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Speeches & Transcripts October 31, 2018

Remarks by Cyril Muller on Investing in Human Capital for Inclusive Growth

Your Excellencies,

Ladies and Gentlemen,

Let me begin by thanking Prime Minister Zaev for hosting this regional event today. I am honored to have this opportunity to speak to you about investing in Human Capital to promote economic growth and create more inclusive societies in the Western Balkans.

What do we mean by Human Capital? Simply put, Human Capital is the knowledge, skills, and health accumulated by people over their lifetimes that enable them to realize their potential as productive members of society. When we talk about investing in Human Capital, we mean investing in people - through nutrition, health care, quality education and skills.  

Investment in Human Capital is critical to the future of this region. Only with quality investment in people can we deliver real outcomes and ensure that every citizen has the opportunity to earn a fair income, live a healthy life, and contribute to society.

We firmly believe that an educated, healthy, productive population is essential to reducing poverty and achieving sustainable economic growth and prosperity.

Over the last two decades, the six countries of the Western Balkans—Albania, Bosnia and Herzegovina, Kosovo, the Former Yugoslav Republic (FYR) of Macedonia, Montenegro, and Serbia—have made considerable progress. All countries have recovered successfully from a painful transition. Indeed, some have achieved the highest income per capita in their histories.

But despite this remarkable progress, formidable challenges remain.

Since 2008, the pace at which Western Balkan incomes have been converging with European Union standards has slowed considerably. The implications of slower growth are staggering. At current rates of convergence, a child born today in the Western Balkans will be 60 years old by the time the average income in the region matches that of the EU.

Unemployment remains one of the most significant challenges facing the Western Balkans. With only 4 in 10 people of working age employed, many families must rely on remittances or government transfers for income. Labor market opportunities are wholly inadequate for youth, minorities, and other vulnerable members of the population. As such, young, educated people are forced to emigrate in search of work. It’s a stark reality that close to one-third of Western Balkan citizens live outside the region today.

However, this must not deter us from being hopeful and optimistic for the future. It is not entirely unrealistic—albeit ambitious—to think that, over the next few decades, Western Balkan countries could make real progress in closing the gap with EU living standards.

All six countries have the potential to provide economic opportunities for all of their citizens, regardless of location, gender, ethnicity, age, or any other personal characteristic. If annual growth is accelerated by just an additional 3 percent, convergence with the EU can be achieved when a child born today is 35 years old rather than 60.

But Western Balkans countries must act now, and act boldly, in three critical areas:  

  1. Macroeconomic Stability. The 2008 global financial crisis strained fiscal positions in all six countries, severely eroding fiscal buffers, and causing public debt to soar. Over the last 10 years, average general government gross debt in the region increased from about 30 percent of GDP to 50 percent. A stable economy is a precondition, therefore, for growth and job creation – it reduces uncertainty and boosts confidence amongst consumers and investors.
  2. Business Environment. By almost any measure, enhancing the environment for private investment, both foreign and domestic, is still a challenge. All six Western Balkan countries must do more to protect property rights, to ensure that court decisions are made objectively, that contracts are properly enforced, and that the rule of law is respected—and bring an end to corruption and bureaucratic red tape.
  3. Investment in Human Capital. Education systems across the Western Balkans, to varying degrees, are not equipping young people with the skills required by today’s employers. Skills shortages hinder job-seekers in finding employment, and also the ability of firms to grow. A poorly skilled labor force limits the incomes of citizens and the growth potential of countries. We know that gaps in Human Capital start early in a person’s life—as early as preschool—and then widen over time. This means that we must invest as early as possible – and as effectively as possible – in people to prepare them for the jobs of the future.

Our latest World Development Report shows that now, not later, is the time for countries to respond to the technological shift that is changing the nature of work. This means investing in building the digital economy to help countries compete in the future – and ensuring that workers, and those who will become workers, are prepared for both the tremendous challenges and opportunities that technological change brings.

New technologies in the workplace require employees with strong communication and people skills, as well as basic cognitive and time management skills. Many firms in the region currently suffer from a lack of such soft skills as timeliness, discipline, autonomy, responsibility, and the ability to work as a team. This skills shortage needs to be addressed urgently. Education systems need to equip all students with the necessary basic cognitive and social-emotional skills to make them resilient to technological change.

So, it is clear that, whatever the future holds and whatever changes may come, an investment in human capital is a policy that pays off.

The World Bank recently released its new Human Capital Index (HCI), which measures how countries score in health and education outcomes. It measures these basics:

Survival: Will children born today survive to school age?

Education: How much schooling will they complete and how much will they learn?

Health: Will they leave school in good health, ready for work and with the foundation for lifelong learning?

For the Western Balkans, the index suggests that a child born today could be 38 percent more productive if she had full and quality access to learning, health and social protection opportunities during her lifetime.

Overall, the Western Balkans countries have scored well in some elements of the index, such as child survival and stunting, but show room for improvement in other areas – quality of learning, for instance. The OECD’s Program for International Student Assessment (known as PISA) shows that, in recent years, students in the Western Balkans have improved by an average of 3.4 points annually in reading and math. This may seem a good progression, but at that rate, it would take the Western Balkans 26 years to reach the EU math average and 29 years to reach its reading average.

These results highlight the need to prioritize improvement in education and vocational and life-long learning. Investments in Human Capital can help address the issue of skill shortages and can also contribute to the jobs agenda in the Western Balkans.

Building Human Capital unleashes the potential of individuals to be successful in society – it is the most important long-term investment a country can make for the future of its citizens and their quality of life. In the Western Balkans, this means better and more efficient spending, and making the best possible use of the limited resources available.

Albania, Bosnia and Herzegovina, Kosovo, the Former Yugoslav Republic (FYR) of Macedonia, Montenegro, and Serbia – everything these six countries do today will shape their futures. That means there is an opportunity to transform – from a region where citizens look for opportunities abroad to a region that attracts investors from around the world.

Fulfilling that promise will require relentless determination and persistence. But the effort will eventually deliver, as will the investment in the people of this region.