Human Capital: The Fall Strategy

The main goal for countries that aim to develop is to cultivate human capital. Creating conditions for the development of people who are aware of their rights, have protected rights, are educated, healthy, and highly skilled is a priority for countries that set this goal. This is also referred to as cultivating human capital.

So, what is the situation in Azerbaijan in this regard?

According to the World Bank’s recent report on human capital in Azerbaijan (2010-2020), a child born in Azerbaijan over the past decade will only be able to realize 58% of their potential. In other words, 42% of their potential will be lost simply because they were born in Azerbaijan. By 2030, this indicator could decline even further. This is due to significant regressions in education, social, and medical services in recent years compared to the period up to 2020.

Is it possible to change this situation?

In fact, several years ago, when oil revenues first started flowing into the country, it was possible to see in many of the roadmaps signed by the government that one of the priorities was to take steps to develop human capital. However, over the years, this term began to be forgotten. Today, it is rarely found in priority documents.

Regarding this issue, Araz Aliyev, a founding member of the III Republic Platform, answered ASTNA's questions.

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Question: Mr. Aliyev, how is human capital being developed in Azerbaijan?

Answer: First, I would like to clarify that human capital refers to the knowledge, skills, health, and social protection conditions that people accumulate throughout their lives, which allow them to realize their productive potential.

Since 2014, the idea of transforming “black gold” into human capital has been emphasized as an important component of state policy in Azerbaijan. Furthermore, the "Azerbaijan 2030: National Priorities for Socio-Economic Development" document, approved on February 2, 2021, highlights the issue of competitive human capital and places it among the five main priorities.

However, today, the process of developing human capital in Azerbaijan is mostly limited to volunteer activities, overseas education programs, and projects related to youth. It is not accurate to call these steps the process of forming human capital. The key factors that form human capital are the country's education, medical, and social service sectors.

According to the World Bank’s reports on human capital, the main three criteria for forming human capital are education, healthcare, and social protection, which are necessary elements across countries. Therefore, human capital is assessed not based on individual successes but on the opportunities for the average citizen to realize their potential and the educational, medical, and social factors that ensure those opportunities.

Question: Are people in Azerbaijan able to realize their potential?

Answer: According to the World Bank’s "Human Capital Index," Azerbaijan's human capital score is 0.58. This means that a newborn child in Azerbaijan can only realize 58% of their potential with the existing social, medical, and educational conditions. This score is based on official statistics from 2010 to 2020 concerning education, social, and medical services.

Regarding the situation after 2020, there is currently no official data. However, recent statistics in both education and social and medical services indicate that the situation is not improving. Azerbaijan’s indicators for 2020-2024 in all three areas are falling behind the indicators from 2010-2020. This justifiably suggests that the human capital index will decline by 2030, meaning that people’s ability to realize their potential will decrease further.

Question: What is the cause of this?

Answer: As I mentioned, the human capital index is calculated based on three main factors: the quality of education, the development of individuals, and the support provided by social services and medical care. These three factors determine the level of human capital in any country. Azerbaijan’s current human capital indicators are based on these factors. Unresolved issues in education, healthcare, and social services are the primary causes of the decline in the human capital index.

Question: What might Azerbaijan expect if this situation continues?

Answer: To better understand the current situation in Azerbaijan, we need to compare statistical data. Looking at the education sector, Azerbaijan's PIRLS (Progress in International Reading Literacy Study) score was 462 in 2011, but it fell to 440 in 2021. The PISA (Programme for International Student Assessment) score for reading comprehension in Azerbaijani in 2018 was 389, but it dropped to 365 in 2022. In mathematics, the score fell from 420 in 2018 to 397 in 2022, and in natural sciences, the score decreased from 398 to 380.

In healthcare, according to official statistics, the number of doctors per 10,000 people in 2010 was 36.9, but by 2023, it had dropped to 33. Additionally, the number of medical beds per 10,000 people fell from 76 in 2010 to 37.5 in 2023. In higher education, the number of pediatricians prepared in 2010 was 267, and dentists 169, but by 2023, these figures had dropped to 33 and 62, respectively.

In social services, according to the International Labour Organization’s 2022 report, the percentage of elderly people who are covered by the pension system in Azerbaijan sharply decreased over the last 20 years. In 2000, this indicator was 90%, but by the 2015-2020 period, it had fallen to 73%. The share of the population covered by at least one type of social protection mechanism is 39%, and only 16.9% of children are covered by such mechanisms. Only 19.1% of unemployed individuals are covered by social protection measures.

These statistics can be expanded further, but the overall picture speaks for itself. Moreover, there is no need to wait until 2030 to see the results of these regressions. The decline in education, healthcare, and social services is already showing its negative consequences. In 2019, the number of abortions was 37,300, but by 2023, it had increased to 73,800. Additionally, there has been a significant decrease in the number of live births. In 2019, 141,100 live births were recorded, but by 2023, this number had dropped to 112,600.

Due to the weak healthcare system, there has also been a significant rise in infant mortality in recent years. In 2020, 1,242 infant deaths were recorded, but by 2023, this figure had risen to 2,039. The increase in abortions and the decline in live births can be seen as an indication of a very pessimistic outlook for the future in Azerbaijan. Families believe that the situation in education, healthcare, and social benefits is not conducive to raising children. In this reality, people are hesitant to have children. If this situation persists, it does not bode well for Azerbaijan’s future by 2030.

Question: How is the situation in developed countries regarding human capital development?

Answer: Comparing this is not very difficult. Determining Azerbaijan's position in the world average in terms of education, healthcare, and social services can answer many questions.

For example, Azerbaijan’s human capital index of 58% is 5 percentage points lower than the average for Eastern Europe and Central Asia and 16 percentage points lower than the EU average.

According to the World Health Organization’s universal health coverage index for 2021, Azerbaijan’s score is 66, which is lower than the world average of 68 and the European average of 81.

According to the World Bank's 2022 "Azerbaijan: Human Capital Review," Azerbaijan’s Universal Health Coverage (UHC) Index score is 65. This figure is lower than both the regional average for Europe and Central Asia (75) and the average for middle-income countries (69).

The level of children covered by social protection mechanisms in Azerbaijan is 16.9%, while in Georgia, it is 48.1%, in Armenia, it is 30.2%, and the world average is 26.4%. In high-income countries, the coverage is around 86%.

These indicators help to determine Azerbaijan’s position in comparison to both developed countries and those in the same development group.

Question: What steps should Azerbaijan take to develop human capital?

Answer: I believe the key step is to ensure continuous development in education, healthcare, and social services. Of course, revolutionary changes in all three sectors cannot happen in just one year. However, consistent and purposeful actions can create significant quality differences in these areas. Naturally, this development will significantly impact people’s living conditions and the country's human capital. Strategic priorities must not only be reflected in official documents but also in practical actions.

Otherwise, an analysis of the data mentioned above shows that the situation regarding the formation of human capital in Azerbaijan in recent years (in education, healthcare, and social protection) is unsatisfactory and has worsened. Without significant changes in these areas, it is highly doubtful that the human capital index will rise, or that the priorities set for 2030 will be realized.