Investments in human capital development could bring $43.6bln added  value to the country`s economy - Tigran Jrbashyan

ArmInfo.In an interview with Civilnet, Tigran Jrbashyan, Partner, Director of Management Advisory  at Ameria Advisory, speaking of Armenia's demographic future, stated that AMD 2,600bln (about $6bln) investments in human capital development could bring $43.6bln added value to the country's  economy. 

The expert noted that an extensive factual base was studied as part  of the study conducted to form the Demographic Strategy of Armenia.  At the first stage, population data was used starting from 1897,  subsequently the data of recent years were updated based on the 2022  population census. "We made calculations, including taking into  account the deportation of the Artsakh people, and prepared two large  studies. In the first, we tried to understand the reasons for the  formation of the current demographic structure of Armenia and  identify the factors influencing the situation. We discovered many  important connections in the demographic history of the population of  Armenia, for example, an interesting phenomenon associated with the  elderly population. It turned out that people born during World War  II live longer and healthier. This phenomenon is also observed in  other countries that participated in this war. The reason for such  results is the so-called "negative selection", since weak children  died more often during that period," the expert explained.

The second study, according to Jrbashyan, was aimed at studying the  impact of demography on various spheres of human life, from politics  and security to education, territorial development and the healthcare  system.

"By linking demography with various aspects of human life, we  understand how demographic indicators influence various  socio-economic trends in the country. The research lasted a year and  served as the basis for developing proposals to improve the  demographic situation," the expert added.

Jrbashyan emphasized that the Armenian public has prevailing  stereotypes regarding the demographic problem. In particular, low  birth rate and migration are presented as the main demographic  problem of the country. In reality, the main problem lies in changes  in the quality of human capital in the structure of Armenian society.  According to the expert, the expected changes in the age and gender  structure of the population of Armenia lead to a situation where  society will be forced to direct more and more resources to support  the older generation, the number of which is growing sharply. This  process in world demography is called population aging. The observed  processes of population aging in the region (including Armenia) will  lead to an inevitable redistribution of resources in favor of the  older generation. "For the first time in Armenia, we have developed a  system of accounts based on the methodology of National Transfer  Accounts (NTA), an innovative tool for modeling and justifying  development strategies and assessing socio-economic efficiency - Ed.)  and modeled the total income and consumption of age groups of the  population for the period from 2022 to 2050. In 2022, 61% of the  country's resources intended for redistribution were directed to  young people (including 47 percentage points for children under 18),  mainly for expenses related to health care and education. And only  39% of these resources were directed to the needs of the older  generation (including 24 percentage points for the population over  65). In 2050, this situation will change dramatically. We will direct  42% to people over 65, because there will simply be a lot of them,  and only 33% to children under 18. This means that there will be a  degradation of human capital in society," the expert explained.

According to the expert, the aging population will negatively affect  the labor market and lead to economic stagnation. At the same time,  this problem affects almost all countries in the world that are faced  with the phenomenon of an aging nation. Society is getting older, and  the ratio of the working population to the non- working population is  changing. "As for the decline in the birth rate, this is a global  phenomenon. There is practically no country where the birth rate is  growing. There are countries where the birth rate has fallen below  2.1 - the replacement rate, and there are countries where this rate  is still higher than the replacement rate, but is also declining. The  country with the lowest birth rate is South Korea, where it is 0.7.  The country is experiencing negative natural population growth. They  had some hope for North Korea, but even there the rate began to  decline to 1.9. In China, the birth rate has already decreased by 10  million people per year. Some countries still have a birth rate above  2.1 - for example, India, Nigeria, Ethiopia, Indonesia.  However,  demographers assume that after 2060 the planet's population will  decline, and there will be almost no countries left where this  phenomenon will not occur," Jrbashyan noted.

He emphasized that the reasons for the decline in birth rates are  urbanization, the changing role of women, economic transformation,  and the need for fewer resources in agriculture. For example,  urbanization in Armenia, as in the world, especially intensified in  the 20th century. During the Soviet era, Armenia, like other  republics of the USSR, experienced rapid industrialization, which led  to significant urbanization.  Mainly due to agricultural policy, the  migration of the rural population to the cities increased.   Industrialization in rural areas led to an excess of rural  population, which went to the cities to provide employment. After  gaining independence, the process continued with renewed vigor. The  decline of Soviet industry led to a decrease in the role of cities in  the regions, which led to the migration of both urban and rural  residents of the regions to Yerevan or abroad. This led to the  dominance of Yerevan, which creates other problems for the management  of both the city and the entire country.

Jrbashyan emphasized that one of the important phenomena that has  taken place in the country over the past 30 years is migration. It  has had a significant impact on the structure of Armenian society,  since it was mostly young people who migrated, who are the key source  of labor force, which further aggravated the problem of population  aging in Armenia. The reduction in the number of young people also  affected the growth of the birth rate. "It does not matter what the  population size of the country will be, what is more important is its  structure. The number is already the result of the structure. First  of all, we need to think about the demographic structure, which will  contribute to the development of human capital. The demographic  structure means the ratio of sexes and age groups. In this regard, it  is very important for us to consider the phenomenon of selective  abortions in our society. As a result of selective abortions, by 2030  there will be approximately 90,000 "missing women" in Armenia - women  who should have been born, but were not born due to abortions based  on gender preference," Jrbashyan explained.

However, the expert emphasized that today Armenia is considered a  country with the most optimal Demographic Strategy in the region,  which is aimed at creating a balanced and sustainable demographic  structure by 2040 and can become an impetus for the development of  human capital. To implement this approach, specific goals were  formulated in the Strategy.

"We have data that the average income of households with children is  approximately 70% of the average income of households without  children. It is necessary to review the family planning strategy,

Reform the birth rate, pregnancy and child care system. Armenia is  still a society where the desired number of children exceeds their  actual number," the expert explained.

Touching upon the experience of providing financial incentives for  the birth of children, both in Armenia and in other countries, the  expert noted that this also led to the fact that 59% of families with  more than four children live below the poverty line.

"We have 7-10 years to change the situation and make the child a  welcome member of the family again.  We have proposed another model.  Employers should not see risks for business due to pregnant workers,  on the contrary, the presence of pregnant workers in companies should  be rewarded by returning part of their income tax to the employer. We  also propose to abolish the benefit system and replace it with the  status of public/state service. This means that people who will take  care of the child, be it parents, grandparents, enter into an  agreement with the state and receive a salary, being equal to civil  servants. All expenses included in this strategy are essentially  investments. Moreover, investments in human capital are the most  effective investments," Jrbashyan added

The expert then noted that the third idea is active aging. As  Jrbashyan noted, over the past 50-60 years, compared to previous  periods (both in the world and in Armenia), people have become  healthier, eat better and live longer, but the system does not use  this opportunity. It is necessary to create opportunities for the  older generation to continue working, and not send them into  retirement just because of their age. "The idea is that aging is not  a burden. These people can still create added value for society,  remaining socially active and healthy. This is a very important  direction that reduces the burden on society," the expert explained.   The expert also touched upon migration flows: both immigration and  emigration. "Here we must also destroy the stereotypes that exist in  our society. We believe that immigration and emigration should be  based on a qualitative change in human capital. It is very important  for us to use the potential of our diaspora and influence our  internal resource, the quality of our human capital, through  migration," Jrbashyan emphasized.

The implementation of the Strategy over 17 years will require 2.6  trillion drams (about 6 billion dollars), divided into two periods:  until 2030 and until 2040. "Until 2030, the main focus will be on the  birth rate, that is, on supporting families who want to have  children. As a result, more than 60,000 children may be born during  this period. About 630 billion drams will be spent during this  period. 63% of the funds will be directed to the first goal of the  strategy, and 16% to the third - active aging. In the next 10 years,  the proportionality will change. 52% will be directed to the first  goal, and 30% to the older generation so that they remain active in  the work cycle," said the head of the Ameria management consulting  service.

He also emphasized that the Strategy should not be something  unchanged until 2040, and may be adjusted depending on various  factors. The process of implementing the strategy will be constantly  monitored by specially selected monitoring indicators, of which there  are about 300. If fundamental changes in the environment with a  potential impact on demographic trends in Armenia are identified, the  strategy should be revised. For example, if the conflict between  Israel and Lebanon escalates, the strategy should be revised. The  same applies to opening borders, implementing peace initiatives or  other changes in global or regional politics. According to the  expert, the four main pillars of the strategy (creating a prosperous  family for the development of human potential, reducing risks and  supporting health, ensuring an active and dignified old age and  reducing the causes leading to migration) will remain unchanged, but  the means for their implementation may change depending on new  external factors. "As a result of these changes, by investing 2.6  trillion drams (about 6 billion dollars) until 2040, we will receive  43.6 billion dollars of added value in our economy. There are no more  effective investments than this in other areas," Jrbashyan concluded.