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CAN ARMENIA'S ECONOMY THRIVE ON SERVICES
Haytoug Magazine
http://www.haytoug.org/3383/can-armenia%E2%80%99s-economy-thrive-on-services
Dec 6 2011
There is no shortage of recent success stories about national
economies skipping the development of a large manufacturing sector and
instead building a prosperous economy on a robust services industry
alone. Countries like Ireland, Norway, and India have largely forgone
manufacturing and instead focused their economies on services, the
sector of the economy that includes things like finance, software
development, design, IT, media, customer support, and other services
that are increasingly becoming easier to trade in thanks to technology.
The traditional view of an economy's services sector is a negative
one; it is frequently accused of being unproductive and not valuable
to an economy's international competitiveness. This may have been
true in the recent past; services have traditionally been immobile
and involved only in the domestic economy, contributing little
to a country's exports. However, with the emergence of better
communications technology the traditional barriers to exporting
services have waned. India and Ireland have been able to capitalize
on this opportunity and have built successful export economies based
largely on services, attracting massive foreign investment and trade.
The traditional meat and potatoes of an economy has always been
thought to be the manufacturing sector. Development economists still
preach the tried-and-true methods of moving labor from agriculture
to high-productivity manufacturing jobs. This is, undoubtedly, how
economies have developed in the past; see South Korea, Taiwan or
China as recent examples.
But the outlook on manufacturing is not as rosy for Armenia. Sure,
Armenia was a manufacturing powerhouse in the Soviet Union, but without
the protection of the centrally planned economy, Armenia is in a whole
new ball game. In the new economic climate that Armenia finds itself
in - with no sea ports of its own, eastern and western blockades,
and an underdeveloped infrastructure - the manufacturing industry
faces many obstacles. Meanwhile, a potentially strong services sector
has many opportunities to look toward, providing new hope, at least
for the near future.
Since independence, Armenia's services sector has overtaken its
manufacturing. And in the 2000â~@²s, the services sector has been the
clear driving force behind Armenia's high economic growth rates. As a
portion of GDP, Armenia's services sector holds 46 percent, while it
employs 36 percent of the labor force. One needs only to cruise down
an avenue in Yerevan (driving carefully of course) to see evidence
of this: advertisements for VivaCell-MTS, Ameriabank, and other such
service corporations litter the city.
There are a number of reasons why a services-oriented economy
offers better prospects for Armenia. For one, services - which are
largely based on telecommunications and which lack the need for
physical transportation of goods - can bypass Armenia's troubles
with infrastructure and its lack of sufficiently accessible trade
and transportation routes.
A services industry also circumvents the need for a low-wage,
exploitable labor force that is necessary in most newly industrializing
economies. Armenia does not possess, nor should it want such a labor
force. Services jobs provide far better working conditions. The
services industry is also a boon when it comes to opportunities for
women. Services jobs are equally accessible, if not more accessible,
to women as they are to men. Increased opportunities for women
means not only greater social equality, but also increased incomes
for households.
Lastly, services have far less impact on the environment. This is
a very attractive offer to Armenia, which suffers its fair share of
environmental degradation and problems arising from it.
Service-based is the industry that the global economy is shifting
towards, with more room to grow than other industries and a plethora
of new opportunities that well-prepared countries can seize.
Considering that most of Armenia's current manufacturing sector
consists of raw commodities exports and not much high-value production,
equipping itself to reap the benefits of favorable services
opportunities is the most sensible thing Armenia can do.
If Armenia were to embrace services it would have no lack of useful
resources. Armenia has an enthusiastic diaspora, who are educated
and possess skills and knowledge about the services industry that
they can introduce to Armenia, not to mention the capital with which
to start such business ventures. Armenia also has a capable workforce
for the services, with decent education, good technical knowledge, and
plenty of artistic skills. The only thing missing from the Armenian
labor force is an English-speaking workforce, a vital component to
any service economy.
Of course, it might be grossly overoptimistic to hope that Armenia,
with its scores of growth-inhibiting problems such as corruption
and an oligopolistic economy, is actually prepared to take on this
challenge. But there are a number of things the Armenian government can
do to create a more competitive services sector. The most important
task would be to invest more in education, especially in technical
skills. An ideal decision also would be to replace Russian language
learning courses in school with English.
The Armenian government should also invest in services infrastructure,
further improving and upgrading telecommunications lines for example,
encouraging more widespread Internet access and establishing helpful
regulatory and oversight agencies.
Many of these needed investments into education and infrastructure have
been undertaken by the private sector as business investments, as in
the case of the massive telecom infrastructure overhaul that has been
carried out recently almost exclusively by private companies. But the
Armenian government should not rely on the benevolence of the private
sector or non-governmental organizations; it should resolve to carry
out these tasks on its own if it expects to guarantee its goals.
The most important thing that the Armenian government needs to do,
however, is to overcome its crippling system of oligopolies and to
encourage vigorous competition. To stay competitive internationally,
the government must allow the services market to operate freely,
intervening not to provide favors for government-connected pals, but
to encourage more competitiveness and to protect nascent enterprises.
On the same token, the government must allow the services industry to
compete with foreign firms and do business with them; only in this way
can Armenia bolster the quality of its services exports. With help
from government, an Armenian architecture firm or web development
company has the potential to be as large a company as some of its
best-known European counterparts.
The recent opening of the Tumo Center for Creative Technologies in
Yerevan provides hands on education in to youth in a state-of-the-art
facility. This type of instruction in the fields of animation,
gaming, web development and video will lead to a broadening of
career opportunities for our new generation. The AYF, with its work
in the Youth Corps program and through its donations of computers
and books, among other efforts, can help towards this goal as well,
supplementing the work needed to prepare for the future of Armenia's
services industry.
From: Baghdasarian
Haytoug Magazine
http://www.haytoug.org/3383/can-armenia%E2%80%99s-economy-thrive-on-services
Dec 6 2011
There is no shortage of recent success stories about national
economies skipping the development of a large manufacturing sector and
instead building a prosperous economy on a robust services industry
alone. Countries like Ireland, Norway, and India have largely forgone
manufacturing and instead focused their economies on services, the
sector of the economy that includes things like finance, software
development, design, IT, media, customer support, and other services
that are increasingly becoming easier to trade in thanks to technology.
The traditional view of an economy's services sector is a negative
one; it is frequently accused of being unproductive and not valuable
to an economy's international competitiveness. This may have been
true in the recent past; services have traditionally been immobile
and involved only in the domestic economy, contributing little
to a country's exports. However, with the emergence of better
communications technology the traditional barriers to exporting
services have waned. India and Ireland have been able to capitalize
on this opportunity and have built successful export economies based
largely on services, attracting massive foreign investment and trade.
The traditional meat and potatoes of an economy has always been
thought to be the manufacturing sector. Development economists still
preach the tried-and-true methods of moving labor from agriculture
to high-productivity manufacturing jobs. This is, undoubtedly, how
economies have developed in the past; see South Korea, Taiwan or
China as recent examples.
But the outlook on manufacturing is not as rosy for Armenia. Sure,
Armenia was a manufacturing powerhouse in the Soviet Union, but without
the protection of the centrally planned economy, Armenia is in a whole
new ball game. In the new economic climate that Armenia finds itself
in - with no sea ports of its own, eastern and western blockades,
and an underdeveloped infrastructure - the manufacturing industry
faces many obstacles. Meanwhile, a potentially strong services sector
has many opportunities to look toward, providing new hope, at least
for the near future.
Since independence, Armenia's services sector has overtaken its
manufacturing. And in the 2000â~@²s, the services sector has been the
clear driving force behind Armenia's high economic growth rates. As a
portion of GDP, Armenia's services sector holds 46 percent, while it
employs 36 percent of the labor force. One needs only to cruise down
an avenue in Yerevan (driving carefully of course) to see evidence
of this: advertisements for VivaCell-MTS, Ameriabank, and other such
service corporations litter the city.
There are a number of reasons why a services-oriented economy
offers better prospects for Armenia. For one, services - which are
largely based on telecommunications and which lack the need for
physical transportation of goods - can bypass Armenia's troubles
with infrastructure and its lack of sufficiently accessible trade
and transportation routes.
A services industry also circumvents the need for a low-wage,
exploitable labor force that is necessary in most newly industrializing
economies. Armenia does not possess, nor should it want such a labor
force. Services jobs provide far better working conditions. The
services industry is also a boon when it comes to opportunities for
women. Services jobs are equally accessible, if not more accessible,
to women as they are to men. Increased opportunities for women
means not only greater social equality, but also increased incomes
for households.
Lastly, services have far less impact on the environment. This is
a very attractive offer to Armenia, which suffers its fair share of
environmental degradation and problems arising from it.
Service-based is the industry that the global economy is shifting
towards, with more room to grow than other industries and a plethora
of new opportunities that well-prepared countries can seize.
Considering that most of Armenia's current manufacturing sector
consists of raw commodities exports and not much high-value production,
equipping itself to reap the benefits of favorable services
opportunities is the most sensible thing Armenia can do.
If Armenia were to embrace services it would have no lack of useful
resources. Armenia has an enthusiastic diaspora, who are educated
and possess skills and knowledge about the services industry that
they can introduce to Armenia, not to mention the capital with which
to start such business ventures. Armenia also has a capable workforce
for the services, with decent education, good technical knowledge, and
plenty of artistic skills. The only thing missing from the Armenian
labor force is an English-speaking workforce, a vital component to
any service economy.
Of course, it might be grossly overoptimistic to hope that Armenia,
with its scores of growth-inhibiting problems such as corruption
and an oligopolistic economy, is actually prepared to take on this
challenge. But there are a number of things the Armenian government can
do to create a more competitive services sector. The most important
task would be to invest more in education, especially in technical
skills. An ideal decision also would be to replace Russian language
learning courses in school with English.
The Armenian government should also invest in services infrastructure,
further improving and upgrading telecommunications lines for example,
encouraging more widespread Internet access and establishing helpful
regulatory and oversight agencies.
Many of these needed investments into education and infrastructure have
been undertaken by the private sector as business investments, as in
the case of the massive telecom infrastructure overhaul that has been
carried out recently almost exclusively by private companies. But the
Armenian government should not rely on the benevolence of the private
sector or non-governmental organizations; it should resolve to carry
out these tasks on its own if it expects to guarantee its goals.
The most important thing that the Armenian government needs to do,
however, is to overcome its crippling system of oligopolies and to
encourage vigorous competition. To stay competitive internationally,
the government must allow the services market to operate freely,
intervening not to provide favors for government-connected pals, but
to encourage more competitiveness and to protect nascent enterprises.
On the same token, the government must allow the services industry to
compete with foreign firms and do business with them; only in this way
can Armenia bolster the quality of its services exports. With help
from government, an Armenian architecture firm or web development
company has the potential to be as large a company as some of its
best-known European counterparts.
The recent opening of the Tumo Center for Creative Technologies in
Yerevan provides hands on education in to youth in a state-of-the-art
facility. This type of instruction in the fields of animation,
gaming, web development and video will lead to a broadening of
career opportunities for our new generation. The AYF, with its work
in the Youth Corps program and through its donations of computers
and books, among other efforts, can help towards this goal as well,
supplementing the work needed to prepare for the future of Armenia's
services industry.
From: Baghdasarian