On 17 October Sebastian Molineus, World Bank Regional Director for the South Caucasus wrote an article for georgiatoday suggesting how Armenia, Azerbaijan and Georgia could mitigate the risks from shocks and ensure sustainable poverty reduction.

Molineus based his suggestions on the World Bank report “South Caucasus in Motion” published in January 2019. The report states that since the collapse of the Soviet Union, the countries of the South Caucasus have achieved important progress in poverty reduction and economic growth. However, the benefits have not been equally shared in every part of these countries.  A clear division between capital cities, secondary urban centres, and rural or hinterland areas is evident. As a result, growth within countries has not been equal. Geographical isolation and lack of connectivity, demographic dynamics (including migration and population growth), and regional disparities in access to basic services and to higher-productivity formal employment are contributing to social inequalities and hinder[ing] opportunities for [growth in] economic prosperity.  Despite some common patterns across the South Caucasus, the three countries differ in the causes, levels, and consequences of the spatial inequalities.

The main findings for Armenia were that in the last few years, the population has been declining in sparsely populated rural regions and increasing in Yerevan. The bulk of economic activity and the core of economic transformation is mainly in Yerevan, although there is some diversification of economic activity in other cities. However, household per capita consumption is lower in cities other than Yerevan relative to rural areas, and there is some evidence that these cities have economies quite different from that of Yerevan. Agriculture is contributing to poverty reduction in some places. Wages are lower in the north than in Yerevan, but higher in agriculturally booming Aragatsotn. Conversely, service quality as a proxy of living standards is mixed: nearly a third of households report dissatisfaction with housing across the board. Remittances are an important part of the economy, and social transfers are relatively minor, but pensions represent a quarter of income for poor household.

In regard to Azerbaijan, people… have experienced population growth, both overall and in each economic region, but the populations of smaller regions are expanding more quickly. The overall spatial inequality in regional GDP is the highest in Azerbaijan among all Europe and Central Asian countries, but household consumption inequalities are modest and almost entirely driven by differences within economic regions. Over half the country’s poor live in the four rural economic regions with the highest poverty rates, but a substantial number of the poor also live in Baku, in Absheron, the richest economic region. People engaged mainly in low-productivity jobs, whether agriculture in rural areas or other jobs in cities outside Baku, benefited less from growth. The benefits from oil-financed growth were shared partly through a dramatic rise in pensions, real wages, and the minimum wage. Although this has had a significant impact on poverty reduction, the growth has not been inclusive and has failed to provide opportunities for people living in rural areas and individuals with low human capital. Employment in sectors with good future potential, such as financial and business services, other services, and manufacturing, must expand if the economy is to diversify and be transformed.

As for Georgia, the findings stated that all regions except Tbilisi show a population declin[e] since 2012, mainly because of emigration, highlighting the importance of boosting overall economic activity in the country. An important finding is that household consumption changes were small in most regions, despite increases in real incomes. In lagging regions, high ratios of consumption to income hindered poverty reduction despite rising incomes. In leading regions, rising labor income and agricultural sales contributed greatly to poverty reduction. Manual labor income is prominent in Tbilisi, while agricultural income is prominent in Samtskhe-Javakheti, the other leading region in the country. Pensions and transfers are an important part of household income but could have been targeted more effectively at lagging regions east of Tbilisi.

In his article Molineus writes that “despite moving out of poverty, many families in the South Caucasus still feel financially insecure. They know they are living just above the poverty line, vulnerable to risks from various shocks such as… job loss, crop failure, illness or natural disaster. Extreme rainfall and drought are also a threat to communities across the region, endangering crops, livestock, and food security.” In order to deal with these shocks, Molineus writes a list of policy suggestions for each of the three countries individually.

For Georgia, it is especially important to build resilience to shocks by improving macro-fiscal management, promoting responsible financial access, strengthening household resilience, and enhancing the management of natural resources and climate risks.

For Armenia, greater investment in human capital is critical. As such, the country should ensure better economic opportunities for poor and vulnerable populations, and wider access to social protection services. To this end, Armenia is increasing the share of poor people covered by social protection programs, such as the Family Benefit Program, and enhancing information systems that provide access to the full range of employment services.