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New economic strategy of Armenia: What it offers and misses

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Karabakh clan or Kocharyan and Sargsyan governments were able to protect itself from domestic pressure using victory in war in Nagorno-Karabakh and control over it as a  source of legitimization. With this strategy they were able to eliminate people’s discontent on economic and social problems.

According to 2016 data Armenia’s annual emigration rate was 4-5% of the whole population which were the highest in the world. Average monthly pension at the time was $90 and 20% of children under five years had health problems because of undernourishment (Opendemocracy, 2016). Along with these problems illegalities and high level of corruption made economic condition in the country even worst.

However, after the “Four-Day War” in 2016 in which Azerbaijan was able to return some strategic heights along the front, legitimacy of Sargsyan government came under the question. According to Armenian side during the war their military’s casualties reached 64 military servicemen, 13 reservists and more than 120 wounded (civilnet.am, 2 April). The  obvious superiority of  Azerbaijan army in the war de-stabilized political situation in Armenia forming base for “Velvet revolution” of 2018 that lead to change in government.

With the existence of escalated security concerns and constitutional change in 2015, that had to allow Sargsyan to serve as Prime Minister in the new system, population did not tolerated socio-economic problems any more and went to streets to carry out the coup ( hir.harvard.edu, 2018).

Despite good economic development indicators in 2017 (7.5% growth of GDP) Armenia still had high unemployment and undernourishment rates which was the result of high inequality (hkdepo.am, 2018). Along with political issues these significant social-economic problems also played important role in “Velvet revolution”.

After coming to power in order to solve economic problems Pashinyan’s new government introduced “revolutionary economic program” and adopted by Parliament in February of 2019without support of two opposition parties. Armenian government plans to eliminate extreme poverty by 2023, to increase exports to 43-45% of GDP by 2024 and achieve  economic growth at a rate of at least 5% annually(jam-news.net, February 15).

One of the provisions of the document was dedicated to formation of fair, transparent and free business environment. It this provision it was mentioned that one of the key factors impeding economic development is the existence of unfairness and impunity of a privileged class.

Program also puts high responsibility on Armenian citizens as the in discussions of the program  Pashinyan declared that effectiveness of this program will depend on how citizens will respond to our call and how many will take advantage of new of opportunities that  the revolutionary program proposes (eurasianet.org, February 15).

Despite purpose of revolutionize the economy addressing main economic problems document faced high criticism from different Armenian experts, politicians and activists. Most people criticize the document for not having concrete structure and steps and not outlining mechanisms and sufficient timelines to achieve proposed targets. During the parliament discussions some opposition politicians said that “Abstract concepts do not make an economic revolution” and citizens expect concrete actions which require political will, resistance, and knowledge (oc-media.org, March 2).

Another important criticism is about the approach of the government to put responsibility on citizens. It seems controversial that the people that fought for and elected new government will be responsible if the economic plan will not succeed. In the society where for many years responsibility of economic development and social security was mainly on the hands of government it is difficult to quickly adapt to new call of government. It is hard to imagine that without taking intermediate steps for making society and economic players ready for taking this responsibility the new economic plan will succeed.

New economic strategy also fails to address some of the main obstacles that businesses face in the country. First of all, high taxes prevents small businesses to operate efficiently and to compete with big businesses. Not coincidentally, during the parliament discussions of new economic strategy prime minister of Armenia asked businesses to print cash receipts in order to prevent formation of shadow economy (Arka.am, June 6). If all cash receipts will be printed then it will left most of small businesses without substantial earnings damaging business environment. It is better to decrease taxes before asking and expecting businesses to print receipts for all transactions.

Second unaddressed obstacle for businesses in Armenia is high interest rates of loans that play important role in financing businesses. Without providing necessary financial availability for small businesses it is meaningless to discuss any favorable business environment.

Taking in account that big businesses mostly belonged to Armenian oligarchs which have the opportunity to easily avoid high tax payments using their political power and are capable to pay loans with high interest rates new economic strategy mostly favors them (azatutyun.am, 2018). And within the existence of political problems in the country that threatens power of new government it is not realistic that government will go against these big businesses at least in short term.

Therefore, targets and directions determined in new “revolutionary economic program” are exaggerated and mostly serves for maintaining political stability in short term. If it will not meet expectations and determined targets in medium term it will create social discontent increasing pressure on new government. As the economic problems were one of the main drivers of “Velvet revolution” the effectiveness of new economic plan will play important role in securing political power of new government.

Orkhan Baghirov is a leading research fellow in Baku based think tank named Center of Analysis of International Relations. He is PHD candidate in Public finance and fiscal policy. His areas of research include regional and international economic relations.

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Economy

The Covid After-Effects and the Looming Skills Shortage

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coronavirus people

The shock of the pandemic is changing the ways in which we think about the world and in which we analyze the future trajectories of development. The persistence of the Covid pandemic will likely accentuate this transformation and the prominence of the “green agenda” this year is just one of the facets of these changes. Market research as well as the numerous think-tanks will be accordingly re-calibrating the time horizons and the main themes of analysis. Greater attention to longer risks and fragilities is likely to take on greater prominence, with particular scrutiny being accorded to high-impact risk factors that have a non-negligible probability of materializing in the medium- to long-term. Apart from the risks of global warming other key risk factors involve the rising labour shortages, most notably in areas pertaining to human capital development.

The impact of the Covid pandemic on the labour market will have long-term implications, with “hysteresis effects” observed in both highly skilled and low-income tiers of the labour market. One of the most significant factors affecting the global labour market was the reduction in migration flows, which resulted in the exacerbation of labour shortages across the major migrant recipient countries, such as Russia. There was also a notable blow delivered by the pandemic to the spheres of human capital development such as education and healthcare, which in turn exacerbated the imbalances and shortages in these areas. In particular, according to the estimates of the World Health Organization (WHO) shortages can mount up to 9.9 million physicians, nurses and midwives globally by 2030.

In Europe, although the number of physicians and nurses has increased in general in the region by approximately 10% over the past 10 years, this increase appears to be insufficient to cover the needs of ageing populations. At the same time the WHO points to sizeable inequalities in the availability of physicians and nurses between countries, whereby there are 5 times more doctors in some countries than in others. The situation with regard to nurses is even more acute, as data show that some countries have 9 times fewer nurses than others.

In the US substantial labour shortages in the healthcare sector are also expected, with anti-crisis measures falling short of substantially reversing the ailments in the national healthcare system. In particular, data published by the AAMC (Association of American Medical Colleges), suggests that the United States could see an estimated shortage of between 37,800 and 124,000 physicians by 2034, including shortfalls in both primary and specialty care.

The blows sustained by global education from the pandemic were no less formidable. These affected first and foremost the youngest generation of the globe – according to UNESCO, “more than 1.5 billion students and youth across the planet are or have been affected by school and university closures due to the COVID-19 pandemic”. On top of the adverse effects on the younger generation (see Box 1), there is also the widening “teachers gap”, namely a worldwide shortage of well-trained teachers. According to the UNESCO Institute for Statistics (UIS), “69 million teachers must be recruited to achieve universal primary and secondary education by 2030”.

From our partner RIAC

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Accelerating COVID-19 Vaccine Uptake to Boost Malawi’s Economic Recovery

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Lunzu market in southern Malawi. WFP/Greg Barrow

Since the onset of the COVID-19 pandemic, many countries including Malawi have struggled to mitigate its impact amid limited fiscal support and fragile health systems. The pandemic has plunged the continent into its first recession in over 25 years, and vulnerable groups such as the poor, informal sector workers, women, and youth, suffer disproportionately from reduced opportunities and unequal access to social safety nets.

Fast-tracking COVID-19 vaccine acquisition—alongside widespread testing, improved treatment, and strong health systems—are critical to protecting lives and stimulating economic recovery. In support of the African Union’s (AU) target to vaccinate 60 percent of the continent’s population by 2022, the World Bank and the AU announced a partnership to assist the Africa Vaccine Acquisition Task Team (AVATT) initiative with resources, allowing countries to purchase and deploy vaccines for up to 400 million Africans. This extraordinary effort complements COVAX and comes at a time of rising cases in the region.

I am convinced that unless every country in the world has fair, broad, and fast access to effective and safe COVID-19 vaccines, we will not stem the spread of the pandemic and set the global economy on track for a steady and inclusive recovery. The World Bank has taken unprecedented steps to ramp up financing for Malawi, and every country in Africa, to empower them with the resources to implement successful vaccination campaigns and compensate for income losses, food price increases, and service delivery disruptions.

In line with Malawi’s COVID-19 National Response and Preparedness Plan which aims to vaccinate 60 percent of the population, the World Bank approved $30 million in additional financing for the acquisition and deployment of safe and effective COVID-19 vaccines. This financing comes as a boost to Malawi’s COVID-19 Emergency Response and Health Systems Preparedness project, bringing World Bank contributions in this sector up to $37 million.

Malawi’s decision to purchase 1.8 million doses of Johnson and Johnson vaccines through the AU/African Vaccine Acquisition Trust (AVAT) with World Bank financing is a welcome development and will enable Malawi to secure additional vaccines to meet its vaccination target.

However, Malawi’s vaccination campaign has encountered challenges driven by concerns regarding safety, efficacy, religious and cultural beliefs. These concerns, combined with abundant misinformation, are fueling widespread vaccine hesitancy despite the pandemic’s impact on the health and welfare of billions of people.  The low uptake of COVID-19 vaccines is of great concern, and it remains an uphill battle to reach the target of 60 percent by the end of 2023 from the current 2.2 percent.

Government leadership remains fundamental as the country continues to address vaccine hesitancy by consistently communicating the benefits of the vaccine, releasing COVID data, and engaging communities to help them understand how this impacts them.

As we deploy targeted resources to address COVID-19, we are also working to ensure that these investments support a robust, sustainable and resilient recovery. Our support emphasizes transparency, social protection, poverty alleviation, and policy-based financing to make sure that COVID assistance gets to the people who have been hit the hardest.

For example, the Financial Inclusion and Entrepreneurship Scaling Project (FInES) in Malawi is supporting micro, small, and medium enterprises by providing them with $47 million in affordable credit through commercial banks and microfinance institutions. Eight months into implementation, approximately $8.4 million (MK6.9 billion) has been made available through three commercial banks on better terms and interest rates. Additionally, nearly 200,000 urban households have received cash transfers and urban poor now have more affordable access to water to promote COVID-19 prevention.

Furthermore, domestic mobilization of resources for the COVID-19 response are vital to ensuring the security of supply of health sector commodities needed to administer vaccinations and sustain ongoing measures. Likewise, regional approaches fostering cross-border collaboration are just as imperative as in-country efforts to prevent the spread of the virus. United Nations (UN) partners in Malawi have been instrumental in convening regional stakeholders and supporting vaccine deployment.

Taking broad, fast action to help countries like Malawi during this unprecedented crisis will save lives and prevent more people falling into poverty. We thank Malawi for their decisive action and will continue to support the country and its people to build a resilient and inclusive recovery.

This op-ed first appeared in The Nation, via World Bank

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An Airplane Dilemma: Convenience Versus Environment

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Mr. President:  There are many consequences of COVID-19 that have changed the existing landscape due to the cumulative effects of personal behavior.  For example, the decline in the use of automobiles has been to the benefit of the environment.  A landmark study published by Nature in May 2020 confirmed a 17 percent drop in daily CO2 emissions but with the expectation that the number will bounce back as human activity returns to normal.

Yet there is hope.  We are all creatures of habit and having tried teleconferences, we are less likely to take the trouble to hop on a plane for a personal meeting, wasting time and effort.  Such is also the belief of aircraft operators.  Add to this the convenience of shopping from home and having the stuff delivered to your door and one can guess what is happening.

In short, the need for passenger planes has diminished while cargo operators face increased demand.  Fewer passenger planes also means a reduction in belly cargo capacity worsening the situation.  All of which has led to a new business with new jobs — converting passenger aircraft for cargo use.  It is not as simple as it might seem, and not just a matter of removing seats, for all unnecessary items must be removed for cargo use. They take up cargo weight and if not removed waste fuel.

After the seats and interior fittings have been removed, the cabin floor has to be strengthened.  The side windows are plugged and smoothed out.  A cargo door is cut out and the existing emergency doors are deactivated and sealed.  Also a new crew entry door has to be cut-out and installed. 

A new in-cabin cargo barrier with a sliding access door is put in, allowing best use of cargo and cockpit space and a merged carrier and crew space.  A new crew lavatory together with replacement water and waste systems replace the old, which supplied the original passenger area and are no longer needed.

The cockpit gets upgrades which include a simplified air distribution system and revised hydraulics.  At the end of it all, we have a cargo jet.  If the airlines are converting their planes, then they must believe not all the travelers will be returning after the covid crisis recedes.

Airline losses have been extraordinary.  Figures sourced from the World Bank and the International Civil Aviation Organization reveal air carriers lost $370 billion in revenues.  This includes $120 billion in the Asia-Pacific region, $100 billion in Europe and $88 billion in North America.

For many of the airlines, it is now a new business model transforming its fleet for cargo demand and launching new cargo routes.  The latter also requires obtaining regulatory approvals.

A promising development for the future is sustainable aviation fuel (SAP).  Developed by the Air France KLM Martinair consortium it reduces CO2 emissions, and cleaner air transport contributes to lessening global warming.

It is a good start since airplanes are major transportation culprits increasing air pollution and radiative forcing.  The latter being the heat reflected back to earth when it is greater than the heat radiated from the earth.  All of which should incline the environmentally conscious to avoid airplane travel — buses and trains pollute less and might be a preferred alternative for domestic travel.

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