the EU will manage the difficult task of tracing cut diamonds to their rough origins in Russia's mines. 

Helpful or harmful?

The proposed sanctions, adopted by the European Commission and awaiting approval from the EU's 27 member states, will apply to diamonds of Russian origin that are cut in third countries, according to the AFP, which viewed a copy of the document.

Starting January 1, the ban would apply to "non-industrial natural and synthetic diamonds as well as diamond jewellery" while the import ban on Russian diamonds cut or polished in third countries would be phased in between March and September, AFP said.

The bans will affect Armenia's diamond-cutting industry, which gets a large proportion of its raw gems from Russia. They are purchased by the Armenian state company Hay-Almast, which was established in 2021 chiefly to enable bulk procurements from Russia's Alrosa, which is one of the world's largest suppliers of rough diamonds. 

"The whole idea behind creating Hay-Almast was to consolidate domestic demand and procurement of Russian rough diamonds, as Alrosa doesn't do small orders," said Hay-Almast director Tigran Khachatryan. 

Khachatryan told Eurasianet that EU sanctions would definitely have an impact on Armenia's diamond-cutting industry, but he found it difficult to speculate how.

At first glance it's hard to imagine that impact being anything other than harmful, since, according to Khachatryan, Hay-Almast buys 30-40 percent of its rough diamonds from Russia (the rest coming from various other countries, including in Africa).

Armenia's diamond-cutting industry has grown by leaps and bounds in recent years, attracting major foreign investors like India's KGK Diamonds. And with that growth has come a growing need for Russian raw diamonds. 

Armenia's total export of cut diamonds in 2022 totalled $418 million according to Armenian Customs Service statistics. That's four times the number for 2021. Growth has continued this year, though not quite at the same pace: $240 million of cut diamonds were sold in the first six months of 2023. (Cut diamonds ranked third among Armenia's exports for that period, coming in behind gold at $281 million and re-exported cars at $311 million.)

But some are pinning hopes on the prospect that Armenian diamonds of Russian origin will not be identified as such. 

"The new EU sanctions could have various kinds of effects on the Armenian diamond industry," a source in the Armenian government told Eurasianet on condition of anonymity. 

"The whole issue is how strictly the movements of Russian rough diamonds around the world will be monitored and how it will be determined whether a diamond cut in Armenia or some other country is of Russian origin or not."

In this context, the export/re-export supply chain will be a factor. Most Armenian cut diamonds of Russian origin are first sold to the United Arab Emirates and then find their way around the world from there.  

Banking on re-exports

Armenia has already seen economic growth from booming re-exports over the last two years.

Since the start of Russia's full-scale invasion of Ukraine early last year, Armenia's trade with Russia has grown severalfold thanks precisely to re-exports of goods like cars and household items that Western producers had supplied directly to Russia before the war. 

Finance Minister Vahe Hovhannisyan recently acknowledged the central role played by re-export in the overall structure of Armenia-Russia trade. He said that while exports to Russia were up 215 percent for the first half of 2023 compared to the same period last year, re-export accounted for 187 percentage points of this growth while exports of Armenian products accounted for just 28 percentage points. 

Sanctions enforcement difficulties

As the AFP noted, the origin of diamonds can easily be obscured by mixing them with stones from other sources. And they change weight and appearance as they are cut and polished. 

This, coupled with the gems' small size, means it will be exceedingly difficult to enforce sanctions against their circulation. 

In the absence of a sophisticated tracking system, a diamond that is mined in Russia, cut and polished in Armenia, and exported to the UAE will be hard to trace to its origin, experts say.

So if, as seems likely, enforcement is weak, it's possible to imagine a boon for the Armenian diamond-cutting industry. As other markets close to Russian rough diamonds, more of them could enter Armenia, whose exports of cut diamonds would consequently go up. 

One could imagine this developing into a scheme resembling the one under which India purchases Russian oil, refines it, and then sells the resulting fuels onward to Europe.  

"Purely theoretically, we could see a growth in supplies of Russian rough diamonds to Armenia for processing and sale to other countries. But we must be careful, as this could be seen as another attempt by Armenia to help Russia evade sanctions," economist Armen Ktoyan said in an interview with Eurasianet. 

Ktoyan further noted that, while the diamond processing industry is showing impressive growth, Armenian businesses are not seeing much of the profit. 

"Most of the profit goes to international companies involved in moving and selling this product on global markets. So one should think long and hard before betting on growth in the inflow of Russian rough diamonds and making new investments in this sphere," he said. 

Mitigating risks

Meanwhile some in Armenia are focused on the risks posed by the sanctions and see a need to diversify the country's rough diamond importers. Doing so would protect the diamond-cutting industry from a rapid decline should there at some point be a total (and enforceable) ban on Russian rough diamonds. 

The industry already experienced a sharp drop in raw materials in the mid-2000s. At that time production and exports took a dive both because of stronger global competition and because of a strengthening of the Armenian currency, the dram, against the dollar and euro, which drove up the cost of exports

Tigran Khachatryan, the director of the state raw diamond procurement company, says Hay-Almast has been talking for several months now with a potential new supplier. 

He refused to say who it is but expressed optimism that a deal will be reached. 

"We are halfway there in our talks with the new supplier. We hope to have a result soon," he said. 

Armenia shot from relative obscurity to global prominence recently over tensions with neighboring Azerbaijan. But there is another reason to pay attention to this rugged, mountainous country: it’s fast evolving tech sector.

It has emerged as a tech powerhouse with the presence of global players and a vibrant startup ecosystem. And while the country remains politically close to Russia and Iran as a counterbalance to hostile neighbors on the west (Turkey) and the east (Azerbaijan), it’s private sector remains firmly fixed on the West, particularly the United States with its near million-strong Armenian diaspora.

“We consider ourselves a network nation,” said Rem Darbinyan, founder of a startup called Viral Mango, which matches brands to influencers around the world. “We have generations of Armenians living overseas.”

In October, Adobe CEO Shantanu Narayen was in the vibrant capital Yereven to speak at the country’s Silicon Mountains conference and open a new Adobe building. Across town, dozens of startups displayed their innovations at the annual Digitec expo. Already, the small, landlocked country has produced one unicorn (Picsart) with more on the way.

With the snowcapped summit of distant Mount Ararat – the Armenian national symbol that rises across the border in Turkey – visible on clear days, Yerevan is filled with sophisticated restaurants crowded with tables of young tech entrepreneurs drinking apricot brandy and eating platters of stuffed grape leaves as they discuss the latest innovations.

Various indexes show Armenia as the emerging tech powerhouse of the Southern Caucasus region, a legacy of its role as one of the Soviet Union’s top technology centers – the USSR’s first general-purpose computers were developed there in the early 1960s

That history faltered during the breakup of the Union and the subsequent war with Azerbaijan to define Armenia’s national borders – a conflict that continues to reverberate today. But, Armenia recovered and has drawn on the success of its diaspora in the United States to become one of the strongest economies in the region.

People like Noubar Afeyan, co-founder of biotechnology powerhouse Moderna, Alexis Ohanian, co-founder of Reddit and Avie Tevanian, former CTO of Apple and creator of the macOS operating system, have all remained connected to the country.

Following its independence in 1991, Armenia began developing as a behind-the-scenes builder of software for Western companies, many founded by Armenians. But gradually, it has climbed the value chain to produce products of its own.

That trend only accelerated with the outbreak of Russia’s war with Ukraine which drove companies from both countries to relocate to Yerevan. The subsequent influx of capital drove up the Armenian dram against the dollar, hurting the competitiveness of the country’s outsource industry. Meanwhile, a small venture capital industry coalesced to fund tech development and today startups can raise as much as $1 million domestically before turning to VCs abroad.

Consequently, the country’s economy is booming – with projected 7 percent growth this year, according to the International Monetary Fund, making it the fastest growing economy in the region.

Many places in the world have developed technology hubs and startup ecosystems, but for Armenia it’s a matter of survival.

“The future of Armenian economic development in science-based, high-margin products,” the country’s minister of high-tech industry, Robert Khachatryan, told Forbes. He explained that because the country is landlocked, logistics costs mean it cannot export physical goods at competitive prices.

The tech industry is now the country’s the fastest-growing sector, expanding by more than 30 percent in 2023, surpassing resource extraction and agriculture as the primary drivers of the economy. And it is drawing foreign investment. Besides Adobe, many of the world’s most powerful technology firms have set up shop there, including Microsoft, Google, IBM and Cisco.

Artificial intelligence, of course, is the hot technology on offer. Picsart, a photo and video editing platform launched in 2011, has a team of data scientists building the company’s own generative AI foundation model. Krisp, a more recent startup, uses artificial intelligence to change the accents of Filipino and Indian English speakers in real time into plain midwestern U.S. pronunciation – a product it markets to call centers serving North America.

At the DigiTec expo, dozens of startups displayed their AI wares, from Viral Mango with a platform that matches influencers to brands, to Orders.co whose AI software, at the touch of a button, creates interactive menus for restaurants who want to integrate with food delivery services.

Armenia was late getting on the AI bandwagon but is catching up fast. While the country’s university system was strong on math, there were few machine-learning faculty available to guide students in 2016, when machine learning was already sweeping computer-science departments in the west. Hrant Khachatrian, a young researcher, and four friends rented an apartment in the capital and huddled around a single GPU to start exploring on their own.

The community and number GPUs grew into one of Armenia’s first AI labs: YerevaNN. By 2019 YerevaNN was publishing papers in top AI conferences, including Computer Vision and Pattern Recognition Conference (CVPR).

Universities began catching up, establishing graduate programs in AI. Today, Khachatrian is working with Yerevan State University to fold YerevaNN into a new AI lab being set up by the university, finally giving students there a place to conduct research.

The AI research community in Armenia has grown to over 600 people. However, a lack of compute resources threatens its competitiveness. GPUs are hard to come by and expensive when they are available.

That’s where the private sector comes in. Venture capital and Western connections among the country’s entrepreneurs are helping startups build products despite the hardware constraints.

"We now have venture funds in Armenia,” said Narek Vardanyan, CEO of Prelaunch.com, a validation platform creators can use to gauge market demand for their products before developing them. “Previously, Armenian companies had to go to Silicon Valley, for early-stage funding, we can raise $2 million to $3 million with Armenian funds."

The community is also focused on building human capital with private initiatives such as Armath (a contraction of Armenia and Math), sponsored by the Union of Advanced Technology Enterprises (UATE), which runs engineering labs across Armenia for students as young as 10.

At a village school in the countryside north of Yerevan, bright-eyed middle-school students gather in a classroom to demonstrate their projects – one, a shoebox-sized ‘smart home,’ with a keypad lock, smoke detector and automated lighting cobbled together with sensors, LED lights and bits of wire. Along a windowsill, a row of potted plants are fed by a student-built automatic irrigation system. The students, meanwhile, work at monitors attached to pocket-sized Rasberry Pi computers.

“In Armath, everything is open source and it’s all project-based learning," explained Arevik Hovhannisyan, a teacher. "The goal is to have the kids understand the basics of engineering, and maybe decide to become an engineer."

Armath works as a public-private partnership – companies sponsor the labs, which are then donated to schools where local government pays for their operation. So far, UATE has established more than 650 labs across Armenia and exported the model to several other countries.

In the far north of the country, sandwiched between steep mountain slopes, students at another program gather in the evening for folk dances and to show off their projects. This is Real School, another UATE initiative, a four-year vocational program for high schoolers, giving them hands on experience building technology solutions.

Back in the capital, kids 12 to 18 can attend TUMO, an extracurricular bootcamp where they learn to program and build software. The interior feels more like a well-funded tech company than a school, with custom-designed workstations on wheels and a carpeted, amphitheater-style meeting place. “We show them that everything can be created by them on their own,” said Zara Budaghyan, a TUMO graduate herself.

Another initiative, AI Generation, hopes to embed machine-learning education in high schools across the country. Initially funded by Moderna cofounder Noubar Afeyan, AI Generation already has hundreds of students enrolled in high schools in 16 cities hoping to develop artificial intelligence researchers and engineers.

“We want to show Armenian tech ecosystem on the map of like world market,” said Sargis Karapetyan, a tech entrepreneur and UATE’s interim CEO, adding that the country needs more outside capital. “Another target are people who are looking to open branches in Armenia, to expand and find good talent.”

Craig S. Smith is a former correspondent and executive at The New York Times. He is host of the podcast Eye on A.I. 

https://www.forbes.com/sites/craigsmith/2023/12/08/soviet-mainframes-to-silicon-mountains-armenia-as-a-tech-powerhouse/?sh=7082ce4734aa

Azerbaijan is tipped to host next year's UN climate summit, after striking a late deal with longtime adversary Armenia over its bid.

Diplomatic sources told Reuters the Azeri bid looked set to win support from other nations, though the issue is still being negotiated at the COP28 climate summit in Dubai.

The decision over who will take over from current COP28 host, the United Arab Emirates, has been in an unprecedented geopolitical deadlock, after Russia said it would veto any European Union country's bid to host. The EU has sanctioned Moscow over its invasion of Ukraine.

Azerbaijan confirmed late on Thursday it had struck a deal with Armenia that allows Baku to bid to host the COP29 talks without the threat of an Armenian veto.

The choice of a COP host needs support from all countries in the UN eastern Europe regional group.

"We received particular support from most of the countries [in the eastern European group]. Russia has also supported our bid," Azerbaijan's Ministry of Foreign Affairs spokesperson Aykhan Hajizada said on Friday.

A representative for Russia's delegation at COP28 declined to comment. Russia's Energy Ministry did not immediately respond to a request for comment.

Armenia agreed to back Azerbaijan's COP hosting bid in exchange for membership of the eastern European group's COP bureau.

The two Caucasian countries have been in conflict for decades, most notably over the region of Nagorno-Karabakh, internationally recognised as part of Azerbaijan but largely populated and controlled by ethnic Armenians. The region had been controlled by its ethnic Armenian majority until it was recaptured by Azerbaijan in September.

Diplomatic sources at COP28 told Reuters other eastern European countries are expected to back Baku's bid to host – even though Moldova had also made a bid and Serbia was mulling one.

Diplomats are racing to find a deal before COP28's scheduled end on 12 December.

The deadlock over the host has left next year's COP29 summit host with little time to prepare for the massive gathering – which can bring its host nation diplomatic prestige, as well as heavy scrutiny over its own record in fighting climate change.

Azerbaijan is an oil and gas producer and a member of OPEC+.

The United Arab Emirates has faced criticism for appointing Sultan al-Jaber, the head of its state-run oil company ADNOC, as president of this year's COP28 summit.

Some delegates at COP28 have raised concerns about holding the world's climate negotiations in an oil producer for a second year running.

"I do understand these concerns," Hajizada said.

"Despite the fact that Azerbaijan is rich in oil and gas, Azerbaijan's strategic goals are the diversification of energy, resources, especially applied to wind and solar energy," he said. 

(Reuters)