1. Pierre Gurdjian, André Andonian, McKinsey &Company Presentation on Armenia 2020 Conference Yerevan, October 25, 2003 Key Levers for Productivity Improvement in Armenia

2. ARMENIA'S ECONOMY HAS RECENTLY GROWN AT HIGH RATES, HOWEVER IT STILL REMAINS WEAK BOTH IN ABSOLUTE AND RELATIVE TERMS Nominal GDP 2002, USD billions PPP GDP per capita 2002, USD Real GDP CAGR 1999 - 2002, percent USA Germany China India Russia Turkey Israel Iran Singapore Romania Slovenia Paraguay Azerbaijan Georgia Armenia Average Source: Global Insight; EIU 36,146 24,317 6,800 16,724 17,225 3,730 27,361 2,924 2,900 3,200 5,540 3,135 6,114 5,608 7.72 4.70 6.03 4.07 4.21 0.03 10.35 9.11 2.14 1.35 1.38 1.78 3.39 3.58 3.58 10,445.0 1,989.0 1,237.0 514.0 349.0 182.0 102.0 91.0 88.0 45,0 21.0 5.4 6.2 3.4 2.4 8,280 4.19 3,850 Estonia 6.3 12,130 5.93

3. ARMENIA'S RECENT ECONOMIC GROWTH WAS LARGELY DRIVEN BY CONSTRUCTION AND RETAIL, FUELLED BY EXTERNAL FINANCING * Without FDI, includes remittance, grants, concessionary lending and limited capital transfers Source: McKinsey As a percent of GDP USD millions Real CAGR Percent 7.8 3.6 7.3 23.0 12.3 5.3 7.8 97 Total GDP Agriculture Industry Retail and wholesale Transport and communication Other services Construction 1,899 1,847 1,911 2,117 2,367 1998 1999 2000 2001 2002 External financing* 23.4 23.9 23.6 18.5 14.7

4. ARMENIAN EXPORT HAS GROWN SIGNIFICANTLY TOO, ALTHOUGH FROM VERY LOW STARTING LEVEL AND ON A NARROW BASE * On a net basis, given that the industry performs only intermediate processing Source: IMF,Armenia National Statistics Service, 2002 USD millions Real CAGR Percent 12.6 60.1 34.6 16.0 3.0 7.0 3.4 Total exports Precious stones and articles* Food products Base metals Mineral and chemical products Other Textile and apparel 183 161 197 247 294 1998 1999 2000 2001 2002 Exports as percent of external assistance Exports as percent of GDP 7 8 15 -6.9 Machinery & equipment 9.6 8.7 10.3 11.7 12.9 41.1 36.7 43.7 63.0 84.5

6. ARMENIA'S PROSPERITY LEVEL IN 2020 WILL STRONGLY DEPEND ON ITS CURRENT CHOICES PPP GDP per capita/USD Source: McKinsey Real growth CAGR, 2002-2022 1990 1994 1998 2002 2006 2010 2014 2018 2022 3,850 2,690 2,120 4,460 5 10 15 % Singapore model: Armenia becomes an integration champion and business hub for the region 12,560 8,340 6,600 10,340 5,040 6,1 9,270 7,920 6,900 5,900 Ireland model: Armenia consistently integrates with European structures, attracts increasing foreign investment 4,5 Israel model: Armenia relies mainly on Russia, sees slow growth of traditional sectors and little foreign investment 5,580 6,040 6,410 2,6 Paraguay model: Regional and internal instability stalls growth, some traditional sectors decline due to increasing competition 4,860 5,260 5,300 5,090 4,690 0,1

10. … WHILE ACHIEVING SIGNIFICANTLY HIGHER PRODUCTIVITY WILL BE POSSIBLE THROUGH FOCUSED INITIATIVES IN PRIORITY SECTORS Negative (-5-0% CAGR) High (5-10% CAGR) Sector Employment growth potential* Low (0-5% CAGR) High (>10% CAGR) Real productivity growth potential* Mining 1 Metals 2 Telecom 3 Tourism and restaurants 4 Construction 5 Banking and insurance 6 Food processing 7 Textile and apparel 8 Industrial machinery 9 Electronics and precision 10 Construction materials 11 Health care 12 Retail and wholesale 13 Jewelry and diamonds 14 Transportation 15 1 12 13 3 15 6 9 5 8 7 10 11 4 2 14 Low (0-5% CAGR) Medium (5-10% CAGR) 16 Software and IT Services 16 2003-2010 * Compared to current employment/productivity in the sector Source: Team analysis; World Bank; UNDP

11. … WHILE ACHIEVING SIGNIFICANTLY HIGHER PRODUCTIVITY WILL BE POSSIBLE THROUGH FOCUSED INITIATIVES IN PRIORITY SECTORS Sectors with highest total growth potential Negative (-5-0% CAGR) High (5-10% CAGR) Sector Employment growth potential* Low (0-5% CAGR) High (>10% CAGR) Real productivity growth potential* Mining 1 Metals 2 Telecom 3 Tourism and restaurants 4 Construction 5 Banking and insurance 6 Food processing 7 Textile and apparel 8 Industrial machinery 9 Electronics and precision 10 Construction materials 11 Health care 12 Retail and wholesale 13 Jewelry and diamonds 14 Transportation 15 1 12 13 3 15 6 9 5 8 7 10 11 4 2 14 Low (0-5% CAGR) Medium (5-10% CAGR) 16 Software and IT Services 16 2003-2010 * Compared to current employment/productivity in the sector Source: Team analysis; World Bank; UNDP

12. SOFTWARE AND IT SERVICES SECTOR: GDP* SHARE – NOMINAL Georgia US Germany Ireland Israel India Russia Estonia Armenia Iran Percent * GDP 2002 data consistently from Global Insight Source: US Census Bureau, RUSSOFT, NASSCOM, Enterprise Ireland, IASH, Bitkom, ANCI, ASIROS, Bilisim, Datamonitor, Sanaray, Global Insight Turkey 8.62 Western Countries IT high growth countries CIS countries Neighbor countries Software and IT Services sector plays important role in Armenia's economy

13. ARMENIA IS ALREADY AT A GOOD STARTING POINT FOR GROWTH IN SOFTWARE AND IT SERVICES AS PRIORITY SECTOR Productivity PPP - Percent of US level * MGI values: Germany scaled with GDP PPP = 2.06, India and Russia from in-depth MGI studies ** Ireland scaled with GDP PPP = 0.84; Israel playing equally on global market with US  PPP=1, Armenia: Exports at PPP = 1.5, domestic at PPP = 5.6 Source: US Census Bureau, RUSSOFT, NASSCOM, Enterprise Ireland, IASH, Bitkom, Datamonitor, Global Insight, MGI US Germany* Ireland** Israel** India* Russia* Estonia Armenia** n/a Western countries IT high growth countries CIS countries Armenia with good performance given quite young and rather fragmented sector

19. THE STRATEGY FOR SOFTWARE AND IT SERVICES SHOULD CENTER AROUND SIX KEY ELEMENTS REQUIRED FOR LONG-TERM SUCCESS Source: McKinsey Leverage country advantages Attract foreign investment Focus on target segments Provide govern- ment support Government to continue and constantly coordinate education programs for all educational levels 1 Government to become lead user of IT and provide growth enabling conditions 2 Actively attract key global player to position Armenia on global IT map 3 Set up dedicated agency to support domestic companies towards international markets 4 Associations to increase coordination and intensify communication with industry 5 Domestic companies to more actively pursue domestic and export expansion options 6