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World Bank Senior Economist Ihsan Ajwad on Employment Improvement Policies

Sustained economic growth in Georgia over the past two decades has helped reduce poverty and spread prosperity, with job creation playing a significant role. However, job creation is not keeping pace with economic growth, according to a new World Bank Report. CBW spoke to World Bank Senior Economist Mohamed Ihsan Ajwad for further details.

Please discuss policies to improve job outcomes.

There are several types of policies that we look at, and Georgia has a lot to build on. The areas that we are interested in are the ones that can increase the demand for labor, or how to increase job creation. We also need to think about the supply of labor: how can workers be better prepared for what is expected from them by employers?

To increase the demand for labor: more facilitation of trade could be important, providing more information to small and medium firms in terms of compliance with EU regulations, and trying to make it easier for firms to explore new markets. Another area that could be useful for firms is to not only innovate and create new types of products, but also produce those products more efficiently. On that, firms need to put much more of an emphasis. We need to link up with research institutions and universities, but also make it easier for them to actually allocate time and resources for research and development in the form of incentive programs. Those are some examples.

But also on a supply side: there are many things to be done, for example youth and women are relatively underrepresented in the labor force. They’re moving into inactivity, rather than into the labor market, so programs trying to incentivize them would be very useful. Access to quality child care may help women enter the job market. For youth, as well, who want to enter the labor market but don’t have the skills required by employers, it is important to align the education system with the needs of employers. So it’s a combination of things that need to be done. As you can imagine, the key point we need to make is that the jobs agenda is not the work of any single ministry, it’s actually a combination of ministries that need to play important role. Whether it’s education, labor or the economy, they all have to come together. It’s not just the government, but the private sector, as well. It’s also employers and labor unions: they all need to play a big role in thinking about how to improve job outcomes in this country.

We constantly see that poverty is halved, but still economic growth is slowing down. What causes this, from your perspective?

The overall story is quite a positive one. We’ve seen since about 2006-2015 very positive trends in economic growth, and poverty has been reduced quite a lot, that’s a very good story to tell. In more recent times we started to see a slight slow down, and that could be because of things that are happening regionally. For example, you have dropping oil prices, which affects some trading partners. It hasn’t been that significant, which is good, compared to some other regional partners. Overall, it’s positive on the poverty-reduction side.

Do you think it’s easy to launch a business in Georgia compared to other countries?

Georgia started (in the mid of 2000s) putting in place regulatory reforms to make it easier to start a business. These reforms really paid off: it is among the top 10 in the world (out of 190 countries), so it’s very easy to start business. There are a number of areas regarding doing business where Georgia does very well. What I think Georgia is lacking: many of these businesses that start don’t last very long. We need to put more emphasis on helping these firms survive and grow. That’s really the key for Georgia now, to help firms become productive. Right now, a lot of the companies shut down after five years. We need to help them turn into growing, bigger businesses.

What do you think makes them fail?

It happens all the time. You have a lot of people who start with an idea, and this idea is not a good one—this happens in many countries, so we shouldn’t be surprised. We need to think about the regulatory environment: does it help companies grow? If a small firm wants to expand, is it able to get the loan for that purpose? The second thing is: small businesses compete with other companies, including larger ones, but larger firms tend to be more established. They also have connections. Is it possible for small businesses to compete with giant companies? We need to ask difficult questions and try to get to the bottom of this.

What significance do foreign direct investments have in Georgia?

Georgia as a small country thinking about how to interact with the world, and the government has done a good job of improving the business environment. What Georgia needs is to give more incentives to companies relocating here. It is going to be difficult for some people to see foreign firms set up here, because that means you might see local companies disrupted as they face challenges from foreign firms. But it’s important to bring technology from different places, as you can learn a lot from this. Another factor is the shrinking labor force. Foreign companies can bring resources that might convince more Georgians to stay in the country, both because of a better job environment but also because it will become more innovative and more exciting to work here. Right now there are many reasons to live in Georgia, but there are also well-educated people who struggle to match their standards to the market’s.

Would you say that maybe we should search for solution in the educational system?

It’s certainly a big area to look at. I wouldn’t recommend that you focus on only one area, as jobs require a multi-sectoral approach. The educational system plays a big role in labor. All of these need to be done in conjunction: we need to make sure the budget is stabilized and inflation is in control. Think about it from an entrepreneur’s point of view: they need to be able to make predictions about how much to produce, how much to charge, and so many things come into play that it’s hard to pick one item. Everything needs to come together.

How would you summarize the new World Bank Report?

The key things we want to convey: Georgia has done a really nice job with regulatory reforms, and it’s great to see the private sector increase its employment. What we are worried about is that total employment in the last decade or so has been quite low. Given the growth that has happened, we were surprised that during times of economic growth, jobs haven’t been created. The second concern is that productivity has been increasing, but it’s still very low in Georgia. Relative to Central European countries, Georgia has about half of the productive value for each worker, and relative to European Union countries it’s four times lower. On the supply side, we are concerned because the workforce is shrinking. We need to think about how more people can be encouraged to work. Right now youth are falling into inactivity. By inactivity I mean: they are not at school, not at work or training, so they aren’t investing in themselves, and they are not doing anything from an economic standpoint. The skills that companies are looking for are in several areas. They are looking for technical skills, cognitive skills, mathematical, reading, memory and behavioral skills. Those skills are very important for employers, and they aren’t finding them among jobseekers. It’s important to put up a productivity ladder. Technical skills are important, as you’re capable of some specific task, but cognitive skills are very important for adaptation. These skills help you adapt to new products. Behavioral skills are so important, they’re not as emphasized as they should be. Everyone needs to come together from both the private sector and from the government, as well as from civil society to think about how to improve job outcomes. By this I mean lots of things: the number of jobs, quality of work, wages, whether workers are provided with social security. Georgia has done many important and difficult things already, and these are things that the country has to do as the next generation of reforms.

By Nina Gomarteli

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