Policies for human capital development in Kyrgyzstan

A Torino Process ETF assessment

Release Date
18 Mar 2021
pdfFull report
pdfExecutive summary

pdfen

2. human capital: developments and challenges

2.1 Overview

Kyrgyzstan faces a series of human capital development (HCD) challenges. The main HCD challenges identified from the information provided in the NRF are related to:

  • increasing the county's income while combatting poverty
  • the urban–rural divide and the resulting inequalities
  • the prevalence of informal economy together with an unstable and unpredictable formal labour market
  • the huge labour migration and related brain/skills drain, as well as a high dependency on remittances
  • the government's ambitious digitalisation plan, which includes education and training

Most of these challenges point to a need to raise the level and quality of human capital in the country. While some features and trends in education and training point in a positive direction (e.g. better access to education for vulnerable groups, and increased funding for VET), others point in the opposite direction or even appear to have entered into a vicious circle. For example, the growing informal economy, serious problems in sustaining reforms, a lack of resources and capacities, the numerous obstacles to digital transformation, the continued low promotion and quality of VET, and the slow pace of structural change in training all offer little help towards achieving labour market relevance and overcoming underdeveloped social partnership and employer involvement in VET.

Many of these issues and challenges stand in contrast to the country's ambitious development goals and will require long-term efforts. Others call for immediate policy actions because Kyrgyzstan's younger generation in particular has high expectations of its government.

2.2 Gaps in human capital indicators and outcomes

Human development – improving slowly but marked by inequality of distribution

'Kyrgyzstan as a landlocked country with limited resources will focus on the development of human capital', stated the country's Minister for the Economy at a meeting of the Cooperation Council (AKI press, 17 October 2018).

The World Bank's 2018 Human Capital Index (HCI)[8] The Human Capital Index directly links health and education outcomes with economic growth, indicating how shortfalls in health and education among children today will reduce the productivity of the next generation of workers (World Bank 2018b, 2018c, 2019c). The HCI is part of the World Bank's Human Capital Project, which is a global effort to accelerate the amount and quality of investment in people: www.worldbank.org/humancapitalproject
, which was launched at the end of 2018, highlighted large gaps in the outcomes of human capital across 157 countries worldwide. Kyrgyzstan stood in the middle of the field in 75th place.

Figure 2.1: THE HUMAN CAPITAL INDEX (2018)

Image

Source: World Bank, 2018c, https://openknowledge.worldbank.org/bitstream/handle/10986/30498/33252.pdf?sequence=5&isAllowed=y

Human development in Kyrgyzstan is slowly but steadily improving according to the UNDP's key indicator[9] The Human Development Index (HDI) is a composite index that measures average achievement in three basic dimensions of human development: a long and healthy life; access to knowledge; and a decent standard of living. In terms of scoring, 1 = the most developed. A long and healthy life is measured by life expectancy. Knowledge level is measured by mean years of education among the adult population (which is the average number of years of education received in a lifetime by people aged 25 years and older), while access to learning and knowledge is measured by expected years of schooling for children of school-entry age, that is, the total number of years of schooling a child of school-entry age can expect to receive if prevailing patterns of age-specific enrolment rates stay the same throughout the child's life (UNDP, 2018).
. The country's score on access to knowledge, living standards and a long and healthy life increased by 8.8% between 1990 and 2017 (from 0.61 to 0.67, respectively) (World Bank, 2019d). The country ranks at the lower end of the medium human development category (122nd out of 189 countries according to the 2018 statistical update), achieving a higher score than Tajikistan and a lower one than Uzbekistan (UNDP, 2018).

Between 1990 and 2017 Kyrgyzstan's life expectancy at birth increased by 4.8 years, while mean years of schooling rose by 2.3 years and expected years of schooling increased by 1.4 years. By contrast, the gross national income (GNI) per capita decreased by 4.8% over the same period (UNDP, 2018).

However, when adjusted by a coefficient for inequality in the distribution of human development across the country's population, the human development index (HDI) falls to 0.606 – a 'loss' of 9.8% in human development owing to inequality. This is less than in Europe and Central Asia (11.7%) and less than the average loss for medium HDI countries (25.1%, see UNDP, 2018). However, it would make a considerable difference if inequality were tackled, including in relation to issues like access to education and training.

The Gender Inequality Index, which can be interpreted as the loss in human development owing to inequality between female and male achievements (in the three dimensions of reproductive health, empowerment and economic activity), ranked Kyrgyzstan 91st out of 160 countries in 2017 (UNDP, 2018), behind Tajikistan and Uzbekistan.

Finally, the government of Kyrgyzstan has made commitments towards achieving the Sustainable Development Goals (SDGs) as part of the 2030 Sustainable Development Agenda adopted by all United Nations Member States in 2015.

Governance gaps slow down transition

Weak governance can distort markets and result in the inefficient allocation of capital and labour in a country. It affects not only well-being but also growth and confidence in public institutions, and it has an impact on intentions to emigrate (EBRD, 2019d). The latest EBRD transition report finds that Kyrgyzstan has large and persistent governance gaps relative not only to advanced economies but also to emerging markets. Narrowing the gap would yield a sizeable growth dividend for firms, support innovation-led growth and make residents happier and less likely to emigrate (EBRD 2019d).

In addition, income convergence has slowed in recent years. A comparison of 37 countries put Kyrgyzstan at the top of the scale (followed by Egypt and Kosovo) in terms of the length of time taken to achieve convergence with the G-7 average. Kyrgyzstan would need close to 120 years, or several generations, to catch up to the G-7 average for income. The current governance dividend in Kyrgyzstan is very small and has little effect on the overall length of time needed to achieve income convergence (EBRD, 2019d).

In the overall EBRD assessment of transition qualities (see Figure 2.2 below)[10] The EBRD assessment measures progress against six key qualities of a sustainable market economy, specifically to see whether they are competitive, well-governed, green, inclusive, resilient and integrated (EBRD, 2019c).
, Kyrgyzstan somewhat improved its transition scores between 2018 and 2019 in four areas (competitive, well-governed, resilient and integrated) and stayed at the same level in two areas (green and inclusive).

Figure 2.2: TRANSITION SCOREs for six qualities of a sustainable market economy

Image

Source: EBRD, 2019c, https://www.ebrd.com/transition-report

From a societal point of view, more than 95% of the country's citizens are concerned about the low efficiency of state policy aimed at addressing the issues of low employment and welfare, high prices for food and services, significant migration, and other long-term social problems (Government of Kyrgyzstan, 2018).

At the same time, however, the country's position on the Happiness Index, which measures quality of life including income and other variables such as trust and social support, improved continuously between 2016 (Kyrgyzstan ranked 96th) and 2019, when Kyrgyzstan ranked 74th out of 153 countries (United Nations, 2020).

Other trends and factors affecting human capital development

According to international assessments, Kyrgyzstan faces a range of additional challenges that have an impact on human capital.

High demographic dividend still to be reaped

Kyrgyzstan has a relatively high demographic dividend with a young population. Roughly one-third of its citizens are under the age of 15. The dividend will start to rise by 2023 and continue to improve until about 2050 (UN, 2018). This could provide opportunities for labour market expansion if policies can harness the potential growth in key economic sectors. However, taking advantage of these opportunities in the future will require significant investments in human capital and policies that reduce emigration today (UN, 2019a).

Regional disparities and income inequalities

Despite internal and external migration movements, Kyrgyzstan still has a high share of rural population (close to 64%, ranking 41st out of 195 countries in 2018)[11] Source: https://www.indexmundi.com/facts/indicators/SP.RUR.TOTL.ZS/rankings; World Bank staff estimates based on the United Nations Population Division's World Urbanisation Prospects: 2018 Revision. Definition: Rural population refers to people living in rural areas as defined by national statistical offices. It is calculated as the difference between the total population and the urban population.
. The level of economic activity of the rural population was even higher than the urban one in 2013, but steadily decreased until 2017 (NRF B.1.1, 2020). In 2018, over 60% of the rural population in Kyrgyzstan were poor or vulnerable to poverty (IFAD, 2020)[12] International Fund for Agricultural Development (2020). Investing in rural people in the Kyrgyz Republic. Rome, Italy. https://www.ifad.org/documents/38714170/40806265/kyrgyzstan_2018_web.pdf/c30b60ce-c1b0-46dc-8883-dbf40e12bf9c
.

Significant wage disparities persist. In 2018 the average monthly salary (KGS 10 000 or 120 euro) of workers in the poorest regions (Osh, Batken) was only half the same figure for the wealthiest regions (KGS 20 000 in Bishkek and Issyk-Kul).

In 2018 the results of an integrated sample survey of households and labour force showed higher unemployment rates among the rural population for those with primary and secondary vocational education, but lower unemployment rates for those with higher professional education (NRF B.1.1, 2020). The female unemployment rate in rural areas was three percentage points higher than the rate for males.

The Gini coefficient for Kyrgyzstan, which measures the extent to which the distribution of income among individuals or households within the economy deviates from a perfectly equal distribution (0 is complete equality, 100 is complete inequality), was estimated at 27.7 for 2018 (World Bank, 2020) and had significantly improved since 2006. In international comparison, Kyrgyzstan has less relative inequality than many other countries, outperforming some EU Member States, most ETF partner countries (including Turkey), and also Russia, China and the US.

To raise the overall supply and level of human capital in the country, the remaining inequalities need to be reduced through inclusiveness and access to quality education and training.

Vulnerability to climate change and its negative impacts

A monitoring report on Kyrgyzstan's progress towards the Sustainable Development Goals (SDGs) stresses that the country is highly vulnerable to the negative impacts of climate change. Water resources and the agriculture sector are the most vulnerable sectors. The impact may be especially great on the rural economy and rural households, but also on the country's export of electricity. Most exposed to hydrometeorological disasters are the southern regions of Kyrgyzstan (Batken, Jalal-Abad, Osh). In 2017, Kyrgyzstan ranked 52nd overall on the Global Climate Risk Index, but came 11th in the number of fatalities per 100 000 inhabitants (OECD, 2019a).

Low levels of innovation and persistently high levels of corruption

Innovation development has fluctuated sharply in Kyrgyzstan in recent years according to the Global Innovation Index, which provides detailed metrics on the innovation performance of 129 countries based on data compiled by the World Intellectual Property Organisation and other institutes. The indicators explore a broad vision of innovation, including political environment, education, infrastructure and business sophistication. Since 2017, Kyrgyzstan has climbed five places (from 95th in 2017 to 90th in 2019) with an index of 28.4 (Cornell University, 2019). However, it remains in the group of countries at the bottom of the ranking.

The level of perceived corruption in Kyrgyzstan remains high but has improved, falling two points since 2016. The Corruption Perceptions Index, which measures the degree of corruption in the public sector as perceived by business people and country analysts, ranked Kyrgyzstan 126th out of 180 countries in 2019 (compared to 136th in 2016), assigning it a score of 30 (100 is very clean; 0 is highly corrupt (Transparency International, 2019).

2.3 Labour migration – Human capital loss or financial capital gain?

A key phenomenon of Kyrgyzstan's economy and society is large-scale labour migration. The country has had a negative net migration rate of 3.2 migrants/1 000 population between 2015 and 2020 (IOM, 2020). Although accurate data are missing, it is estimated that about 700 000 people (11% of Kyrgyzstan's population) was involved in labour migration in 2018 (NRF A.3.2, 2020). Moreover, remittances account for almost one-third of GDP (28.5% of GDP in 2019)[13] World Development Indicators, World Bank: https://databank.worldbank.org/source/wold-development-indicators, accessed on 25 August 2020
, playing a crucial role in the country's economy.

The key push factors for migration are connected to political instability, the high level of corruption and weak economic performance (NRF B.1.3, 2020). According to Vinokurov (2013), the growth in emigration appears to be linked directly to the deterioration in economic indicators. Specifically, a drop in GNP per capita of 1% increases emigration by 0.65–0.77%. In addition, existing research confirms that the desire to emigrate correlates with regional development (Vinokurov, 2013; National Institute for Strategic Studies, 2015). Residents of the country's poorer southern regions are most likely to emigrate. In some areas, such as Batken region, nearly 35% of the working-age population has left or has had experience of working in Russia.

Surprisingly, this socio-economic phenomenon is under-researched in Kyrgyzstan, even though it has a significant impact on the present and future economy of the country, on sociocultural dynamics and on human capital. It is therefore difficult to establish whether positive or negative effects prevail. Even in relation to human capital, the outcomes seem ambiguous.

On one hand, a substantial brain drain or skills drain, which can be seen from the number of people working abroad, suggests a negative impact on human capital. The effect is to diminish the size of the qualified workforce and it may ultimately cause a reduction in the country's potential for production and innovation.

The adverse effect of reduced human capital stock in the country is exacerbated if labour migration becomes not merely temporary, but permanent. The effect is even more severe if migration includes people with medium-to-high levels of skills, such as qualified workers, IT specialists, engineers, agronomists, doctors and teachers. Recent data and research on the characteristics of the Kyrgyz migrant population are not available. However, past research suggests that labour migrants have a relatively high level of education compared to the overall education structure of the population, given that the majority have a medium level of education (see Figure 2.3). This suggests that human capital loss is significant for the Kyrgyz economy and society not only in quantitative but also in qualitative terms.

Figure 2.3: Education level of Labour Migrants from Kyrgyzstan to russia and kazakhstan (2013)

Image

Source: Vinokurov, 2013

The same study analyses the occupational distribution of labour migrants to the two main receiving countries, Russia and Kazakhstan, and finds that most Kyrgyz migrants are employed as unskilled or semi-skilled workers, while only a few hold mid-level, white collar or management positions. Such a discrepancy between the job level and education level of Kyrgyz migrants (i.e. vertical skills mismatch) further reduces the quality of human capital stock in the long term. Moreover, the costs invested by the Kyrgyz state in the education and training of a labour force that is then exported are partly wasted and do not yield an immediate return on human capital.

On the other hand, the positive aspects of labour migration include gains to the country's financial capital stock, particularly an increase in household disposable income. As indicated earlier, Kyrgyzstan is one of the world leaders in remittances (as a % of GDP) sent back by migrant workers. The importance of remittances has risen sharply since 2004 and continues to increase, despite some fluctuations between 2013 and 2015 that were mainly due to a downturn in the oil price and a tougher migration policy before joining the Eurasian Economic Union (see also Figure 2.4).

However, the high degree of dependence on the Russian economy makes labour migration, and in turn the sending country's economy and society, extremely vulnerable to external shocks. In 2020, the amount of remittances is expected to fall because of the decrease in oil prices and the impact of the COVID-19 pandemic.

Figure 2.4: Personal remittances received (% of GDP) (2013–2019)

Image

Source: World Development Indicators, World Bank (https://databank.worldbank.org/source/world-development-indicators, accessed on 25/08/2020)

Research shows that remittances in Kyrgyzstan are mainly spent for consumption purposes and only to a lesser extent on stimulating investment (Vinokurov, 2013). An analysis based on 'Life in Kyrgyzstan' data (Muktarbek et al., 2015) confirms this spending pattern and reveals that households spend money from remittances on weddings more often than on education and healthcare. The same spending pattern on consumption and basic needs applies in all Central Asian countries (Prokhorova, 2017).

An important positive impact of such a spending pattern is poverty reduction. According to the National Institute for Strategic Studies (2015), a 10% increase in the volume of remittances leads to a 1.7% reduction in the proportion of people living in poverty in Kyrgyzstan. On the other hand, remittances are not used to their full potential and tend not to be reinvested in human capital. This may be related to the perceived poor quality of education services and a lack of incentives to invest in education. Thus, remittances produce mainly short-term positive effects and fewer long-term development impacts.

In principle, the return of migrant workers to Kyrgyzstan can have a positive effect on human capital if skills are upgraded abroad and in demand in the homeland. However, too little is known about the share of returnees and their reintegration into the labour market. If the return of migrant workers is involuntary, for example because of job loss, it may give rise to a new round of migration or perpetuate the cycle of poverty and unemployment.

The National Development Strategy 2040 (Government of Kyrgyzstan, 2018) aims to continue the country's emigration policy and its reliance on remittances by expanding the policy to support migrants. There seems to be no alternative plan. The announced measures include the establishment of representation offices in Russian cities and the creation of vocational training and retraining centres for professional personnel with support from Russia (Government of Kyrgyzstan, 2018). The COVID-19 crisis and the deepening of Russia's economic downturn may give reasons to rethink the current policy. Future migration policy should aim at a crisis-resistant strategy that decreases the dependency on remittances and single countries, while paying more attention both to regional development in areas with the highest emigration rate and to effective youth employment policy. A shift to a more investment-oriented model of remittances should be considered in order to raise human capital and productivity, making households more resilient and protected against financial instability. Finally, such a policy will need to address gaps in the existing data and research.

2.4 Labour market and education challenges for human capital development

The scale of informal economy as a barrier to human capital and sustainable development

Employment in the informal sector is high in Kyrgyzstan. Between 2013 and 2018, the share of informal employment increased by 14% to 71% (NRF B.1.1, 2020)[14] According to the World Bank, 48% of all jobs are in the informal sector. However, this figure is based on a definition of informality that excludes self-employed people (World Bank, 2018a).
. The incidence of informality is well above the world average of around 60% (ILO, 2018) and poses a major challenge not just for decent work and income but for sustainable and inclusive development. The informality is spread across all economic sectors, but is particularly significant in agriculture, manufacturing, construction, and services such as accommodation and food-service activities, transportation and storage, wholesale and retail trade, and the repair of motor vehicles and motorcycles.

In 2018, the biggest share of new jobs was created in the informal sector (93%). In the same year the job destruction rate was 26%, 89% of which came from the informal sector (NRF B.1.1, 2020).

Global and regional estimates by the ILO show a correlation between education and informality. When the level of education increases, the level of informal employment tends to decrease. This phenomenon can be observed in both developing and developed countries (ILO, 2018). According to less recent data from the World Bank (2018a), informal workers in Kyrgyzstan have lower educational attainment and fewer skills than other workers (only 17% have tertiary education compared with 43% of formal workers). Also, they tend to be younger men from poorer households, living in rural areas, and working mainly in construction, trade and agriculture. Similar results were obtained from the Transition from School to Work survey in 2011–2012, which found that graduates with higher or vocational education were more likely to have formal jobs than others with only basic or secondary general education (ETF, 2013). Education, training and skills development are therefore essential factors to make the transition into the formal economy because they can improve the skills and employability of the workforce.

Job creation, job productivity and female labour force participation are low

Other major labour market challenges for human capital development in Kyrgyzstan are related to job creation, job productivity and female labour force participation.

Job creation is limited by labour demand and supply, matching constraints, and a failure to keep pace with rapid population growth. The potential workforce is growing at about 2% per year and it is estimated that roughly 50 000 new entrants join the labour market each year. Formal employment is small (less than one-third), largely urban, and concentrated in only a few sectors, including the public sector. Another concern is job quality, given that many workers have seasonal jobs, their contracts are only temporary or they are not paid on a regular basis (World Bank, 2018a).

Job productivity (output per worker) is considered the lowest in the Europe and Central Asia region. According to the World Bank, it has traditionally been low, and increased informality in the low-productivity sectors of services and industry have further contributed to the deterioration of national productivity growth.

In all age groups, the employment rates are lower for women than for men, which may indicate barriers for women to enter the labour market, such as childcare, lack of education and skills, social norms, and legal barriers (World Bank, 2018a).

Enhancing lifelong learning for sustainable development

While education can no longer be considered a guarantee for access to formal and more productive employment, it is an important asset. At the global level, education and training have become increasingly important not only for employment, employability and personal development, but also to address the global challenges that all countries face, including those related to climate change, the environment, poverty and inequality, prosperity, and peace.

Figure 2.5: MONITORING kyrgyzstan's Progress towards the sustainable development goals (2018)

Image

Source: United Nations, 2019a. Each indicator is broken down into one (or more) of four categories based on thresholds: green – target for 2030 achieved; yellow – target for 2030 yet to be achieved, but intermediate target is achieved; red – intermediate target is not achieved; and grey – no indicator available for a target, or judgement is impossible.

As part of the 2030 Sustainable Development Agenda adopted by all United Nations Member States in 2015, Kyrgyzstan has made commitments towards achieving the Sustainable Development Goals (SDGs) and progress is being monitored.

Compared to most of the other 16 SDG targets, Kyrgyzstan has made little progress on SDG 4, the education target (United Nations, 2019). In terms of the share of education indicators, only 6% have so far been achieved (1 indicator), 35% are yet to be achieved (6 indicators), another 35% of indicators (6) require serious effort, and 24% (4 indicators) have no data (UN, 2019b)[15] In Kyrgyzstan, UNDP has supported the development of a dashboard that combines 'official' international indicators and country indicators from several datasets.
.

On the other hand, Kyrgyzstan's human capital assets include the high level of education of its employed population and the high access to primary and basic secondary education. However, there is room for improvement in upper secondary education (grades 10–11) as net attendance is only 59% for boys and 56% for girls (UNICEF, 2020). There are also gender, wealth and location disparities (UN, 2019b).

The current gaps in the achievement of the SDG education goals suggest that more attention needs to be paid in the coming years to the quality of early childhood education and vulnerable groups, the elimination of gender disparities in education, and equal access to quality VET and higher education.

Ensuring quality education and skills development

The level of satisfaction with the education received in Kyrgyzstan is low. According to the Youth Development Index, only 45% of young people are satisfied with the quality of their education (UN, 2019b). The limited quality of general education is shown by the results of the National Assessment of Education Progress (NAEP) among students in the 8th grade. The last assessment took place in 2017 and focused on three subjects: mathematics, reading ability and comprehension, and natural sciences (chemistry, physics, biology and physical geography). The assessment recognises four levels of achievement: below basic, basic, above basic, and advanced. While the assessment demonstrated higher achievement levels in 2017 than in previous rounds in 2009 and 2007, it also found that only 35.1% and 23.4% of students reached a basic level or higher in mathematics and natural sciences, respectively, while the equivalent figure for reading ability and comprehension was 48.5%.


FIGURE 2.6: National Assessment of Education progress (NAEP) – grade eight Students' achievement in Science (2017)

Image

Source: NRF C.1.1, 2020. From: Report on NAEP, CAETM 2017

Unfortunately, more recent internationally comparable data on the quality of general education are not available. Although Kyrgyzstan in 2006 became the first country in Central Asia to take part in PISA (OECD Programme for International Student Assessment), the last assessment took place in 2009. As in 2006, the 2009 assessment revealed poor performance and placed Kyrgyzstan last among all participating countries despite the investment of significant resources and efforts in education by schools, parents and the government (OECD, 2010). However, Kyrgyzstan plans to resume PISA in 2025.

The very first skills assessment of the adult population of Kyrgyzstan, based upon the OECD's PIAAC (Programme for the Assessment of Adult Competencies) methodology, took place in 2019[16] https://documents.worldbank.org/en/publication/documents-reports/documentdetail/262271600915343998/building-the-right-skills-for-human-capital-education-skills-and-productivity-in-the-kyrgyz-republic
. The focus was on literacy, numeracy and ICT competences. Respondents scored below basic levels in all three areas, with 59% of adults scoring at or below level 1 in literacy and 60% scoring at or below level 1 in numeracy. The assessment also revealed that the performance in literacy and numeracy across age cohorts is not improving steadily among more recently educated adults.

FIGURE 2.7: Adult population skills assessment in literacy and numeracy by age cohort (2019)

Image

Source: Hou, Acevedo, de Laat, & Larrison. 2020. 'Building the Right Skills for Human Capital: Education, Skills, and Productivity in the Kyrgyz Republic.'

In the sphere of ICT skills, 34% of tested participants demonstrated low proficiency. In this area, however, the youngest age cohort did demonstrate significantly higher skills levels.

An Asian Development Bank (ABD) review of higher education in Kyrgyzstan finds some of the same weaknesses in the general and secondary education systems, which in turn have a significant impact on the performance of the higher education system. Areas of concern are the low quality of the higher education on offer, the lack of focus on student learning outcomes, a weak linkage to labour market requirements, and the low credibility of degrees as a result of academic corruption (ADB, 2015). While acknowledging the large expansion of the higher education sector, including private universities, the same report points to the country's very low research output and its need to develop a research system[17] Regarding publication in international journals, Kyrgyzstan ranked 144th out of 231 territories by the Scopus tool SCImago 22 (ADB, 2015).
.

Data on adult education and the supply and demand in continuing education and training are extremely scarce. The existing evidence does not provide a comprehensive overview of participation in adult education and training. It would therefore be important to obtain such data, preferably through the use of existing survey tools, in order to take a regular countrywide snapshot of the skills assets and gaps in the adult Kyrgyz population.

In view of these findings, improving the quality of education, enhancing learning outcomes and fostering skills development among adults are expected to remain key priorities for education and training policy in Kyrgyzstan for many years to come.