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The Rise of the South: Regional Compendium to the Global Human Development Report 2013

UNDP, Europe and the CIS Bratislava Regional Centre Grosslingova 35 811 09 Bratislava Slovak Republic Tel.: (421-2)59337-111 Fax.: (421-2)59337-450 http://europeandcis.undp.org


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The Rise of the South: Regional Compendium to the Global Human Development Report 2013


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Š UNDP 2013 ISBN: 978-92-95092-67-9 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted, in any form or by any means, mechanical, photocopying, recording or otherwise without prior written permission of the publishers. The views expressed in this publication are those of the authors and do not necessarily represent those of the United Nations including UNDP and their member states.

Layout and printing: Valeur


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TABLE OF CONTENTS Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 The “Rise of the South” and post-communist Europe and Central Asia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 The state of human development – Europe and Central Asia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Europe and Central Asia: Where North meets South . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Europe and Central Asia: a new generation of south-south cooperation initiatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

Table of Contents

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INTRODUCTION The Rise of the South: Regional Compendium International development cooperation, and global governance, are undergoing tectonic shifts. Many of these result from the rebalancing of the global economy: the combined output of Brazil, Russia, India, and China is now projected to equal the combined GDP of the United States, Germany, UK, France, Italy, and Canada by 2020. However, UNDP’s 2013 Human Development Report reminds us that economic growth does not automatically translate into human progress. Pro-poor policies and significant investments in people’s capabilities–through support for education, employment, nutrition and health–can expand access to decent work and provide for sustained progress. The Rise of the South: Human Progress in a Diverse World identifies four specific focus areas for sustaining development momentum: enhancing equity (including the gender dimension); enabling greater voice and participation by citizens and youth; managing demographic change; and ensuring environmental sustainability. It argues that, as global development challenges become more complex and trans-boundary in nature, coordinated responses to these challenges become ever more essential. The Report therefore calls for changes in global governance systems, in order to bring about a fairer, more equal world. It likewise highlights the role of global civil society in protecting the welfare of those most directly affected by global challenges–who are often the poorest and most vulnerable people in our world. Despite the on-going climate, financial, energy and food crises, many developing 4 |

countries–including some in Europe and Central Asia–continue to benefit from rapid economic growth. The innovative social and economic policies that have been developed in the “South”, the rapid growth in South-South trade, investment, migration, and remittance flows, and the growing importance of development cooperation among “Southern” partners, therefore need to be better understood, and where appropriate scaled up, and replicated. The Rise of the South therefore calls for new institutions to facilitate regional integration and SouthSouth cooperation. At first blush, development issues in Kazakhstan, other former Soviet republics, and in the Balkan transition economies may not seem strongly connected with these issues. The “rise of the south” evokes a northsouth OECD/G-77 paradigm that most of these countries have not fully bought into. It is telling that, at present, only Tajikistan, Turkmenistan, and Bosnia and Herzegovina are members of the G77. Prevailing development narratives by and large continue to be Euro- or Russo-centric (both figuratively and literally). In contrast to other developing countries, most of these governments have not sought to use climate change negotiations and other global fora to “get a better deal from the north”. Emphasis has instead been on resetting their relationships with one another–most recently via the Eurasian Economic Community’s customs union (of Kazakhstan, Russia, and Belarus); vis-à-vis the European Union and other representatives of the “traditional north” (e.g., the United States)–as well as with an ascending China.

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However, arguments that the “global south” paradigm is irrelevant for transition and developing Europe and Central Asia are in important respects wide of the mark. There are a number of ways in which this paradigm is already quite relevant–and its relevance could grow with time. This is apparent along four key dimensions: • The regional impact of on-going global political and economic rebalancings; • Emerging new regional centres of influence, like Kazakhstan and Turkey; • Common challenges for many Cen-

tral Asian and European developing and transition economies, as well as for developing economies from other regions–such as the “middle-income country trap”; and • Development successes from the “South” that could be replicated in the transition and developing economies of Central Asia and Europe. In the subsequent pages, the reader will find the further elaboration of these (and other) links between the “South” and the transition and developing economies of Central Asia and Europe.

Introduction

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The “Rise of the South” and post-communist Europe and Central Asia Ben Slay Team leader, poverty reduction practice UNDP Regional Bureau for Europe and CIS

Ships passing in the night? At first blush, the “rise of the south” and development issues in the post-communist former Soviet republics and the Balkans seem largely unconnected. The “rise of the south” evokes a north-south OECD/G-77 paradigm that most governments of these regions have not fully (or even largely) bought into. Development narratives are instead Euro- or Russo-centric, both figuratively and literally. In contrast to other developing countries, most governments in these regions have not sought to use climate change negotiations and other global fora to “get a better deal from the north”. Emphasis has instead been on resetting their relationships with the European Union (in either an accession or neighbourhood context), or on striking the right balance between Russia, representatives of the “traditional north” (e.g., the United States, European Union)–which were largely absent in these regions before 1990–and in some cases an ascending China. Countries with European world views in these regions have often sought to (re)join the north–as is apparent in the expansion of the European Union, NATO, and the OECD during the past two decades. But governments from these regions for which this option is unavailable or unappealing (e.g., Russia, Belarus, Central Asia) have not adopted traditional “southern” views. It is telling that, at present, only Tajikistan, Turkmenistan, and Bosnia and Herzegovina are members of the G77. 6 |

However, arguments that the “global south” paradigm is irrelevant for transition and developing Europe and Central Asia may in important respects be wide of the mark. There are a number of ways in which this paradigm is already quite relevant–and this relevance could grow with time. This is apparent along at least three dimensions: • Dynamics along the “north-southeast” triangle; • Common challenges for European and Central Asian developing and transition economies, and for developing economies from other regions, such as the “middle-income trap”; and • Ways in which post-communist countries could replicate development successes from the south.

“North”, “south”, and “east” “Rise of the south” narratives often take 1990 as a benchmark. However, the start of the post-communist transition is often also ascribed to 1990–the year of German (re)unification, in which radical market transformation programmes were introduced in Poland and (then) Czechoslovakia. It was also a year in which the centrifugal forces of nationalism and collapse that led to the subsequent dissolution of the Soviet Union and the Warsaw Pact, as well as the socialist federation of Yugoslavia, underwent noticeable intensification. This collapse of what used to be (patronizingly) referred to as the “second world” in turn underpinned “dominant north” narratives, which argued that the “end of history” had proven the superiority

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ation of the “north” that they have managed to re-enter. The same is probably true of the Western Balkan governments that are currently negotiating EU membership.1 On the other hand, the soft power of EU market access and “European values” had proved wanting in Central Asia, Russia, and Belarus even before the advent of the global and then European financial crises. The “north’s” influence in Central Asia has likewise been weakened by the expansion of China’s political and commercial weight–after decades of arguing with Washington and Brussels, landlocked, low-income Tajikistan and Kyrgyzstan are increasingly turning to China, Russia, Iran, and the Asian Development Bank for the technology and financing needed for large transport and hydropower projects. While these erstwhile “second world” countries may not be on course to join the

CHART 1 Regional GDP growth rates before and after the global financial crisis Average regional GDP growth rates

2007

2009 11.4%

9.0%

-6.4%

a g Asi lopin

USA

-1.7%

-3.4%

2.8%

Deve

-3.6%

1.8%

Latin Amer ica

-4.1%

2.7%

Midd le Eas t

2.9%

2.4%

7.2%

7.2%

6.2%

Africa

5.7%

5.5%

SEE/M MS*

and inevitability of “first world” North Atlantic market democracies. By implication, the “third world” faced few options: “third roads” had proven illusory; the developing world had no choice but to “get with the programme”. Resisting the inevitable meant missing out on the market access, investment flows, and technology transfer needed to make development happen. The perceived dominance of the “northern first world” vis-à-vis the “southern third world” was thus reinforced by the collapse of the “eastern second world”. What a difference two decades makes. The US and European economies are today struggling to recover from the effects of the global financial crisis–the Eurozone dimensions of which seem likely to keep much of Europe in the throes of economic stagnation (or worse) for years to come. Rather than being a beacon of development progress and inevitability, the “north” has become a source of global economic instability. Fortunately, growing numbers of developing economies are benefitting from continued rapid growth in “emerging markets” like Brazil, China, India, and Russia– particularly in terms of new sources of export demand and capital inflows. The growth momentum generated by emerging economies like China and India helped limit the impact of the global financial crisis in 2009–particularly for developing countries in Asia and Africa–even as the “north” fell into recession (see Chart 1). These trends, should they continue, could have profound effects on the erstwhile “second world”. Geography, economics, finance, politics, and culture seem to have driven the countries that joined the EU in 2004 and 2007 irrevocably into “Europe”. Short of a total collapse of the European project, it is difficult to imagine these countries’ geopolitical reorientation or renunci-

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FSU*

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Source: IMF World Economic Outlook database. * Former Soviet republics. ** Southeast European economies, new EU member states.

1 For more on this, see Dimitar Bechev, “The Periphery of the Periphery: The Western Balkans and the Euro Crisis”, European Council on Foreign Relations policy brief, August 2012.

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G77, they are increasingly benefitting from cooperation with erstwhile “third world” countries. If this cooperation continues to deepen, how long will it be before “northern” and post-Soviet development narratives and strategies are replaced by “southern” institutions and characteristics? The attraction to the “north” (chiefly Europe and the EU, but also NATO) is stronger in most of the rest of the former Soviet republics, which are covered by the European Neighbourhood Policy. However, interest in adapting European standards now seems to be weakening in some of the ENP countries where it had been strongest. This is apparent in recent elections in Georgia–where proNATO President Mikheil Saakashvili’s Movement for a United Georgia lost the October 2012 parliamentary elections–and in Ukraine–where the parties and leaders associated with the pro-Western “orange” revolution of 2005 have undergone a succession of electoral defeats. The European anchor has not been particularly strong in other former Soviet republics, like Azerbaijan and Belarus. Perhaps most importantly, Russia continues to offer a competing development narrative for its post-Soviet neighbours that is both of, and beyond, Europe and the “north”. These countries are unlikely to become card-carrying members of the G77 anytime soon, of course. But in addition to reflecting a waning of Northern/European influences, these developments are also helping to deepen the heterogeneity in the developing world, in which old labels and camps are giving way to new constellations and new forms of cooperation. This new pragmatism is perhaps best exemplified by Kazakhstan, whose “green bridge” sustainable development initiative seems to be finding traction outside (as well as within) the region.

The “European middle-income trap” According to the World Bank’s taxonomy, 108 countries are currently classified as “middle-income”, as opposed to only 36 low-income (and 70 high-income) countries. The majority of those individuals living in poverty (as measured by the $2/day standard, in purchasing-power-parity terms) are living in middle-income countries.2 Prospects for further progress in poverty reduction therefore depend on middle-income countries’ abilities to continue to enjoy economic growth, without more inequality in the distribution of income. This is particularly the case for the developing and transition economies in Europe and Central Asia–most of which fall into the “middle-income” category (see Table 1). While more and more “southern” economies are attaining middle-income levels, many have remained in this class for decades, as GDP has not grown much faster than population. Economists have increasingly focused on theories of “middle-income traps” to explain such outcomes.3 At issue is an economy’s ability to move from growth that is resource-based and relies heavily on low wages and unskilled labor, to a model that is based on rapid productivity growth, innovation, and increasing export competitiveness. Economies mired in middle-income traps typically suffer from undiversified, uncompetitive industrial structures and poor labor market conditions. They are also characterized by wage growth which exceeds growth in labour productivity, making their exports less competitive and reducing the benefits of participating in the global division of labour.

2 For more on the new geography of poverty, see Andy Sumner, “Where Will the World’s Poor Live? An Update on Global Poverty and the New Bottom Billion”, Centre for Global Development, Washington, 2012; and Homi Kharas and Andrew Rogerson, “Horizon 2025: Creative Destruction in the Aid Industry”, Overseas Development Institute, London, 2012. 3 See, for example, Homi Kharas and Harinder Kohli, “What Is the Middle Income Trap, Why do Countries Fall into It, and How Can It Be Avoided?”, Global Journal of Emerging Market Economies, September 2011 3: 281-289.

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Table 1–Current income-level classifications in Europe and Central Asia (World Bank taxonomy) Middle-income economies

Low-income economies

Lower middle-income

Upper middle-income

High-income economies

Kyrgyzstan

Albania

Azerbaijan

Croatia

Tajikistan

Armenia

Belarus

Cyprus

Georgia

Bosnia and Herzegovina

Czech Republic

Kosovo*

Bulgaria

Estonia

Moldova

Kazakhstan

Greece

Ukraine

Latvia

Hungary

Uzbekistan

Lithuania

Italy

Macedonia**

Poland

Montenegro

Portugal

Romania

Slovakia

Russia

Slovenia

Serbia

Spain

Turkey Turkmenistan * As per UNSC resolution 1244 (1999). ** Former Yugoslav Republic of Macedonia.

Middle-income traps are a “southern” issue that could now become increasingly relevant for the transition and developing economies of Europe and Central Asia–many of which are resource-based, have undiversified industrial sectors, and enjoyed rapid wage growth during their recoveries from the “transition recessions” of the 1990s. Moreover, as Chart 2 shows, many European middle-income countries have failed to recover from the global financial crisis after 2008. Many of these economies also rely heavily on exports to the EU’s single market and on finance from European banks. Since

growth in exports to the EU and external lending from European banks seems likely to be modest in the years to come, the immediate prospects for escaping the “European middle-income trap” do not seem particularly bright. And while recent internationally comparable income poverty data have not yet been released, it is clear that, four years later, household income and employment levels in many of these economies continue to remain below their 2008 levels. The “European middle-income trap” could preclude further progress in reducing poverty and social exclusion for the foreseeable future. The “Rise of the South” and post-communist Europe and Central Asia

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CHART 2 Selected European middle-income countries and the impact of the global financial crisis 2008 GDP = 100 100

Armenia Bulgaria

95

Croatia Latvia

90

Romania 85

Ukraine

80 2008

2009

2010

2011

Source: IMF World Economic Outlook database.

Lessons from the south Until recently, policy narratives in transition and developing Europe and Central Asia had not focused on “middle-income trap” issues. The emphasis had instead been on cyclical recovery from the recessions of the 1990s, trade liberalization and integration (to allow these countries to benefit from export-led growth), and structural reforms, to strengthen market mechanisms and market-friendly state institutions. This approach has reflected the belief that closer economic and financial integration–particularly with Europe–would be a major driver of growth and development. This assumption now seems unlikely to hold during the years ahead; socio-economic and political tensions could increase. Fortunately, developing countries from other regions have experienced important successes in laying the basis for sustainable economic growth and development. As “one-size-fits-all” universally relevant development prescriptions are few and far between, arguments for replicating “southern” solutions in the transition and developing economies of Europe and Central Asia need 10 |

to be handled with care. Still, some possibilities to explore include the following: Increasing fiscal space. Countries with significant fiscal space (e.g., in the form of stabilization or reserve funds) can offset losses in budget revenues during macroeconomic downturns and engage in significant countercyclical spending to mitigate their socio-economic impact. For example, some $4 billion from Chile’s Copper Stabilization Fund was used to support public works projects following the advent of the global financial crisis in 2008. Likewise, Russia, Kazakhstan, Azerbaijan, and Uzbekistan tapped their stabilization/reserve funds to finance public works projects in response to the crisis, particularly in 2009-2010. Unfortunately, many transition and developing economies in Europe and Central Asia do not have the conditions in place (e.g., budget surpluses, low public and external debts, deep domestic financial systems) to extend their fiscal space. Fiscal tensions and austerity, driven by the need to roll over relatively large public and external debts, are the more common case. But attempting to develop this space–for example, by tax reforms to expand the tax base and reduce administrative burdens on tax authorities, could be pursued, even in the short term. Reducing dependence on volatile exports, by promoting: • industrial and investment policies to develop new areas of comparative advantage, reflecting inter alia World Bank Chief Economist Justin Lin’s “new structural economics”, which emphasizes the government’s role in proactively upgrading a country’s human capital and infrastructure endowments in order to create dynamic comparative advantages and boost competitiveness; • trade facilitation (including fair trade) initiatives, as well as measures to improve access to trade finance; and • integration into global value chains– particularly for small businesses.

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Reducing the volatility of private capital flows, by: • Changing financial regulations to favour equity rather than debt inflows (the former tend to be less volatile than the latter, and do not contribute to external indebtedness), inter alia via governance reforms to increase transparency and accountability (in both the state and private sectors), in order to improve domestic investment and business climates; • Improved monitoring of private capital flows, to strengthen early warning and response systems in anticipation of capital-flow related shocks; and • Diversifying capital supplies away from the “northern” countries that have been the sources of global financial contagion since 2007. Recent research indicates that south-south investment flows have grown more rapidly and are less volatile than north-south flows. Increasing the development impact of private capital flows, via pragmatic use of local content requirements when attracting foreign direct investment; efforts to promote corporate social responsibility (including via the UN Global Compact); and measures to attract foreign investment to underdeveloped regions. Investing in capacity development for macroeconomic and social policy institutions and policy makers, via measures to attract and retain skilled national talent, investments in merit-based civil services, and in systems to anticipate, analyze, and respond to socio-economic crises. Global migration issues. Seven economies in the former Soviet Union and in Southeast Europe reported remittance

inflows in 2010 that were in excess of 10% of GDP. While they provide critical income sources for low-income families, these remittances also reflect the social trauma and transformation that come with large-scale migration. These economies therefore share with many other developing countries an intense interest in reforming global frameworks for regulating migration. They can also learn from the experience of other developing countries–like the Philippines–that have made progress in defending the welfare of their migrant workers abroad, and in harnessing remittances for broader development purposes. Reducing fossil fuel subsidies. Recent research indicates that fossil fuel subsidies are a considerable burden for many transition and developing economies in Europe and Central Asia.4 Some developing countries (like Costa Rica) have virtually abolished these subsidies–and have used part of the savings to increase social assistance for energy-poor households. Social policy reform. Many developing countries (particularly in Latin America) have introduced important innovations in social policy during the past two decades. They have reconceptualized social protection by combining the expanded use of conditional cash transfers with programming for food security, employment generation, disaster risk reduction, environmental protection, and the extension of basic services. For example: • Under Brazil’s Bolsa Família programme, 13 million vulnerable households (representing nearly 30% of the population) receive targeted social assistance at a cost of less than 1% of GDP. Recipient households are required to have their children in school

4 UNDP’s Energy Subsidies in the Arab World regional human development report estimated (on the basis of the price gap methodology) fossil fuel subsidies in Turkmenistan to be above 60%; in Uzbekistan to be above 50%; and in Kazakhstan at above close to 30%. This level was assessed at above 20% for Russian and Ukraine. UNDP’s report on Fossil Fuel Subsidies in the Western Balkans found that fossil fuels as a share of GDP ranged from 5% in Croatia to 35% in Kosovo.

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and to ensure they receive regular medical attention. Rural development is reconciled with protecting the country’s natural capital via the Bolsa Verde programme, which by 2014 will offer conditional cash transfers to 73,000 smallholder and indigenous households living in environmentally sensitive areas, who pursue ecologically sustainable livelihoods. • Since its inception in 1995, South Africa’s Working for Water programme has cleared more than one million hectares of water-intensive alien plant species, releasing 50 million cubic meters of additional water per annum for irrigated agriculture that reduces local food insecurity. Working for Water also provides jobs and training for some 20,000 people annually, many of which come from marginalized groups. • The 106,000 small hydropower stations installed under Sri Lanka’s Renewable Energy for Rural Economic Development programme created about 477,000 person-days of employment. Each mini-hydro facility constructed under this programme employed 8-11 local people during construction (lasting up to 18 months), providing an additional 3,600 to 4,950 person-days of local employment. It also employed three to four people for maintenance, generating another 90 to 120 person-days of employment per month. Combined with the incomegenerating effects of rural electrification, this employment creation helped reduce rural poverty while also promoting environmentally sustainable solutions to national energy security challenges.

From economic development to sustainable development During the previous two decades, policies in many transition and developing economies in Europe and Central Asia focused primarily on promoting economic growth; some have also focused on capturing the benefits of European integration. Less attention has been paid to social development and environmental protection. In the aftermath of the large declines in GDP that were recorded in the 1990s (and of Turkey’s economic crisis during 1999-2001), this emphasis was understandable. However, growth prospects for many of these economies seem likely to be more modest during the coming years. While high world market prices for energy and metals may boost growth in others, these export gains need not automatically translate into broad improvements in living standards, especially for vulnerable households. They could also complicate the response to the water, land, and other environmental management challenges these countries are facing. These circumstances place a premium on the adoption of genuinely integrated national (and sub-national) policy frameworks, which can promote economic growth while also building social cohesion and resilience to natural disasters, and without putting the environment at risk. Notwithstanding the impact of the global financial crisis, some countries from the “south” (e.g., Brazil) have in recent years succeeded in accelerating economic growth while reducing income inequality and strengthening environmental protection.5 Such examples could be intensely relevant for the transition and developing economies of Europe and Central Asia.

5 For more on this, see UNDP’s Triple Wins for Sustainable Development, especially pp. 30-37.

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The state of human development – Europe and Central Asia1 Milorad Kovacevic, UNDP HDRO Mihail Peleah, UNDP BRC

Since the first Human Development Report in 1990, there has been substantial global progress: many developing economies continue to grow and raise standards of human development. This is generally true for the ECA region despite the turbulence of the 1990s (see Figure 1). The rise of the South is a feature of a rapidly changing world. The South (as defined in the GHDR 2013) now accounts for almost a third of world output and consumption. Without robust growth in these economies, led by

China and India, the global economic recession of 2008-2009 would have been deeper. Nevertheless, there are signs of contagion, with real concern that in an interconnected world the crisis in the North may slow developing countries’ progress. Latvia was hardest hit by crisis, with GDP contracting by 17.7% in 2009. Turkmenistan had highest growth rate in the same period, increasing GDP by 6.1%. Overall, GDP growth in 2009 in Central and Eastern Europe was -3.1%; in the Commonwealth of Independent States it was 5.4%. In many countries, with some notable exceptions, governments are introducing

FIGURE 1. GDP annual growth in the Region 20

30.0

15

20.0

10

10.0

5 0.0 0 -10.0

Caucasus New Member State

Central Asia Western Balkans

OECD Western CIS

Turkmenistan Latvia

2011

2010

2009

-20 2008

-40.0

2007

-15

2006

-30.0

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

-10

2005

-5

-20.0

Major advanced economics (G7) Central and eastern Europe Commonwealth of Independent States

Source: International Monetary Fund, World Economic Outlook Database, October 2012

1 Based on the 2013 Human Development Report. The authors acknowledge inputs and comments from Amie Gaye (HDRO) and Andrey Ivanov (BRC)

The state of human development – Europe and Central Asia

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FIGURE 2. General government final consumption expenditure 25.0 Europe and Central Asia General gov. final consumption expenditure (%of GDP)

23.0 West Balkans

21.0 19.0

West CIS

17.0

Caucasus

15.0

Central Asia

13.0 New Member States 11.0 EU27

9.0

OECD

7.0

World

5.0 2005 2006 2007 2008 2009 2010 2011

Source: World Bank (2012) Note: General government final consumption expenditure includes all government current expenditures for purchases of goods and services expressed as percentage of GDP

FIGURE 3. Total debt service in the Region 50 Total debt service (% GIN)

45

Europe & Central Asia (developing only)

40 35 30

Latvia

25 20 15

Turkmenistan

10 5 0 2005

Source: World Bank (2012)

2006

2007

2008

2009

2010

harsh austerity measures that reduce the government’s welfare role and cut back on spending and public services (Figure 2), leading to hardship and exacerbating economic contractions. Governments are imposing austerity programmes because of a legitimate concern about the sustainability of sovereign debt. But there is a risk that short-term measures will cause long-term damage, eroding the human development and social welfare foundations that enable economies to grow. Estimations done in the wake of the crisis suggest that the human development cost of the crisis could be quite significant, and that negative effects will linger on2. Figure 3 shows the evolution of total debt service in the region over the period (2005-2010). Total debt service is a sum of principal repayments, interest, and repayments (repurchases and charges) actually paid to the International Monetary Fund, expressed as percentage of gross national income. The graph presents the average for the region and two countries–with the highest and the lowest levels of debt service (as a share of GNI). There is also evidence that deploying drastic austerity programmes too quickly can deepen and prolong recessions–thus weakening economic conditions and increasing unemployment. The region has one of the lowest employment-to-population ratios (58.4%)– only the Arab States’ average (52.6%) is below this. Employment ratios vary from below 37.2% in Bosnia and Herzegovina to nearly 71% in Azerbaijan. (See Figure 4). Youth unemployment is a particular concern throughout the region. It is defined as the percentage of the population aged 15 to 24 that is not in paid employment or self-employed, but is available for work and

2 Balázs Horváth, Andrey Ivanov and Mihail Peleah. 2012. “The Global Crisis and Human Development: A Study on Central and Eastern Europe and the CIS Region”. Journal of Human Development and Capabilities, 2012, vol. 13, issue 2, pages 197-225. http://hdl.handle.net/10.1080/ 19452829.2011.645531

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FIGURE 4. Employment to population ratio (25 +) 70 Europe and Central Asia West Balkans

65

West CIS 60 Caucasus 55

Central Asia New Member States

50

EU27 45 OECD 40

World 2005

2006

2007

2008

2009

2010

2011

Source: World Bank (2012)

FIGURE 5. Changes in unemployment rates, in percentage, 2007-2012 (or closest) 47.1

15.0 11.0

8.5 5.7

5.0

3.0

3.0

ion Europ ean U n

egro Mont en

Mace doni FYRO a, M

Kosov o

-5.0

Croat ia

-3.0

Turke y

-1.2

1.0 -1.0

2.9

1.8

a

7.0

Youth

7.1

Serbi

9.0

Total

12.1

13.0

Herze govin a

is actively seeking jobs. The current crisis hit youth hardest (as Figure 5 shows). While the general unemployment increased slowly, young people were first to be fired. In the Former Yugoslav Republic of Macedonia between 2007 and 2012 youth unemployment jumped up by dramatic 47 percentage points, so that now more than half of the youth are unemployed (roughly twice the national average). The crisis affects youth lives in a variety of ways. For instance, youth end up living longer at their parents’ homes, not being able to establish a household of their own. Lack of prospects augments emigration push-factors, and increases the risk of dropping out of education, exposure to criminality, affiliation with extremist movements or simply becoming indifferent to democratic processes. It is no surprise that many observers see the lack of opportunities for youth as a driver of radical and sometimes violent transformations–the Arab Spring, the 2011 England riots, the 2010 unrest in Southern Kyrgyzstan,3 and elsewhere. While countries have different degrees of freedom to adjust their spending priorities, for many there is ample scope for reprioritization. Even where fiscal consolidation is necessary, it need not involve cuts in welfare services. For instance, military spending worldwide exceeded $1.4 trillion in 2010, more than GDP of the world’s 50 poorest countries combined. The world average military spending in 2010 is at 2.6% while the Region is slightly above this average (2.7%). Not all countries have the preconditions for complete demilitarization, but most have scope for substantial slowing in military spending and free some of these resources to invest in infrastructure and human development.

Bosnia and

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Employment to population ratio

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Source: Own calculations based on ILO KILM 7th Network version, http://kilm.ilo.org/kilmnet/

3 The Kyrgyzstan NHDR published just a few months before the riots was devoted to youth. The foreword to the report states “As a ‘young’ state, both historically and demographically, Kyrgyzstan faces serious challenges: this Report demonstrates the potential to transform these challenges into real opportunities through focused efforts to tackle youth’s human development problems.” Unfortunately, the challenges outlined in the analysis transformed into a crisis.

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Human development rogress in the region

FIGURE 6. Military spending (% GDP) 4.5 Europe and Central Asia

4.0

West Balkans

Military spending (%CDP)

3.5 3.0

West CIS

2.5 Caucasus 2.0 New Member States

1.5 1.0

EU27

0.5

OECD

0.0 2005

2006

2007

2008

2009

2010

Source: World Bank (2012)

FIGURE 7. HDIs for the sub-regions of Europe and Central Asia 0.900

Caucasus

0.850 0.800

EU/ Western Europe

0.750

Western Balkans

0.700

OECD Average

0.650

Central Asia

0.600 0.550

New Member States

0.500

Western CIS

0.450

Source: 2013 Human Development Report, UNDP, own calculations Regional averages are population-weighted for countries

2012

2010

2008

2006

2004

2002

2000

1998

1996

1994

1992

1990

1988

1986

1984

1982

1980

0.400

Every Human Development Report has monitored human progress, notably through the human development index (HDI), a composite measure that includes indicators for longevity, educational attainment, and command over the resources needed for a decent living. Other indices delve into inequality, poverty, and gender inequality. HDIs in 2012 reveal much progress (Figure 7). Over the past decades countries across the world have been converging towards higher levels of human development. In 2012, the global average HDI value was 0.694; sub-Saharan Africa had the lowest HDI (0.475), followed by South Asia (0.558). Among developing regions, Europe and Central Asia had the highest HDI (0.771), followed by Latin America and the Caribbean (0.741). However, regional averages hide important differences between sub-regions and individual countries. The highest level of human development is achieved in the EU/Western Europe states (0.893), followed by the New Member States (0.820), the countries of the Western CIS (0.775), the Western Balkans (0.765), Caucasus (0.736), and Central Asia4 (0.701). But the intra-regional differences are even more pronounced: for instance, in Central Asia human development index ranges between 0.754 for Kazakhstan (ranked 69) and 0.622 for Kyrgyzstan and Tajikistan (which shared 125th place). The pace of human development progress reflected in HDI trends over past two decades in Europe and Central Asia has been uneven. It has been fastest in countries in the low and medium human development categories and steady in EU/Western Europe states and New Member States. This is good news. Yet progress requires more than average improvement in the HDI.

4 For classification simplicity reasons we included Turkey in Central Asia region.

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FIGURE 8. HDIs for the Central Asia sub-region 0.800

Kazakhstan

0.750

Turkey Turkmenistan

0.700

Uzbekistan

0.650

Kyrgyzstan 0.600 Tajikistan 0.550 Central Asia average

2012

2010

2008

2006

2004

2002

2000

1998

1996

0.500 1994

It will be neither desirable nor sustainable if increases in the HDI are accompanied by rising inequalities in income, unsustainable patterns of consumption, high military spending and low social cohesion. Prior to 2008 the New Member States managed to pass through transition without significant human development losses: growth resumed and investments in human capital continued. While on average progress in Central Asia was fastest, in reality only Turkey managed to have continuous progress. Other countries faced painful transition, often coupled with internal conflicts, and paid high human costs. Tajikistan suffered most and managed to recover its pre-transition HDI level only in 2011; Kyrgyzstan did it around 2007. Similar pictures are apparent in other countries of region, where transition was also painful. It was argued5, that one possible explanation of human development trends in the region is the human development approach–countries with established agency showed better progress, while the countries where high levels of human development were achieved though basic needs approach of cogwheel society faced additional transition challenge–emerging of agency. There are large differences across the region in the components of HDI–life expectancy, expected years of schooling, mean years of schooling, and income. The region shows large variability in all four component-indicators of the HDI. Almost all countries in the region report average life expectancy data that are below OECD averages. The mean years of schooling among adults over 25 is spread over a relatively narrow range (8 to 12.5 years); however, expected years of schooling, which better reflects changing education opportunities in developing countries,

1992

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Source: 2013 Human Development Report, UNDP, own calculations Regional averages are population-weighted for countries

FIGURE 9. The average annual growth rates of HDI for the period 2000-2012 1.60 1.40 Average annual growth (%)

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1.20

Europe and Central Asia (all income levels)

1.00

Cyprus

0.80

Tajikistan

0.60 OECD members

0.40 0.20 0.00

Source: 2013 Human Development Report, UNDP

5 Ivanov, Andrey and Mihail Peleah. 2010 „From centrally planned development to human development“. Human Development Research Paper 2010/38. http://hdr.undp.org/en/reports/global/hdr2010/papers/HDRP_2010_38.pdf

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FIGURE 10.

EU/ Western Europe

Life expectancy at birth, years

85.0 83.0

New Member States

81.0 79.0

Western Balkans

77.0

Western CIS

75.0

Caucasus

73.0

Central Asia

71.0 69.0 67.0

Gross national income (GNI) per capita, 2005 PPP $

Large variations in values of indicator components across countries in the region

0.800

0.900

1.000

13.0

EU/ Western Europe

12.0

New Member States

11.0

Western Balkans

10.0

Western CIS

9.0

Caucasus

8.0

Central Asia

7.0

Nonincome HDI

0.700

0.800

0.900

1.000

1.000

EU/ Western Europe

0.950

New Member States

0.900

Western Balkans Western CIS

20,000

Caucasus Central Asia

0.700

0.800

0.900

1.000

19.0

EU/ Western Europe

18.0

New Member States

17.0

Western Balkans

16.0 15.0

Western CIS

14.0

Caucasus

13.0

Central Asia

12.0 11.0 10.0 0.600

6.0 0.600

Expected years of schooling, years

Mean years of schooling, years

0.700

New Member States

2,000 0.600

65.0 0.600

EU/ Western Europe

0.700

0.800

0.900

1.000

Western Balkans

0.850

Western CIS

0.800

Caucasus

0.750

Central Asia

0.700 0.650 0.600 0.600

0.700

0.800

0.900

1.000

is spread over a wider interval (11 to 17 years). Average gross national income (GNI) per capita varies over a very wide range– GNI per capita in Slovenia is more than 10 times higher than in Kyrgyzstan. 18 |

Between 2000 and 2012 average life expectancy increased for 3.3 years, so it seems that the region is making up for the stagnation and slow increases recorded in the 1990s (see Figure 11). Again, regional aver-

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FIGURE 11. Evolution of life expectancy since 1980 85 80

Europe & Central Asia (all income levels)

75

OECD members

70

Cyprus

65 Turkmenistan

60

Russian Federation 2012

2011

2010

2005

2000

1995

1990

1985

1980

55 Source: 2013 Human Development Report Office Database, UNDP

FIGURE 12. Mean years of education shows a steady increase over the last 30 years 14 Europe & Central Asia (all income levels)

12

OECD members

10

Turkey

8 6

Czech Republic

4

Russian Federation 2010

2005

2000

1995

1990

1985

1980

2

Source: 2013 Human Development Report Office Database, UNDP

TABLE 13. Expected years of schooling 17 16

Europe & Central Asia (all income levels)

15 14

OECD members

13 12

Albania

11 10

Estonia

9 2012

2011

2010

2005

2000

1995

1990

1985

8 1980

age hides some important country details. Life expectancy increased steadily in the New Member States, but fell in a number of countries of region, especially between 1990 and 1995. This decrease in life expectancy has been driven by a number of factors, including a number of armed conflicts, but also by general societal instability, manifested in higher rates of suicide (especially for teen males), homicide, crime, alcohol abuse and related mortality. Well-educated adult populations remain an important comparative advantage for the region (see Figure 12). In order to improve current HDI levels and make these improvements sustainable, it seems that having children in schools where education is of reasonably high quality is must. Table 13 represents the evolution of expected years of schooling since 1980. Another essential component of human development and the HDI is command over resources, as measured by income per capita. Between 2000 and 2012 income per capita rose in all countries in the region, though in varying degrees (Figure 14). The highest average annual growth in income per capita was recorded in Azerbaijan and Turkmenistan both over 20%. Even 16 countries surpassed 5% growth. As most Human Development Reports have underscored, what matters is not only the level of income, but also how that income is used. A society can spend its income on education or on weapons of war. Individuals can spend their income on essential foods or on narcotics. For both societies and individuals, what is decisive is not the process of wealth maximization, but how income is converted into human development. Table 2 in the Statistical Annex of the 2013 Human Development Report shows country successes in this respect, as measured by the largest positive difference between GNI per capita and HDI ranks. Georgia tops the list for the region with a difference of 37 positions, followed by Montenegro and Kyrgyzstan (with differences

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Expected years of schooling

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Source: Human Development Report Office

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FIGURE 14. Income per capita is rising to varying degrees across the region 35000

Europe & Central Asia (all income levels)

30000

GNI pc

25000

OECD members

20000

Turkmenistan

15000 Malta

10000 5000

Azerbaijan 2012

2011

2010

2005

2000

0

of 24 ranks). On the other hand, for Turkey and Turkmenistan this difference is negative–meaning that these countries have to find a way of converting income gains into gains in human development.

FIGURE 15. Breadth and intensity of multidimensional poverty in the region

New Member States 44.0

Turkey

West Balkans West CIS

Intensity of deprivation,%

42.0

Caucasus

40.0 38.0

Tajikistan

36.0

Estonia

34.0

Hungary Czech Republic

32.0 30.0 0.0

5.0

10.0

15.0

20.0

Population in multidimensional poverty, %

20 |

25.0

Poverty One of the world’s main priorities is to eradicate poverty and hunger. This is the first of the eight Millennium Development Goals, for which the target for 2015 was to halve the proportion of people living on less than $1.25 a day relative to 1990. This goal was achieved three years before that target date, primarily because of the success of some populous countries: Brazil, China and India. Poverty, however, is not just lack of income–this is why monetary poverty estimates do not reveal the full picture. Poverty has multiple dimensions, pertaining to health and education, for example. This is why multidimensional poverty monitoring accounting for other dimensions can better reflect the human development paradigm. The Multidimensional Poverty Index (MPI), which looks at overlapping deprivations in health, education and standard of living, is the product of the multidimensional poverty headcount (the share of people who are multidimensionally poor) and the average number of deprivations that each multidimensionally poor household experiences (the intensity of their poverty). Focusing on the intensity of poverty enables the MPI to provide a more complete picture of poverty within a country or a community than is available from headcount measures alone (see Figure 5). The MPI has been calculated for 24 out of the 31 countries in the region. It shows that multi-dimensional poverty is relatively low in this region. The MPI values for the countries of the region are small but its components reveal an interesting picture. Deprivation in education contributes 42.3% to Turkey’s MPI and even 84.2% to Russian Federation’s MPI; while deprivation in health accounts for 45% MPI in Tajikistan and 91.1 % in Ukraine. Social exclusion is an important issue in the region; the recently published Regional

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Human Development Report6 analysed it in detail. Following the MPI methodology, the reports calls for adopting region-specific metrics of social exclusion that would go beyond traditional monetary poverty estimates and would be comprised of indicators that are highly relevant for the region. Inequality An essential part of human development is equality. Every person has the right to live a fulfilling life according to his or her own values and aspirations. No one should be doomed to a short life or a miserable one because he or she happens to be from the “wrong” class or country, the “wrong” ethnic group or race or the “wrong” sex. Inequality can slow the pace of improvements in human development, and in some cases may prevent it entirely. This is most marked for inequality in health and education and less so for inequality in income, where the effects are more substantial in high and very high HDI countries. An analysis of 132 developed and developing countries for this Report finds an inverse relationship between inequality and human development reinforcing the conclusions of several studies of developed countries. The effects of inequality on human development can be captured by the inequality-adjusted Human Development Index (IHDI), which examines the average level of human development and its distribution along the dimensions of life expectancy, educational attainment, and command over resources. Where there is no inequality, the IHDI equals the HDI. A relative difference between the two denotes inequality; the greater the difference, the greater the inequality.

The IHDI has been calculated for 29 out of the 31 countries in the region. (It has not been calculated for the Russian Federation and Turkmenistan, due to missing distribution data on education for both countries, and in the case of Turkmenistan for income as well). Inequality in life expectancy at birth is calculated for all 31 countries, in education for 29 countries, and in income for 30. Relative to other regions, inequality in the distribution of HDI achievement appears minimal in Europe and Central Asia (Figure 16). The overall loss when the HDI is adjusted for inequalities is 12.9%, about half the world average loss of 23.3%. The income component is where the loss due to inequality is highest in the region (16.3%) followed by health (11.7%). Looking at individual countries, the biggest HDI loss due to inequalities is suffered by Turkey (22.5%) followed by Tajikistan (18.4%). The country suffering the least loss is Czech Republic (5.4%). In terms of the components, the biggest loss in life expectancy at birth is suffered by Tajikistan 27.2%), followed by Turkmenistan (26.7%). The country suffering the least loss on this component is the Czech Republic (3.9%). On the education component, Turkey suffers the biggest loss (27.4%) and the least 1.3%, also by Czech Republic. The biggest loss due to inequality in the income component is suffered by Croatia (27.8%) and the least by Azerbaijan (4.5%). Globally, there have been much greater reductions in inequality in health and education in the last two decades than in income. This is partly because of the measures used–life expectancy and mean years of schooling–have upper bounds to which all countries eventually converge. But for income there is no upper limit, so the scope for inequalities is greater.

6 Regional Human Development Report 2011. Beyond Transition: Towards Inclusive Societies. http://europeandcis.undp.org/ourwork/ poverty/show/3D67787C-F203-1EE9-B865429091EC6355

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FIGURE 16.

25.0

30.0

20.0

25.0

Inequality in health (%)

Total inequality (%)

Total and marginal inequality in distribution of the HDI

15.0 10.0 5.0 0.0

20.0 15.0 10.0 5.0 0.0

0.500

0.600

0.700

0.800

0.900

1.000

0.500

0.600

0.700

HDI

1.000

0.800

0.900

1.000

30.0

25.0

Inequality in income (%)

Inequality in education (%)

0.900

HDI

30.0

20.0 15.0 10.0 5.0 0.0

25.0 20.0 15.0 10.0 5.0 0.0

0.500

0.600

0.700

0.800

0.900

1.000

0.500

0.600

0.700

HDI

Gender equality is both a core concern and an essential part of human development. All too often, women are discriminated against in health, education and the labour market, which restricts their freedoms. The extent of discrimination can be measured through the Gender Inequality Index (GII), which captures the loss of achievement due to gender inequality in three dimensions: reproductive health, empowerment and labour market participation. The higher the GII value, the greater the discrimination. The GII is calculated for 25 out of the 31 countries in Europe and Central Asia. (It is not calculated for Belarus, Bosnia and Herzegovina, Turkmenistan and Uzbekistan due to missing data for the education compo22 |

0.800

HDI

nent; and for Montenegro and Serbia due to missing labour force data.) The average GII value for the region is 0.280 making it the best performer relative to other regions. In terms of components, the region outperforms other regions on maternal death and the share of females with at least secondary education. However, it does not do so well when it comes to women’s share of parliamentary seats. The region’s average of 16.7% is 3.6 percentage points below the world average of 20.3% and only slightly better than the Arab States’ regional average of 13%. Slovenia leads the region with a GII value of 0.080, followed by Czech Republic with a value of 0.122. Georgia has the worst GII value in the region (0.438), followed by Turkey with a value of 0.366.

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International trade flows of goods and services In light of the theme of this year’s report: “The rise of the global south: Human progress in a diverse world” we have introduced indicators on trade in goods and services to reflect on the extent to which countries are integrated into the global economy. These indicators are placed in table 10 of the Statistical Annex to the Global Human Development Report. The value of the region’s total merchandise goods exports is $1.2 trillion, representing 9% of the world’s $13.6 trillion. The Russian Federation leads the region in exporting goods, to the tune of $400.1 billion, followed by Poland with $157.1 billion in 2010, representing 29.5% and 34.9%% of the two countries’ respective GDPs. Cyprus, Armenia, and the Republic of Moldova exported the smallest amount of merchandise goods during this year ($0.8 billion, $0.9 and $0.9 billion respectively). Manufactured goods account for 54.9% of the region’s exports. Manufactured goods as a share of the merchandise exports of countries in the very high human development group from the region range from 50.2% in Cyprus to 86.4% in the Czech Republic. However, for the Russian Federation, the leading exporter of merchandise goods in the region, manufactured goods comprised only 14.1% of total merchandise exports. Merchandise imports follow a similar pattern: The Russian Federation was the region’s largest importer (to the tune of $248.7 billion) followed by Turkey and Poland (with imports of $185.5 billion and $174.1 billion, respectively). Merchandise exports and imports represent, on average about one-third of the region’s GDP. The total value of the region’s merchandise exports and imports is $1.2 trillion each. The value of service exports is low in comparison with goods exports. The Russ-

FIGURE 17. Regional shares of population and exports of merchandise goods and services 100%

OECD

90% Sub-Saharan Africa

80%

South Asia

70% 60%

Latin America and the Caribbean

50% 40%

Europe and Central Asia

30%

East Asia and the Pacific

20%

Arab States

10% 0% Export of Goods

Export of Services

Population

ian Federation leads the region to the tune of $44.3 billion, followed by Turkey (with $34.4 billion). The total value of the region’s service exports was $251.7 billion constituting 7.3% of the world total of $3.4 trillion. The region’s import of services amounted to $232.3 billion, constituting 7.1% of the world total of $3.3 trillion. Social integration is another important area addressed by the 2012 HDR. Table 9 (with 13 indicators grouped in four dimensions) indicates whether a society is inclusive and integrated. In particular, we look at the extent of equal rights and opportunities for employment, overall inequality, human safety, and trust and community satisfaction. Complementary objective indicators and perception-based indicators allow for a more nuanced picture of social integration. Life, freedom, and job satisfaction focus on individuals’ views of their personal conditions, while trust in people and government, along with community satisfaction, give insight into people’s satisfaction with broader society. Estimates for child labour are available for only 16 countries, ranging from just 1% The state of human development – Europe and Central Asia

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in Romania to 18% of children of ages 5 to 14 years being economically active in Georgia. The average overall life satisfaction based on the Gallup World Poll data for the region is at 5.3 (on the scale from 0 to 10), which is the same as the world average. Cyprus shows the highest overall life satisfaction of 6.7 followed by Czech Republic (6.3) and Malta (6.2). At the bottom is Bulgaria (3.9). Satisfaction with freedom of choice is measured by the share of people that responded affirmatively to the question of whether they are satisfied with the freedom to choose what they do with their lives. With 58.9% responding “yes”, the region is the least satisfied when it comes to freedom to choose. (This average was 15.4 percentage points below the world average.) Slovenia and Uzbekistan with 90% of respondents satisfied were at the top, while Bosnia and Herzegovina was at the bottom with only 33% satisfied with the freedom of choice. On the other hand, 71% responded that they are satisfied with their jobs, even though only 76.5% were satisfied with economic conditions in their communities. Only 43.9% responded that they have trust in their governments, which was the lowest value among regions. Perceptions of safety (53.5% responded that they feel safe) were better than in Latin America and the Caribbean (42%). The average homicide rate of 5.5 per 100,000 peo-

24 |

ple was below the world average of 6.9 per 100,000, However, only 21.5% responded that they have trust in others. The average suicide rate for men (35.4 per 100,000) was almost twice the average for the OECD countries (19.4 per 100,000), while the averages for women were similar (6.9 for the region and 6.2 for women OECD countries). The highest male suicide rates were recorded in Lithuania (61.3), the Russian Federation (53.9), and Belarus (48.7), while the lowest were in Azerbaijan (1), Armenia (2.8) and Tajikistan (2.9). The highest female suicide rates were in Hungary (10.6), Lithuania (10.4) and Serbia (10).

Looking forward The evident growth of human development as measured by the HDI trends in the region can be further improved by consolidating the economic strength of the countries, and by the full commitment of national governments to human development. Successful performance in trade, investment and international production also depends on rising levels of human development. Education and job creation are key for most countries in the region to tackle imbalances due to aging for some; and for others to benefit from the demographic bonus. Maintain and improve connections within the region and with other parts of the world – the world is more connected than ever.

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Europe and Central Asia: Where North meets South1 Andrey Ivanov Regional human development advisor UNDP Regional Bureau for Europe and CIS

Between the rising “South” and the relatively declining “North” is the “transforming East” (Eastern Europe and Central Asia) that combines features of both. In 2009 the ECA region accounted for 7% of the Global South’s (as defined in the GHDR 2013) population, 32% of its territory and 15% of its GDP in PPP$ (with population and GDP down, compared to 1990, from 9% and 37%, respectively). But its experience could be relevant disproportionately to its size. In the last two decades, this region experienced a set of remarkable political and economic transformations, which hold lessons for those countries in the South that are undergoing through similar processes. Take the obvious common challenges– departures from centrally planned statecontrolled economies, rising inequality, redefinition of the role of the state and its relations with mainstream society. The ‘former socialist bloc’ experienced all these, and different countries tested different policy approaches to tackle them. Each approach can yield valuable lessons–including on pitfalls, which can help prevent a repetition of mistakes at a grander scale elsewhere. The region has a vivid memory of the decline of a global superpower, of restoring sovereignty to nation states, and of sharply falling living standards and human development levels in the first stages of transformation. It also recalls the subsequent redefinition of basic social structures and the

recovery in human development levels. The various models of growth amid varying shades of democracy, diverse geopolitical orientations with different aggregate human development outcomes–all these can prove highly relevant for the rising South. The most recent Regional Human Development report (“Beyond Transition, Towards Inclusive Societies“, published in 2011) on social inclusion in the ECA region provides some important insights for the rising South. First, it shows that social inclusion is intrinsically linked to human development. Countries with high HDI values have lower values of the social exclusion index (developed and tested in the framework of the report). This is not surprising, given the fact that both concepts are human-centered and strongly complement each other. The report also finds still pervasive social exclusion in the Europe and Central Asia region–with one out of every three persons socially excluded–despite many years of recovery and growth after the first ‘transition shock’ of the early 1990s. Importantly, the economic dimension (poverty, unemployment) accounts for barely a third of the exclusion risks facing individuals. Social exclusion’s two non-economic dimensions –exclusion from social services and exclusion from participation in civic and social life and networks–are no less important. A person may be highly educated, economically well off, may have his or her rights respected and face no obstacles to individual freedom, but if s/he does not have a community to identify with and be included in, s/he might still be socially excluded.

1 Based on Beyond Transition: Towards Inclusive Societies, UNDP Regional Human Development Report, 2011.

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The analysis of the social exclusion index and its relationship to other variables suggests important clues on policies that can help build inclusive societies–in the ECA region but also in the rising South. Social exclusion is positively correlated with labor informality, the number of procedures necessary to start a business, and tolerance of corruption at the local level. It is negatively correlated with operational and accessible labour market institutions–owing both to the positive impact of employment on social inclusion, and to the fact that sound governance institutions strengthen market mechanisms. A major lesson learnt from two decades of transition is that the state has a critical role in creating an environment for inclusive growth and inclusive societies. Governments have a clear responsibility for defining and enforcing equitable ‘rules of the game’, for preventing market failures, and for maintaining affordable social services and effective, accessible social safety nets. Rather than being a burdensome obligation for state budgets, these are long-term investments in human capital and competitiveness.

26 |

Abruptly abandoning areas of state responsibility or ideological insistance on rapid privatization of each and every stateowned company may prove very costly for societies in the long run. But retaining some responsibilities does not mean keeping earlier state structures intact. On the contrary, reforms to strengthen national institutions’ transparency and accountability, and limit the scope of corruption are needed to improve the quality of governance and efficiency of governments. Even the best-crafted policies do not attain much if they do not resonate with the expectations of responsive and supportive constituencies. Social inclusion–similarly to human development–requires active and empowered citizens. To have a lasting positive effect, policies need to be communicated to the public, and the public needs to accept them as legitimate and being in society’s interest. Seen from that perspective, changing mindsets towards universally accepted values has immediate policy relevance. The importance of deliberate efforts to change mindsets and increase tolerance of diversity is another lesson learnt from the ECA region.

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Europe and Central Asia: a new generation of south-south cooperation initiatives Dmitry Mariyasin New Development Partnerships Coordinator UNDP Regional Bureau for Europe and CIS

The emerging economies of Europe and Central Asia–while mostly belonging to the North in terms of geography and development levels–share many of the South’s challenges. At the same time, the region’s countries can offer valuable lessons in political and economic transformation, which in turn have given birth to a new generation of south-south cooperation initiatives. The EU-12 countries, as well as Azerbaijan, Croatia, Kazakhstan, the Russian Federation, and Turkey, are “emerging” or “re-emerging” donors. They represent a growing force in development cooperation and can play a unique role in the global quest for policies and responses promoting sustainable human development. The total development assistance from the region’s emerging donors stood at over $3 billion in 2011, and while this figure receded slightly in the new EU member states, it has been on a steady rise in Russia and Turkey–reflecting these economies’ growing size and clout. This has firmly put the region on the global map of development cooperation. Russia is an active member of several global groupings, including the G20 (which it chairs in 2013) and the G8 (which it chairs in 2014). Russia has committed significant resources to several global development initiatives, such as the Muskoka Initiative (for maternal, child, and newborn health), and the Global Fund for AIDS, Tuberculosis, and Malaria. In the same vein, Kazakhstan’s humanitarian and development assistance,

especially to Afghanistan and Central Asia, is on the rise, as the country increasingly assumes the role of a regional leader. Turkey, the region’s largest donor, increased its assistance in 2011 by over 35%, making it the fastest growing OECD donor country in that year. This is especially important given Turkey’s emphasis on the needs of the least developed countries. However, the growing significance of Europe and Central Asia in international development cooperation is about more than financial flows: recent, hard-won transition experience is also a key asset. Very often with relatively modest funding, these emerging donors are helping to create a new generation of south-south (or easteast) partnership linkages, with neighbouring countries and beyond. Examples include knowledge- and experience-sharing projects in Kyrgyzstan, Tajikistan, Georgia, and elsewhere, funded by the UNDP-supported Slovak, Czech, and Hungarian Trust Funds; Slovakia’s Public Finance Management Programme benefiting Montenegro and Moldova; Romania’s work to share experience on elections with Egypt and Tunisia; Poland’s support for developing small and medium-sized enterprises in Iraq; and Croatia’s recently launched efforts to share EU-accession preparation experience with its neighbours. When appropriately applied, this knowledge allows the region’s new or re-emerging donors to achieve more with less. This new generation of south-south linkages is unique for a number of reasons. • They represent new, blended, models of development cooperation under which modest financial flows facilitate the transfer of knowledge and Europe and Central Asia: a new generation of south-south cooperation initiatives

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experience. This is both aid and south-south cooperation at the same time. The knowledge being transferred is “hot off the press”, and is often delivered by specialists who have themselves been personally involved in making transitions happen. This knowledge can carry a profound sense of reality and appreciation for the problems and challenges of developing countries. It can also come with openness about the mistakes and failures as much as about the successes of reforms. • This assistance is often based on common language, cultural, and other ties, and is geographically more compact, compared to other (more traditional) forms of south-south cooperation. Commonality of culture and language is most evident in the growing development cooperation between Russia and many any former Soviet republics; between Turkey and Central Asia; and in the Balkans. This cooperation is helping to restore and transform networks of scientists, artists, and businesses that were severed or distorted by the collapse of the Soviet bloc. • Some of this expertise is being shared before the underlying development processes have fully run their course. For example, Kazakhstan’s “Green Bridge” Partnership Programme serves as a platform for sharing green technology, know-how, and innovation with other countries–even as Kazakhstan itself is designing and implementing an ambitious green economy strategy. So this is not just

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recent but real-life experience being shared–one could call it “development by collaborative design”. • Sub-regional integration has also been an important driving force in this development cooperation. Examples include the Eurasian Economic Space (the formation of which is being led by the customs union formed by Russia, Kazakhstan, and Belarus), and the Black Sea Economic Cooperation (in which Greece, Romania, Bulgaria, Turkey and other countries participate), as well as EU accession processes in the Western Balkans. Thus, the flexible nature of knowledgedriven assistance respecting and responding to the aspirations of partner countries creates space for mutually beneficial learning, which contributes to solving some of the most acute policy problems in the region’s developing countries. The emerging donors can also use the knowledge exchange for completing their own (still) unfinished development agenda. The increased tolerance and peace among countries is another positive externality of such cooperation–a particularly valuable one, given these countries’ shared but complex history. For these and other reasons, the role of Europe and Central Asia as a source of smart, realistic development solutions for the rest of the world seems likely to increase in the years to come. In this region, where North meets South, new approaches to development cooperation are appearing that transcend the North-South divide and directly contribute to sustainable human development, both in the region and globally.

THE RISE OF THE SOUTH: REGIONAL COMPENDIUM TO THE GLOBAL HUMAN DEVELOPMENT REPORT 2013


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The Rise of the South: Regional Compendium to the Global Human Development Report 2013

UNDP, Europe and the CIS Bratislava Regional Centre Grosslingova 35 811 09 Bratislava Slovak Republic Tel.: (421-2)59337-111 Fax.: (421-2)59337-450 http://europeandcis.undp.org


The Rise of the South:Regional Compendium to the Global Human Development Report 2013