1. INTRODUCTION

This ETF assessment was prepared in 2019 on behalf of national authorities in Armenia with the help of a standardised framework questionnaire called the NRF. The assessment summarises the main challenges to the development and use of human capital in the country and discusses how education, in particular VET, and labour market policies can help address them.

This ETF assessment comes at an important time, as the country prepares for the next Eastern Partnership (EaP) multiannual programme. Launched in 2009 as a joint policy initiative, EaP aims to deepen and strengthen relations between the European Union (EU), its member states and its six Eastern neighbours: Armenia, Azerbaijan, Belarus, Georgia, the Republic of Moldova and Ukraine. In May 2020, all six EaP countries and the EU will launch the third phase of the initiative and agree on a new ambitious workplan, revising the 20 deliverables for 2020. It will aim to bring tangible benefits to the lives of citizens across the region. In this context, cooperation between the EU and its EaP partners will focus on building stronger economies, stronger governance, stronger connectivity and stronger societies.

The assessment process included an extensive phase of desk research based on responses to the NRF and the preparation of an issues paper with an overview of themes to be discussed in the present report. These were then finalised in consultation with the country and thematic teams responsible for Armenia at ETF. An advanced draft of the ETF assessment was circulated to national stakeholders and international partners and discussed at a consultation meeting in Erevan on 26-27 November 2019 to verify the findings and recommendations.

Like other ETF assessments, this paper is not meant to be exhaustive. The National Torino Process Report on Armenia covers a broad selection of problems related to human capital development and use. The focus here is on challenges and recommendations considered to be priorities by the ETF.

The problems featured in the assessment share three common features. First, they obstruct the development and use of human capital. Secondly, they can be resolved at least in part through education and training - actions that fall under the purview of VET decision-makers, practitioners and stakeholders. Thirdly, in the view of the ETF, they require immediate attention.

Armenia is an upper middle-income country with an estimated per capita GDP of US$ 4046.7[5] World Bank 2018 (https://data.worldbank.org/indicator/NY.GDP.PCAP.KD?locations=AM)
.

Economic growth in Armenia has been strong in recent years: 7.5% in 2017, 5.2% in 2018, and projected 4.3% in 2019. A further 4.5% increase is forecast for 2020, primarily reflecting higher private consumption and a strong build-up of investment inventories[6] Asian Development Bank, Armenia, 2019 – (https://www.adb.org/countries/armenia/economy)
.

There has been a consistent shift from employment in Armenia from industry and agriculture towards services. However, agriculture continues to play a substantial role and still accounts for almost one-third of jobs.

Table 1. Employment by economic sector[7] ETF KIESE indicators, Armenia 2019

Sector share of Employment	2014	2015	2016	2017
Agriculture	34.8	35.3	33.6	31.3
Industry	16.7	15.9	15.8	13.1
Services	48.5	48.8	50.6	55.5

Source: ETF, 2019

One-third of the population lives in the capital, and Yerevan accounts for half of the enterprises in the country and 70% of private sector employment and turnover[8] World Bank Armenia update, 2019
.

Armenia ranks 41^st in the World Bank's Doing Business Survey, up from 47^th in 2017, the gain largely due to improvements in the business regulatory environment.

In the Human Capital Index, Armenia ranks 78^th among 157 countries. The country's score of 0.57 is lower than the average for the European and Central Asian region[9] World Bank, Armenia, Update, 2019. (https://www.worldbank.org/en/country/armenia/publication/armenia-country-partnership-framework-2019-2022)
.

The population of Armenia is 2 980 000. It is small, shrinking and ageing. The average annual population growth rate in recent years is 0.2%[10] World Bank, 2018: https://data.worldbank.org/indicator/SP.POP.GROW
. However, between 2010 and 2018, Armenia's population fell from 3,055,200 to 2,972,700[11] ETF KIESE indicators 2018
.

By 2050, more than 22% of Armenia`s population will be 65 or older, creating a growing demand for social services, and associated government expenditures[12] World Bank, Armenia, Update, 2019. (https://www.worldbank.org/en/country/armenia/publication/armenia-country-partnership-framework-2019-2022)
.

The trend is caused by a combination of factors, including declining fertility rates and increased migration. According to the National Statistical Service of Armenia (Armstat), the fertility rate is 1.6 children per woman. The population decline tends to be greater among males than females, mainly due to male migration. The male population fell by 36 800 compared 19 800 for females since 2010. Significantly, the ratio of the youth population (aged 15–24) to the working-age population is also falling - from 24.6% in 2010 to 17.2% in 2018[13] ETF KIESE indicators, 2019
.

This demographic trend is likely to translate into new demands for continuing education.

Remittances from migrant workers, which normally contribute significantly to the Armenian economy, have decreased since 2015 mainly due to the slowdown in Russia, where there has been reduced domestic demand and less need for migrant labour.

Armenia has made progress in reducing poverty. The percentage of people under the poverty line plunged from a peak of close to 55% in 2004 to 25.7%[14] National Poverty Rate, cited in WB Partnership Framework report – cited table 1, page 5, and page 6 – based on WB staff calculations using NSS data
in 2017. Wage increases and employment growth, notably in the construction sector, fuelled the improvement, along with agricultural revenues in rural areas generated during the double-digit growth period of the 2000s.

Regional disparities persist between the capital, Yerevan, and rural areas. These are generally due to limited economic activity and a lack of job creation beyond the agricultural sector. The poverty rate is highest in urban areas outside the capital, at 27.9% in 2017; these areas register elevated levels of emigration as well. Poverty in rural areas is 26.8%. Over two-thirds (70%) of Armenia's poor live in secondary cities and rural areas. The lowest poverty rate is in Yerevan, where it stands at 22.4%[15] International bank for reconstruction and development International finance corporation Multilateral investment guarantee agency Country partnership framework for the republic of Armenia for the period fy19–fy23 February 28, 2019
.

Peaceful and popular street demonstrations in May 2018 in Yerevan and other Armenian cities forced Armenia's long-standing leader from power and resulted in a change of government followed by the election of a new prime minister. Subsequent political developments have been well supported by the population of Armenia. The parliamentary elections in December 2018 enjoyed public trust and recognition for their respect for fundamental freedoms.

The changes led to new teams in both the Ministry of Education, Science, Culture and Sport and the Ministry of Labour and Social Affairs. The overall challenges have not changed but the new environment offers policymakers an opportunity to look at their options with a fresh perspective. The changes in the portfolios coincided with a period when the policies for vocational education and employment were both scheduled for review.

The new government has committed itself to democracy-building, modernisation, an open economy, and a new five-year government programme. The main pre-requisites for the success of the reforms are believed to be good governance, anti-corruption measures, and support for the rule of law.

The new government has also reiterated its full commitment to the implementation of the EU-Armenia Comprehensive and Enhanced Partnership Agreement (CEPA) signed in November 2017[16] https://ec.europa.eu/neighbourhood-enlargement/neighbourhood/countries/armenia_en
. Among other things, the partnership agreement calls for the mobilisation of human capital. The reform process remains at an early stage, but progress on this front by the new government will be important. Armenia's vocational education and employment strategies are expected to be updated by May 2020.

In recent years, Armenia's GDP growth accelerated from a very low 0.2% in 2016 to 7.5%[17] Asian Development Bank, Armenia, 2019 – (https://www.adb.org/countries/armenia/economy)
in 2017. This helped both the labour market and the business environment; as would be expected. It also affected the employment rate, especially for young people.

The EU has deep and sustained relations with Armenia[18] https://www.euneighbours.eu/en/east/stay-informed/publications/facts-and-figures-about-eu-armenia-relations
in the realms of education and employment, with assistance activities dating to the early 2000s. Armenia's current employment and vocational education policies are both backed by an EU budget support programme called Better Qualifications for Better Jobs.

It provided €15.2 million for 2017-2019. The programme targets the efficiency of Armenia's labour market and the employability of its workforce, with an emphasis on agricultural employment. The assistance also includes a grant to help NGOs develop work-based learning schemes[19] https://eeas.europa.eu/generic-warning-system-taxonomy/404/40687/call-proposals-vet-business-partnerships-work-based-learning-and-apprenticeships_en
. The political changes of 2018 have led to delays which will likely extend its implementation into 2020-21.

The main implementers of the programme are the Ministry of Education, the Ministry of Labour and Social Affairs, the Ministry of Agriculture, private sector organisations and social partners.

Armenia also participates in the EU Eastern Partnership's EU4 Youth programme. Its four grant projects aim primarily to boost youth inclusion and employability.

As in many countries, VET is mainly provided by secondary public schools in Armenia. Policies are developed by the Ministry of Education in collaboration with some NGO stakeholders, generally national employer organisations, and other related government agencies and ministries, such as the Ministry of Labour and Social Affairs, the Ministry of Economy, the National Council for VET Development and the National Centre for VET Development.

Although the growth outlook is positive, institutional and structural challenges remain for both employment and vocational education. On the institutional side, organisational changes need to be made in both policy areas, now and in the medium-term, if Armenia hopes to overcome its problems in human capital. Organisational change and policy development might be more advanced in the education sector than the employment sector.

Given the expectations for change, the window of opportunity for progress might seem short; however, policies should be designed to meet long-term goals.