As a result of the devaluation of the dollar (or valuation of the dram) expenses for companies working in the IT sphere have increased by 20-25%.

The chief executives of these companies are seriously concerned. The lion's share of their services are sold to foreign customers. The dollar sums received in exchange do not justify the expenses.

“We are suffering greatly from the devaluation of the dollar. We mainly sign dollar contracts with foreign customers. And since usually the contracts are long term, we receive less than the cost of the work provided, “ said Hovhannes Avoyan, CEO of Sourcio.

In the last two or three years the dollar has fallen by almost 200 drams – dropping from 540 it dropped to 381. According to Avoyan, this significantly affects small and medium businesses.

“Now when we sign new contracts we have to ask for more money from our customers. This will cause us to lose our competitiveness. The customers will start looking for partners in other countries, who would be willing to do the same work for less. And if we add other difficulties for doing business in Armenia, such as Internet and expensive travel, then it is becoming harder and harder to operate a business with profit, “ Avoyan said.

Sourcio (www.sourcio.com) is a IT consulting company, which specializes in open source technologies and offers services and solutions to small and medium enterprises. The company has established partner relations with Red Hat, Sun Microsystems, and Novell.

“In the beginning of the year we signed a contract with a customer, but now we have asked them to reevaluate our current agreement. This means we are creating a potential conflict for no reason. The work which could have been lucrative for us has now become unprofitable.The cost of implementing the contract has grown by 20-25%. This means that the more we work, the more losses we take, “ says CEO of Sourcio.

The dollar's fall worries big IT companies that are operating in Armenia as well. As a result of devaluation, parent companes are forced to spend more money to manitain their Armenian branches.

“All the big companies plan their expenses for at least a year ahead. And every unexpected event changes the business plan for that year. The instability can affect any company's performance indicators. Obviously, the majority of big IT companies are publicly held and their shares are sold on international markets. And the indicators affect the prices of the shares. Most shareholders, before making any investment, base their predictions on the performance numbers, “ said Andranik Hovhannisyan, head of Synopsys HLPA, the Armenian branch of Synopsys.

Synopsys provides software for designing semiconductors, as well intellectual property for designing chips. Thwe company has undertaken the construction of new headquarters, for which large sums of money were planned, which as a result of devaluation have now increased by 20%. According to Hovhannisyan, even for such a big company as Synopsys, this is a significant sum.

How to protect against currency risks

On November 2 the Enterprise Incubator Foundation organized a seminar on “Minimizing Currency Risks”. The invited guests suggested several solutions to the problem IT companies are facing.

In order to be protected against the fluctuations of foreign currency and manage adverse effects the experts suggested using hedge contracts.

Hedge contracts involve buying and selling foreign currency, but in the future. For example, suppose a company wins a six-month contract, which is priced in dollars. After six months it receives the previously agreed sum. But, because the dollar's value has fallen, this sum does not cover the expenses incurred during the six months. As a result, the contractor works more but earns less. What to do and how to minimize this risk?

“The bank can offer a hedge contract to the client. Which means that the client and the bank agree that in six months or in a year, no matter how much the dollar costs on the market, the customer will be able to sell dollars to the bank at the previously agreed price, “ explained Arman Potikyan, a representative of the Central Bank.

The price, the volume, and the date are stipulated in the contract. Obviously, the bank decides how much it will pay for the dollar in the future. Of course, there is no guarantee that in the future the dollar will not rise more than is mentioned in the contract. But bank experts insist that their job is not assisting the development of the IT companies, but only insuring their business.

“We only offer to insure the business from currency fluctuations. This will give the entrepreneur the opportunity to escape the instability, avoid unexpected losses, and work in a more or less stable environment. By hedging a certain sum, the entrepreneur can plan the expenses accordingly, “ says Karen Duryan, a dealer at Armswiss bank.

Today, Armswiss is ready to sign hedge contracts with clients to purchasing dollars in future for 376.47 drams. Currently the bid price for dollar in Armenia is 381-383 drams.