Caucasian Journal: Sebastian MOLINEUS of World Bank: "Let’s work together to eradicate poverty once and for all"

How important is the South Caucasus region for global organizations such as the World Bank? How does World Bank prioritize activities in the three countries of the region? These and other questions from global and regional agenda are in our focus today.

31.10.2019 (Caucasian Journal). Our today’s talk is with Sebastian MOLINEUS, the new World Bank Regional Director for the South Caucasus, appointed last June.

Alexander KAFFKA, editor-in-chief of CJ: Dear Mr. Molineus, many thanks for this opportunity and for your time. First of all, please accept congratulations with your appointment to Tbilisi, welcome to this beautiful city! Do I understand correctly, that World Bank’s office in Tbilisi in fact oversees the activities not only in Georgia, but also in all three countries of our region? I believe this is rather challenging job, as it requires quite a lot of travel. Can you summarize your overall experience so far – from your first months in the Caucasus?

Sebastian MOLINEUS: Dear Mr. Kaffka, thank you for inviting me to this interview – I am honored to do so for this prestigious journal! – and for the warm congratulations for my appointment as Regional Director for South Caucasus, i.e. Armenia, Azerbaijan, and Georgia. In terms of first experiences, and I purposefully mention first that, as I’ve only been on the job for a few months, I would like to highlight the strong commitment to reforms I have been able to see first-hand by all three country governments. Second, the strong macro-economic fundamentals that have been put in place, in other words the foundation to build sustainable and inclusive economic growth. And third, the willingness to embrace innovations and the opportunities the digital economy brings. Last but not least, I would be remiss if I didn’t mention that everything I had heard in abstract about the famous hospitality and generosity of the people in the South Caucasus, and of course the amazing food and exquisite wine of the region, is 100% and absolutely true!

AK: At Caucasian Journal we also are aiming to cover all the three countries of South Caucasus, and our region as a whole. What place does our region occupy in the World Bank’s agenda? And, since you until recently worked in the central offices of WB – how is the Caucasus generally viewed from the headquarters of a huge global organization?

SM: The South Caucasus region is an important one for the World Bank. This does not necessarily translate into a large lending program, given that all three countries in the South Caucasus are small compared to others in the ECA Region, for example Romania, Ukraine, or Uzbekistan. But it does translate into an important regional agenda, with the South Caucasus playing a strategic “connector” role between East and West, as well as North and South. Economic competitiveness, trade and logistics, regional infrastructure, skills, and also digital connectivity are all key success-factors in terms of strategically positioning the South Caucasus along these two corridors. Recent political events such as the 2018 Armenian Velvet Revolution have also garnered much interest by our colleagues in Washington, DC. So, I can assure you that the Region always has and will continue to play an important role for the World Bank.

AK: From your personal Twitter channel I have the impression that World Bank’s activities in South Caucasus are extremely versatile. They span to areas such as environment protection, climate resilience, innovations, disaster risk management, poverty reduction and many others. Which of your priority areas are common for Georgia, Armenia, and Azerbaijan? What are specific priorities for each country?

SM: Before I turn to the specific priorities of the countries of the South Caucasus, let me in a few words say that the Bank collaborates with the client countries through a "country partnership frameworks" (CPF) approach, which is underpinned by an extremely thorough analysis called the Systemic Country Diagnostics. And in developing our CPF we work and consult with a broad range of country stakeholders, such as government, civil society, academia, the private sector, donor organizations and others. So, what appears to be an extremely versatile approach is in fact based on a robust fact-base and is strategically prioritized around three basic pillars: (i) economic competitiveness; (ii) human capital; and (iii) sustainability – which are of course then tailored to each of the three South Caucasus countries.

Inequality remains a big challenge in all three countries in the region, where large gaps between urban and rural areas persist. Learning from other countries that have reduced inequality is important. Key interventions that stand out are vigorous investment in early childhood development, universal healthcare, quality education, conditional cash transfers, and investment in rural infrastructure. Strengthening equal opportunities for all and targeting social assistance to the poorest will be key to reducing inequality and improving living standards across the three countries. Gender inequality also remains prevalent in the region and is an important concern to us in the WB. How can you talk about growth when you are excluding large parts of your population?

Now allow me to delve into more specific country priorities, starting with Armenia, where our country strategy focuses on three strategic directions: (i) export enabling and firm competitiveness; (ii) human capital development and equity; and (iii) sustainable management of environmental and natural resources. The World Bank currently has an active country program of 13 operations in Armenia, covering the above strategic pillars such as improving the quality of health care across the country; reintroducing over 120 preschools and ensuring better learning outcomes in education; improving social protection through integration of services under one roof; rehabilitating rural roads so that farmers have access to nearby markets; reducing the energy used and improving irrigation schemes; and upgrading country’s tourism infrastructure. These are but a few examples of what we do.

Azerbaijan in turn is redefining its development strategy to bring private sector to the forefront of future economic growth, to improve quality of its human capital so that it remains competitive for the 21^st century economy, to create quality jobs, particularly in rural areas, and to provide fast, efficient and broadly accessible public services. My priorities as the Regional Director for the South Caucasus will be to make sure that we continue to support the government and people of Azerbaijan in this crucial period through a mix of financial, advisory, and convening services. The World Bank has been Azerbaijan’s trusted partner over the past 27 years and has supported the country through its challenging early years of transition, helped rebuild its key infrastructure and implement important reforms. And we have in turn learned so much from Azerbaijan and have passed this knowledge on to other countries undergoing similar transitions. Of note is that we are currently discussing several new and exciting operations with the government of Azerbaijan. These cover sectors in which we have traditionally been active, such as justice reform, and we hope to work in a few new areas, for example, by supporting government’s self-employment program.

As for Georgia, the main objectives are to: (i) enhance inclusive growth and competitiveness, (ii) invest in human capital, and (iii) build resilience, which among other goals translates into boosting Georgia’s integration with the global marketplace through greater export orientation, support the ongoing efforts of Government to improve current service delivery systems in education and health care, and focus on improving macro-fiscal management and risk mitigation. Strengthening households’ resilience through stronger safety nets and financial inclusion will also prove important, as well as improving the management of natural resources and climate risks.

In addition, I would like to expand on my earlier point and say that the entire South Caucasus region is well positioned to play a pivotal role in the broader regional and global transport and logistics agenda, with the region being on the crossroad between large and growing economic poles. The region is a natural link between Asia and Europe on one side, and the Middle East and Russia on the other. The significance of the region’s potential as a logistical hub lies in the efficient use of the trans-Caspian transport services linking China and Central Asia with Turkey and the EU. The trans-Caucasus Transit Corridor has the potential to become one of the fastest land transport corridors between Asia and Europe and a central piece of China’s One Belt and Road Initiative, as well as similar initiatives under the EU.

Oh, and as you mention my Twitter account, if your readers are interested to learn more, they can always follow me via Twitter under @SMolineus!

AK: I'm sure they will! Perhaps you would like to specifically tell us in some detail about any of your concrete programs? You are very welcome to do so.

The Bank is currently working with the Government to define and support the connection of villages across Georgia to high-speed internet services in a project that is slated to begin in 2020.

SB: Perhaps, we could mention here the Bank’s support of Georgia’s digital ambitions through an integrated approach. Concretely, Georgia has viewed digital technologies as an enabler of economic development, service delivery, and inclusive growth. Many of the significant reforms that followed the Rose Revolution in 2003 harnessed information technology to reduce corruption, simplify procedures, and expand access. The government’s e-procurement platform is one of many examples of how Georgia is following Justice Brandeis’ mantra: “Sunlight is the best of disinfectants; electric light the best policeman.” Since then, and over the past two decades, Georgia has put in place policies that have boosted access to mobile telephony and internet services and fostered a more dynamic innovation ecosystem. The World Bank Group has been partnering with Georgia in this process, supporting the country in defining and realizing its digital ambitions over those two decades. Starting with support to establish an independent telecommunications regulatory agency in 1999, the World Bank has more recently been closely involved in supporting the infrastructure needed for a competitive and innovative digital economy. The World Bank development policy engagement supported the introduction in 2016 of advanced wireless networks using 4G technology, which led to a tripling of the use of mobile broadband services to over 3.9 million subscriptions. The Bank is currently working with the Government to define and support the connection of villages across the country to high-speed internet services in a project that is slated to begin in 2020. In 2014, the Bank supported the Government’s efforts to develop more effective innovation policies through the establishment and operationalization of the Georgian Innovation and Technology Agency (GITA) and the Research and Innovation Council under the Prime Minister. In 2016, the World Bank financed the Georgia National Innovation Ecosystem (GENIE) Project, which has aimed to boost innovation by firms and to increase their participation in the digital economy. Between 2019 and 2021, the project will support the training of up to 3,000 information technology specialists, creating the workforce needed for Georgia’s digital transformation. And that’s Georgia; I invite you to look at the innovations taking place in Armenia (Engineering City in Yerevan that is successfully developing high tech start-ups) and Azerbaijan (leading on digital financial services in key regions).

AK: Can you share three – or at least one – brightest personal impressions from your meetings, travels, or other events here?

SB: Tough question, as there are so many impressions. But ok, here you go: a very personal meeting with a group of female entrepreneurs in Massali, Azerbaijan, where I truly felt the power of what happens when you give voice and opportunity to women who previously were forbidden from even leaving their homes unaccompanied, let alone starting a business. My visit to a day care center for children with special educational needs in Noyemberyan, Armenia, where I was deeply moved to see these truly exceptional kids and educators present their center to me – in the middle of the city center rather than the outskirts. And finally, attending the graduation ceremony of the International School of Economics at the Tbilisi State University and seeing the future generation of leaders from across the South Caucasus and beyond, holding their diplomas with a gleam in their eye and hope for the future!

AK: From time to time we hear the same question from the readers, regarding the big projects financed with assistance of World Bank and other international donors: What about the future generations – aren’t we placing the debt burden on them? It would be good to hear your comment, as the most competent source.

SM: This is a very personal question as I have four kids of my own and I do not wish to burden the next generation. In fact, it’s the reason I began to work at the World Bank. I could not imagine one day having to confront the next generation without being able to answer as to how I could live in good conscience when half of the world lived in poverty, and why have we left the planet in such a horrible shape! So, to be clear, at the World Bank Group, we pay utmost attention to ensuring that everything we do is sustainable, and that we aren’t placing the kind of “debt burden on future generations” that would be unmanageable. In fact, we regularly undertake debt sustainability analysis in the countries we are working on, including in the South Caucasus, and together with the IMF we are at the forefront of designing tools and policies to help countries limit and better manage their debt. In addition, the World Bank invests considerable time and resources on collecting and disseminating information on debt. One of our regular publications is the annual International Debt Statistics Report which focuses on financial flows, trends in external debt, and other major financial indicators for low- and middle-income countries. Again, together with our IMF colleagues, we are working with our clients to produce quarterly information, with more than 100 countries already participating in this initiative. Most recently, David Malpass, our new President, stressed the need for greater transparency in debt transactions and ensuring that the recent increase in indebtedness levels among lower- and middle-income countries globally is not threatening their debt sustainability. More specifically to the South Caucasus, all three countries have adopted generally responsible public debt policies, including setting limits to debt levels that are reasonable, adopting debt management strategies, identifying risks and potential measures to reduce these over time. We continue to work with the authorities in Georgia to better manage fiscal risks, and with the ministries of finance in Azerbaijan and in Armenia on strengthening debt management.

AK: Speaking about the future generations, I cannot help asking about the World Bank’s famous “Human Capital” project. What’s the current stage of this project in Caucasus and specifically in Georgia?

SM: The World Bank Group’s Human Capital Project/Human Capital Index, which we launched during the 2018 Annual Meetings in Bali, Indonesia, received a great deal of attention. Armenia and Georgia are among the countries that expressed strong commitment to the Human Capital Project early on, and we are supporting them to deliver on their commitment to accelerate human capital investments. Georgia, for one, has truly committed to financing the next generation, moving from 3 to 6 percent of GDP over the coming years, in terms of spending on education. Now that’s what I call leading by example! More broadly, the Human Capital Project has created opportunities for enhanced dialogue on human development and has helped elevate it to the highest level of the government. While the South Caucasus countries have achieved tremendous progress in multiple fronts since their independence a generation ago, they are facing new and emerging challenges in achieving broad-based and private sector led growth, and in making key public services and economic opportunities accessible to all of their citizens. There are large spatial disparities in welfare, access to and quality of social services and economic opportunities. Despite the significant and steady reduction in poverty, a large share of the population remains clustered just above the poverty line where they are vulnerable to shocks. Investing in people and their human capital will be crucial in addressing these remaining challenges, sustaining economic growth over the long term, achieving sustainable poverty reduction, and narrowing the gap between social and spatial groups. We have made investing in people and their human capital one of the focus areas of our country engagement strategies in and across the South Caucasus.

AK: World Bank's Human Capital Index has interesting statistics across a large number of countries. We have checked just one parameter, which seemed especially important: “Learning Gap” - HOW MUCH ARE CHILDREN ACTUALLY LEARNING IN SCHOOL? We made our own table based on WB’s data. Within the South Caucasus, the best result belongs to Azerbaijan; Armenia is second, and Georgia is the third. It was interesting to compare the Azerbaijan’s leading result with West European countries, and in fact it is comparable to the level of Switzerland. But the level of Estonia is significantly higher than Switzerland or Azerbaijan. Quite unexpected results, aren’t they? How does World Bank utilize such data in your practical activities?

SM: The WBG’s Human Capital Index measures the amount of human capital that a child born today can expect to attain by age 18. It conveys the productivity of the next generation of workers compared to a benchmark of complete education and full health. It is made up of five indicators: the probability of survival to age five, a child’s expected years of schooling, harmonized test scores as a measure of quality of learning, adult survival rate (fraction of 15-year old youth that will survive to age 60), and the proportion of children who are not stunted. The 2018 HCI shows that globally, 56 percent of all children born today will grow up to be, at best, half as productive as they could be; and 92 percent will grow up to be, at best, 75 percent as productive as they could be. The corresponding figures for Armenia, Azerbaijan and Georgia are 57, 61 and 60 percent, respectively. This data gives us room to pause, no?

Children in many countries, including the South Caucasus, spend many years in school, however, they do not actually learn as much as they should...

As you have noted, the learning gap is a key ingredient in the HCI and explains a large share of the differences in HCI across countries. Children in many countries, including in the South Caucasus, spend many years in school, however, they do not actually learn as much as they should. For example, children in Armenia can expect to complete 11.1 years of schooling by age 18, however, when years of schooling are adjusted for quality of learning, this is only equivalent to 7.9 years (a learning gap of 3.2 years). In Azerbaijan children are expected to spend 11.6 years in school by age 18 but adjusting this for quality of learning results in only 8.8 years (i.e. a learning gap of 2.8 years). Similarly, children in Georgia can expect to complete 12.5 years, but after adjusting for quality of learning, this is only equivalent to 8.9 years (a learning gap of 3.6 years). Learning gap therefore is a function of expected years of schooling and quality of learning that happens. Therefore, it should be viewed in that context and not in isolation. But again, while no index is perfect, it does point to a need to focus on the quality of learning for the next generation.

AK: I’ve come across another excellent paper by World Bank, called ”South Caucasus in Motion”, published in 2019. It has important facts – for example “Armenia has one of the widest inequality gaps in Europe and Central Asia.” I’m not asking you to comment this in particular, but maybe in the future such topics will become themes for separate interviews? Caucasian Journal would be happy to contribute to covering your projects in the future. You will be always welcome at CJ, as well as your team members.

SM: Thank you, to begin with, for having read our “South Caucasus in Motion” report. And I agree with you that it is a great read with many important insights. In fact, the Report is the outcome of our work in the last few years, aimed at better understanding why the benefits of growth have not been equally shared across the populations in the South Caucasus. We did this by looking at different levels of mobility: economic, social and spatial. We found that escaping from poverty is not a one-way route. While many people move out of poverty, a significant share of the population falls right back into it. In Georgia, 50 percent of the poor in 2015 were not poor in 2009, and a similar pattern was observed in Armenia. These results highlight how reducing vulnerability remains critical to sustaining poverty reduction. In addition, we found that newer generations do not have a guaranteed path leading them towards the middle-class. There are few good jobs and access to them is unequal. Despite the broad coverage of the educational systems, learning performance tends to be poor and dependent on the social and economic circumstances of the children. For example, in Georgia, two students of the same age and grade, but one at the top and the other at the bottom 20 percent of income distribution, achieve scores that differ by 30 points! This implies that those at the bottom do not have a secure path toward the middle class. Finally, we found that spatial disparities matter greatly, as they hinder mobility in the South Caucasus. The capital cities have concentrated most benefits of economic activity and market potential, isolating the population in rural and secondary urban areas. This is reflected in the lower poverty rates in capital cities, which range between 3 and 7 percentage points lower than the national poverty rates for each country and have better access to public services. In contrast, general poverty and the lack of access to public services is a persistent problem in large segments of the population that are in the rural areas.

In Georgia, two students of same age and grade, but one at top and other at bottom 20 percent of income distribution, achieve scores that differ by 30 points!

To me, this data spells out a clear message – we need to act boldly and tackle these challenges head-on. This will require a multi-pronged approach, including measures oriented at: (i) ensuring that all individuals enjoy access to basic services and a good quality of life; (ii) helping workers join the labor force and access good jobs that match their skills and talents; (iii) providing all children with the tools needed to learn and accumulate human capital; (iv) breaking barriers and reducing distance between people, areas, and markets.

AK: Finally, will you permit a question about your hobbies, favorite sports, and cultural interests? And, as always in our region, one cannot avoid being asked about wine/food and other culinary preferences!

SM: Of course! I am an avid sports fan and I love football, basketball, skiing and outdoor activities (cycling, cross-country running). And I actually still enjoy playing, though as I continue to age my athletic prowess, very unfortunately, is on a step and steady decline. Although, I have to say that sports remain my “moment of zen”. In terms of cultural interests, I love music – from classical to rock and now even techno and hip-hop via my kids, who fortunately keep me young… or at least do their best! And how can I not love all the distinct cuisines in the South Caucasus ?! I believe this truly is the birthplace of fusion.

AK: If there is anything else you want to comment upon, and send a message to our readers, the floor is yours.

SM: Approximately one out of four people continue to live in poverty in large parts of the region. Please don’t turn your head away and think this is someone else’s problem. It’s not. It’s ours. Let’s own it. And let’s work together to eradicate poverty once and for all. You have my full commitment and I hope to count on yours!

AK: Thank you for very substantial answers.