Developing Countries VS Armenia: Part 2

Birth rate

Developing countries are characterized by high rates of birth, which usually make up to 2 % on average per year (except for China). It causes many problems for the government, which, in its turn, initiates appropriate measures in order to reduce the birthrate. High fertility rate brings about demographic problems influencing the economic development of the given country. The growth of population places all the branches of consumption under strain increasing consumption demand and labor resources. To cope with these problems the state is to create new jobs demanding supplementary investments. For this and many other reasons high rate of birth is not beneficial for developing countries.  Referring to Armenia, we can note that it has the same index as developing countries. Unlike many other developing states our government encourages the birth of 2 or more children in order to keep constant the fertility rate. But the index of birthrate in Armenia fluctuates between O.4 -1%.  As stated by the Armenian office of the UN Population Fund, the fertility rate in our country is dwindling and soon it will become negative, like in Georgia (-1.2%).  On the report of the UN research, Armenia is ranked 172 among 195 countries in terms of fertility rate. Such a low rate of fertility can be explained by emigration, the decrease of reproduction, which, in its turn, is conditioned by the low living level of Armenia. High prices and low salaries are also reasons why the majority of the population does not want to have 2 or more children. Sex-selective abortions are also one of the reasons of low fertility rate.

External debt

One of the major economic indices of developing countries (and not only) is the correlation between external debt and GDP. Every country should control its external debt, because when it reaches 60 % to GDP and even exceeds, the given country is classified to the group of countries with higher external debt.  The ratio between external debt and GDP in China constitutes 14.9%, in Turkey 36.3%, in Czech 45.5%, in Brazil 57.3%, in Morocco 57.8%, in South Korea 27.8%. The above-mentioned statistics in Armenia is 49.4%.  Undoubtedly, it is not an extreme record but it causes concerns especially if we take into account the fact that the government seeks for new sources of credits. The main sources of credits are international financial companies (the World Bank, the International Monetary Fund) which allocate the money to improve the socio-economic situation, but as proved in reality, it has the counter effect (naturally, it is conditioned by non-purposeful application of money).

Inflation

The next index suppressing the economies of developing counties is inflation reaching impressive amounts especially in developing countries. The highest rate of inflation in Africa was recorded in Niger at 10 %.  However, we should note, in the major part of developing parties the rate of inflation is mediocre. For example, the rate of inflation in China during 2015 constituted 1.19 %, in Brazil 4.7 %, which is considered to be a significant improvement, because the inflation of Indonesia during 2010 was 7%. According to official statistics, the rate of inflation in Armenia constitutes 3 %. This index is considered to be normal, because the Central Bank has defined the purposeful threshold of inflation for 4% ±1.5% : As stated by the National Statistical Service, the inflation during January- March in 2016 constituted 1,4%, while the consumption prices decreased for 2 %.  The tendencies of inflation are strictly regulated by the government, because the inflation of provisions can have many consequences especially in a country where the incomes hardly meet the requirements of obtaining necessary wages.

Unemployment and emigration

As stated in the report of the International labor organization, the number of unemployed population during 2015 constituted 191.7 million, and this index will increase for 2.3 million people in 2016. According to the head of the research department of the ILO, the fluctuating economic situation in developing countries is conditioned by the instability of financial markets, the drastic decrease of energy carrier prices influencing exporting countries, the decrease of international demand influencing directly the activity of companies making them curtail workplaces. Besides this, we should draw our attention to the latent employment, which has reached huge sizes. In these countries people are forced to do difficult work for trivial salary. It is noted in the report that the primary issues in this sphere are the following: the regulation of employment, decrease of unemployment rate, the abolition of latent employment. The experts of the ILO note that 46% of employed people are not protected (bad working conditions, low salary, supplementary working hours, exploitation). These people predominantly live in developing countries where ¾ part of employed population is considered to be unprotected. The highest rate of this index has been recorded in South Asia (74%) and Africa (70%).Armenia does not yield developing countries in terms of the given index. On the report of NSS, the rate of unemployment in Armenia constituted 18.5% during 2015. Such an index of unemployment is conditioned by the huge number of latent workers and unemployed, as well as the fact that the lowest (55000 drams) and middle (180000 drams) salaries cannot ensure normal standard of living. Besides, there is a false perception of “jobless” in Armenia, according to which those who do not have work are jobless. According to the accepted standards, people are considered to be unemployed if they have no work, but actively seek for it, are ready to work as soon as they find it and are registered in the center of employment. The citizens of Armenia do not know even the whereabouts of employment center.  Unsurprisingly, it will influence other statistical indices. Unemployment brings emigration in developing countries. As reported in the notification of the UN, there were 232 million immigrants during 2013 year constituting 3.2% of the world’s population. People migrate to not only developed, but also other developing countries. Particularly, 82.3 million people emigrated to developing countries, while the number of people emigrated to developing ones was 81.9 million. 19 million people migrated from Asia now live in Europe, while 16 million live in North America. The majority of immigrants (26 million) from Latin America and the Caribbean Sea now live in North America. Approximately 40% of South American immigrants migrated to oil producing countries of West Asia. Connected with the events of Syria the number of people migrating from the Near East to Europe has increased. The rate of brain drain is very high in developing countries. Armenia is not an exception. The first mass exodus from our country began as a result of the 1988 Spitak earthquake. Approximately 220000 people abandoned Armenia. The socio-economic crisis of 1991-1992 boosted the next flow of mass exodus when many people went overseas to find job and provide financially their family. There are no exact statistical data about the number of emigrants, but there are some official data. According to that data, 366195 people have migrated from Armenia during the last 17 years. Naturally, the given number does not constitute even the half of real emigrants. Private researches show that 1 million people have abandoned Armenia. This brings about the artificial ageing of population (60 and older people constitute 14.4% of the entire population). According to the experts, a new wave of emigration has started in Armenia having socio-economic characteristics.

Developing countries depend on agricultural production. The share of agriculture in GDP is high because these countries are in agrarian level of development. The share of agriculture in GDP is 19.3% in Armenia. The above-mentioned index in Great Britain and France constitutes 0.7% and 1.7%.  The economic dependence from developed countries is understandable: developed countries give credits to developing ones, make investments and are considered to be one of the main destinations of immigrants. Developing countries need subsidies in order to recover their economies. The level of Armenia’s economic dependence is high, but the main feature of Armenia is the fact that Armenia both economically and politically depends not on a developed country but rather on a developing one which is Russia.

Predictions

The World Bank has predicted 2.2% increase of GDP during 2016. The Moody’s corporation has predicted the same. According to the analysts of the company, there is a low level of demand in Armenian economy and the economic situation of Russia directly influences Armenian economy. Particularly, the deterioration of Russian economic situation brings about the shrinkage of transvers to Armenia. We should note that transfers constitute 15% of Armenian GDP, 80% of which comes from Russia. Another rating agency, the Fitch Ratings, predicts 2% increase of Armenian economy conditioned by the decrease in the prices of raw materials, as well as the economic condition of Russia. As reported by the national statistical service of Armenia, the economic growth of Armenia constituted 3% during 2015. Such indices prove the vulnerability of Armenia to external stimuli. The experts of rating companies and the World Bank propose many solutions, but however good they are, the improvements should be initiated from the basis with the participation of Armenian experts, because they know the problems of Armenia better than any other representative of different nations. We should also note, that the developing countries of Central and Eastern Asia now having sufficient economic conditions, in the 1980-s faced the same socio-economic problems as Armenia: 3-4% inflation, predominant share of agriculture in GDP and latent unemployment. Naturally, such regional events, as the division of Czechoslovakia or the collapse of USSR also influenced Armenian economy. But in the mid of the 90-s the activation of economy, as well as the improvement of socio-economic indices were noticed. The above-mentioned is conditioned by the model of transformations including the policy of anti-monopoly, liberalization of prices, privatization, fight against corruption, reforms of banking system, as well as reconsideration of state’s role in economy. The application of the given mechanisms brought about an increase in GDP, the share of agriculture in GDP decreased for 7 times, instead the share of industry increased (Czech 49%, Hungary 35%), the rate of inflation also decreased. The sphere of service, especially finances and tourism, were enhanced in these countries. These countries became post-industrial and proved that they can reach improvement via proper politics. Besides, the economies of Central and Eastern European countries were highly influenced by the contacts with the European Union. Obviously, the economic conditions of Armenia and Central as well as Eastern European countries share common features.

Conclusion

The above-mentioned socio-economic data of developing countries and Armenia show that Armenia takes a mediocre place. We should note that Armenia is capable of better results. Particularly, the experience of Central and Eastern European countries shows that Armenia can overcome economic crisis. The appearance of Iran on the international arena can also boost the recovery of Armenian economy. EAEU-member Armenia can link Iran with other members of EAEU. Besides, in Armenia, like in other developing countries, the importance and beneficial impact of IT have been recognized. The state takes appropriate measures to develop IT giving tax privileges, organizing exhibitions thus allowing companies to present their products (annually organized Digital Expo) and activating tourism. The latter is considered to be a prevailing direction. Actually, every country has myriad opportunities for development the question here is how they use those opportunities.

Author: Anna Minasaryan. © All rights are reserved.
Translator: Khachik Makyan.