Azerbaijan's labour market on the brink of 4IR transition Betting on human capital

Geopolitical rifts, high inflation, and the global recession that deepened in 2023 are negatively impacting the labour market. Moreover, experts from the International Labor Organization, WEF (World Economic Forum), WB (World Bank), and other international structures predict a sharp decline in demand for several professions in the coming years amidst accelerating digitalization and the use of artificial intelligence.

However, with a competent approach to modern trends and the introduction of the components of the Fourth Industrial Revolution (4IR), the development of new knowledge and skills among workers can become a driver for increasing employment. In particular, according to studies published by the Asian Development Bank (ADB), by 2025, 42,000 new jobs can be created in Azerbaijan in the process of developing the 4IR economy.

Over the last four years, the global labour market has faced challenges unprecedented in half a century: countries in Europe, North America and Asia, which have only just emerged from pandemic and quarantine restrictions, faced a severe energy crisis, rising mineral and agricultural commodity prices that triggered hyperinflation and reduced production.

The war in Ukraine, the sanctions confrontation and the breakdown of trade and logistics links across the vast Eurasian area have caused equally significant damage to post-Soviet labour markets. These negative trends are reflected in the latest reports from the International Labour Organisation (ILO): in 2022, the number of unemployed in the world rose by 207 million, 21 million more than in the pre-crisis year 2019.

The situation is not much better in 2023: global employment will only grow by 1 per cent, half as much as in the previous year (2.3 per cent growth), while the number of unemployed will increase by an additional 3 million, to a total of 210 million people.

Employment will remain similarly low in 2024, growing by a mere 1.1 per cent. The ILO's Working Time in Different Countries report, among other things, shows a persistent downward trend in average earnings as working hours decrease and, going forward, more and more people in developing countries will have to accept lower quality jobs with less pay and less attractive conditions.

These are not the only factors affecting the labour market, however. The recent World Economic Forum (WEF) report The Future of Jobs 2023, for example, notes that the number of jobs in the world will fall by 14 million, or 2 per cent, over the next five years. The WEF predicts that 69 million jobs are expected to be created by the end of 2027, but at the same time, 83 million people will lose their jobs.

Layoffs will primarily affect the financial and administrative sector: cashiers, including ticket takers and bankers, as well as postal and accounting staff, secretaries and other clerks, with legislators and civil servants also in the top 10 occupations set to decline.

A similar message comes from a recent World Bank (WB) report: the adoption of artificial intelligence (AI) in traditional professions, as well as the massive use of digital technology across industries, the transition to clean energy and the redistribution of supply chains, will change the demand structure for nearly a quarter of the world's jobs over the next five years. WB analysts estimate that the emergence of such ChatGPT technologies will automate or replace positions that involve communication and process coordination, all of which will qualitatively change the structure of the job market.

However, this has happened before: in the 19th and 20th centuries, successive scientific and technological revolutions (STR) had a huge impact on the labour market, some professions disappeared without a trace, others were qualitatively changed, and fundamentally new job openings emerged. Today, humanity has entered a new period of turbulence and another round of NTRs based on 4IR is shaping new realities.

However, despite rising unemployment risks, the changes associated with the transition to a green economy and Industry 4.0, the digitalisation of the agricultural, utilities, municipal, corporate sector and public administration systems are creating more opportunities for businesses and employees.

These processes can also be observed in Azerbaijan, where the development of human capital and the introduction of modern innovations have been identified as the basic item in the National Priorities for Socio-Economic Development: Azerbaijan 2030. This trend is a key condition for accelerating the digitalization processes in accordance with the goals of the Fourth Industrial Revolution.

In the coming years in our country, as elsewhere in the world, the demand for specialists in artificial intelligence and information security, machine learning and programmers will increase dramatically; there is also a growing demand for start-ups, business analysts, sustainability experts and, in general, a wide range of personnel for the IT sector and financial technology.

“Azerbaijan can create 42,000 new jobs in leading sectors by 2025 if the country ensures a forward-looking labour and workforce development policy to support the transformation within the 4IR trends," says the ADB's recently published study “Conquering the Fourth Industrial Revolution through Skills Development in High Growth Sectors in Central and West Asia”.

The study estimates the potential impact on society of jobs created and replaced by new IT technologies in Azerbaijan, Pakistan and Uzbekistan. According to the document, the development of artificial intelligence technologies, the introduction of autonomous robots, and other breakthrough technologies contribute to the creation of almost 15,000 new jobs in Azerbaijan in the manufacturing and agricultural industry and 27,000 jobs in the transportation and storage sectors.

The study notes that the adoption of 4IR technologies in the manufacturing and agricultural sectors could lead to an increase in productivity of 49 per cent from 2020 to 2025. Similarly, companies in the transportation and storage sector are expected to increase productivity by 41 per cent.

“It is expected that 4IR will bring significant changes to the labour market and skills demanded in the leading sectors of the Azerbaijani economy. Given the potential payoffs for jobs and productivity, it is critical that the country invests in skills and training to fully reap the benefits of the transformational effect,” said Candice McDeigan, ADB (Asian Development Bank) Country Director.

In this regard, the efforts of the state to support AI and Big Data technology platforms, as well as the use of incentive schemes for companies, especially small and medium-sized businesses (SMEs), facing serious resource constraints in the process of training and retraining their employees, are extremely important. This could help build a new workforce ready for the realities of 4IR and reduce the risk of job losses for certain groups of employees as a result of automation.

Anticipating future changes in the labour market, the Azerbaijani government is implementing a set of reforms aimed at training qualified specialized personnel and supporting pilot high-tech businesses. The formation of an ecological niche for IT start-ups and the creation of specialized incubation centres for the development of the software business of training start-ups have begun, and the country's universities have also begun work on training specialists for the implementation of IoT technologies (Internet of things) and the implementation of robotization projects, the development of other know-how, for example, in the segment of "green" energy, energy efficiency systems and waste-free, environmentally friendly production.

With the support of a WEF structure, not so long ago, a branch of the Center for the IV Industrial Revolution was established in Baku. Turkish specialists provide support in the field of cybersecurity and the development of the "government cloud" G-cloud, and with the assistance of the Israeli Technion University, the "Azerbaijan Cybersecurity Center" has been created, where the training of specialized specialists has begun.

Finally, within the framework of the four-year “Cybersecurity Strategy in Financial Markets” recently approved by the Central Bank of Azerbaijan (CBA), it is envisaged to strengthen information and cybersecurity in the country’s financial market, including improving the skills and knowledge of IT specialists, which will create new opportunities in this segment of the labour market.

“Thanks to the reforms implemented by the government of Azerbaijan over the past years, there has been tangible progress in the field of human capital development: according to our report, from 2010 to 2020, the share of human capital in the republic increased from 50 to 58 per cent,” the regional director noted not so long ago World Bank (WB) Fadia Saada.

Along with the efforts of the World Bank, the transition of our country to 4IR standards is also provided for in the program of the Asian Development Bank. The ADB Board of Directors is expected to soon approve the country program and provide a $120 million loan to improve the level of vocational education and training, develop the knowledge and experience of the Azerbaijani workforce in accordance with the requirements of industry 4.0 and the digital economy as a whole.