Guest Blog by Samira Musayeva, LEG ’23
“Leading Economic Growth” program is a valuable learning process that in a very attractive “language” explains the use of creative and effective tools that allow defining a specific approach for each economy. It defines a new view on the context of economic reforms and their subsequent implementation.
Azerbaijan is an upper-middle income country that implemented a large number of socio-economic reforms and had ensured strengthening and modernization of the national economy. It is worth to mention that main pathways to socio-economic development were set in the dedicated reform program (Azerbaijan 2030: National Priorities for Socio-Economic Development).
A steadily growing, competitive economy is one the 5 national priorities of Azerbaijan.
As the deputy head of State Tax Service that operates under the Ministry of Economy, our team is deeply involved in economic growth agenda, in its diversification, development of businesses, complexity of production and export basket of the country. Government works on policy instruments that support sustainable economic growth, ensuring diversification, inclusiveness, job creation, favorable and competitive environment for investments. Tax policy initiatives are directly focused in stimulating investments and development of business activities.
The main challenge of my country’s economic growth is the scope of its diversification and the level of complexity of its production (goods and services). The economic growth has been driven by oil and gas extraction and exports. Share of oil sector in GDP is around 50%, its share in export is above 90%. Historical and cultural backgrounds, resources, neighborhood, geopolitical situation, geographical location and many other factors that affect the countries are different. We do not see “best deep economic diversification model” that can easily fit any economy. One size will not fit all! Each new- complex industry needs its own convenient environment, incentives, cooperation with other stakeholders, skills, resources to remain stable and productive.
Fishbone diagram and PDIA toolkit were quiet user-friendly tools to identify real problems of economic growth, work on the reasons that cause the problem, identify missing public goods, define potential high-complexity and value-generating industries, find and understand potential binding constraints. Each economy has its specific binding constraint that should be resolved. It is interesting that each time revisiting my fishbone diagram I get new ideas and potential solution steps about my country’s growth challenge. I will definitely use these tools in my daily work and encourage my colleagues to use them in team workshops.
The diversity of know-how affects the diversity of economy. As we learnt from professor Hausmann, know-how is one of the 3 parts and indeed the main part of knowledge (technology) that affects the economic growth and diversity level of countries. Although countries are obtaining different new tools, and the knowledge how to use them by learning the instructions, the main lacking part is the ability to perform task-know-how is not generated or owned by each country.
One of the 5 main national reform priorities in my country is creating and implementing innovation and competitive human capital. To be ready for growing, worldwide competition, the priority of each country is its formation of highly competitive human capital. The task for government is to modernize educational system, to maintain environment that enables and encourages innovation. The ecosystem should be built to increase the technological capacity of the economy. Missing know-how should be restored by skilled foreign migration, diaspora and FDI.
One of the most valuable tools that we used during the program was the “Atlas of Economic Complexity”. Each time I use the tool, I remember how professor Hausmann repeated many times during the program that export complexity is a major determinant of economic growth. Tradable sectors, exportable goods and services that depend on global demand provide sustainable economic development. For developing countries adding related capabilities to already existing capabilities, going step-by-step, attracting missing know-how seems to be reliable strategy from the first sight. We also observed that each country has its location in “Product Space” which represents the technological distance of products and shows the gap in capabilities that are needed to produce a new-more complex product. As countries have different diversification opportunities and challenges, they have different positions in product space.
Relying on program tools- composition and low complexity of exported goods, weak position in product space, consequently Azerbaijan is in “Bridge over troubled waters” which requires “Strategic Bets”.
Developing countries like my country can choose “portfolio approach”, and work both on “low hanging fruit” sectors with high feasibility and low risks and to be ready for “long jumps” that have greater opportunities with more risks.
The existing know-how in my country can gradually move into new opportunities which can led to production of new similar but more complex products like textile, processed food products (pickled fruit and vegetables, fruit juices), cleaning products. But, as these products have “low opportunity gain” for future diversification Azerbaijan needs some well forecasted and planned “long jumps” for attracting innovative transnational companies and generates fresh knowhow which will create ability to produce complex products and improve its position in product space.
We also learned that complex challenges can be addressed by high bandwidth organizations that can build relationships with businesses and become the main supporting agency for them like Albanian Fason BBT and CINDE. Building trust by transparent communication and being main intermediary with other public institutions whereas these organizations will act as facilitators of the growth. I believe that Ministry of Economy of Azerbaijan can act as high bandwidth organization, for attracting investment and ensuring diversification, as State Tax Service, State Service for Property Issues, State Service for Antimonopoly and Consumer Market Supervision, Azerbaijan Investment Company, Entrepreneurship Development Fund, Agency for Development of Economic Zones, Export and Investment promotion Agency and a number of other organizations that work very closely with investors and businesses, as well as trade representatives that operate under this ministry. By creating efficient cooperation platform with investors and addressing problems related to public goods it can bring great results. This organization will use an action-learning oriented iterative approach by acting, learning from the results, then making iterative improvements based on that learning. It is a process of continuous improvements through repeated cycles of action and reflection.
I would like to conclude my reflections about program by referring back to “National Priorities” of Azerbaijan, one of which is “dynamic, inclusive society based on social justice”. LEG program once again assured us that inclusiveness, prosperity and social justice is not less important than the fiscal indicators of economic development and countries should focus on creating good jobs and equitable distribution of resources.
This is a blog series written by the alumni of the Leading Economic Growth Executive Education Program at the Harvard Kennedy School. 58 Participants successfully completed this 10-week online course in December 2023. These are their learning journey stories.