Investment in physical capital and infrastructure without sufficient investment in human capital may not give Ukraine the expected dividends, World Bank Vice President for Europe and Central Asia Anna Bjerde has said in an exclusive interview with Interfax-Ukraine.
Bjerde welcomed the fact that policymakers have identified priority areas and recognized the need to mobilize investment. She said this, commenting on the government’s intention to stimulate investment in “growth points” – priority sectors.
She emphasized one important aspect that has not been particularly highlighted in the government’s plans – the importance of human capital. Education, skills, experience, innovation and public health together is, according to a study, the most important resource for sustainable economic growth. This is glue that brings together other factors of production, including physical capital and infrastructure, she added.
As reported, the government has identified five priority clusters that can have the highest multiplier effect for Ukraine: technological production, energy security, life safety, transport and the City of Craftsmen, or the development of local, unique industries. According to the government, stimulating these “growth points” with investments in the amount of $1 billion will give the highest multiplier effect and will lead to economic growth by 1-2% of GDP.
Investment of human capital in national wealth in Ukraine is much lower than in European countries, according to a report of the World Bank.
According to the World Bank’s study of the sphere of education in Ukraine, investment of human capital into national wealth in Ukraine is 34% of total national wealth. For comparison, in low-income countries this indicator is 41%, in Europe and Central Asia – 62%, and on average around the world – 64%.
The World Bank said that in Ukraine the percentage of people with higher education is more than 80%, which exceeds the figures of the EU (68%) and countries of the Organization for Economic Co-operation and Development (OECD) (74%), but the level of functional literacy among adults is behind indicators of these countries.
In addition, it is said that in Ukraine, there is a gap between education and employment, especially among young university graduates.
Other areas of concern include: unequal access to schooling, a gap in education among students in urban and rural schools, and less likely that graduates from rural schools will go to higher education (40% of graduates from rural schools compared to 70% of graduates in cities).
The World Bank said that about 50% of Ukrainians do not believe that secondary education provides everyone with the same opportunity of studying for free, and 70% believe that corruption in higher education is very common.
At the same time, according to the World Bank, Ukraine spends 6% of GDP on education, which is significantly more than in OECD countries (4.4%).
Among other things, the World Bank said that Ukraine has a too wide network of schools and universities, which is one of the reasons for the high level of expenses. There are 11 students per teacher in Ukraine, and in the OECD countries this indicator averages 13.1.
Premier of Ukraine Oleksiy Honcharuk has proposed setting up Fund of Human Capital Development for IT sector to enable it manage sector on its own. “The problem in the lack of staff…We hope to establish conditions for the sector to work faster,” Honcharuk said during the meeting of the government with export IT industry in Kyiv on Wednesday.
According to the premier, the means of this fund will be forwarded for scholarships of talented students, grants for young scientists and the creation of educational infrastructure.
Head of State Tax Service Serhiy Verlanov reported that a special taxation option for individuals in IT sector should be introduced.
In addition to the 5% single tax, 1.5% military tax and unified social tax from two minimum wages, the head of the service suggests introducing a tax on the development of human capital. It will be administered by the tax service and transferred to sector managed-by fund, and its rate will be gradually raised from 1% in 2020 to 5% in 2024.
According to Verlanov, this taxation option will give more guarantees and advantages, however, the transition to it is voluntary, and those who wish can stay on today’s third form of simplified taxation.
The premier has said the government expects that this will allow in 10 years to increase the export of the IT from $3 billion up to $10 billion, the number of workers in this sphere of services will increase from 165,000 to 650,000 people.