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Armenia: Human Capital Investments are the Key to Resilient Growth in the Era of COVID-19

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Photo Credit: World Bank Office Yerevan

Following the launch of the Human Capital Project in 2018, the government of Armenia and the World Bank undertook a systematic diagnosis of the constraints to human capital development. We report our findings in Survive, Learn, Thrive: Strategic Human Capital Investments Toward a More Prosperous and Inclusive Armenia, which identifies catalytic investments that can help Armenia’s children and youth compete in the global marketplace of tomorrow.

Fadia M. Saadah, World Bank Human Development Regional Director for Europe and Central Asia, reflects on the opportunity to build back better in the era of COVID-19 through human capital formation and activation in Armenia.

Q. What do you see as the main challenges facing human capital formation and activation in Armenia?

In many ways, Armenia has made significant improvementsin ensuring health and learning through access to services. Enrollment in primary and middle school is above 90 percent, 100 percent of childbirths are attended by a skilled health care provider, and improvements in targeting of social transfers have helped reduce poverty and increased access to education and health care in low-income households. Between 1990 and 2017, life expectancy increased from 73.3 years to 78.7 years for women and from 66.7 years to 72.4 years for men.

There is still room for improvement, however. Armenia’s Human Capital Index is 0.58, meaning that a child born today in Armenia would be 58 percent as productive as she could have been as an adult if she had enjoyed full health and had benefited from a complete education. Learning outcomes also vary widely by gender and income, high out-of-pocket payments reduce access to health care services, and labor market programs that are necessary to activate human capital are few and small-scale.

The gains of the past two decades are at risk because of the COVID-19 pandemic, which is projected to lead to a contraction of real gross domestic product of 6.3 percent in 2020. Poverty rates are projected to rise and competing needs for public spending will reduce fiscal space for health and education.

Q. What strategic investments do you recommend in the short and medium term for Armenia to confront the challenge of recovering from the COVID-19 pandemic while investing in human capital development?

The report highlights the importance of human capital investments for economic growth in Armenia. Given the COVID-19 pandemic, the objective of reforming health, education, social protection, and jobs systems is linked to the urgent task of increasing resilience to future shocks.

In the health sector, doing so will involve establishing comprehensive surveillance systems, investing in quality primary health care, and reforming health financing to ensure that people have access to services through a financing scheme that provides incentives to reduce out-of-pocket payments and improve health. COVID also revealed the important role for technology in the social sectors. Telemedicine and other digital tools, for example, offer opportunities to close gaps in physical access to care during and after the pandemic.

The COVID pandemic created challenge for and risks to learning outcomes, which will have long-term impact on human capital. There is an urgent need to recover the losses in learning. Health protocols that prevent the spread of infections will need to be implemented so that schools can reopen safely.

At the same time, Armenia will need to support teachers with training and other tools to provide high-quality distance learning. Counselling, academic remediation, and financial incentives can help keep children and young people enrolled in schools and improve learning outcomes.

To ensure that no families are left behind, Armenia can build on the successes of the social protection system through the integrated social case manager program, which links poor and vulnerable households with social services. Jobs are another vehicle for activating human capital. Continued efforts to equip the workforce with skills that match evolving labor demand and job-matching interventions are important. A range of mechanisms, including web-based jobs portals, can link job seekers to employers in high-productivity sectors.

The report follows the narrative of a hypothetical family, the Harutyunyan’s, whose health, learning, and employment outcomes significantly improve with the implementation of catalytic human capital investments. It shows that if Armenia ensured complete education and healthcare, long-run per capita gross domestic product could be 1.75 times higher than it is today. Armenia is an early adopter of the Human Capital Project, an indication of the strong political commitment to rise to the challenge.

Q. The World Bank has partnered with Armenia on landmark reforms since independence. How do you see the engagement evolving over the next few years?

The report provides a starting point for developing, planning, and financing an intersectoral agenda to harness human capital. The World Bank Group remains committed to providing technical and financial support for operationalizing and implementing this ambitious strategy. We highlight important areas of engagement in education, health, social protection, and jobs below.

Education: The ongoing Education Improvement Project (EIP) is supporting the government’s efforts to create a network of stakeholders for accelerating knowledge creation and innovation; teach students job-relevant skills; and remove barriers to labor market participation, through increased access to early childhood education and care in rural areas to support working mothers.

A project funded by the European Union (EU4Innovation Project) that is being implemented with World Bank support contributes to the government’s efforts to develop and pilot modern teaching approaches, with the potential to be scaled up where successful. The project will also help identify cost-efficient interventions to address bottlenecks that prevent students from enrolling and performing well in STEM (science, technology, engineering, and math) subjects.

Health: World Bank Group engagement in health dates to 1997, with the Health Financing and Primary Health Care Development Project. The ongoing Disease Prevention and Control Project (DPCP) supports the government’s efforts to strengthen the prevention, early detection, and management of selected noncommunicable diseases at the primary health care level and increase the efficiency and quality of selected hospitals.

The DPCP also facilitates the emergency procurement of equipment and supplies for case management, as part of the COVID-19 response. Officials at the highest levels of government in Armenia recognize the urgent need for investments in health services to improve quality and ensure that every citizen has access to essential health care.

Toward that end, the World Bank Group has worked closely with counterparts to engage on policy issues and provide technical support in areas such as reforms to improve purchasing decisions and public financial management, strengthen primary healthcare, ensure integration between primary and specialist care, and inform efforts to expand fiscal space for health. This support can inform the next generation of reforms in Armenia, a country that is considered an innovator in health reforms among the former Soviet republics.

Social Protection and Labor: The ongoing Social Protection and Administration Project (SPAP II) supports the government’s efforts to create integrated service centers; develop monitoring and evaluation systems to administer social protection programs; and establish a unified information system to facilitate program management, monitoring, and evidence-based policy and decision making.

Through the Japan Social Development Fund, the World Bank Group is working with the government to upgrade Armenia’s social case management methodology and operational procedures. It is also providing small business grants to poor and vulnerable individuals to facilitate their graduation from public support and self-sufficiency.

Ongoing technical assistance and policy dialogue will continue to support better targeting of social assistance; the digitalization of social protection payment systems; and policies to support the integration into the labor market of returning migrants, women, and other vulnerable groups. 

World Bank

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Eastern Europe

Education: Armenia’s Path to Stronger Economic Growth

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Better education and a stronger innovation drive are crucial for achieving higher rates of economic growth and prosperity in any country. Countries that prioritize improvements in education – from the pre-primary to the university level – and innovation are better positioned to adapt to economic change and help raise the living standards for their people.

Education equips individuals with the knowledge and skills necessary to contribute to the economy, with the ability to learn – and unlearn – continuously. Innovation involves the creation of new products, processes, and services that expand the capacity of enterprises and economies. In fact, the most innovative countries tend to be the most successful economically.

Take the case of Estonia. In 1993, Estonia’s GDP per capita was a modest about $6,480. In comparison, Japan’s was $24,000. Fast forward 30 years. Estonia’s GDP per capita was equal to that of Japan in 2022, at nearly $43,000. Estonia now boasts the highest PISA (Programme for International Student Assessment) scores in math, science and reading in Europe. A similar ‘miracle’ happened in Korea, a country that moved from developing country status to an advanced economy in just one generation. How can countries replicate Estonia’s or Korea’s success and achieve faster economic growth and standards of living that are like to those of high-income countries?

Through education and innovation.

Here in Armenia, education has been a priority since the country’s independence in 1991. The government has made efforts to increase the number of schools, provide free education for primary and secondary schools, and promote STEM (Science, Technology, Engineering, and Mathematics) education. As a result, Armenia has a high literacy rate of over 99% and over 60% of adults have completed at least secondary education.

Yet, the education system is not producing the needed outcomes. Children born in Armenia today will be only 58% as productive during their lives as they could have been if they had received quality health and education services available. Armenian children are expected to complete 11.3 years of schooling. This decreases to 8 years if the quality of education is factored in. Pre-primary school and secondary school enrollment is low compared to peer countries in Europe and Central Asia (ECA). It is the quality of education that is the most pressing concern. Armenia’s TIMSS mathematics score – a standardized test for children in grade 4 – is one of the lowest in the region. The quality of tertiary education is below the ECA average: it is nearly 30% lower than Georgia, and half as low as the new EU member states. These outcomes are not surprising, given that public spending on education is just under 2.7% of GDP in Armenia, which is half that of the EU.

The World Bank is helping Armenia improve its education system, including through the Education Improvement Project, which is enhancing the conditions for learning across educational levels by extending preschool coverage, providing laboratory equipment, informing curriculum revisions, and improving the relevance and quality of higher education institutions. The many outcomes of the project include new preschools in rural communities, training of preschool teachers, and grants to higher education institutions through the Competitive Innovation Fund. Under the EU4Innovation Trust Fund, the World Bank is also helping improve the quality of STEM education. By September this year, Armenia will have a fully revised STEM curriculum for middle and high schools (grades 5 to 12), improved learning materials, school-based STEM laboratories and as well as enhanced student-centered instructional methodologies/teaching methods.

Education is essential but alone is not sufficient to drive economic growth. How knowledge is applied by firms, researchers and workers through innovation is critical. In Armenia, there is a disconnect between education, research, and the link to entrepreneurs and markets. For example, academic research in Armenia is dominated by the National Academy of Sciences which comprises more than 30 separate research institutes. None of these institutes are formally integrated with any teaching university in the country. There is also a proliferation of universities in Armenia, with 26 public (state) and 33 private universities; many of the latter, in name only. In Denmark, a country with almost twice the population, there are only eight state-recognized and funded universities offering research-based education.

Consolidating the universities in Armenia, merging them with the research institutes, and focusing government attention on accreditation could help address some of these challenges. It is also essential to reform the university admission process to incentivize talented high schoolers to apply. The government could also support the commercialization of research. In many advanced economies, universities are prodigious producers of knowledge and basic research output, and the private sector, the user of this research, is very vibrant. Without practical application, research may have little impact on the country’s growth potential.

Extensive work by the World Bank shows that human capital is at the core of efforts to strengthen innovation and technology adoption. In Armenia, as in many other countries, human capital is one of the main binding constraints to growth.

While the government has taken significant steps and has initiated important reforms to promote both education and innovation, more is needed to realize their potential. By making a greater investment in education and innovation, Armenia can build a knowledge-based economy that can help the country deliver a development miracle and elevate standards of living to those of high-income countries. The dialogue at the recent panel discussion on “Growth, Education, and Innovation” could help policymakers in their efforts to transform education and innovation in Armenia.

This op-ed was originally published in Banks.am via World Bank

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Eastern Europe

The dilemma of China’s role as Mediator in the case of Ukraine

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Photo credit: Ju Peng/Xinhua

Since the full-scale Russo-Ukrainian war unfolding after 24 February 2022, China has maintained so-called neutral stance on the conflict, passively calling for a peaceful resolution. But on the anniversary of Russian invasion, Beijing popped up with concrete suggestions on how to end the war: China claimed its readiness to participate in peaceful adjustment.

Beijing’s peacemaking attitude and Xi Jinping’s legitimacy as Mediator were acknowledged by Putin during Xi’s visit to Moscow and the rumors about the following soon phone call between Xi and Zelensky spread, however, it is arguable whether Kyiv is truly ready to welcome China as the broker. The US, in turn, treated Beijing’s position skeptically.   

This piece elaborates on how China became Global Mediator of the 21st century and why now Ukraine is reluctant to accept Beijing’s brokering.

For starters, China is a realist actor across the domain of international relations. Kissinger states that Chinese leaders are making profound foreign policy decisions only when they do not lack the means to achieve the goals [Kissinger, 2010], hereby Xi knew that Beijing’s possible mediation between Moscow and Kyiv during first months of the war would not be realizable. The sides were not sincerely ready for a truce, neither Russia, occupied territories and continued advancements in Donbas, nor preparing counteroffensive Ukraine, backed by vast Western support.

Moreover, from realism perspective, peace achievement lies in accepting and adapting to the irresistible existence of powers involved in security competition [Mearsheimer, 2001] and peacemaking is most likely when there is no hegemon [Morgenthau, 1946].

China adhered tenaciously to aforementioned realist position by declaring that “the security of the country should not be pursued at the expense of others”, obviously referring to NATO’s strengthening and Russian lament about bloc’s eastward expansion. But such Xi’s mediation ceasefire proposition in the heat of the war would be found senseless by Ukraine and the USA, which were publicly committed to peace restoration by beating Russia on the battlefield and reestablishing liberal world order led by predominant power – the U.S.

Beijing had to prepare before ascending as Mediator between Kyiv and Moscow.

Firstly, China gained legitimacy as a global security provider. Ukraine fights for its land, but Washington made a geostrategic mistake by being directly involved in a confrontation with Russia: by imposing enormous economic sanctions on Moscow, tolerating Nord Stream pipeline sabotage and trying to end the Russo-Ukrainian war only by military means, not diplomacy.

While China proposes negotiations, the U.S. is only committed to the war continuation.

As a result, the USA lost worldwide recognized status as the sole provider of economic prosperity and global security; the unipolar liberal world order ideology became an American tool for maintaining the U.S. leadership and Western dominance at any price, despite the economic losses of others.

Therefore, some states, especially from the Global South, did not support American efforts to isolate Russia, perceiving Washington’s strategy as destabilizing. Instead, they opted for cooperation with China as an alternative planetary center within the uprising multipolar world order model; Beijing met the demand by launching Global Security Initiative, posing itself as a stabilizing Mediator.

Secondly, Beijing successfully proved its new status. China became broker between Iran and Saudi Arabia, helping two longstanding Middle East rivals to achieve reconciliation as well as détente, giving them solid security guarantees. Tehran and Riyadh restored relations without Washington’s participation and pleasingly deepened economic interaction with China.

Thirdly, concerning the Russo-Ukrainian war, Xi Jinping can become Mediator and repeat the historical brokering successes of pacification Russia achieved by such famous statesmen like Otto Bismarck and Theodore Roosevelt.

German “iron” chancellor, apologist of realpolitik, frequently played role of mediator among leading European nations in the 19th century, balancing their interests within spheres of influence. Balkans became one of such great states’ competition arenas, where Austria and Russia struggled to gain control over newborn Bulgaria and influence in the region. The war between them was prevented because Bismarck sagaciously established “League of Three Emperors”, through which mediated disputes between two empires, therefore he was known as “honest broker”.

American president contributed to halting the war between Russia and Japan in 1905. His wise brokering helped states to sign the Treaty of Portsmouth. Serving as mediator for combatants, Roosevelt induced two countries to make concessions on the most intense issues regarding reparations and territorial disputes, thereby sides reached peace.   

But while Putin acknowledges Xi as broker, Zelensky probably does not, due to Ukrainian survival dilemma – if Kyiv accepts China as a Mediator, it loses Western vital support.

Thus, there are three reasons why Ukraine is not enthusiastic about Beijing’s brokering, at least publicly.  

First, Zelensky has his own, approved by the West, peace plan. He wants Xi to take part in Kyiv’s “peace formula.” It assumes restoration of Ukraine’s territorial integrity and Russian troops withdrawal from occupied territories. Chinese “peace position”, on the contrary, suggests the immediate ceasefire and peace talks launch: frozen conflict, not total Ukrainian victory. Moreover, it does not stipulate the matter of Ukraine’s territorial restoration.  

Secondly, Ukraine is diplomatically, politically, militarily and economically dependent on the West, i.e. the USA. China, successfully mediating between Moscow and Kyiv, is the worst-case scenario for America, because intensifies Beijing’s global influence at the expanse of the U.S., which has different from Chinese stance on Russo-Ukraine war ending issue. The USA wants to preserve its worldwide leadership. Consequently, Washington will reduce its vital aid to Ukraine if China is chosen as broker. Kyiv needs to consider the stabilization puzzle, given the significantly suffered from the war economy.

Thirdly, Ukrainian ruling elite, opinion leaders and society are ideologically inclined as well as biased to accept West as only one party, which can help Ukraine to stop the war. NATO is seen as the sole security guarantees provider. Besides, there are many West-funded organizations and media outlets in Kyiv, influencing public narratives within Ukrainian society. So, even if Zelensky accepts mediation, economic support and post-war restoration plan from China, elites in Kyiv and Ukrainian society will oppose him, challenging his legitimacy. Zelensky risks repeating former president Yanukovych fate.

To sum up, it should be stated that China’s role as global security provider is inevitable, Beijing will continue to use its economic leverage to reconcile many conflicting rivals in the world. Thus, Beijing mediation option may be considered by Ukraine in the near future, but not today.

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Eastern Europe

Erosion of Russia’s Hegemonic Stability in the South Caucasus and Transition to Risky Instability

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Image source: kremlin.ru

In early nineteenth century, following the wars with Persian and Ottoman empires, Russia completed the invasion of the South Caucasus. The region that hosts present day Armenia, Azerbaijan and Georgia remained under the control of Moscow until the collapse of the Soviet Union in 1991, though the three countries were independent for a brief period after the World War I. Suppressing the independence movements in these countries along with the other parts of Russian Empire and later the Soviet Union in Eastern Europe and Central Asia, Moscow also acted as security provider in the region. In this role, Russia subdued conflicts between the subjects of the empire and also countered the intervention of external powers into “its” territories. This created a stability in the South Caucasus, as in other parts of the empire, dubbed by the theories of international relations as “hegemonic stability”.

In early 1990s, the Soviet Union collapsed and, subsequently, most of the newly independent states in the territories of the former empire ushered into inter- and intra-state conflicts. In the South Caucasus, Russia sought to manipulate and ultimately benefit from these flashpoints in order to preserve its influence over the region. Moscow’s support to Abkhaz separatists in Georgia and Armenia’s occupation of the Karabakh region of Azerbaijan in early 1990s helped the Kremlin recover its control over three countries of the South Caucasus. This translated into resurgence of Russia-dominated security order in the region in the post-soviet period but with more assertive independent states that sought to boost their sovereignty while minimizing Russia’s hegemony.

Armenia joined the Russia-led security and economic integration with a full membership at the Collective Security Treaty Organization (CSTO) and Eurasian Economic Union (EAEU). Azerbaijan, on the other hand, managed to build neutral and multilateral foreign policy and succeeded to resist Russia’s pressure thanks to economic independence of the country. The only country of the region, Georgia, that sought to escape Russian orbit and join the Eura-Atlantic political and military structures faced insurmountable obstacles on this path and remained in-between. Russia’s occupation of two regions of Georgia (Abkhazia and South Ossetia) in 2008 has served for the Kremlin as the Sword of Damocles over Tbilisi’s foreign policy.

The post-Soviet hegemonic stability in the South Caucasus has been, therefore, more volatile compared to earlier periods. The occasional military escalations between Baku and Yerevan along with the war in Georgia (2008) manifested such sporadic disruptions of the regional security order.  However, in both cases, Russia succeeded to act as hegemon by recovering ceasefire between Armenia and Azerbaijan and putting a de-fact veto on Georgia’s foreign policy.

Even during the full-scale military operations between Azerbaijan and Armenia in 2020, known as the Second Karabakh War, Russia appeared as the only mediator with enough authority to bring the sides to ceasefire. Deploying its troops to the Karabakh region of Azerbaijan under the name of peacekeepers, Russia managed to complete its mission of deploying its troops on the soil of each of the three countries of the region.

Hence, in the post-Soviet period, Moscow managed mostly to preserve the security order in the region under hegemony of Russia. The Kremlin, however, has had to swallow growing security ties between Azerbaijan and Turkiye, but reacted more calmly to these ties as Baku demonstrated deference to Russia’s core national interests and concerns in the region.

In the wake of Russia’s invasion of Ukraine in February 2022, Moscow’s dominance established over the South Caucasus in early nineteenth century came under jeopardy for the third time after the post-WWI and early years of the post-Soviet periods. Facing an unexpected military debacle in Ukraine and massive economic troubles at home, Russia encounters challenges against its dominance in the South Caucasus, the region that has overarching geopolitical significance for Moscow.

This time the challenge to Russian power originates in Armenia and Azerbaijan, as Georgia avoids provoking Moscow and seemingly drifts away from its pro-Western aspirations. On the one hand, Azerbaijan criticizes Russia’s support to the separatist regime in the Karabakh region, tries to end the mission of the peacekeeping contingent, deepens its strategic alliance with Turkiye, increases its contributions to the energy security of Europe, and relies more on the EU’s mediation in the peace process with Armenia. On the other hand, Armenia defies Russia’s authority by distancing itself from Russia’s military bloc, builds closer relations with the European countries and the United States and invited a mission of the EU to monitor the security situation along Armenia’s border with Azerbaijan. The Kremlin reacted rather furiously to these developments and blamed the West on attempts to squeeze Russia out of the South Caucasus.

To the disappointment of Moscow, this signifies a decline in Russia’s dominance over the region, although it is now premature to say how this process will go on and whether this will end up with Russia’s withdrawal from the South Caucasus. The decline of Russian influence over the region creates a period which can be seen through the lens of the power-transition theory of international relations. According to this conceptual framework, the decline of the dominant power might lead to a conflict or war with the rising power as the latter becomes more assertive seeking to challenge the dominance of the declining power. This can be observed also as the emergence of a power vacuum in the respective region which other powerful state(s) might try to fill in which again leads to a conflict or war between the dominant power and rising power(s).

The present situation in the South Caucasus, thus, resembles the period described by the power transition theory. Other external powers, including Iran, Turkiye, the EU and United States try to benefit from Russia’s diminishing influence over the region and increases their power. Particularly, for Iran, the “encroachment” of the external players into the South Caucasus is inadmissible. The Russia-Ukraine war complicated the regional geopolitics for Iran as the European Union (EU) and United States have increased their influence in the South Caucasus by boosting their mediating role in the Armenia-Azerbaijan peace process, effectively sidelining Russia therein and deploying a monitoring mission to the Armenia-Azerbaijan border in the aftermath of Prague summit (October 6). Against this background, increasingly closer relations between Israel and Azerbaijan and the emerging possibility of the formation of Israel-Turkiye-Azerbaijan trilateral cooperation platform further enrage the Iranian authorities.

Tehran is determined to use military and other instruments to fill in the power vacuum emerges in the region in the wake of Russia’s decline. In this endeavor Iran effectively enjoys the support of Armenia whose leaders try to use the Iranian card against their common enemies of Azerbaijan and Turkiye. The recently growing ties between Armenia and Iran have provided Tehran a useful chance to get into the South Caucasus more assertively and form a de-facto alliance against the two Turkic states. Towards this end, Yerevan and Tehran are clearly building up their cooperation in various spheres, including military and economy. Apart from aiming to boost bilateral trade turnover from $700 million to $3 billion, Iran is also discussing supplying combat drones to Armenia.

That said, the hegemony Russia acquired over the South Caucasus in early nineteenth century is fading and with it the security order it built in the region is rapidly eroding. This process might be accompanied by violent conflicts and wars amongst different regional and external actors. For now, the major security threat to the regional stability is Iran and the alliance it builds with Armenia.

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