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The Potential for Dual Vocational Education and Training in Armenia

The Potential for Dual Vocational Education and

Training in Armenia

This report was elaborated and published within the framework of “Private Sector Development South Caucasus” programme implemented by Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH on behalf of German Federal Ministry for Economic Cooperation and Development (BMZ).

Elaborated by:

Karen Martirosyan, national expertStefan Wolf, international expertWilhelm Hugo, GIZ PSD TVET, Team Leader ArmeniaGayane Serobyan, GIZ national expert

The opinions and conclusions expressed in the report belong to the authors and do not necessarily coincide with the views of GIZ.

29 January, 2017

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EXECUTIVE SUMMARYThis study on “The Potential for Dual Vocational Education and Training in Armenia” is part of the measure on “Future-oriented Dual Vocational Qualification in Armenia, Azerbaijan and Georgia”, implemented by the GIZ Private Sector Development Programme in South Caucasus. The programme conducts analytical work and individual country reviews designed to help countries make their TVET systems more responsive to labour market needs.

The objective of the study is to build country-specific knowledge and to provide a solid platform for Armenia to explore policy reforms and practical steps for introduction of dual TVET, through initiation of a dialogue with all involved stakeholders. The German dual TVET system provides inspiration for the introduction of a dual TVET system in Armenia.

The Armenia study identifies challenges and opportunities in the current TVET system regarding national polices and the existing legal framework and institutional setup for the modern dual TVET; it highlights key characteristic of TVET providers; it outlines financial and non-financial incentives for parties involved in TVET; it presents basic facts on agro-food/beverages, tourism, precision engineering and textile sectors; and it provides an interconnected package of policy recommendations aimed at supporting the introduction of dual TVET in Armenia. Each recommendation is enriched with the approaches and actions to be taken.

Opportunities for introducing dual TVET in Armenia

• In Armenia, TVET development is a priority for a number of reasons: first, employment is a high priority goal in the political and economic discourse of the government. Second, there is considerable interest in improving the skills of the labour force, to enhance productivity and the competitiveness of the country, and dual TVET is seen as one of the positive scenarios to realise this goal.

• One of the central arguments of the study is that there are clearly determined willingness and intentions by the Ministry of Education and Science (MoES) to develop and embed elements of dual TVET in Armenia.

• The completion of the 2012-2016 TVET reform programme creates good momentum for introduction of a new policy framework, including dual TVET elements.

• The existing legal framework in Armenia enables initiating discussions on possible development of dual TVET.

• The newly established sectoral employer-led competent skills development structures in tourism and food/beverage sectors are increasingly seen as effective mechanisms to engage industry. Such institutional mechanisms provide a platform for industry to gain experience, have their voices heard, and make significant contributions to skills systems.

• Changes in the Law on Education and the Law on Secondary Education stipulate establishment of favourable conditions for introducing dual TVET.

• State funding of the TVET sector has been progressively increasing during the last years.

Challenges confronting Armenian’s dual TVET system

• Existing materials, covering a broad range of relevant policy regulatory documents and strategy papers, make little to no reference to dual TVET.

• TVET in Armenia is centralised and employer contribution is marginalised to almost non-existent. The participation of private sector actors is fragmented, poorly coordinated, unsystematic and inconsistent.

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• The concept on social partnership in the TVET sector is outdated and does not provide a framework for effective collaboration between the public and private sectors.

• The new system of dual apprenticeships will face pushback from established traditional processes and relationship. Changing the mindsets, attitudes and beliefs of people towards technical vocational education is another challenge.

• Weak institutional and human capacities in social partner institutions (trade unions and employer representative organisations) and governmental agencies are equally challenging.

• Curricula development is rigid. The existing curricula have to be closely followed by TVET teachers, with very little possibility for introducing modifications upon request by employers.

• The lack of up-to-date teaching and training materials is one of the impediments to improving quality and relevance of TVET.

Recommended measures

• Development of a concept paper on an Armenian dual TVET system.

• Review and renewal of the Concept on Social Partnerships in the TVET sector and its adjustment to the current state of affairs in the country. The revised concept would recognise the instrumental role of competent employer-led sectoral skills development structures in development, provision and monitoring of dual TVET, and delegate bigger responsibility to these structures in the articulation of skills needs and requirements, setting quantitative demands for skills as well as qualitative standards of competencies, development of curricula, delivery of apprenticeship frameworks, accreditation of training providers, as well as assessment, recognition and certification of learning outcomes.

• Several amendments and/or new provisions should be elaborated and incorporated in the Labour Code: to define the terms “apprenticeship”, “apprentice” and “apprenticeship contract”; to regulate the relationships between employer and apprentice; to determine standard formats for apprenticeship contracts etc.

• The MoES will need to establish more effective processes of consultation and negotiation with the private sector as well as revise and improve the existing platforms/formats and procedures set for social dialogue and social partnership.

• TVET partners will need technical assistance and new instruments to ensure their meaningful engagement in design, implementation, monitoring and supervision of the new dual apprenticeship system.

• It is recommended to improve innovative and competency-based teaching process, as well as to introduce flexibility to adjust the curricula and teaching techniques to emerging needs and projected changes in industries, which would enable targeted adjustments of teaching materials to the requirements of dual TVET. Development of a concept on how to produce up-to-date teaching materials is highly recommended.

• Continuous development and improvement of instructor skills in pedagogy and knowledge of modern industries is needed. Until the national teacher training system is able to address this challenge, the issue of quality delivery and assessment will remain. Without trainers who are able to link innovation and development initiatives to training and are informed of the real-life requirements for the jobs they are training, it would be impossible to sustain a demand-driven TVET system.

• Continuous upgrade of laboratories, libraries, workshops and other facilities in TVET institutions is recommended.

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• The study recommends modernisation of teaching visual aids, teaching and learning handbooks, as well as tools and techniques for assessment of attained learning outcomes and competences.

• The capacities of TVET colleges to establish the dialogue with private sector should be strengthened. Partnerships between industry and TVET institutions are crucial for establishing a structured mechanism that can link demand and supply of the labour force. Each step in the entire chain needs to be properly interlinked, with necessary checks and balances in place. Since industry is the recipient of the outputs of the TVET system, direct linkage with national and international companies needs to be carefully built and formally agreed upon, to ensure continuous technological upgrades and the training of ready-for-employment candidates.

• The image of TVET among potential students, employers and the general population is poor and should be improved through a concerted awareness-raising effort.

• With the introduction of a modern dual TVET, the financial mechanisms will need to be revised from the perspective of planning, spending and monitoring.

The study used a range of different data sources to examine and emphasise the potential of the current Armenian TVET system to formally incorporate features of work-based learning (WBL), including modern dual TVET schemes. The methodology of the study combined extensive desk research with focus group discussions, to validate key findings of the desk research, and involved analysis performed by a team of international and nation experts. With this approach, the study addressed important questions on how to introduce dual TVET schemes in Armenia through presentation of a cooperative model that involves all concerned parties. The proposed model underpins the complexity of modern dual TVET, which is best addressed through strong cooperation among key players.

The information presented in this study is not meant to be all-inclusive or definitive. While most of the findings reflect suggestive correlations, nevertheless, these exploratory findings and recommendations identify areas of high policy relevance and pave the ground for further policy research and dialogue on the introduction of dual TVET and utilisation in Armenia.

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CONTENT1. NTRODUCTION .................................................................................................................................................8

1.1 Background of the assignment .................................................................................................................... 81.2 Objective of the assignment ........................................................................................................................... 91.3 Study methodology and tools ......................................................................................................................... 91.4 Summary of existing work-based learning practices in Armenia ...........................................................11

2. NATIONAL POLICIES ....................................................................................................................................152.1 Key Policy Challenges and Opportunities for Introducing Dual TVET in Armenia:

Recommended Measures .............................................................................................................................19

3. THE LEGAL FRAMEWORK RELEVANT FOR AN ARMENIAN DUAL TVET SYSTEM .................................................................................................................21

3.1 Key Challenges and Opportunities in the Legal Framework for Introducing Dual TVET in Armenia: Recommended Measures .............................................................................................................23

4. THE INSTITUTIONAL SETTINGS .............................................................................................................254.1 Key Challenges and Opportunities in the Institutional Setting for Introducing Dual TVET in

Armenia: Recommended Measures .............................................................................................................304.2 Capacity building and financial implications for introducing the dual TVET

cooperation system ........................................................................................................................................32

5. EXISTING CAPACITIES OF TVET PROVIDERS: BOTH PUBLIC AND PRIVATE .....................375.1 State funding for public TVET institutions ...............................................................................................425.2 Key Challenges and Opportunities Regarding the Capacities of TVET Institutions for

Introducing Dual TVET in Armenia: Recommended Measures ...........................................................46

6. FINANCIAL AND NON-FINANCIAL INCENTIVES TO PARTIES INVOLVED IN MODERN DUAL TVET ..................................................................................................................................496.1 Key Challenges and Opportunities Regarding the Financial Incentives for Introducing

Dual TVET in Armenia: Recommended Measures ..................................................................................51

7. ECONOMIC STRUCTURE OF TARGET SECTORS ..............................................................................547.1. Tourism Sector ...............................................................................................................................................54

7.1.1 Description of the Sector .................................................................................................................547.1.2 Current policy and initiatives in Armenia aimed at developing the sector ................................567.1.3 Sector Performance Indicators (by subsectors) .............................................................................577.1.4 Sector Employment Rates .................................................................................................................627.1.5 Human Capital ...................................................................................................................................63

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7.2 Agro-Food Processing and Beverages Sector ............................................................................................637.2.1 Description of the F&B Sector ........................................................................................................647.2.2 Current policy and initiatives in Armenia aimed to develop the sector .....................................657.2.3. ector Performance Indicators (by subsectors) ..............................................................................677.2.4 Human Resources and Employment ...............................................................................................68

8. SPECIAL NOTES ON PRECISION ENGINEERING AND TEXTILE INDUSTRIES ................708.1 Precision Engineering ....................................................................................................................................708.2 Textile Industry ...............................................................................................................................................71

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ABBREVIATIONS

ADS Armenian Development Strategy 2014-2025

AMD Armenian Dram

ALMP/M Active Labour Market Programme/Measure

EU European Union

FGD Focus group discussions

GDP Gross Domestic Product

GoA Government of Armenia

GIZ Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH

MoES Ministry of Education and Science

MoLSA Ministry of Labour and Social Affairs

MTEF Medium-term Expenditure Framework 2015-2017

NES National Employment Strategy 2013-2018

NCTVETD National Centre for Vocational Education and Training Development

NIE National Institute of Education

NQF National Quality Framework

PSD SC Private Sector Development in South Caucasus

RoA Republic of Armenia

RUEA Republican Union of Employers of Armenia

SEA State Employment Agency

TVET Technical and Vocational Education and Training

UNDP United Nations Development Programme

WBL Work-based Learning

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1. NTRODUCTION

1.1 Background of the assignment The current report has been produced in the frame of the measure on “Future-oriented Dual Vocational Qualification in Armenia, Azerbaijan and Georgia”, implemented by GIZ Private Sector Development in South Caucasus Programme (PSD SC).1

The three countries of the South Caucasus (Armenia, Azerbaijan and Georgia), face the challenge of generating broad-based, inclusive growth to narrow down the urban–rural gap and reduce poverty in rural regions, especially. There are insufficient business and institutional resources to develop export-dedicated economic sectors for pro-poor and sustainable growth. Also, the capacities of institutions engaged in economic and vocational training policy are not sufficient, and there is a lack of concerted, forward-looking planning affects, particularly for small and medium-sized enterprises (SMEs), which account for more than 95% of the economies in the three South Caucasian nations. There is hardly any inter-institutional cooperation and dialogue with the private sector.

Labour market employment opportunities are, however, on the decline for the less qualified sections of the population, with growing demand for well-trained skilled labour. There is a particular lack of qualifications in production, procurement and sales, in addition to human resource management/development, innovation management and resource efficiency. The current vocational training systems cannot meet these needs. In part, this makes starting up new competitive SMEs or developing existing ones difficult or impossible, because the shortage of qualified skilled labour hampers positive development. Demand-driven Technical and Vocational Education and Training (TVET) has, in this regards, an important role for the development of a well-established, competitive and diverse economic landscape.

The governments of the three South Caucasus Countries (Armenia, Azerbaijan and Georgia), acknowledge the importance of developing an education system that satisfies the growing demand for qualified and skilled labour. They are committed to the reform process of the national education system and have declared education as one of the main priority areas for state policy. A particular emphasis is placed on developing technical and vocational educations systems that meet the increasingly diversified and specialised labour demand of the private sector.

Nevertheless, the TVET reforms have so far been driven by the state programmes in each country, thus, the systems are still government-planned, underfunded, dominated by school-type training and geared too little towards private sector needs. Non-formal training is only provided sporadically. The private sector is still involved too little in planning and carrying out vocational training.

Therefore, none of the three South Caucasus countries have demand-driven, cooperative vocational education and training systems in place. In addition, there is a lack of a strategic approach towards the development of such a system, which includes the knowledge about the market needs for skills and the cooperation potential with the private sector.

To ensure that the relevant actors and the legal and institutional frameworks of the government and the private sector are able to outline efficient dual vocational training mechanisms for the various sectors, it is 1 Since 2012, the regional “Private Sector Development in South Caucasus” Programme has focused within its TVET

activities on the involvement of the private sector in TVET development through sector-specific, multi-stakeholder dialogue mechanisms in selected regions and addressing the training needs identified therewith. The programme has also looked into enhancing the content of vocational training, improved management of the selected TVET schools, and developed some structures and specific short term trainings along the selected value chains (food/beverages, tourism, precision engineering), on the basis of successful partnerships between the TVET sector and employers.

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particularly important to enable both sides to gain an awareness of this issue and to establish the required formal framework and conditions.

1.2 Objective of the assignmentThe aim of this study is to elaborate and improve the overall knowledgebase of the TVET system and needs for the national ministries of education and other key players, as a base for the national roadmaps to be developed by the three countries.

The findings of the study shall help to determinate where and how dual TVET approaches can be anchored in the prevailing TVET systems. It shall also help to prepare systemic and focused interventions for dual (technical) vocational education in all three countries, by providing an in-depth overview of the current legal and institutional framework and set-up of (technical) vocational education and training in the country of the study (Armenia) as well as an overview about the economic structure and performance of the target sectors: food/beverages, tourism sectors and other export-dedicated industries such as precision engineering and textile.

1.3 Study methodology and toolsThe report was developed in a 3-phase process:

• Phase 1: Desk research of all relevant local and international information (laws, regulations, national and international studies concerning TVET) about the legal and institutional framework as well as the economic structure within the sectors agriculture and tourism and other relevant export-oriented sectors in Armenia.

• Phase 2: On-the-ground mission, including:

a. guided interviews with selected companies in the sectors food/beverages and tourism based on the desk study results for the economic structure;2

b. verification of the desk study findings regarding the existence and functioning of the legal framework and institutional settings through direct meetings and a focus group discussion (FGDs) with key players in dual TVET from the public and private sector and other stakeholders.

• Phase 3: Structured report about the results of the desk study and the on-the-ground mission (validated through in-depth interviews and FGDs).

A core importance was paid to terminology and different definitions used for the concept of dual TVET.

For this reason, relevant documents of ILO, ETF, EU and BIBB have been consulted, and a comparative analysis was conducted for a more comprehensive overview of the characteristics of “modern” apprenticeship or dual TVET3: its benefits and challenges, the regulatory basis and the fundamental roles of different actors, the development of the systems during the years in various EU and OECD countries.4

Accordingly, under the very recent definition given by the G20 labour and employment ministers meeting in 2012, the apprenticeship or dual TVET scheme is defined as a “…unique form of vocational education,

2 For more profound conclusions and analyses on the skills requirements within the selected sectors, conducting a representative, quantitative field study is recommended.

3 “Modern” apprenticeship training is also referred to as “dual vocational training system” or as “dual system” in the studied literature, and these terms are identical in meaning and are used interchangeably.

4 See Annex 2.

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combining on-the-job learning and school-based training, for specifically defined competencies and work processes. It is regulated by law and based on written employment contract with a compensatory payment and a standard social protection scheme. A formal assessment and a recognised certification come at the end of a clearly identified duration” (ILO [G20 Task Force on Employment September 27, 2012 #11770]).

Given this definition, we can observe that the dual TVET or apprenticeship system has a number of distinct attributes and features that clearly distinguish it from other workplace-based arrangements. It is structured and regulated, usually by legislation at national level; it has a compensation component; it is located at the workplace, based on a contract specifying duration, programme of learning (including transferable skills) assessment, final certification and the entitlement to off-the-job learning. Successful completion of apprenticeship leads to a nationally recognised TVET qualification.

The table below prefaces a schematic representation of the defining characteristics of “modern” apprenticeship or dual TVET, as compared to informal (traditional) apprenticeship and other workplace-based training arrangements.

Figure 1. Principal attributes of “modern” apprenticeship schemes, compared to informal apprenticeship and other workplace-based arrangements

Wage Legislative framework

Workplace-based

Program-me of

learning

On the job

training

Off the job

training

Formal asses-sment

Recognised certification

Duration

Trainee-ship Maybe No Yes No Maybe No No No Variable

Internship No No Yes No Maybe No No No Variable

Informal apprenticeship

Pocket money or in kind

No Yes No Maybe No No No Variable

Work-place learning Yes No Yes No Maybe No No No Variable

“Modern” apprenticeship

Yes Yes Yes Yes Yes Yes Yes Yes Fixed

In addition, dual TVET is based on a number of key elements and principles, providing a base for governing the implementation of apprenticeships/dual TVET.

The following five integral elements and principles describe German dual TVET system:

1. cooperation and shared responsibility and resources between public and private sectors and social partners (exam boards, TVET standards, etc.);

2. integration of companies as training providers together with TVET schools or other training institutions, with two coordinated learning venues: 70% of training at a company and 30% at a vocational school/college;

3. institutionalised support and administration of research and advice on labour market intelligence on changing skill needs;

4. socially accepted dual TVET qualification standards provided by private; 5. competent teachers and trainers of TVET institutions, with extensive knowledge of their subjects,

and certified in-company mentor.

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These elements are applied differently and vary from one country to another, according to the specific national context. Nevertheless, to assess the validity of these key elements and attributes of dual TVET systems for the Armenian reality, the study focused on these elements and conducted an applicability check based on the following six aspects:

1. national policies;2. legal Framework;3. the institutional settings: the main actors, their responsibilities, roles and involvement in any type of

WBL and in dual TVET in particular;4. existing capacities of TVET providers, both public and private;5. financial and non-financial incentives to parties involved in dual TVET: the employer, the apprentice/

trainee, the school/training institution;6. economic structure of target sectors.

Accordingly, the report is structured along these six aspects.

1.4 Summary of existing work-based learning practices in ArmeniaThe study analysed the existing context by drawing parallels with the core elements, attributes and principles of dual TVET, with the purpose of revealing bottlenecks, challenges and identifying opportunities for further discussions with the Ministry of Education and Sciences and other key players on where and how dual TVET approaches can be anchored in the prevailing TVET systems, and what interventions could or should be implemented to prepare systemic and focused imbedding of dual (technical) vocational education in the country.

Speaking about the Armenian context, it should be emphasised that there is no formal practice of dual TVET or “modern” apprenticeship, but rather various forms/models of work-based traineeships, which are listed and described below:

1. Traineeships associated with educational programmes, which form a compulsory and increasingly integrated part of study curricula. These can be conducted either at schools or in companies. 5This kind of traineeships is part of the formal education programmes and varies by type, focus and duration. They typically last up to 10 weeks, dependent on the specialisation, and are undertaken towards the end of studies, shortly before the final examination. Organisation of these traineeships is mainly the responsibility of the colleges and the only regulation is the state educational standard of the given qualification, the respective curriculum and the contract signed between the college and the employer.6

All the parties involved in this form of traineeship, be it the trainee, the employer or the TVET school, view this model unfavourably due to several shortcomings:

a. inconsistency of the content of the theory and the real situation and developments on the workplace;

b. the timing of the practical training is not adjusted to the work processes of the companies;c. lack of motivation among students to take advantage of this training opportunity;d. employers do not invest enough effort and time for the training; e. the students are only allowed to observe and not to do, even when tasked with specific work

assignments they are not motivated to perform them since the employers do not envisage any financial incentive for the students;

f. the employers do not have a say in the selection of the students, who are simply assigned by the colleges.

5 Law on Preliminary and Middle TVET, Articles 4, 8, 12 and others.6 Law on Preliminary and Middle TVET, Article 12, part 4.

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2. Traineeships attached to a mentor trainer. Type of vocational education is called Individual Vocational Training, also regulated by the Law on Preliminary and Middle TVET.7

Only preliminary middle vocational qualifications are subject to such trainings. The duration of the mentor-attached individual traineeships can differ from 6 months to 1 year, depending on the curriculum. The trainee receives a certificate for a mentor-attached traineeship qualification of a craftsman/artisan: 3rd level of National Qualification Framework (NQF). The list of professions and qualifications subject to this type of traineeship is defined by a procedure adopted by Government Decree No. 1254-N of 30 October 2008.

3. Traineeships associated with Active Labour Market Policy (ALMPs) instruments: due to the proven impact of workplace learning opportunities in increasing labour market entry rates, traineeship programmes linked to ALMPs have also been introduced or broadened, with the explicit aim of connecting or reintegrating young people into the labour market. Specifically, these are commonly targeted at unemployed, disadvantaged young people at risk of social exclusion. This programme allows young people with no work experience to start their careers and combine education or training with a job. Besides, it gives a financial incentive for the employer to apply a probation period for young employees without any financial risk and tax burden. Two of the measures that have direct linkages to employment promotion through TVET are described below.

g. Vocational training for the unemployed and job seekers who are at risk of losing their jobs. The purpose of the training is to support the candidate to attain new competencies required on the labour market to ensure better employment opportunities, to help them maintain their current job, or to promote entrepreneurship. With this ALMP the unemployed or job seekers can participate in

i. requalification training courses, when there is no job offer suitable for the qualification of the candidate on the labour market;

ii. qualification upgrading courses, when the vocational qualification of the candidate does not match the needs and requirements of the labour market;

iii. preliminary/artisan vocational training, when the candidate has no qualification.

These trainings are free for the unemployed and job seekers who are registered in the employment centres and are funded from the state budget of the RoA. The training provider is selected according to the procedures set by the Law on Procurement as well as other sources not restricted and not forbidden by the legislation.

The duration of the upgrading and requalification trainings cannot exceed 3 months, while the preliminary/artisan training duration cannot be longer than 6 months. The candidate can participate in such courses only once during a given year. During the training period, the unemployed are entitled to a stipend up to 50% of the minimum monthly salary.8

a. Internship opportunity to support first work experience for the unemployed who have already attained vocational qualification. This programme aims to support those who are entering the labour market for the first time, to attain work experience in a job matching their qualifications, thereby raising their competitiveness on the job market. An unemployed person can participate in this measure only once within 5 years after graduating with a vocational qualification.These trainings are free for the unemployed and job seekers registered in employment centres. They are funded from the state budget of the RoA and the training provider is selected according to the procedures set by the Law on Procurement as well as other sources not restricted and not forbidden by the legislation.

7 Law on Preliminary and Middle TVET, Article 12, 13, etc.8 http://employment.am/am/28/free.html.

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During the entire duration of the programme, the intern is paid a salary in the amount of the minimum monthly salary. Also, the employers is reimbursed for paying the personal income tax for the intern and for the time of the in-company specialist who organises and supervises the internship, in the amount of 20% of the yearly average salary of the former (but not more than the minimum monthly salary). In cases where the internship is provided by an individual entrepreneur, only 50% of the minimum monthly salary is reimbursed. The participating employer is selected through a process of negotiations and counselling with the local employment centre. A tripartite contract is signed between the employer, the intern and the local employment centre where the unemployed person is registered. The maximum duration of this programme is 3 months.9

The research revealed confusion between the perceptions of dual apprenticeship and the company attached traineeships associated with an educational programme. However, the differences are quite distinct. First, traineeships of these two types are only a small part of the formal qualification programme and quite often (depending on qualification) are school-based and involve work-based training organised by education and training institutions and/or public employment services. Second, the practical work-related training aims to complement the learner’s theoretical education and/or enhance employability by allowing them to acquire their first work experience. Third, their duration is variable and typically much shorter than the duration of dual apprenticeship qualifications. Fourth, there is no traineeship agreement regulating the placement (including for example objectives, learning content, terms and conditions). However, in traineeships linked to educational curricula and ALMPs, the trainee terms and conditions are generally clearly set out in traineeship agreements between the vocational school (or Public Employment Services), the host organisations and the trainees (only in case of ALMPs). Crucially, the traineeship agreement is explicitly not an employment contract. Fifth, the trainee is considered to be a pupil, student or a person who is working on a temporary basis to acquire on-the-job experience relevant to his/her studies and/or need to acquire an initial work experience. Significantly, the legal position of a trainee is not equal to the legal position of a regular employee or apprentice. Moreover, in contrast to apprentices, trainees are not always remunerated, and – when they are – the level of remuneration varies widely. Sixth, in contrast to dual apprenticeships, traineeships often do not lead to a formal qualification (especially those linked to ALMPs). Finally, again in contrast to dual apprenticeships, social partner involvement is not as extensive and in some cases non-existent. Yet, there are indications that the most effective traineeship programmes are characterised by strong social partner involvement in both design, implementation and quality assurance.

Along with these schemes, in Armenia these is also a tradition and culture of skill development through informal apprenticeships. Although reliable data on their extent are not available, informal apprenticeships still represent the main training route for some sectors and occupations: crafts, agriculture, hospitality and service, the construction sector, retail trade, garment-making and -repair, carpet weaving, automobile maintenance, hairstylist and make-up artists. Traditionally these professions are passed from a parent to a child in an informal learning process. Nevertheless, there are also cases where a trainee may deliberately choose this kind of traineeship under a master to attain the skills. In all cases, the trainee does not obtain a formal certification on the attained qualification.

Typically, informal apprenticeships take place entirely within the workplace and do not involve any complementary classroom-based education or training. Despite the system’s strength of providing skills relevant to local markets, informal apprenticeship has a number of weaknesses. Long working hours, unsafe working conditions, low or no allowances or wages, little or no social protection in case of illness or accident, and strong gender imbalances are among the decent work deficits often found in apprenticeships.

9 http://employment.am/am/87/free.html.

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On the one hand, upgrading informal apprenticeship is considered important to address these weaknesses. However, on the other hand, compared to investing in expanding formal technical education and training, it is a cost-effective way to invest in the country’s skills base and enhance youth employability, since training is integrated into the production process. Improved informal apprenticeship systems can also enliven local economies by contributing to the diversification of products and services and the innovation, productivity and adaptability of micro and small enterprises.

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2. NATIONAL POLICIESFor the last three years the need for promoting dual vocational training is often circulated and discussed in different platforms on different levels, between the parties concerned, highlighting the issues of the big misbalance between skills supply and demand as well as the continuously growing structural unemployment in the country.

A number of arguments have been advanced for establishing policies that support introducing a dual TVET system in Armenia.

First, a number of recent studies in dual education countries confirm that a completed apprenticeship greatly increases a young person’s chance of being employed: it promotes growth and eases the transition from full-time education to work, due to superior matching of the training to labour market demand. The labour market monitoring data and statistics show that the unemployment rate among young people 15–24 years old in countries with dual apprenticeship (Austria, Germany, Switzerland, France and the UK) is much lower than in those without. However, while a positive relationship between apprenticeship and low youth unemployment can be observed over time, it would be misguided to see apprenticeship as a panacea for high youth unemployment. Since apprenticeship is first and foremost about skill development to the benefit of companies, it is not a sufficient solution for ensuring the labour market transition of young people with poor school achievements or other disadvantages. For these groups, active labour market measures are offered.

Second, apprenticeship can accommodate a wide range of abilities and aptitudes, because it accurately reflects the equally wide range of skills required in the modern economy.

Third, the transferable skills and general education components of dual apprenticeship enhance the apprentices’ employability and job mobility.

Fourth, it has been shown that a completed apprenticeship is positively associated with higher earnings.

Analysis of apprentice wages in the UK has shown substantial wage returns for young men with a completed apprenticeship both at Advanced (Level 3) and Intermediate (Level 2) Levels compared to individuals with the same level of vocational qualification but without apprenticeship experience. For young women returns are also positive, but only at the Advanced Level of apprenticeship. Hollenbeck (2011) finds that the returns for apprenticeship trainings in the US far exceed the returns for other types of training, including two-year, community college programmes. A broader study of 10 states also documented large and statistically significant earnings’ gains from participating in apprenticeship (Reed, 2011).

Fifth, compared to investing in expanding formal technical education and training, it is a cost-effective way to invest in the country’s skills base and enhance employability of youth, since training is integrated into the production process.

Sixth, with increased employer investment, shared responsibility and the pooling of financial and human resources for TVET under dual apprenticeships, TVET promotes economic development.

Summing up, apprenticeships benefit society and the economy with much more than just improving employment prospects for young people. Apprenticeships match the supply of skills with demand from employers much more efficiently than is possible with a system of only school-based, full-time vocational education. They develop high-level skills identified by employers as necessary for growth and increased

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productivity. To the extent that the skills developed in apprenticeships promote higher value-added economic activity, they are good for growth and for general welfare. The higher earnings associated with higher productivity provide higher tax influx, which the governments can use for health, education and other general welfare measures.

Thus, dual apprenticeship is desirable, and public policies and funds need to support its proper development and implementation. However, despite the abovementioned arguments and the frequent discussions on dual education in Armenia among different actors and particularly within the MoES, a political decision and the necessary enabling conditions are still not in place in Armenia. New and revised policies and strategies will have to be developed.

The following presents an overview of the current policy and strategy framework, with a focus on the parts and provisions that potentially favour (potentials) or hinder (challenges) the introduction of dual TVET in Armenia:

1. Armenia Development Strategy 2014-2025 (ADS)10 is the country’s main socio-economic development strategy and the basis for long- and medium‐term programme development. It is built around four interrelated pillars: creating jobs, developing human capital, strengthening social protection system, and modernising public administration and governance. ADS’ overall objective is growth of employment (through creation of quality and well-paid jobs), with the following relevant cross-cutting priorities for the pillars:

3 employment expansion through high-productivity and decently paid jobs; 3 enhancement of human capital through improved access to quality services, including healthcare,

education and different forms of learning, culture and basic infrastructure; 3 improvement of social protection through higher efficiency and improved targeting of existing

systems to ensure financial sustainability. The fundamental guarantee for achieving these three pillars is the modernisation of the public administration, which affects the effectiveness of all points. The backbone of the efficient implementation of the abovementioned priorities is the enhancement of human capital and the upgrading of workforce skills to improve its attractiveness and productivity. It is clearly stated in the document that public funding shall be made available for the listed priorities.

2. Medium-term Expenditures Framework 2016-2018 (MTEF): In addition to the ADS, the Government of Armenia released its three-year programmatic document Medium-term Expenditures Framework 2016-2018. MTEF is developed and adopted by the Government of Armenia every year. It outlines the main expenditure directions and priorities of the government during the next three years and lays the basis for drafting the next year’s annual budget. It defines GoA’s socio-economic, mid-term policies and strategies, and forecasts the state budget expenses in accordance with ADS 2014-2025. The main highlight from the MTEF is the trend of doubling state expenditures for the TVET sector during the upcoming three years – from AMD 7.46 billion in 2014 to AMD 14.23 billion in 2018.11

10 “Armenia Development Strategy 2014-2025,” annex to Government Decree # 442 – N, 27 March 2014, http://www.gov.am/am/prsp/.

11 “RA Medium-Term Expenditure Framework 2016-2018,” p. 143, http://www.gov.am/files/docs/1603.pdf.

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Chart 1. State Budget Expenses of TVET System according to MTEF 2016-2018 (in AMD million)

7,459

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The increase of state budget expenses for the TVET system is envisaged based on the recent changes to the Law on Education and the Law on Secondary General Education, which assume that starting from 1 January 2017 the government guarantees 12-year, 3-level free secondary education. This means that starting from 2017 the TVET system will somehow be integrated within the country’s secondary education system. Therefore, TVET colleges and preliminary TVET (artisanship) schools should provide free education services for the graduates of the secondary education level (ensuring 12-year education) and can provide paid education services to others.

Despite the tendency of increasing state budget support, improving the allocation of public funds according to the needs of the economy is a serious challenge, which has persisted for the past several years. In this regard, measures will be needed to improve and to enable evidence-based planning through strengthened capacities for regular and systematic institutionalised research and advice.

3. National Employment Strategy 2013-2018:12 A relatively new document has radically changed the whole concept of the country’s employment policy, turning it from passive to a targeted, flexible and active policy, aimed at ensuring decent work and minimum social security guarantees, given by such international fundamental documents as European Social Charter and European Social Code, ILO conventions and recommendations, and others.

This document looks at employment policy in the larger context of the country’s socio-economic development, and puts the accent on sustainable, forward-looking and measurable ALM programmes.

With the successful implementation of this new strategy, the government strives to not only decrease unemployment but also emphasise:

a. continuous and consistent development of human capital, raising its productivity and competitiveness through dynamic matching with the requirements of labour market;

b. development of social partnership for new job creation, ensuring highly qualified specialists for the developing and growing economic sectors and industries, filling skill shortage, and improving working conditions and salaries.

The new strategy has declared about 10 core principles, which are of particular interest for the subject of this study:

1. voluntarism and liberty in selection of one’s own job;2. raising the societal role of individuals through sustainable employment;

12 http://www.mlsa.am/up/MAR45-9.pdf.

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3. social responsibility of employers and social partnership;4. symmetry of information in the frame of state regulation of labour market;5. improved working conditions and decent work;6. efficient vocational orientation;7. registry of changes and tendencies in development of the economy, employment, demography,

labour migration and education; 8. targeted and transparent policy measures, overarching monitoring and evaluation of outcomes;9. prioritisation of public finances;10. anticipation of negative implications of state regulation and prevention in the course of

implementation.

The new strategy also defines the policy dimensions and implementation mechanisms for these core principles.

3. Vocational Education and Training Reforms Programme 2012-2016: The TVET reform programme highlights the need for the integration of the country’s TVET system into the European vocational education area. This document, which is phasing out this year, has been developed in the course of TVET reforms guided by the Bologna and Copenhagen processes, and in light of previous EU budget support programmes. It is based on four key intervention dimensions presented in the table below:

Figure 3. Key intervention dimensions and activities of the RA TVET reform programme 2012-2016

No Intervention dimension Activities and measures

1 Integration of the TVET sys-tem into the European profes-sional education area

1) Introduction of the TVET qualifications national framework2) Introduction of credit system in TVET sector3) Study of the TVET sector reform experience of European

countries4) Application of Copenhagen process principles in Armenia

2 Increase of TVET system man-agement efficiency

1) Provision of access to education in TVET education institu-tions for persons with special education needs

2) Continuous strengthening of the human resource capacities of the TVET system through administrative staff, teaching staff and management board member trainings

3 Upgrading TVET reputation and image

1) Establishment of career centres in TVET institutions2) Organisation of awareness/TVET PR campaigns

4 Expansion of social partnership in TVET sector

1) Expansion of cooperation with employers in the process of vocational education and training organisation and imple-mentation

2) Development of the partnership with employers in TVET system

For the next phase of TVET and labour market reforms, the following dimensions are being discussed by policy-makers:

• revision of the social partnership concept,• introduction of entrepreneurship modules as a compulsory part of state TVET education standards,

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• introduction of formal and non-formal dual apprenticeship schemes,• development of career centres in all TVET institutions and in secondary schools,• introduction of a quality assurance system in TVET institutions,• revision and update of existing state TVET educational standards, and elaboration and implementation

of new ones.

4. Currently a draft document called RoA State Programme of Education Sector Development 2016-2025 is being circulated within government bodies. The document will substitute the State Education Development Programme of the Republic of Armenia 2011-2015 and plays the role of a strategic document, based on which other sector policy and reform documents will be elaborated (e.g. the TVET development strategy or the TVET reform programme). The document covers almost all aspects of primary, secondary, TVET and higher education. However, it depicts only general aspects and makes no reference to dual vocational education and training, and only one general paragraph is devoted to work-based learning and education.

5. Concept on Social Partnership in the Field of Preliminary (artisanship) and Middle Vocational Education has been developed and adopted in 2008. Since then it has become a guiding document for a number of regulations of TVET sector, defining the core principles and structures of social partnership at four different levels (see section on institutional settings). All the involved parties acknowledge that this document is outdated and needs revision.

6. Another important document is the new agreement with the EU for a new phase of EU budget support programme for development of TVET in the agriculture sector. It is worth to note that development of dual education principles in Armenia is included in this programme’s conditionalities matrix. This is another factor that proves that development and implementation of the principles of dual education is going to be one of the priorities of the MoES in the upcoming 5 years.

2.1 Key Policy Challenges and Opportunities for Introducing Dual TVET in Armenia: Recommended Measures

• Despite the clearly determined willingness and intention of the MoES to develop and imbed elements of dual TVET in Armenia, there is not determined policy formulation or any reference to the dual TVET in any of the related policy and strategy papers.

• The phasing out of the current TVET reforms programme creates good momentum for initiating the development of a new policy framework, that includes a dimension on dual TVET development. The current study is of particular importance in terms of providing a holistic knowledge base for understanding the key elements and attributes of dual TVET systems. It reveals the legal, institutional, and other gaps, and creates a base for focused and result-oriented dialogue and decisions towards the strategic pathway for imbedding elements and principles of dual TVET in Armenia.

• The series of participatory discussions and workshops with key public and private players and social partners shall lead to the development of a concept paper on Armenian dual TVET system. In this concept paper, the parties will have to identify and agree on a number of elements and characteristics of dual TVET, underpinning a successful and viable system: cooperation system; incentives for participation of the private sector and their roles and shared responsibilities; management and strategies for addressing market failures; financing mechanisms and cost shares; institutional support for promotion; administration and monitoring of results of apprenticeships; and others.

• The concept on social partnerships in the TVET sector is outdated and does not provide a framework for effective collaboration between public and private sectors. TVET in Armenia is centralised and the employer contribution is marginal to almost non-existent. As public authorities

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take a leading role in both TVET policies and in implementation, such top-down initiatives do not usually motivate private sector actors to participate in the formal education sector or other forms of cooperation. Changing the role of private actors from bystanders to active collaborators requires legally delegating at least some decision-making powers, rather than only providing a chance to be present in state-initiated and state-run platforms. Implicitly, private sector actors have voiced request for new approaches and mechanisms for social partnerships, and improvement of the Concept on Social Partnerships in TVET sector and its adjustment to the current state of affairs in society. The revised concept shall recognise the instrumental role of competent, employer-led sectoral skills development structures in development, provision and monitoring of dual TVET, and delegate more responsibility to the private sector in the articulation of skill needs and requirements (including quantitative demand for specific skills as well as qualitative standards of competences, development of curricula, delivery of apprenticeship frameworks, accreditation of training providers, assessment and certification of learning outcomes).

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3. THE LEGAL FRAMEWORK RELEVANT FOR AN ARMENIAN DUAL TVET SYSTEM

Apprenticeship is one of the oldest social institutions; however, “modern” apprenticeship/dual TVET has ambitious aims to enhance general education and to develop technical knowledge and skill to internationally competitive standards. Its implementation requires high levels of trust and cooperative behaviour between public authorities, employers and the young persons.

For well over a century now, governments in dual apprenticeship countries such as Austria, Germany and Switzerland have sought to rebalance the potentially unequal relationship between employer and apprentice by legislation that gives the apprentice a legal status and the right to acquire transferable general education and skills alongside more firm-specific skills in the apprenticeship. Having insisted on this right, the government also pays for this component of the apprenticeship, thereby becoming a major player in the apprenticeship scheme.

In Germany, the 1969 Vocational Training Act specifies the length of apprentice training and the examinations to be carried out by chambers of commerce to test workplace learning, and obliges employers to release apprentices to undergo these tests. It requires employer and sector representatives to draw up a specification of workplace learning for every recognized apprentice occupation, with the provision that the framework promotes transferable skills and knowledge within an occupational context. The Act places vocational training in the hands of firms and chambers and thus emphasises the principle of employer responsibility for content, while defining the basic framework guaranteeing mutual rights and obligations of employers and apprentices.

In addition to Germany, a further six European countries (Austria, Denmark, England, Ireland, the Netherlands and Switzerland) regulate dual TVET/apprenticeship through an Act of Parliament.

An apprenticeship contract enforceable by law is a fundamental condition for the protection of the apprentices’ interests. In most apprentice countries, this contract provides apprentices with a special ”trainee” or “learner” status that emphasises their dual role in the workplace as both learner and worker. Apprentices also enjoy the full protection of health and safety at work legislation as appropriate for their age. A standard format relieves firms of the burden of individually negotiating each contract and provides each party with a clear statement of rights and responsibilities with redress for failure to observe the apprenticeship contract.

A trial period of several weeks is often incorporated to allow either the apprentice or the employer to end the contract without penalty if either party so wishes. After this trial period, as long as the apprentice fulfils the requirements of the apprenticeship contract and the business remains solvent, the contract cannot be terminated prematurely by the employer. Following the completion of the apprenticeship, both apprentice and employer are free to decide whether to enter into an employment relationship.

To reveal the existing or in preparation legal framework relevant to any type of WBL, and to Dual TVET in particular, some major TVET, labour, employment and social security legal acts have been reviewed (Annex 1).

The Law on Education and the Law on Preliminary (crafts/artisan) and Middle TVET. These two laws define the principles of public policy, organisational-legal and financial-economic bases of the TVET sector as well as rights and responsibilities of legal and physical entities involved in education in

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general, and in TVET in particular. Indicative is that in the both laws:a. the cooperation with social partners is recognised as one of the principles of state policy in the area

of Preliminary (crafts/artisan) and Middle TVET; andb. equal rights are prescribed and acknowledged for the parties involved in the delivery of Preliminary

(crafts/artisan) and Middle TVET.13

Nevertheless, in the reality, these principles are not put into force, and the involvement and participation of employers and social partners in social dialogues is just a formality. This observation is confirmed by articles in the same laws, which allocate the sole power of organising, implementing, monitoring and decision-making to the state in almost all areas. Public authorities take a leading role in both developing TVET policies and their implementation, and these top-down initiatives do not usually motivate private sector actors to participate in the formal education sector or other forms of cooperation.

The Law defines also the main types of delivery vehicles for Preliminary and Middle TVET (full-time, remote learning by correspondence, distance learning, external learning, individual vocational training with a mentor), as well as the types of practical training, as an integral part of the curriculum (school-based practice, company-based practice, technological, pre-diploma, etc.).

1. The Labour Code of RoA was adopted on 11 November 2004 and has been amended and improved quite a bit, most recently in 2015. The amendments refer to all parts, chapters and articles of the Code. This Code regulates collective and individual working relations, defines the bases for the establishment, modification and termination of these relations and the order of their realisations. It defines rights, obligations and responsibilities of parties involved in labour relations.

The Code defines also that “labour relations or other immediate interrelations to labour are being regulated by collective or job contracts between employees and employers, in compliance to the labour legislation and other legal-normative acts that contain norms on labour right”.14

The Labour Code defines the terms “employer” and “employee”. Nevertheless, there is no definition of the terms “apprentice”, “apprenticeship”, and “apprenticeship contract”, although Article 201.1 describes “vocational training provided by employer” for “apprentices” or “new candidates entering a job”. According to this article, the employer is entitled to provide vocational training within the company or in another place, based on a contract, for the apprentices or candidates for a new job opening, with one’s own resources for a duration of up to 6 months. During this period, the employer pays a stipend to the apprentice in the amount of at least minimum monthly salary defined by the respective law.15

This regulation allows the employer to avoid paying personal income tax during the training period for the apprentice, which is the only financial incentive found in current labour legislation for employers that provide such skill trainings.

Indeed, this is a very important recent addition to the Labour Code, which serve as a point of reference for piloting dual apprenticeship programmes in Armenia. However, there are a number of open questions and shortcomings that need to be resolved through additional, in-depth discussions between the relevant public players and the social partners:

• the issue of providing the training in the frame of socially accepted dual TVET qualification standards,

• monitoring of delivery process and supervision of results,• the type and content of the contract during the training period,• the 6-month limit placed on the training period.

13 Article 4: Principles of public policy.14 Labour Code of RoA, Part 1, Chapter 1, Article 6.15 Law on Minimum Monthly Salary.

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2. Law on Employment: This Law is interesting since it defines the terms and status of “employment” and “unemployment”, and the types of activities that are considered employment, including full-time education and training in vocational training institutions and vocational training courses. This status makes a person eligible and subject to social security schemes. The apprenticeship period will also need to be considered as such and embedded in the relevant regulation.

3. Law on State Pensions and Law on Funded Pensions: Armenia has recently undertaken pension reforms and a new Law on Funded Pensions was adopted, which describes the new approaches and principles of the pension system, while the Law on State Pensions regulates the period of transition after which the new system will be fully introduced. According to the Law on State Pensions, work experience is the major component for calculating labour pensions. However, according to the Law on Funded Pension the pension size will be determined by the amount of cumulative payments into pension funds, regardless the years of work experience.

3.1 Key Challenges and Opportunities in the Legal Framework for Introducing Dual TVET in Armenia: Recommended Measures

In summary, the existing legal framework provides a basic platform for initiating discussion on possible development of dual TVET in Armenia:

• Some amendments and/or new provisions will need to be elaborated and incorporated into the Labour Code, regarding

– the definition of the terms “apprenticeship”, “apprentice” and “apprenticeship contract”,– regulation of relationships between the employer and the apprentice,– standard format of apprenticeship contract.

• In addition, the Regulatory Act on Individual Vocational Training can similarly provide a basis for dual apprenticeships, but certain amendments are needed to clearly specify the respective share of work-based and school-based training. This Act puts the stress on training of an individual according to an individually agreed pace, but still the legal basis of the training is the State Educational Standard, which usually provides a very small portion of company based learning hours.

Even if the existing legal regulations can be used for pilot dual apprenticeship schemes, during all the discussions that the experts had in the course of their mission, the need of a new Legal Act on Dual TVET was emphasised by the parties. A holistic document is required for defining dual apprenticeships, to safeguard rights and responsibilities of the main partners, while leaving questions of apprenticeship content, assessment, quality assurance and certification to be agreed upon between employer and employee representatives. At the same time, the legislation should be coherent and aim for a simple but effective framework, i.e. as little complexity as is necessary for achieving the legislative aim. Such a targeted Legal Act on Dual TVET would

– recognise the unique status of the apprentice as learner and secure the right to high-quality training with strong transferable elements;– define the provisions and parameters within which firms may legitimately operate apprenticeship contracts;– clearly specify and balance the rights and obligations of apprentices and employers;– address and provide solutions for a number of weaknesses and decent work deficits that are observed in informal apprenticeships, such as long working hours, unsafe working conditions, low or no allowances or wages, little or no social protection in case of illness or accident, and strong

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gender imbalances;set out the right of apprentices to a training allowance commensurate with their productive contribution net of training costs;– set a minimum duration for the apprenticeship and secure provision for career progression (an apprenticeship qualification framework comparable to a national qualification framework);– set principles and criteria for approval/accreditation of training providers and employers as well as the procedures for certification of in-company mentors. The questions of the accreditation of dual TVET providers is important, but it should be solved by an agreement between private sector representatives and the government. The government should not be the principal actor to organise the final assessment for such an innovative scheme, because the certification of the competencies of the future workers should also be approved by professionals from the business sector. This will also ensure the provision of high-quality training, as the responsible personnel for employing the future workers will look after the quality of TVET service provision and will guarantee the acceptance of the certificates in the sector. For full-fledged implementation of this principle, the new legal act on apprenticeship shall recognise the SSDC’s responsibility for executing this function.– And last but not least, the new law shall remove the uncertainty both for the employer and for the apprentice as to whether their contract will be respected and upheld in a court of law. Removing uncertainty lowers the transaction costs of apprenticeship – both for employers and for apprentices.

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4. THE INSTITUTIONAL SETTINGSRegulation of the apprenticeship contract by a national law can be an important step in strengthening apprenticeship. However, consultation with the social partners and TVET education authorities should precede legislation.

In this section the experts have presented the main actors, their roles and responsibilities in dual TVET as well as prospects on the required development and changes in the cooperation systems for improved functioning and efficient demand-driven TVET.

Thus, the following four groups of players have been conditionally classified:

1. Employers and employer representative organisations:ülarge and medium enterprises and employers, also including small business with a strong cor-

porate social responsibility (CSR) culture,üthe Republican Union of Employers of Armenia,üthe Chamber of Commerce and Industries of the Republic of Armenia,üthe Union of Manufacturers and Employers of Armenia,üsectoral business membership organisations (unions and associations).

2. Sector-based and employer-led competent skills development structures: The establishment of two such structures: the Food and Beverages Skills Development Foundation and the Tourism Skills Development Foundation) are being supported by the GIZ PSD SC Programme in partnership with the Chamber of Commerce and Industries of the Republic of Armenia. Potential apprentices, trade unions, employee representative organisations includeüthe Confederation of Trade Unions,üprofessional/trade associations.

3. Policy- and strategy makers and implementing agencies of the government:üMinistry of Education and Science (MoES),üMinistry of Economic Development and Investments (MoEDI),üMinistry of Labour and Social Affairs (MoLSA),üMinistry of Finance (MoF),üState Employment Agency (SEA),üNational Centre for TVET Development (NCTVETD).

4. Vocational Education and Training Providers:üTVET colleges,üprivate training centres,ülarge and medium enterprises/companies, also including small business with a strong CSR cul-

ture and willingness and commitment to invest in people.

Role of Employers and employer representative organisations

Employers are the key to apprenticeship opportunities and the most important players in the apprenticeship arena. Based on their assessment of present and future skill needs they recruit young persons, and both freely enter into a contract, which sets out the respective rights and responsibilities of each party. Through

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their contribution to the planning of apprentice programmes, firms can ensure that dual TVET programmes develop the generic skills required for the work processes of their own organisations. In this way, firms are locked into providing training to a high standard since, once apprentices become full-time employees, the profitability of the firm will depend on the quality of the provided training.

Given the above, the development of a successful dual TVET/apprenticeship system will require genuine employer engagement at all levels of apprenticeship management (from the individual firm to national level), which will be secured not only through employer representation in official bodies and committees set up by government, but also employers will be given the possibility to take part in the governance of dual learning apprenticeship systems and exercise direct influence on every aspect of the apprenticeship: design of curricula and their adaptation over time, recruitment and delivery of qualifications, quality monitoring, assessment and certification.

The essential transmission mechanism from the grassroots (individual enterprises) to collective action by employers and national negotiations on apprentice programmes is well-supported and genuinely represented by sectoral employer-led competent skills development structures/organisations in most dual TVET countries. Apprenticeship works best where the functions of promotion, administration and oversight are carried out by a strong and competent sector-based employer organisation, rather than by a number of different bodies.

In Germany, chambers of commerce at local level provide business intelligence and advice as well as being responsible for finding and advising new apprentice employers, liaising with current apprentice employers, and administering apprentice contracts and examinations through sectoral competent bodies.

In France, Vocational Colleges (Centres de Formation d’Apprentis) are publicly funded, but provided and run by sector-based employer organisations. These colleges are the first point of call for apprentices and employers, while assessment is managed at regional and national levels.

In Canada, many provincial governments reformed their apprenticeship systems from the mid-90s to 2005, including revision of their statutory framework. The reform was focussed on making apprenticeship policies industry-driven and shifted responsibility away from legislative regulation towards control by sectoral skills structures composed of employers and labour associations. The increased flexibility and improved content in apprenticeship programmes arising from these changes led to increased employer participation.

National recognition of apprenticeship certification greatly enhances the value of the qualification. However, overly rigid national skill specification can inhibit the development of apprenticeship in its early stages. Recognition within a region or sector of economic activity can provide the flexibility needed for apprenticeship to flourish and grow. This is another aspect for which the existence and functioning of competent sector-based employer structures is critical.

In Armenia, the Concept of TVET Sector Social Partnership is the fundamental paper. Adopted in 2009, it defines four levels for engaging employers and other social partners: national, institutional, sectoral and regional.

• On the national level, the National Council for TVET (NCTVET) has been established as a tripartite advisory body and includes 21 members, with an equal number (seven each) of representatives from the three parties (public, private and trade unions), where high-level policy and strategic issues on TVET sector development are being discussed. More specifically, the objectives of the Council are

a. to discuss and submit recommendations on TVET Strategy, development programmes and other documents related to TVET sector policy;

b. to discuss and submit recommendations on requirements on the planning and content of preliminary professional (craftsmanship) and middle professional education for the economy of Armenia as well as on requirements and terms for specialists and their preparation;

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c. to discuss and submit recommendations for the improvement of TVET in Armenia.

It provides advice on the state policy, strategy and directions for the development of the TVET sector, and proposes establishment of bodies dealing with social partnership, implemented on sectoral, regional and institutional levels. The Council has been established according to Prime Minister’s Decision N1012-A, dated 11 December 2008, the main objective of which is to provide advice on the development of TVET in the Republic of Armenia to the authorised state administration body, the MoES. According to this Decree, the chairperson of the Council is the Minister of Education and Sciences. The members of the Council are the representatives of four other ministries (the Ministry of Labour and Social Affairs, the Ministry of Finance, the Ministry of Economy and the Ministry of Territorial Administration) and the following social partners:16 the Republican Union of Employers of Armenia, the Chamber of Commerce of Armenia and the Confederation of Trade Unions of Armenia.

Representatives of other institutions may be invited to participate in the sessions of the NCVD Council with the right of an advisory voice. Those are (a) governmental stakeholder agencies, such as the State Employment Agency, the National Centre for Vocational Education and Training Development (NCTVETD), which is a structural unit of the National Institute of Education, and (b) civil society organisations: Association of Directors of State and Non-state Preliminary and Secondary Vocational Education Institutions of Armenia, and other relevant NGOs and individuals.

• On the institutional level, the Collegial Management Boards of Colleges are established. Membership in the boards is approved by the MoES according to the following proportions: 10% of candidates nominated by Marzpets (regional state governor); 10% are state officials, including representatives of scientific, cultural, and various sectors of economy; 25% are representatives of social partners; 10% are employment centre employees; 20% are representatives of teachers and trainers; 25% representatives of students. The boards have between 11 and 20 members. It is obvious that with 25% representation of social partners, there is no chance to significantly influence the decisions of the board and the presence the employer representative has primarily a formal role.

• On the sectoral level, the Order of the Minister of Education and Science N267, dated 11 April 2012, sets the procedures for forming Sectoral Committees. The only competence of these committees is revision and feedback on state educational standards drafted by NCTVETD. The observed state of affairs and feedbacks from both private and public sector representatives show that this is not a sufficient format for sensible dialogue and partnerships to establish demand-driven qualification standards. Participation in this committees is on a voluntary basis and has no compulsory timeframe. This makes the work of the committees inconsistent and difficult to organise. Very often, private sector representatives do not provide any contributions to these committees due to lack of motivation, since the final decision is still with the NCTVETD and the MoES. Even if feedback and contribution is provided, the follow-up mechanism is quite poor and often the employers do not see the implementation of their feedback. According to the procedure, every draft state educational standard should receive only three reviews and feedback, which is another obvious bottleneck since the views of only three people who are not necessarily from private companies cannot significantly influence the decision. Based on at least three positive feedbacks, the draft state educational standard is submitted by the NCTVETD to the Minister of Education for approval, during a 10-day period. The final result is that even the very recently and newly adopted state educational standards in Armenia do not reflect the real demand and requirements of the economy and are not based on evidence.

• No platforms or structures have been established on the regional level.

16 The status of a social partner is recognised by a memorandum of understanding signed between the MOES and the CCI RA and the RUEA. The documents are attached separately to this report.

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As we can see from the above description, cooperation formats, platforms and instruments established to work at different levels (strategic, structural and operative) for engagement and input of social partners in TVET reforms do not work well. The private sector is not motivated to work in government-set official structures, since these structures do not entitle employers with decision-making function, and their presence is just a formality. TVET is still centralised and mainly supply-driven, and the issue of skills relevance has not been resolved. Implicitly, there are still certain bottlenecks in place that hinder the TVET system from fully addressing the mismatch and disconnect between supply and demand, to facilitate the growth of enterprises by providing the required creative, adaptable and technologically capable workers. As a result, due to this weak cooperation most of the companies interviewed during this study are reporting lack of trust towards the competency level of TVET graduates and would rather hire candidates with higher qualification since there is a belief that the general and transferable skill level is higher for university graduates.

To tackle the above-described bottlenecks in private sector engagement, GIZ PSD SC Programme has provided technical assistance to establish sectoral skills development competent structures led by employers. In the light of the existing situation, where the sectoral employer associations are not always strong and influential (sometimes it’s a one-man show) or competent (TVET reforms is not seen as their function), the newly established sectoral skills development structures in the two sectors subject of this study (tourism, and food and beverages) appear to be the only competent bodies to undertake an instrumental role in ensuring collective action and meaningful participation of private sector actors in design, implementation and monitoring of dual apprenticeship schemes, thereby voicing the demands and requirements of sector companies to education providers and enabling informed decisions on TVET.

The role of employee organisations/trade unions

Besides employer engagement, constructive dialogue with employee representatives is another fundamental precondition for a successful apprenticeship system. Apprenticeship is strongest in countries where both employer and employee representative organisations wholeheartedly support and promote apprenticeship and the conditions necessary for its success. Ongoing social dialogue is the prerequisite for this commitment. Employee organisations and trade unions play an important role in helping to ensure the safeguarding of apprentices’ rights, as prescribed by the respective law.

First, in most established dual apprenticeship systems the danger of exploitation of apprentice labour has been lessened by regulation and legislation – often promoted and sponsored by employee organisations. Individual employers may, nevertheless, fail to observe such regulation. In these cases, employee representatives on the spot can help to identify and rectify these failures, and insist that the apprentice’s rights be respected. Trade unions play a vital role in achieving this balance by negotiating apprentice pay levels below those of fully skilled workers, while at the same time insisting on high-quality training with substantial elements of transferable skills and knowledge.

Second, in many countries they contribute to the management of successful apprenticeship systems. Existing employees and apprentices suffer when apprentices are used as full substitutes for those already employed, since this can lead to a downward pressure on employee wages. Apprentices are equally disadvantaged by such practices since they fail to acquire a broad range of skills, envisaged to be attained by the apprenticeship standard, and may be dismissed at the end of the apprenticeship.

Employee organisations and trade unions can play an important part in representing the apprentice’s interest in acquiring transferable and general skills in addition to occupational and firm-specific skills in the course of the apprenticeship, and gaining a final certification that is nationally recognised for the sector. Employers might consider this a low priority since a nationally recognised qualification increases the likelihood that the investment in the apprentice might be lost if the qualified apprentice leaves for another

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company. Employee organisations and trade unions usually press for nationally recognised certification to be awarded upon successful completion of the apprenticeship, which was historically the case in Germany.

If the apprentice is assured – through an officially recognised certification – an outcome that will bring increased earnings, employment and career possibilities, he/she is more likely to accept a lower wage for the duration of the apprenticeship. This in turn helps employers to achieve a sustainable balance between apprenticeship costs and benefits.

Nationally recognised certifications also elevate the status of apprenticeship, thereby attracting well-qualified applicants.

In Armenia the entire system of trade unions collapsed after the end of the Soviet Union. The new socio-economic situation required new types of relations, and the existing trade unions within the companies did not manage to flexibly adapt to new situation. However, this structural weakness notwithstanding, Armenia has a Law on Confederation of Trade Unions, which is comprised of 20 sectoral trade unions. The activities of the sectoral trade unions are regulated by the Law on Trade Unions and their organisational statutes. The sectoral unions unite the trade unions in a given economic sector.

The Republican Confederation of Trade Unions of RoA is the recognised social partner on national platforms of social partnership in both TVET and labour/social security sectors. Its sectoral unions have a right to participate in revision and providing input on the programmes, policy and strategy papers, and contracts signed between the three parties of social partnership: employers, the government and the Trade Unions Confederation. However, enabling meaningful participation of trade unions in development and introduction of dual TVET principles will require great support to upgrade their institutional, organisational and human capacities.

The role of the government

The central government should not seek to micro-manage apprenticeship, but rather should strive to regulate, ensuring that social partners act in the interest of the general good.

The German Federal Government makes the overwhelming majority of decisions on vocational training, but only after union and employers’ representatives of the Federal Institute of Vocational Training (BIBB) have given their consent. The participation of the social partners at the federal level is based on the consensus principle. This shapes the activities of the BIBB to such an extent that the role of the state is frequently reduced to a notary function (Streeck W. et al., 1987. The role of the social partners in vocational training and further training in the Federal Republic of Germany CEDEFOP, Berlin.)

In this regard, the concept on social partnerships and the procedures in Armenia for social dialogue and partnership need to be reviewed and improved. Acting in the public interest, the government should encourage the employers and apprentices to invest in skills through respective incentive programmes. The government must then, evaluate and adjust the incentives to both parties to participate in apprenticeship schemes when economic and/or social change affects the cost/benefit equilibrium that promotes the optimal level of skill production through apprenticeship. Subsidies from public funds to employers and/or apprentices can help to reduce the uncertainty that surrounds the apprenticeship contract for both parties. These have proved to be necessary in times of cyclical downturns in the economy, when the supply of apprentice places is reduced.

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The role of vocational colleges

Practically all dual apprenticeship programmes require the apprentice to spend part of his/her time learning away from the workplace. This is normally provided in publicly funded vocational colleges, although it is increasingly possible for the technical and knowledge elements of apprenticeship training to be provided in the workplace using electronic media. In this regard, the Law on Preliminary and Middle TVET does provide for the possibility of both full-time (stationary) and distant, distance, external and individual types of training. Moreover, a combination of these types of vocational education and training is also possible. Nevertheless, delivery of distance learning through ICT needs certain facilities in both the college and the enterprise, corresponding e-courses and professional tutors.

In Australia, in addition to publicly funded vocational colleges, private training providers also provide off-the-job training for apprentices, paid from public funds. The quality of the such provision, however, needs to be assessed and accredited.

Based on the previous successful PSD SC experiences with cooperation with private training providers and the solid and sound success stories from the programme, one can conclude that in Armenia the quality of private training providers is much more advanced compared to public TVET colleges, from several considerations:

– higher flexibility of private training providers in adjusting their training pace to the work-based training,– higher flexibility in employing relevant and professional teaching staff,– higher flexibility in adjusting their training curriculum and training materials,– possibility to provide ToT for teachers of public colleges– extremely high level of motivation to meet the needs of the labour market.

The use of publicly funded vocational colleges for off-the-job training provides economies of scale, bringing together apprentices from a large number of work places and allowing different specialised learning programmes to be provided according to the needs of different occupations and sectors. However, publicly funded colleges are sometimes unable to respond rapidly enough to technological change in the areas where they teach, and the occupational experience of the teachers may be outdated. Private providers can respond more rapidly to changes and employ the required professional teaching staff more flexibly.

Ensuring the relevance of college-based learning to work-based training is a difficult challenge. Even when training for the same occupation, the sequencing of apprentices’ workplace training will differ, depending on the way in which the individual firm is organised. It is, therefore, rarely possible for off-the-job learning in a collective setting to directly correspond to workplace learning. To ensure a smooth set-up, workplace trainers can play an important role by liaising with colleges and helping link theory and practice. Colleges, in turn, will need to demonstrate high level of flexibility and ability to meet the emerging needs for change and adaptation.

4.1 Key Challenges and Opportunities in the Institutional Setting for Introducing Dual TVET in Armenia: Recommended Measures

– One of the key elements of dual TVET systems is cooperation between all the involved parties. In the above section, one can find the specific roles and responsibilities that each of the parties is expected to undertake to ensure effective cooperation. Also, it shows that both young people and employers will be encouraged to enter into apprenticeship schemes if the right incentives and safeguards are in place.

– Nevertheless, the study shows that despite the existing efforts cooperation and engagement of the private sector is still a challenge, since the existing formats are not built on thorough consideration of the motivation factors of the key stakeholders. As a result, employer engagement is fragmented,

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poorly coordinated, unsystematic and inconsistent. The new sectoral employer-led competent skills development structures in the tourism and food/beverage sectors (established with the support of GIZ PSD SC Programme) could ameliorate the existing situation. They are established to fill the current gap of regular and systematic institutionalised monitoring of the sectoral labour market and to ensure collective voice and action of private sector in TVET reforms. However, for full-fledged participation in the cooperation system, the last will need to attain legal recognition by the government through a license or another legal act, which will give legitimacy to their work and affirm their mandate. This legal recognition shall grant them the right to express their opinion to the public authorities.

– The apparent willingness and commitment of the government to establish a better functioning cooperation system is at the same time an opportunity and a challenge. The MoES will need to establish more effective processes of consultation and negotiation with the social partners as well as revise and improve the existing platforms/formats and procedures for social dialogue and social partnership. Issue to be tackled include change management, negotiations, facilitation, capacities and others.

– The new system of dual apprenticeships will require changes in the traditional processes, relationships and even changes in people’s attitudes towards vocational education.

– Organisational and human capacity development of social partner institutions (trade unions and employer representative organisations) and governmental agencies is a key challenge. All of them will need technical assistance and new instruments to ensure their meaningful engagement in design, implementation, monitoring and supervision of the new dual apprenticeship system. Trade unions will need assistance and technical advice to enhance their role in negotiating, lobbying, advocating and safeguarding the interests of apprentices.

– The private sector will need to better understand the costs and benefits of investing in people, and this in its turn will require improved HR management and development practices in the companies.

– The TVET institutions will need to improve their culture of communication with private sector, including new techniques, tools and capacities for establishing effective and flexible collaboration and coordination with private sector.

– Increased financial and operational autonomy of colleges will benefit all in terms of improved flexibility.

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Given the above analysis, the following cooperation system is recommended:

• TVET providers (public and private)• Appren�ces/

Trade Unions

• Government (MoES, MoLSA, MoE, MoF, NCTVETD, SEA, NSS)

- Iden�fica�on and ar�cula�on of needs of companies formulated as appren�ceship standards;

- Assess and accredit the eligibility of employers to deliver in-company training against the standard requirements; - Seek and recruit appren�ces who can prove their suitability for the company's needs (maintain a register of appren�ceships);

- Deliver training on the basis of in-company training standard (recognized sector-wide and na�onally);- Train and cer�fy the in-company mentor;- Assess the learning outcomes of apren�ces and award cer�ficate on sector recogni�on.

- Ar�culate public interest and priori�es; - Promote employer engagement through legally delegated power to implement tasks listed in the green box (with possible funding from state budget);- Provide financial incen�ves for the private sector to invest in skills development;

- Promulgate Dual TVET standards through na�onal recogni�on; - Finance and monitor training in TVET ins�tu�ons;- Train TVET and in-company teachers and masters in teaching teqniquies; - Train and guide TVET school leadership in managing public-private partnerships; - Set examina�on regula�ons; - Provide cer�fica�on on na�onal recogni�on

- Provide voca�onal theory and praxis, according to the needs ar�culated by the employers in the na�onally and sector-wide approved appren�ceship standards;- Ensure competent teaching personnel and their con�nous professional development;- Ensure availablity of good, up-to-date and relevant teaching and learning materials;- Develop assessment tools together with employers;- Provide an enabling and mo�va�ng learning environment and facili�es (laboratories, workshops) for the trainees

- Helping to ensure that appren�ces’ legal rights are safeguarded (the training is provided, the required remunara�on is paid, the appren�ce is not exploitated and used as full subs�tutes for full-�me employees, etc.)- Represen�ng the appren�ce’s interest in nego�a�ng balanced appren�ce pay levels, below those of fully skilled workers, while at the same �me insis�ng on high-quality training with substan�al elements of transferable skills and knowledge in addi�on to occupa�onal and firm-specific skills, and gaining a final cer�fica�on for comple�ng the appren�ceship, which is na�onally recognised in the sector.

• Employers/employer-based competent sector skills development structures

of the outcomes of examina�on.

4.2 Capacity building and financial implications for introducing the dual TVET cooperation system

• Employers/employer-based competent sector skills development structures

– Identification and articulation of needs of companies formulated as apprenticeship standardsImplementation of a sector-based body to investigate the needs of the companies to bring them up to standards;Financial resources to conduct investigations and develop the relevant research capacities in the country.

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– Assess and accredit the eligibility of employers to deliver in-company training against the standard’s requirementsImplement a legal framework to establish a competent body on a sectoral basis;Develop the capacities of the responsible body to make assessment and accreditation suitable;Provide sufficient funding for the body and its development by both public subsidiaries and levy funding by private business.

– Seek out and recruit apprentices who can prove their suitability for the company’s needs (maintain a register of apprenticeships)Set up a competent sector-based body to match the apprentices’ needs with the demand of the apprenticeship;Provide sufficient financial resources to develop the body, by a mixture of public and cooperative financial resources (levy funds).

– Deliver training on the basis of in-company training standards (recognised sector-wide and nationally)To organise and operate sector-wide trainings requires setting up inter-company training centres, to be funded based on competitive bids on international donor grants. Ideally, the centres would be established in cooperation with public TVET colleges as joint inter-company training centres.The trainings could be financed from training fees paid by companies; suitable financial support for private business should be explored (e.g. tax reduction for the costs of training in the inter-company centres).

– Certify the in-company mentorsThe capacity of the competent body should be developed to certify the in-company trainers. Developing a specific curriculum, concerned training activities and a final examination (according to international standards) is needed.Cost of the certification of the in-company trainers should be covered by the private sector, or by the person who applies for certification. However, the business should receive subsidies for the in-company trainer work from public funds to minimise these costs for the company.

– Assess the learning outcomes of the apprentice and awards certificate on sector-wide recognitionTo develop a certification body as a joint public-private entity. The development costs of this body could be covered by ODA funds.The staff capacities of this body should be developed to include research capacities, which would strengthen the transfer of international experiences to Armenia. A linkage between business and universities in TVET development is needed.The capacity development of this body should be financed by a mixture of public and private funds (levy).In general, the costs for the business sector should be minimised by tax reduction and other means, to promote the specific advantages for participating in modern TVET system (e.g. preferred position for government contracts, etc.)

• Government (MoES, NCTVETD)

– Articulate public interest and prioritiesTo start a public marketing campaign to raise awareness of the needs and benefit of TVET participation by social actors, can be supported by ODA funding.

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– Promote employer engagement through legal recognition and delegated power to implement tasks listed in the green box (with possible funding from state budget)

– Provide financial incentives for private sector to invest in skills developmentFor the star-up phase, before the turnover of the investment in skills development is actualised, funds from the state budget and additional ODA support can be used. Develop a concept and a regulatory basis for providing financial support to private sector actors involved in modern TVET. Advisory support of the government through technical cooperation will be a positive incentive.

– Promulgate dual TVET standards through national recognitionDevelop a concept of national recognition of professional competencies, in cooperation with the above-outlined competent body at sectoral level and with other stakeholders. It should include the recognition of non-formal and informal learning, to integrate the huge informal economy and to address the big need for short-term training in the recognition system.An important financial incentive could be provided from additional ODA funds for the development of the concept. The capacity development for personal resources within the relevant fields must also be covered, but also non-financial activities could help (e.g. academic and scientific research and exchanges to develop stakeholder capacities to better shape the TVET system).

– Finance and monitor training in TVET collegesFinancial incentives for additional monitoring activities could come from ODA funds, but they also could be used for development of a quality assurance system of training, in cooperation with employer-based structures.To use competition activities to improve the quality of TVET school training through financial instruments.

– Train TVET and in-company teachers and mentors in teaching techniques (further supported with methodologies)

– Train and guide TVET school leadership in managing public-private partnerships

– Set examination regulations

– Provide certification and national-level recognition of the outcomes of examinationTo develop the certification in cooperation with the abovementioned employer-based structure and according to national education certification, in order to establish a continuous career path following apprenticeships.

• Vocational Colleges

– Provide vocational theory and praxis according to the needs articulated by the employers in the national and sector-wide apprenticeship standardThe set-up of a school development process should support this provision, but the funds for this process must come from the state budget, possibly based on competitive bidding.The motivation of TVET instructors to provide high-quality instruction should be increased (e.g. by promoting the financial autonomy of TVET schools to provide performance-based remuneration).Some financial incentives must come from the fees paid by participants and/or companies using the specific training courses.

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– Ensure competent teaching staff and their continuous professional developmentThe organisational structure of continuous training and improvement of teaching personnel could be a non-financial incentive.Additionally, the obligation of teaching staff to stay up to date with current developments in the field should be mandated by law. Non-financial (e.g. reduced teaching obligations during further learning) and financial (the TVET school covering the fees for the training) incentives can enhance the quality of the instruction provided in TVET schools.Concepts of international exchanges for teaching and administrative staff could be another incentive (potentially funded through ODA instruments).

– Ensure availability of good, up-to-date and relevant teaching and learning materialsThe development of such materials could be done by an agency, which would transfer the relevant content to state bodies and/or develop it further on cooperation with TVET schools and trainers. The funding could come from ODA for the initial development phase, and the costs could be covered in the future by merchandising, marketing the training materials and through international business cooperation support (e.g. with the German company “Christiani”).

– Develop assessment tools together with employersThe successful development of these tools requires a specific sector-wide body, which will cooperate with the different TVET centres and employer-based structures. It would be good to use the same tools for the entire sector and to share them with TVET schools.

– Provide an enabling and motivating learning environment and facilities (laboratories, workshops) for the traineesOne part of the funding could come from the restructuring programmes of the Government of Armenia, supported by international donors.Support can also be provided through closer cooperation with businesses in the form of technical donations.Additionally, some of the costs could be covered with new financial instruments in an indirect financing manner (e.g. providing vouchers to students, with the condition that they attend specific accredited TVET institutions, or scholarships).Also, the participating companies could contribute financial support for attending tailor-made, short-term trainings specifically developed by TVET schools.

• Trade Unions/Workers associations

– Helping to ensure that the apprentices’ legal rights are safeguarded (the training is provided, the required remuneration is paid, the apprentice is not exploited as a full substitute for full-time employees, etc.)In the establishment of such kind of apprenticeship, inspectors will need a legal basis to execute this oversight. The process should be developed in close cooperation with the abovementioned employer-based structures.The development of such a structure should be principally funded by state funds. In the initial phase, ODA support can be used as well as international exchanges and knowledge-sharing from international experiences.To ensure high standards for all apprenticeship schemes, a quality assurance system needs to be developed for TVET. This is an important issue that needs to be supported by international donors.

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– Representing the apprentice’s interest in negotiating balanced apprentice pay levels, below those of fully skilled workers, while at the same time insisting on high-quality training with substantial elements of transferable skills and knowledge in addition to occupational and firm-specific skills, and advocating for a nationally recognised certification to be granted upon completion of the apprenticeship.

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5. EXISTING CAPACITIES OF TVET PROVIDERS: BOTH PUBLIC AND PRIVATE

An important EU-supported intervention towards the development and reforming of TVET in Armenia needs to be highlighted. It has been implemented since 2012 under the European Neighbourhood and Partnership Instrument (19.08.01.03). Within the framework of this programme 12 TVET colleges (2 in Yerevan, 10 in the regions) were reconstructed, renovated and equipped, receiving the status of regional multifunctional TVET centres, with extended functions and capacities. They became modern TVET institutions capable of providing an advanced learning environment as a result of improvement of infrastructure and equipment, and piloting/launching courses according to the new competence-based modular curricula for at least 30 professions/qualifications. In total, 61 modular curricula have been introduced in these 12 regional multifunctional TVET Centres from the 2009-2010 school year to today. More than 1,000 teachers have been trained (2,500 staff-days) in modern methodologies. Also the managerial staff of the colleges received trainings on developing strategic development, business and financial plans, in order to enable the colleges to find and raise extra-budgetary resources and financial inflows. These enhanced learning institutions could play the role of locomotive for other regional TVET colleges and TVET institutions.

Research and assessments of existing capacities of TVET providers in Armenia are scarce. For this study, in order to assess and better understand the capacities and potential of TVET institutions to deliver modern dual TVET qualifications, both a desk study and interviews with directors of selected colleges were conducted. The colleges were nominated by the Ministry of Education and Science based on criteria given by the local expert: existence of programmes related to tourism, agro-processing, F&B as well as good fiscal conditions, high capacity of managerial and teaching staff, and good rates of job placement for graduates.

Altogether 14 colleges from 3 different categories were approached, with 11 submitting completed questionnaires. Also, a number of colleges participated in the FGD with public institutions.

State Regional Multifunctional Colleges

State Middle Vocational Colleges

State Preliminary (Artisanship) Technical Schools

1. Yerevan State Regional College no.

2. Yerevan State Regional College no.

3. Armavir State Regional College

1. Yerevan State Armenian-Greek College of Tourism, Service and Food Industry

2. Yerevan State Humanitarian College

3. Sevan State College4. Dilijan State College5. Ararat State College

1. Yerevan State Craftsmanship College no.

2. Yerevan State Craftsmanship College no.

3. Berd State Craftsmanship College

Summary of the qualifications delivered by the selected colleges is presented in Annex 3.

The SWOT analysis with the collages on their capacities and competencies shows the following picture:

– Only the regional multifunctional colleges have physical facilities in excellent condition, since all

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of them have been recently renovated and reequipped with new and modern visual aid and other teaching materials for classrooms as well as with workshops and laboratories. This is not the case in middle vocational colleges and artisan schools, which is a challenge.

– It is characteristic that the answers of all the preliminary (artisanship) technical schools are very much limited to physical aspects and conditioned of the colleges, their geographical situation, even the non-accessibility of the roads and problems of students reaching the school, and partly concerns regarding the existence and level of qualification of the teaching personnel. None had any cooperation or contact with private enterprises and only one have mentioned the existence of a career centre within the school (however, the centre’s staff never completed any special training on career orientation and guidance). Therefore, these institutions do not have an up-to-date picture of current labour market conditions.

– Only four of the interviewed colleges highlighted the compliance of their qualifications to the requirements of the local labour market, mentioning that they are delivering graduates that have these qualifications. However, this does not mean that the contents of these qualifications are relevant to the needs of the labour market:• Only one colleges, the Yerevan State Regional College no. 1 has real cooperation with the

private sector. Surprisingly, all of the colleges mentioned that they have career centres; however, these career centres do not have a specially assigned employee, with other staff members of the college performing the tasks of the manager or coordinator of the career centre. Thus, we can conclude that this function, which could effectively serve to establish functional links between the college and the private enterprises is not effective due to the lack of dedicated staff for that role. The only college that has assigned personnel for a career centre is again the Yerevan State Regional College no. 1, and it has a rich history of cooperation with private companies in implementation of practical trainings, which as a rule last 12 months.

• Only eight TVET institutions have experience in offering short-term courses to adults, financed by the State Employment Agency.

• Only four of the interviewed colleges mentioned the good image of the college as a strength. This reflects the feedback the experts received from the private enterprises they interviewed during their mission. The majority (99%) did not know that they have a TVET institution in their community, and even if they knew about it, they had no interaction or communication with the college.

Meanwhile, detailed data information on the public TVET sector is given below. It is based on official statistics from the National Statistical Service, the working paper “Concept of New Financial Mechanisms of TVET”, and other sources.

According to reports of the National Statistical Service, 99 TVET institutions were operating during the 2014/2015 academic year. In total, 30,125 students attended classes at TVET institutions in Armenia, 28,333 at state and 1,792 at private institutions.

During the 2014/2015 academic year, state TVET institutions operated in Yerevan and in all Armenian Marzes. Table 1 illustrates the number of TVET institutions and students according to Marzes.

Table 1. Number of TVET institutions and students by Yerevan and Marzes, 2014/2015

Number of TVET insti-

tutions

Number of Students

Total Male Female Total Free of charge Paid Basis

Yerevan 27 16 195 7 370 8 825 16 195 5 518 10 677

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Number of TVET insti-

tutions

Number of Students

Total Male Female Total Free of charge Paid Basis

Aragat-sotn 1 33 23 10 33 - 33 Ararat 4 1 475 768 707 1 475 546 929 Armavir 5 1 328 628 700 1 328 541 787 Ge-gharkunik 8 1 271 652 619 1 271 534 737 Lori 8 2 096 904 1 192 2 096 1 025 1 071 Kotayk 6 1 325 791 534 1 325 624 701 Shirak 9 2 359 1 182 1 177 2 359 984 1 375 Syunik 7 1 225 583 642 1 225 865 360 Vayots Dzor 1 237 137 100 237 100 137 Tavush 6 789 456 333 789 462 327 Total 82 28 333 13 494 14 839 28 333 11 199 17 134

Source: Social Situation of RA in 2014, National Statistical Service of RA

The majority of TVET institutions operated in Yerevan (27 in total), followed by Shirak (9), Gegharkunik (8), and Lori (8) Marzes, while only 1 TVET institution was recorded in both Aragatsotn and Vayots Dzor.

The biggest number of students was in Yerevan (16,195 students), followed by Shirak and Lori regions (2,395 and 2,096 students respectively). The number of female students (14,839 or 52.4% of the total) in TVET institutions was slightly bigger than that their male counterparts (13,494 or 47.6%). In total, 17,134 students (60.5%) studied on a paid basis, while 11,199 students (39.5%) received a tuition waiver.

Table 2 illustrates the age breakdown of students in TVET institutions.

Table 2. Number of students in TVET institutions by age groups, 2014/2015

Age of Students

> 14 15 16 17 18 19 20 21 22 23 24 25 +Yerevan 1652 2752 3163 2932 2051 1352 738 536 267 194 98 460Aragatsotn 0 5 12 10 3 2 1 0 0 0 0 0Ararat 81 288 288 237 217 130 69 48 57 26 11 23Armavir 20 252 224 248 200 133 76 49 32 26 20 48Gegharkunik 75 206 240 253 198 113 64 31 14 10 6 61Lori 159 306 370 419 268 206 112 73 44 19 13 107Kotayk 61 147 247 220 198 81 34 65 35 25 14 198Shirak 104 267 270 373 342 246 142 97 77 64 49 328Syunik 66 142 158 243 191 108 71 37 27 33 8 141Vayots Dzor 11 32 38 41 45 31 6 6 8 2 9 8

Tavush 39 113 111 145 114 81 38 35 18 19 4 72

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Age of Students

> 14 15 16 17 18 19 20 21 22 23 24 25 +

Total 2268 4510 5121 5121 3827 2483 1351 977 579 418 232 1446

Total (%) 8% 16% 18% 18% 14% 9% 5% 3% 2% 1% 1% 5%

Total (%, cumulative)

8% 24% 42% 60% 74% 82% 87% 91% 93% 94% 95% 100%

Source: Social Situation of RA in 2014, National Statistical Service of RA and authors calculations

As Table 2 shows, most students in TVET institutions are in the 15–18-year-old cohort, constituting around two-thirds of all students (66%). It is worthwhile mentioning that 5% of students belong to the 25+ age cohort, which indicates that education services provided by TVET institutions also attract adults to some extent.

Table 3 illustrates the gender ratio of students in TVET institutions according to their majors.

Table 3. Number of students in TVET institutions by specialty, 2014/2015

Number of Stu-dents

% in Total

Female Male Female Male

Number of students % in Total

Industry and Construction 2003 7% 540 1463 27% 73%Transport and Telecommunication 2040 7% 244 1796 12% 88%Agriculture 1235 4% 146 1089 12% 88%Economics 5205 18% 2490 2715 48% 52%Law 481 2% 103 378 21% 79%Health Care and Sport 7643 27% 6161 1482 81% 19%Pedagogy 2656 9% 1641 1015 62% 38%Art and Cinematography 3043 11% 2010 1033 66% 34%Other 4027 14% 1504 2523 37% 63%Total 28333 100% 14839 13494 52% 48%


As it is clear from Table 3, the most popular majors in TVET institutions in 2014/2015 were health care and economics, with 7,643 (27%) and 5,205 (18%) students respectively.

There are gender specifics across certain majors. For instance, the overwhelming majority of students studying health care are women (81%), while 88% of students in agriculture and transport, telecommunications are men.

According to data on personnel numbers, state TVET institutions employed 5,392 people, out of which 3,842 were faculty members and 1,550 were non-faculty (administrative or other staff) (see Table 4).

41

Table 4. Personnel of TVET institutions by Education Level, 2014/2015

Total

including

TVET Graduate degree

Post-Graduate degree Other

Total Staff 5,392 963 3,902 223 304Faculty Staff 3,842 285 3,331 216 10

Full-time Staff 3,139 201 2,756 182 0Combining Staff 441 70 349 22 0Part-time Staff 262 14 226 12 10

Non-faculty Staff 1,550 678 571 7 294Support Staff 992 446 408 0 138Other Staff 558 232 163 7 156


The overwhelming majority of faculty in state TVET institutions (around 82%) are full-time employed. Those combining jobs and employed part-time make 11% and 7% respectively. The faculty of state TVET institutions is almost entirely comprised of specialists with graduate or post-graduate degrees. Thus, out of faculty of 3,842 people, 3,547 have graduate or post-graduate degrees (92%). The picture is very different for non-faculty staff of state TVET institutions, as only 37% have graduate or post-graduate degrees.

In the 2014/2015 academic year, the student/professor ratio in state TVET institutions is 7.37, which is a rather low indicator. This illustrates that productivity of the system is not high (see Table 5).

Table 5. Student/Faculty ration in TVET institutions by Yerevan and Marzes, 2014/2015

Number of Students Number of Faculties Student/Faculty

Yerevan 16 195 2104 7,70

Aragatsotn 33 5 6,60

Ararat 1 475 136 10,85

Armavir 1 328 167 7,95

Gegharkunik 1 271 227 5,60

Lori 2 096 282 7,43

Kotayk 1 325 185 7,16

Shirak 2 359 330 7,15

Syunik 1 225 221 5,54

Vayots Dzor 237 21 11,29

Tavush 789 164 4,81

Total 28 333 3842 7,37


42


As Table 5 shows, the highest student/professor ratios in state TVET institutions is in Vayots Dzor and Ararat Marzes (11.29 and 10.85 respectively). The lowest student/professor ratio is in Tavush, Syunik and Gegharkunik Marzes (4.81, 5.54 and 5.6 respectively).

5.1 State funding for public TVET institutions17

According to the 2015-2017 Medium-term Expenditure Framework (MTEF), the Government of Armenia will continue the policy of increasing expenditures in the area of education.

Like in previous years, within 2015-2017 the biggest rise in state budgetary expenses is predicted in the areas of initial professional and vocational education, where state budgetary expenses will almost double by 2017, compared to 2014, (a 94% increase). As a result, the rate of initial professional and vocational education expenses in the entire education sector is set to rise from 6.8% in 2014 to 10.6% in 2017.

Table 6. State Budget Expenditures in Education, 2015-2017 (AMD million)

2014(Budget)

MTEF 2015-2017

2015 2016 2017

Total expenditure in education 127203.5 126698.0 140779.6 159610.8

Preschool, Elementary general andSecondary general education

78027.4 82792.3 90936.7 102740.9

Initial vocational (technical) and Secondaryvocational education

8697.8 11324.3 13640.0 16888.8

Higher education 9726.3 11343.3 12484.1 13356.8

Education not classified by levels 4863.1 5687.1 6122.9 6779.6

Auxiliary educational services 25888.9 15551.0 17595.9 19844.7

Source: MTEF 2015-2017

It is worth mentioning that starting from 2016 state budgetary expenses in the area of preliminary vocational education will exceed the rate of state budget expenses in the field of higher education.

In 2015-2017, the planning of such a rapid increase in the state budget in the initial professional and vocational education areas is heavily dependent on the planned transition from a minimum 9-year education to a free 12-year education (including vocational). This change implies that in the coming years the number of students studying in initial professional and vocational education for free will rise significantly.

Public financing of colleges is defined per student costs, and this figure has also increased during the years, as shown in tables 7 and 8.

17 Conceptual Approaches to Financing Vocational Education and Training Institutions in Armenia, Working Paper, EU Budget Support Programme, 2015

43

Table 7. State financing per student in TVET institutions, 2011-2014 (AMD thousands)

2011 2012 2013 2014

(1) Per student state financing average amount 292,7 262,1 265,1 286,0

(2) Per student state financing average amount (without stipend)

253,6 222,7 225,5 246,1

Source. Data from TVET institutions and authors calculations

The research into the differences between the average rates of state budgetary financing per student reveals an interesting picture for various groups of state TVET institutions (see Table 8).

Table 8. Tuition fees and state financing per student by various groups of TVET institutions, 2014 (AMD thousands)

2014

Med

ical

Col

lege

s

Mus

ical

Col

lege

s

Art

Col

lege

s

Agr

icul

tura

l Col

-le

ges

Prel

imin

ary

(Cra

fts)

Scho

ols

Mul

tifun

ctio

nal R

e-gi

onal

Col

lege

s

Mid

dle

Voca

tiona

l C

olle

ges

(1) Per student state financing average amount

217,5 603,2 419,4 285,4 241,4 243,7 255,9

(2) Per student state financing average amount (without sti-pend)

177,6 563,3 379,5 245,5 201,5 203,8 216,0


Expenditures of state TVET institutions

Within the research period, expenditures related to salaries remained the dominant expenditure in state TVET institutions (see Table 9).

Table 9. The structure of TVET institutions expenditures, 2011-2014

2011 2012 2013 2014

Total Expenditures 100% 100% 100% 100%Salary, from which 80% 79% 82% 84%

Income tax and social fees 17% 17% 19% 21%Utilities 6% 5% 5% 5%Maintenance 4% 5% 4% 3%Capital Expenditures 1% 1% 2% 1%Other Expenditures 10% 10% 8% 8%


44


As Table 9 shows, between 2011 and 2014 around 79-84% of state TVET institutions’ expenditures were salaries, including income tax. In the research period, expenditures related to utilities constituted 5-6%, while expenditures related to use and maintenance were 3-5%. It is worth mentioning at this point that the rate of capital costs in state TVET institutions was extremely low in 2011-2014, constituting only 1-2 %. In comparison, at the next level of vocational education, which is higher education, capital costs in state TVET institutions were 11% as of 2009.18

Salary-related expenditure

Salary-related expenditures in state TVET institutions consist of the following main parts:

• Fund for faculty salary,

• Fund for non-faculty salary (administrative staff and student support staff).

When determining rates of financing of state TVET institutions by the MoES, salary rates for faculty and non-faculty staff are set at the same level, whereas the rate of student support staff is set at 57.5 % of the latter. It implies that if state TVET institutions were to define their own salaries based on this method, then the average salary of the faculty would be definitely higher than that of non-faculty. However, the data presented by state TVET institutions shows a different picture (see Table 10).

Table 10. Salaries in TVET institutions, 2011-2014

2011 2012 2013 2014

Average monthly salary in TVET institutions, AMD 59 230 60 473 70 240 81 305

Average monthly salary of faculty staff in TVET in-stitutions, AMD 58 278 59 805 68 612 79 233

Average monthly salary of non-faculty staff in TVET institutions, AMD 60 338 61 441 72 097 83 649

Non-faculty/faculty salary ratio 1.04 1.03 1.05 1.06Average monthly salary in RA, AMD 108 092 140 739 146 524 175 246TVET average monthly salary/RA average monthly salary ratio 0,55 0,43 0,48 0,46

Source. Data from TVET institutions, National Statistical Service of RA and authors calculations

Thus, Table 10 shows that in 2011-2014 the average monthly salary of non-faculty staff at state TVET institutions was higher than that of faculty. It is important to note that the difference of salaries in the research period had an upward trend. In 2011 the non-faculty/faculty ratio of salaries was 1.04, while in 2014 it reached 1.06.

The relatively low rate of salaries in the system is a serious obstacle in recruiting highly qualified personnel, which has a direct impact on the quality of education.

Table 11 demonstrates the rate of salary in state TVET institutions per separate groups in 2014.

18 Higher Education Financing Strategy of Armenia, 2011

45

Table 11. Salaries by various group of TVET institutions, 2011-2014

2014

Med

ical

Col

-le

ges

Mus

ical

Col

-le

ges

Art

Col

lege

s

Agr

icul

tura

l Col

-le

ges

Tech

nica

l Col

-le

ges

Mul

tifun

ctio

nal

Reg

iona

l Col

-le

ges

Stat

e C

olle

ges

Average monthly salary in TVET institutions, AMD

77 635 69 165 82 285 74 072 97 271 81 717 84 133

Average monthly salary of faculty staff in TVET institutions, AMD

76 825 70 203 77 890 73 167 92 671 80 851 84 222

Average monthly salary of non-faculty staff in TVET insti-tutions, AMD

78 638 67 442 88 611 74 798 101 500 82 701 84 055

Non-faculty/faculty salary ratio 1,02 0,96 1,14 1,02 1,10 1,02 1,00


As Table 11 illustrates, the highest salary in 2014 was recorded in technical colleges, with an average monthly salary of personnel AMD 97,300, which is 20% higher than the average monthly salary. The lowest salary rate was recorded in music colleges, where the average monthly salary in 2014 was AMD 69,200, which is 15% lower than the average monthly salary in the system.

According to figures for 2014, only music colleges paid higher average monthly salaries to faculty than non-faculty staff. In other groups of colleges, the average monthly salary of non-faculty was higher, while the biggest difference in salaries was recorded in arts colleges, where the average monthly salary for non-faculty was 14% higher.

The low rate of salaries in the system, especially of faculty members, is conditioned by the fact that the student/faculty ratio in the system is extremely low. According to figures in Table 5, this ratio in Armenia in 2013 was 7.37, which is significantly lower than in East European countries (see Table 12).

Table 12. TVET sector student/faculty ratios in Eastern Europe countries, 2012

Country Student/Faculty ratioRomania 15.4Slovakia 14.1Bulgaria 13.9Czech Republic 13.2Estonia 12.5Slovenia 12.6Hungary 11.3

Source: Eurostat

46


5.2 Key Challenges and Opportunities Regarding the Capacities of TVET Institutions for Introducing Dual TVET in Armenia: Recommended Measures

For successful implementation of modern dual TVET schemes, Armenian TVET institutions will have to ensure the following improvements and capacities:

3 Willingness and ability to improve and transition from traditional to innovative and more competency based approaches in organising teaching processes as well as flexibility to adjust the curricula to quickly respond to the emerging needs and forecasted changes in the industries. This includes also adjustment of the timeframes and timetable of the curricula.

Currently curricula development is under the full auspices and supervision of the government, with limited participation by stakeholders from the private sector and society. The concept of curricula development is rigid: the existing curricula are closed, and TVET teachers have to follow them very closely, with very little possibility for flexibility in response to requests from businesses. To enable a smooth transition that would minimise inconvenience to both management and teaching personnel of TVET institutions, support and technical advice would be required on change management, strategic and financial planning as well as innovative teaching and instructional techniques and classroom management, social partnership, and other areas. This series of trainings and workshops shall be coordinated and implemented with the National Center for TVET Development. From the other side, the Sectoral Skills Development Structures in Tourism and F&B sectors may successfully organise and offer internships for TVET teachers in leading companies of the sector, to enable them to get acquainted with the novelties being used in the world of work.

3 Willingness and flexibility to adjust the teaching materials and techniques to the requirements of the dual TVET qualification standard.The lack of up-to-date teaching and training materials is obvious. Therefore, an additional concept how to produce new and up-to-date teaching materials is needed. Improving the capacities of the public TVET schools could solve these problems: (1) providing public TVET schools with additional funds in a competitive manner to produce and to share high-level teaching and training materials; (2) organising further teacher training with the best new teaching materials with the TVET teachers as master trainers for their materials; (3) providing proper production possibilities for upgrading teaching and training materials.

3 Continuous development and upgrading of teacher’s knowledge, aligning it with current developments within the industries.Organising an up-to-date further education scheme for TVET teachers and introducing a similar process into the basic teachers’ education at universities are necessary for initiating the needed innovation. In addition, integrating professionals from practice into TVET schools, through part-time contracts, is another opportunity to cope with the concerned problems. To develop closer cooperation with industry and the private sector, including informal apprenticeship schemes, TVET schools will need additional support and funds. This could be organised by a competition between the TVET schools to select the bests, using these schools as role models for the future development of the other TVET schools in the country. In this regard, the trainings for “master trainers”, provided by the PSD SC Programme to selected personnel from selected institutions, have the potential to develop and implement transfer projects towards introduction of new learning and action theories and didactic tools in TVET, including competence-based approaches and work process–oriented design of curricula, lesson plans and assessments.

47

However, a structural adjustment of the cooperation between public TVET schools and the private sector on the operational level is needed and should be developed in the relevant sectors. Equally, development of pedagogical skills and the continuous upgrading of teacher knowledge in their subject areas are crucial. TVET teachers should follow continuous learning on the recent changes in technologies and working processes in their industries.

3 Modernisation of laboratories, libraries, workshops and other facilities in state TVET institutions.In this regard, substantial financial support is needed; however, the biggest problem is the selection of which schools should receive funding to improve their capacities. Specifically, the premises and facilities of the public TVET schools can be utilised for business activities (e.g. using the cafeteria as a student company to get more work experience or using the dormitories as cheap hotels). Further possibilities for regional social and economic development can be realised through cooperation between the different TVET schools (e.g. construction with tourism and agriculture). However, the main point will be to increase the autonomy of the selected TVET schools.

3 Modernisation of teaching visual aids, teaching and learning handbooks, tools and techniques for assessment of attained learning outcomes and competences.As already mentioned above, the assessments of the innovative approaches must be jointly organised with the private sector, and should be organised transparently with clear tools and techniques.

3 Strengthening the capacities of TVET colleges in the areas of communication as well as in setting and maintaining partnerships with the private sector.First, this will necessitate changes in internal organisational structures, including revision of roles and tasks of the director of the colleges and the managing board composition, tasks and functions. Second, the possibility to have a position for business liaison officer in the TVET colleges should be considered. Third, career centres within the TVET colleges need to be created or strengthened. For achieving this goal, the TVET institutions would receive methodological support, trainings and coaching from Methodological Centre of Youth Professional Orientation. This is a state non-commercial organisation, established and functioning under the Ministry of Labour and Social Affairs. Thanks to their interventions, 25 TVET colleges have established career centres and trained personnel to lead the career centres.

3 Continuous improvement of the image of TVET education.During the last years, continuous technical and financial assistance has been provided by donors and international development partners towards improving the capacities of TVET system. Some schools already have newly renovated facilities, equipped workshops, teachers trained in new techniques and models of curriculum development, classroom management, pedagogy and instruction. Most of the colleges also established career centres.

GIZ PSD SC Programme, within its TVET activities, selected TVET colleges with tourism and winery specialisations, and implemented measures to enable them to adopt and implement a dual TVET approach:– capacity development for TVET college directors in modern leadership approaches, strategic

planning and development of colleges, as well as in initiation and organisation of social dialogue with private companies;

– capacity development for TVET teachers in new and innovative techniques of curriculum development, training and instruction, and entrepreneurial skills development;

– training in tools for developing e-learning modules, which can be successfully integrated into formal apprenticeship schemes afterwards (see the list of e-courses in Annex 4).

The recent changes of the Law on Education and the Law on Secondary Education provide additional opportunities. Starting from 1 January 2017, the government guarantees 12 years of 3-level free general

48


education. It includes 1st level primary school education (1-4 years), 2nd level middle school education (5-9 years), and 3rd level high school education (10-12 years). The new changes envisage that the 3rd level can be substituted by a TVET college; thus, the transition from 2nd level to 3rd level can be realised either through high schools (senior schools) or TVET. Each graduate of either a high school (senior school), middle or preliminary TVET college (artisanship) will be eligible to apply for higher education based on the formal certificate of completion of a 12-year education. Thus, starting from 2017, the TVET system will be somehow integrated with the secondary education system. The TVET colleges and preliminary TVET schools (artisanship) should provide free education services for the graduates of 2nd level (ensuring a 12-year education) and can provide paid education services to others. This change also seeks to promote TVET as an alternative to higher education. It is anticipated that the number of applicants to TVET schools shall increase. Because this open-ended system approach will enable career progress to higher education institution, it will also create favourable condition for the introduction of modern dual TVET.

49

6. FINANCIAL AND NON-FINANCIAL INCENTIVES TO PARTIES INVOLVED IN MODERN DUAL TVET

The last section of this study focuses on identifying financial and non-financial incentives that would motivate the involved parties to strive for building and sustaining a modern dual TVET system.

The previous sections of the report demonstrated that the regulated modern dual apprenticeship system is the most balanced and beneficial way for developing TVET qualifications, guaranteeing gains for all involved parties. The apprentice can expect to gain enhanced future earnings and career prospects. The sponsoring employer gains a larger subsequent supply of skilled labour, according to the willingness of the apprentice to stay on after training. Other employers also gain, to the extent that ex-apprentices leave to join them. The taxpayer and the wider economy also gain, since a greater supply of skilled labour increases productivity through more rapid innovation, leading to lower product prices, as well as through the development of a more educated and knowledgeable society.

However, very concrete risks and failures (particularly for employers and the young apprentices) exist, and how apprenticeships are financed will determine whether or not apprenticeship provides the incentives needed to encourage employers and young people to participate.

Thus, the financing of apprenticeships is both complex and vitally important for its viability. In the first place, apprenticeship is costly. Thus, just as the benefits of apprenticeship are shared by firms, apprentices and society, the costs should also be shared. All the three parties should contribute correspondingly, for reasons of both fairness and efficiency.

Making the case on efficiency grounds is a matter of incentives: when investment in apprenticeship leads to a commensurate reward, an incentive to undertake training is present. Problems arise, however, when the anticipated benefits to either party become small and uncertain, and when costs remain high and certain. A young person may not accept a place when more skilled work offers fewer advantages over less skilled work. Similarly, the employer may not offer a place when costs are disproportionately large relative to benefits.

Getting cost-sharing right in apprenticeship is, therefore, fundamental to securing a good supply of apprentice places and sufficient demand from young people.

For employers to participate, they need to be offered a cost-effective way of developing skilled employees familiar with the firm. But, this is not the only aspect to be considered. Because apprenticeship develops general knowledge and transferable skills, the skills learned in apprenticeship can be applied at other employers. There is, therefore, always the possibility that the employer’s investment in training may be lost to a competitor who recruits already skilled workers (the well-known “poaching” problem). When the cost is borne by one agent and the benefit acquired by another, a classic incentive problem prevails. Both employers then substitute recruitment for training as a source of skills, with adverse effects on the supply of skills upon which both depend. This gives rise to a classic case of market failure, which needs to be corrected through institutional measures.

Market failure can be corrected in three main ways:• A first approach in a deregulated labour market, which leaves it up to employers to determine

the content of their apprenticeship programmes. Training can then be tailored to the specific requirements of the sponsoring employer, increasing its hold over its ex-apprentices. This is currently the case in countries like Bangladesh and India. However, this “solution” is not attractive and not recommended for Armenia. Apprenticeship becomes just another form of job training, leaving its wider educational and occupational potential undeveloped. This type of apprenticeship is unlikely to develop better skills or add value to the company concerned.

50


• A second approach involves collective funding. All employers who stand to benefit from skills developed by apprentice firms contribute to a common fund from which the expenses of those who provide training are reimbursed, in whole or part, thereby rebalancing incentives from recruitment towards training. In Denmark, for example, all employers (both public and private) pay an amount into a fund called the Employers’ Reimbursement Scheme, regardless of whether or not they provide training placements. In 2012, all employers were obligated to pay an annual contribution of DKK 2,921 (EUR 393) per full-time employee. These funds are then allocated to the places of work taking in apprentices, so they do not bear the cost of training alone. These employers receive wage reimbursement during the apprentices’ periods of college-based training. In France, firms pay an apprenticeship tax, which is set at 0.05% of the salaries for firms with less than 250 employees and 0.06% for firms with over 250 employees. Exemption from the tax is conditional on firms training a specified number of apprentices.

• A third approach uses collective organisation and peer pressure. Employer collectives (employers’ associations, trade associations and chambers of commerce) are given powers to influence individual employers to provide apprenticeships, by altering the incentives for firms. In Germany, membership of the local chamber of commerce is obligatory for employers over a certain size. In addition, employers are encouraged to join employers’ associations, for example, by “extension rules”, under which they are required to follow the terms of the collective agreements (e.g. on trainee pay) negotiated at sectoral level by those associations.

Apprentices contribute to the cost of their training by accepting lower pay relative to skilled workers in their sector and relative to what they could have earned in full-time employment without training. If apprentice pay is pushed close to that of the skilled employee, then employers may stop offering apprenticeships altogether. However, the young person also needs an incentive, which is an assurance that acceptance of a lower apprentice wage will be compensated by the chance to acquire a recognised occupational qualification and status.

A number of apprentice countries (including England, France and Turkey) determine minimum apprentice wages as a fixed portion of the adult employee minimum wage (adjusted for age). In Germany the social partners aim to agree on an apprentice wage (trainee allowance) equal to roughly one-third of the adult wage for the sector, adjusted for age. In Denmark the apprentice wage starts out at 40% of the adult wage and increases to 50%. However, Danish employers are compensated for wages paid while apprentices are in off-the-job training. Despite the fact that the minimum level of apprentice pay is frequently set by government, firms are free to pay above that level if they choose so. In successful apprenticeship the apprenticeship duration allows the employer to recoup some of the training costs as the apprentice gains more skills and becomes more productive.

Due to the wider social and economic benefits of apprenticeship, which are described earlier in this report, the government should also contribute to covering the costs of work-based training.

This most frequently takes the form of college-based courses provided free of charge to employers for recognised apprenticeships. In continental European apprenticeship systems (e.g. Austria, Denmark, France, Germany and the Netherlands), the costs of the part-time vocational education courses that are built into the apprenticeship programmes are covered by public funds. In Australia, the government funds both public and private providers of apprentice training. In the US, with some exceptions, sponsors (employers) receive no public funding for the work-based learning or classroom-based components of apprenticeship.

Often in cyclical downturns, governments have made payments directly to employers to incentivise them to offer an apprenticeship for the first time or to take on additional apprentices over and above their skill needs. In Austria, where employer offer of apprentice places has been insufficient, payments are made for each additional apprentice place over the previous year or for restarting an apprentice

51

programme that has been dormant for a while. In Germany, the government has promoted changes in training regulations, which have helped firms to reduce training costs. These allow greater flexibility in the translation of training programmes into company training activities. These and other measures that allow for greater flexibility have enabled firms to generate greater benefits from the apprentices’ productive work.

6.1 Key Challenges and Opportunities Regarding the Financial Incentives for Introducing Dual TVET in Armenia: Recommended Measures

The experience of countries with well-established apprenticeship schemes shows that the ideal cost-sharing equilibrium is highly sensitive to changes in the wider economy. Flexibility of response from the social partners and vigilance from national authorities is needed to maintain the desired equilibrium.

The funding of TVET colleges in Armenia comes from the state budget and has been significantly increased. However, with the planned introduction of modern dual TVET, the financial mechanisms will need to be revised both from the perspective of planning, spending and monitoring. Since this is a totally new approach in planning and management of resources, trainings and coaching on this matter is strongly recommended for management staff of state colleges as well as relevant MoES and NCTVETD staff.

In Armenia, there are a few special financial and even fewer non-financial incentives for employers to encourage their involvement in modern dual education schemes. The only tax incentive for employers who would provide on-the-job training for an apprentice or candidates for a job opening is given in the Article 201.1 of the Labour Code. However, this article has a limitation of fixing the duration (maximum 6 months) for this type of training delivered by employers. It would be good to negotiate an amendment to this article which would leave the duration of the training to be fixed according to the modern dual qualification standard. It may vary from profession to profession.

The government pays for the in-company traineeships of the students of the TVET institutions. However, this is not enough support for putting a dual TVET in place.

But more importantly, some financial solutions are better suited to support private sector involvement. This is an important feature for improving the integration of the private sector into TVET, because such mutual financial instruments can strengthen the specific professional sector and support their self-governance capacities.

Internationally good experiences exist with tax reductions for the more proactive business members. For example, in Germany there is a differentiated offer of various organisational support for apprenticeships, specifically for SMEs – from subsidies for disadvantaged youth or unemployed workers, to specific tax exemptions for investment in apprenticeship training.

Other mutual instruments include levy funds, governed for example by legal professional bodies; tax exemptions, depending on number of apprenticeship provided; funds to the different sectors, provided on a competitive basis; or investment funds into common, sector-specific training activities. These mutual activities in different sectors minimise the risk of poaching and decrease the loss of investment in HR development.

The voucher and the scholarship instruments could also be used as an incentive for TVET schools. However, the development of specific financial instruments has to be yet defined in discussions with the Armenian government.

52


To help the decisions of the policy-makers, a thorough study will be needed to identified and anticipate the benefits vs the costs for all the parties involved in specific apprenticeship frameworks. From a German donor perspective, a stronger coherence between financial and technical cooperation will be an important feature, which can support the development and piloting of modern dual TVET schemes in Armenia with participation of the private sector. These pilot experiences will help highlight the most appropriate scheme and mechanisms for funding apprenticeships in Armenia.

The issue of costs share will require more extensive and evidence-based discussions between public and private players. This can be promoted and facilitated by GIZ through consultations and workshops for stakeholders on costs and benefits of dual apprenticeships. Trainings on costs and benefits as well as on tools for planning HR development and calculating ROI for enterprises, and for education providers and policy-makers is recommended.

In the next 3 years, the state budget investment in the TVET sector will be doubled. It is envisaged that the existing financial model and financing principles for TVET will be reviewed and changed. Therefore, there is good momentum to put the issue of financing modern dual TVET on the table, to explore the cost structure in detail, and to determine how and by whom these costs are to be shared in a fair way.

53

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pat

hs.

54


7. ECONOMIC STRUCTURE OF TARGET SECTORS

7.1. Tourism Sector

7.1.1 Description of the Sector

According to the definition of the World Tourism Organization (WTO) “tourism comprises activities of people travelling to and staying in places outside their usual environment for not more than one consecutive year for leisure, business and social, recreational, and knowledge-seeking purposes”. Hence, tourism is a complex sector, covering all travel, related to both business and leisure, and has multiple backward and forward linkages to diverse sectors of the economy. With these important backward linkages to the domestic economy, the tourism industry contributes to the growth and employment gains in other sectors. Hence, the tourism industry plays an important role in facilitating economic activity in the country in general.

The direct effects of the tourism industry reflect tourist spending on tourism services (e.g. hotel accommodation or catering) and indirect impacts generated when tourism spending flows into non-tourism sectors of the local economy (e.g. purchases of local handicraft or textile, or when hotels source furniture or food locally).

The chart below provides a typical complex structure of the tourism value chain according to the UNWTO’s “All for Trade and Value Chains in Tourism” (2013) report. To the left the activities that take place in the outbound country, the tourists’ residence are illustrated, while on the right the activities that take place in the inbound country (the tourists’ destination) are presented. At the bottom half of the figure, activities that are considered direct parts of the tourism value chain can be observed, while those that are indirectly related to the tourism sector are presented in the upper segment.

55

The role of the tourism and hospitality industry in the world economy is steadily increasing. This is one of the most profitable and dynamically industries of the global economy, with direct and indirect impact also on related sectors. For example, local agriculture and food processing companies (if the food served to tourists is sourced locally), can act as suppliers to the tourism industry. Also, the handicraft, jewellery, textiles, clothing, souvenirs and cosmetics sectors are indirectly related industries that benefit from tourism.

Recently, many new destinations have emerged, in addition to the traditional favourites of Europe and North America. According to the World Tourism Organization, tourism continues expanding year-by-year. International tourist arrivals reached a record 1.184 billion in 2015, about 50 million more than in 2014, according to the United Nations World Tourism Organization (UNWTO). The World Travel & Tourism Council (WTTC) estimates that the tourism and travel sector now accounts for 9.5% of global GDP (estimated USD 7 trillion) and 5.4% of world exports. There have been six consecutive years of above-average growth, with international arrivals increasing by 4% or more every year since the post-crisis year of 2010. Projections from the UNWTO Confidence Index remain largely positive for 2016, although at a slightly lower level than the previous two years. Based on the current trend and this outlook, UNWTO projects international tourist arrivals to grow by 4% worldwide in 2016. By region, growth is expected to be stronger in Asia and the Pacific (+4% to +5%) and the Americas (+4% to +5%), followed by Europe (+3.5% to +4.5%). The projections for Africa (+2% to 5%) and the Middle East (+2% to +5%) are positive, but with a larger degree of uncertainty and volatility.19

Figure 3.

According to UNWTO estimations the world top tourism destinations according to international tourism arrivals are France, the US, China, Spain, Italy, Turkey, Germany, the UK, the Russian Federation and 19 UNWTO, Press release, 18 January 2016.

56


Malaysia. According international tourism the main destinations are the US, Spain, France, China, Macao (China), Italy, Germany, the UK, Honk Kong (China) and Australia.

Within the framework of The Global Competitiveness and Benchmarking Network and the Industry Partnership Program for Aviation, Travel and Tourism, the World Economic Forum has published the “Travel & Tourism Competitiveness” report during the past seven years. The report provides a platform for multi-stakeholder dialogue to ensure the development of strong and sustainable travel and tourism industries capable of contributing effectively to international economic development. The latest report was published for 2013, with the theme “Reducing Barriers to Economic Growth and Job Creation”, and emphasises the importance of the sector for achieving these goals.

7.1.2. Current policy and initiatives in Armenia aimed at developing the sector

In Armenia, the tourism industry has also recorded progress. The statistics show double-digit growth in numbers of tourists as well as numbers of tour operators, tour agents and hotels. For example, the number of hotels that have hosted international tourists during past 10 years increased by more than 60%.

The policy adopted by the GoA has supported and facilitated a number of positive developments in the sector; however, not all initiatives have delivered the initially envisaged economic results and impacts. The government sees tourism as a key contributor to balanced territorial development, given its potential for boosting exports and job creation as well as SME development. Therefore, development of tourism in the regions, job creation and promotion of employment in tourism and interlinked sectors feature prominently on the government’s agenda.

With the Decree of 23 October 2013 the government adopted an “Open Sky” policy, with the aim of creating competitive and sustainable air transportation services in Armenia. This was an essential step by the government given the existing restrictions on land transportation. It was believed that the “Open Sky” policy should have positive economic impacts on society at large. In particular, it should promote foreign tourism and its diversification. The airport should have higher turnover of flights and higher frequency flights, offering decreased fees as well as assisting in marketing of new routes. Business sector representatives should have more convenient conditions (in terms of times and expenses) and extended possibilities for business communications.

In 2014, the government included a separate section in its Decree “On Armenia’s Long-term Development Strategic Plan 2014-2025” (N 442, 27 March 2014) describing the importance of the tourism industry for Armenia and the planned policies to improve the sector and reach the set goals. In accordance with this Decree, to improve Armenia’s tourism sector and make it more profitable, the government is planning to take the following measures: improve the infrastructure necessary for tourism development, especially by lowering the high transport expenses for entering and leaving Armenia; ensure the consistent implementation of already launched programmes on the development of Armenia’s travel destinations (e.g. Jermuk, Tsaghkadzor, Dilijan, etc.). Also, there are different government programmes dedicated to the development of tourism activities and improvements, targeted in regions considered as important travel destinations (e.g. Goris, Jermuk, etc.).

Finally, the Development Fund of Armenia in cooperation with the international branding agency GK Brand has been elaborating a country brand for Armenia. In 2013, the EDMC project presented a report “Armenian Tourism Marketing & Branding Strategy and Action Plan” (Marketing & Branding Strategy). In this strategy, the authors suggest the following product strategy for the Armenian tourism sector, where leisure tourism is mainly focused on the “discover” and “enjoy” concepts.

57

Figure 4. Armenia’s leisure tourism product portfolio

The following types of tourist activities are currently are available in Armenia, and have real and extensive potential for further development:

• agro/rural tourism• wine tourism• cultural tourism• archaeological tourism• winter tourism• adventure tourism• ecotourism• medical tourism• MICE (meetings, incentive, conventions and exhibitions, festivals).

7.1.3. Sector Performance Indicators (by subsectors)

According to the information given by the “Travel & Tourism Competitiveness” report (2015), the dynamics and development of tourism in Armenia is ambiguous and not well defined. Despite the improvements noted in previous years in the sector across many areas, in the 2015 report records a decline across most indicators. Armenia’s overall tourism competitiveness index was ranked 89 (out of 141 countries) in the 2015 edition of the report, a drop of 10 positions compared to 2013 (see table below).

2015(out of 141)

2013(out of 140)

2011(out of 139)

2009(out of 133)

The overall index 89 79 90 91Policy rules and regulations 95 49 92 77Human resources 71 44 81 81Safety and security 38 37 51 45Visa requirements 37 35 126 117ICT infrastructure 69 73 97 107

Table 15. Travel & Tourism Competitiveness Index (2009-2013) 20

According to the report, the pillar of “enabling environment” (ranked 57) fares better than the other three pillars: “travel and tourism policy and enabling conditions” (ranked 95), “infrastructure” (ranked 84), “natural and cultural resources” (ranked 130). The highest ranks are given to “safety and security” (38), “health and hygiene” (48) and “business environment” (50).

20 Source: The Travel & Tourism Competitiveness Report 2013

58


For the indicator “human resources and labour market”, Armenia stands at position 71. According to the 2015 report, Armenia holds a rather high rank in ease of hiring foreign labour (rank 12, score 4.9), which is a little bit higher that the ranking for hiring and firing practices (rank 18, score 4.5) and much higher than the pay and productivity indicator (rank 47, score 4.2). Among the discussed indicators, lowest ranking was given to “ease of finding skilled employees” (rank 112), “extent of staff training” (rank 118), and “primary education enrolment rate” (rank 119).

2013 year (WEF_Global_Travel&Tourism_Report_20150

Indicator rank scoreQualification of the labour force 95 4.8Primary education enrolment rate (%)* 119 84.1Secondary education enrolment rate (%)* 49 95.9Extent of staff training† 118 3.4Treatment of customers† 66 4.6Labour market 57 4.1Hiring and firing practices 18 4.5Ease of finding skilled employees† 112 3.3Ease of hiring foreign labour 12 4.9Pay and productivity 47 4.2Female labour force participation (% to men 95 0.7

Tourism’s contribution to GDP was on average 4% during 2010-2012; it decreased in 2013 (3.81%) and sharply dropped in 2015 (2%) (mainly due to the close of operations of the Armenian national air carrier Armavia). Overall, the reduction in the transport subsector’s turnover in 2013 was about 52.5%, or USD 70.6 million. The total amount spent on transport has decreased by more than 60%, or USD 101.5 million, largely due to changes in the air transport market. Meanwhile the contribution of “travel agency, tour operator reservation service and related activities” continues to increase, reaching USD 31.1 million in 2013 (from USD 26.4 million in 2010).

Table 16. Production of Tourism Sector by subsectors and to GDP, 2010-2013

2010 2011 2012 2013Tourism Sector production to GDP,% 3.92% 3.85% 4.35% 3.81%Production of Tourism Sector, USD(‘000), from which

365,189 382,905 423,829 393,054

Accommodation and catering 104,634 119,020 151,986 178,857Travel Agency, tour operator reservation service and related activities

26,393 28,295 37,565 31,102

Transport 165,290 155,673 134,472 63,773

GDP, USD (‘000) 9,260,300 10,142,100 9,958,000 10,431,100

Source: NSS RA

As shown in the chart below, the share of the “accommodation and catering” subsector increased substantially (from 48% in 2010 to 76% of 2013), which can be explained by the increase in the number of guests and the amount spent per guest. For instance, total number of international and local tourists

59

staying at hotels was about 818,000 in 2013, and they spent a total of USD 178.9 million (or USD 219 each). For comparison, in 2010 the total number of international and local tourists staying at hotels was about 527,000, and they spent USD 104.7 million (or USD 199 each). So, the number of guests increased by 55.2% and the amount spent per guest by 10%.

Chart 2. Shares of subsectors in Tourism Sector production, 2010-2013

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Travel Agency, tour operator Travel Agency, tour operator Travel Agency, tour operator Travel Agency, tour operator Travel Agency, tour operator Travel Agency, tour operator Travel Agency, tour operator Travel Agency, tour operator Travel Agency, tour operator Travel Agency, tour operator Travel Agency, tour operator Travel Agency, tour operator Travel Agency, tour operator Travel Agency, tour operator Travel Agency, tour operator Travel Agency, tour operator Travel Agency, tour operator Travel Agency, tour operator Travel Agency, tour operator Travel Agency, tour operator Travel Agency, tour operator

Transport

Source: NSS RA

According to official statistics, about 38.3% of revenues generated in “service industry” belong to “hotels, catering, entertainment and recreation” as well as “transportation services”. Overall revenues of these subsectors totalled approximately USD 862 million in 2015.

Comparing the service volume of the subsector “accommodation and catering” between Yerevan and the regions, a substantial gap could be noted. In particularly, the share of Yerevan in the subsector was 89% for 2012, which means that this subsector is geographically heavily concentrated in the capital.

Table 17. Service volume of “Organisation of accommodation and catering” (USD million)

2010 2011 2012REPUBLIC OF ARMENIA 116.2 131.2 152YEREVAN CITY 102.2 116.1 135.2ARAGATSOTN 0.5 0.5 0.8ARARAT 0.7 0.9 0.8ARMAVIR 0.8 0.9 1.2GEGHARKUNIK 0.7 0.6 0.9LORI 1.0 1.0 0.9KOTAYK 5.1 5.2 5.7SHIRAK 1.9 2.1 2.6SYUNIK 1.3 1.6 1.6VAYOTS DZOR 0.6 0.5 0.5TAVUSH 1.5 1.8 1.8

Source: NSS RA

60


The table 21 presents the number of international (incoming) tourists in Armenia during 2005-2013. The numbers have increased gradually since 2005, roughly tripling by 2013 to reach almost a million visitors. For this period, the average annual growth rate for international tourists was about 15%.

Chart 3. Number of international (incoming/outbound) tourists in Armenia 2005-2013

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2005 2006 2007 2008 2009 2010 2011 2012 2013

Thou

sand

s

316381

510 558 575684

758843

957

0

200

400

600

800

1000

2005 2006 2007 2008 2009 2010 2011 2012 2013

Thou

sand

s

316381

510 558 575684

758843

957

0

200

400

600

800

1000

2005 2006 2007 2008 2009 2010 2011 2012 2013

Thou

sand

s

316381

510 558 575684

758843

957

0

200

400

600

800

1000

2005 2006 2007 2008 2009 2010 2011 2012 2013

Thou

sand

s

316381

510 558 575684

758843

957

0

200

400

600

800

1000

2005 2006 2007 2008 2009 2010 2011 2012 2013

Thou

sand

s

316381

510 558 575684

758843

957

0

200

400

600

800

1000

2005 2006 2007 2008 2009 2010 2011 2012 2013

Thou

sand

s

316381

510 558 575684

758843

957

0

200

400

600

800

1000

2005 2006 2007 2008 2009 2010 2011 2012 2013

Thou

sand

s

316381

510 558 575684

758843

957

0

200

400

600

800

1000

2005 2006 2007 2008 2009 2010 2011 2012 2013

Thou

sand

s

316381

510 558 575684

758843

957

0

200

400

600

800

1000

2005 2006 2007 2008 2009 2010 2011 2012 2013

Thou

sand

s

316381

510 558 575684

758843

957

0

200

400

600

800

1000

2005 2006 2007 2008 2009 2010 2011 2012 2013

Thou

sand

s

316381

510 558 575684

758843

957

0

200

400

600

800

1000

2005 2006 2007 2008 2009 2010 2011 2012 2013

Thou

sand

s

316381

510 558 575684

758843

957

0

200

400

600

800

1000

2005 2006 2007 2008 2009 2010 2011 2012 2013

Thou

sand

s

316381

510 558 575684

758843

957

0

200

400

600

800

1000

2005 2006 2007 2008 2009 2010 2011 2012 2013

Thou

sand

s

316381

510 558 575684

758843

957

0

200

400

600

800

1000

2005 2006 2007 2008 2009 2010 2011 2012 2013

Thou

sand

s

316381

510 558 575684

758843

957

0

200

400

600

800

1000

2005 2006 2007 2008 2009 2010 2011 2012 2013

Thou

sand

s

316381

510 558 575684

758843

957

0

200

400

600

800

1000

2005 2006 2007 2008 2009 2010 2011 2012 2013

Thou

sand

s

316381

510 558 575684

758843

957

0

200

400

600

800

1000

2005 2006 2007 2008 2009 2010 2011 2012 2013

Thou

sand

s

Source: NSS RA

Looking at the country of origin, 73.5% of international tourists who visited Armenia in 2015 were from non-CIS countries, while 26.5% were from CIS countries (see Table 18).

Table 18. Dynamics of the Structure of Incoming Tourism Flows in Armenia by Countries21

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015CIS countries 23.9% 24.8% 21.6% 18.3% 21.0% 19.8% 21.8% 27.8% 31.4% 26.5%

Russia 4.3% 18.3% 18.9% 16.2% 18.3% 16.8% 18.5% 22.7% 26.2% 21.9%Other CIS countries 19.6% 6.5% 2.7% 2.1% 2.7% 3.0% 3.3% 5.1% 5.2% 4.6%

Non-CIS coun-tries 76.1% 75.2% 78.4% 81.7% 79.0% 80.2% 78.2% 72.2% 68.6% 73.5%

EU countries 35.5% 37.1% 36.9% 37.0% 31.3% 38.5% 38.4% 36.3% 30.1% 25.8%France 14.8% 12.1% 11.0% 13.4% 9.4% 10.0% 8.6% 7.7% 7.3% 6.2%Germany 5.3% 6.7% 6.5% 7.5% 5.7% 5.5% 5.5% 6.1% 5.3% 5.1%United King-dom 5.3% 6.4% 5.0% 3.3% 4.3% 4.7% 7.6% 3.4% 3.6% 3.2%

Other EU countries 10.1% 11.9% 14.4% 12.8% 11.9% 18.3% 16.7% 19.1% 13.9% 11.3%

Other coun-tries 40.6% 38.1% 41.5% 44.7% 47.7% 41.7% 39.8% 35.9% 38.5% 47.7%

USA 21.6% 21.0% 17.8% 18.4% 14.4% 14.9% 13.1% 12.2% 12.2% 15.2%Iran 5.4% 5.0% 5.3% 7.7% 10.4% 7.4% 6.8% 5.9% 9.2% 10.3%Georgia 0.0% 0.0% 5.1% 3.8% 3.6% 2.6% 2.8% 3.1% 3.0% 2.6%Turkey 1.2% 0.9% 1.4% 1.2% 2.8% 1.4% 0.8% 0.7% 0.5% 1.1%Canada 2.1% 1.9% 1.7% 1.9% 2.0% 1.7% 1.3% 1.3% 1.6% 1.6%Other coun-

tries 10.3% 9.3% 10.2% 11.7% 14.5% 13.7% 15.0% 12.7% 12.0% 16.9%

21 National Statistical Service of the RA.

61

The main sources of incoming tourists to Armenia are CIS and EU countries, the USA and Iran. As the table shows, in 2015 about 26.5% of incoming tourists were from CIS countries (22% from Russia), about 26% from EU countries (6.2% from France and 5.1% from Germany), and 15.2% from the USA. Growth was particularly strong in number of tourist from Turkey (29% on average) and Iran (26% on average).

It should be underlined that in Armenia international tourists mainly prefer to stay in accommodation facilities other than hotels. For instance, in 2014 only 164,663 international tourists chose hotels, while 1,192,119 tourists stayed in other accommodation facilities. According to official statistics, 65 hotels in Armenia hosted international tourists in 2014, while for 2006 this figure was 40.

The main purposes of the visits of tourists hosted by hotels are business, leisure and entertainment. In 2015, the purpose of visit of 45% of tourists hosted by hotels was leisure and entertainment, while business made up 33%.

Table 19. Dynamics of Major Indicators of Incoming Tourism of Armenia

Several indicators of tourism in Armenia (thousand person)

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

Number of hotels international tourists 40 47 49 43 50 58 54 77 65 -1

Arrived passengers considered tourists 382 510 558 575 687 758 843 957 1,204 1,192

Hotels and hotel harbours 54 59 71 66 70 124 137 149 165 -2

At home, rent home, etc. 328 451 488 510 617 634 707 809 1,039 -3

Table 20. Dynamics of International Tourists Hosted by Armenian Hotels, Purpose of Arriving, ‘1000 people

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Business 18.5 22.1 27.1 25.7 31.2 36.0 41.2 47.5 46.5 54.0Leisure and entertainment 13.5 11.8 11.4 13.1 15.0 27.0 29.1 40.7 71.7 74.3Education 0.2 0.0 0.0 - 0.0 0.0 0.0 0.0 0.4 0.2Treatment 0.3 0.1 0.2 0.1 0.6 1.2 0.6 0.6 0.7 0.6Other 21.9 24.9 32.0 26.7 23.4 59.9 65.7 60.0 45.5 35.6

The number of domestic tourists in Armenia has also increased steadily since 2005 (on average with more than 10%) and currently is about one-and-a-half times higher than in 2005. Through 2005 to 2013 the highest number of Armenian domestic tourists was recorded in 2013 (about 669,540 people), and the most notable increase was observed from 2012 to 2013 (about 30%).

As in the case of international tourists arrivals, visiting purposes for local tourists are also different. According to official data, the main purpose of local tourism in Armenia is leisure (more than 50%, from 2008 to 2013), followed by business (about 25%). While the numbers are still small, the trend of increasing the number of health tourists (about 6%) is also observed. The number of local tourists was almost double in 2015 (871,888), compared to 2010.

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Table 21. Number of domestic tourists by visiting purposes in Armenia 2008-2013

2008 2009 2010 2011 2012 2013 2014 2015Total Domestic Tourists

307,973 369,005 447,234 435,674 456,432 489,419 514,771 669,540

Business 81,566 93,084 111,361 103,154 107,104 114,426 158,655 156,685Leisure and Entertainment

135,246 183,351 228,984 229,303 258,872 312,567 283,513 381,152

Treatment 33,106 42,666 56,352 54,931 50,362 29,144 41,889 59,903

Other 58,055 49,905 50,537 48,286 40,094 33,282 30,714 71,800

Source: NSS RA

7.1.4. Sector Employment Rates

In general, there is some confusion regarding the concrete numbers of companies acting in the sector. Several sources can be used, but still they do not reflect the real situation. One is the State Register of Companies, where the companies are registered upon the start of their business, but this database is not updated when the business permanently or temporarily ceases to operate. Another source is the database of the Republic of Armenia’s Tax Service, but also there it is very difficult to identify types of businesses as companies very often list several types of economic activities in which they are engaged. And, there is the National Statistical Service, but figures published by this entity also do not match up with the data from the other two. When it comes to rates of employment, there is even greater discrepancy.

Taking these limitations in consideration, the following data was gathered in the frame of this study.

Overall in the sector there are around 400 active companies and individual entrepreneurs, classified under “provision of accommodation services”, which includes hotels, hostels, B&Bs, resorts, etc. This figure is according to the database of the Tax Service, which provides information on taxpayers according to type of economic activity. The figure of 400 reflects those whose primary listed type of economic activity is registered as “organisation and provision of accommodation services” in the mentioned database. As for companies in other subsectors, we have uncovered the following figures: travel agencies and tour operators (more than 500) and transportation services (250).22

According to the 2013 “Travel & Tourism Competitiveness” report, travel and tourism industry employment in Armenia comprised about 18,900 jobs in 2012 (T&T industry 2012 estimates), representing only 1.7% of total employment. In 2014, the number of employed in the T&T industry was 21,300, or 1.8% of total employment and around 3% of non-agricultural employment.

These numbers are based on the narrow definition of the tourism industry. However, if we consider the broad definition of tourism industry, which takes into consideration the direct as well as indirect contributions by traditional travel service providers and industry suppliers, the picture changes significantly. In this case, the travel and tourism industry’s employment figure in Armenia was about 75,000 jobs in 2012, or 6.8% of total employment.

22 National Statistical Service of the RA.

63

Table 22. Travel and Tourism Employment Level, 2012-2014

Absolute value Percent of totalTravel and Tourism industry employment (2013) 18,900 1.7Travel and Tourism industry employment (2014) 21,300 1.8

Travel and Tourism economy employment (2012) (including indirect employment)

75,000 6.8

Source: Travel & Tourism Competitiveness Report 2013, WEF

7.1.5 Human Capital

A very recent and detailed study of human capital was conducted by the America Management Advisory Company, commissioned by GIZ PSD SC for the baseline programme indicators. The baseline study provides a thorough and comprehensive answer related to this aspect.

7.2 Agro-Food Processing and Beverages SectorFood and beverages (F&B) processing sector is closely related with the agriculture sector, as agricultural production provides the main raw materials for food processing. For this reason, when looking at the food processing sector it is important to also carefully consider the agriculture sector.

Agriculture is one of the leading sectors in Armenia’s economy, with an average annual share of national GDP of 18.1% (2006-2014).

Table 23. Share of agriculture in national GDP (USD billion)23

2006 2007 2008 2009 2010 2011 2012 2013 2014Total GDP 6,385 9,206 11,661 8,648 9,259 10,142 9,957 11,122 11,645Agriculture 1,191 1,676 1,879 1,462 1,574 2,061 1,901 2,050 2,150GDP share of agricul-ture

18.7% 18.2% 16.1% 16.9% 17.0% 20.3% 19.1% 18.4% 18.5%

Gross agricultural output in 2015 was lower than in 2014, reaching USD 2,097 million; however, it should be noted that during the 2007-2015 period gross agricultural output increased by 7% on average.

Table 24. Gross agricultural output by farms (at current prices, USD million)24

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015Agriculture 1,336 1,853 2,052 1,519 1,704 2,135 2,094 2,243 2,388 2,096Plant growing 856 1,257 1,326 954 1,051 1,249 1,284 1,398 1,456 1,268Animal hus-bandry 480 596 726 565 653 886 810 845 932 828

Agriculture in Armenia has two subsectors: plant growing and animal husbandry. As the presented table shows, agriculture of Armenia is focused mainly on plant growing, which in 2015 accounted for 60.4% of gross agricultural output, created primarily by household plots (e.g. in 2014 they accounted for 97.2%).

23 National Statistical Service of the RA.24 National Statistical Service of the RA.

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7.2.1 Description of the F&B SectorF&B processing is a subsector of manufacturing, which in turn is a subsector of industrial production. The volume of industrial production in 2015 was USD 2,777 million, from which USD 1,718 million was created by manufacturing. Food processing represents 36.4% of total manufacturing and 23.9% of total industry production. During the 2011-2014 period, food processing recorded annual increases of on average 11%. However, in 2015 it dropped by 18.9%.

Table 25. Volume of industrial production by types of economic activity (at current prices, USD million)

2010 2011 2012 2013 2014 20151. Total industry 2,206 2,682 2,792 3,032 3,105 2,777

1.1 Manufacturing 1,458 1,731 1,741 1,897 2,038 1,7181.1.1 Food processing 504 641 623 671 742 602

From the 2,466 manufacturing companies operational in 2015, 821 (33.3%) are companies engaged in food processing. The largest share are bread and pastry producers (513, or 62.5%). There are 134 beverage producers.

Table 26. Number of industrial organisations by types of economic activity25

2010 2011 2012 2013 2014 2015Total industry 2,484 2,647 2,587 2,726 2,741 2,802

1 Manufacturing 2,241 2,379 2,290 2,405 2,414 2,4661.1 Food production 789 847 793 801 800 821

1.1.1 Processing and preserving of meat, production of meat 81 78 74 73 68 65

1.1.2 Processing and preserving of fish, crustaceans, and molluscs 3 8 8 8 8 5

1.1.3 Processing and preserving of fruits and vegeta-bles 22 23 26 29 32 40

1.1.4 Production of vegoil and tallow oil, fats 6 6 4 5 5 51.1.5 Production of dairy 72 66 62 61 65 69

1.1.6 Production of milling industry, starch, and food containing starch 28 29 27 21 20 20

1.1.7 Bread and pastry production 493 543 496 501 502 5131.1.8 Production of other food 83 92 94 100 96 1011.1.9 Production of prepared forage 1 2 2 3 4 3

1.2 Production of beverages 125 124 116 128 135 134

Although during the 2010-2015 period the number of food product manufacturing companies increased by 32, it should be noted growth was not stable: the highest number of food product manufacturers was recorded in 2011 (847), which was the highest number in the past six years.

25 National Statistical Service of the RA, Main Indicators of Industrial Organisations by Economic Activities (five-digit code), for January-December.

65

Table 27. Production of basic F&B products by types of economic activity26

2010 2011 2012 2013 2014 2015Meat (1,000 t) 54.6 61.1 65.9 72.3 81.3 85.8Sausages (t) 3,187.0 3,577.0 3,717.0 4,030.0 5,240.0 5,996.0Cheese (1,000 t) 17.1 17.6 17.6 17.4 18.3 18.6Milk (million litres) 300.0 316.0 320.0 363.0 430.0 447.9Ice cream (1,000 l) 3,314.0 3,481.0 3,628.0 4,265.0 6,345.0 9,639.5Canned products (t) 8,029.0 11,514.0 9,681.0 10,325.0 11,729.0 11,163.4Grape wine (1,000 l) 5,865.0 6,192.0 5,808.0 6,680.0 6,174.0 5,931.9Brandy (cognac) (1,000 l) 12,749.0 15,385.0 18,527.0 20,453 18,705.0 16,947.6Beer (1,000 l) 15,353.0 14,744.0 13,668.0 19,848.0 23,717.0 20,686.5Champagne (1,000 l) 607.0 623.0 479.0 536.0 634.0 658.1Non-alcoholic beverages (1,000 l) 38,232.0 45,725.0 45,321.0 63,400.0 80,150.0 81,718.5Mineral water (1,000 l) 30,000.0 29,668.0 33,188.0 43,215.0 56,963.0 45,066.3Natural juices (1,000 l) 11,690.0 14,591.0 16,730.0 19,547.0 21,121.0 17,080.0Cigarettes (million units) 4,127.0 3,361.0 6,155.0 7,730.0 12,774.0 18,277.0Salt (extraction) (1,000 t) 29.4 35.6 37.8 30.8 29.8 27.4

The CAGR (Compound Annual Growth Rate) calculations show that highest growth in the food manufacturing sector is recorded for cigarettes (228.1% CAGR for 2010-2015). The second and third products with highest CAGRs are ice cream (19.5%) and non-alcoholic beverages (13.5%).

7.2.2 Current policy and initiatives in Armenia aimed to develop the sector

Currently in Armenia there are no specific policies related to the F&B sector; however, taking into account the close relationship between agriculture and F&B processing, it is important to mention agriculture-related government policies, which also impact the F&B processing sector. The government’s strategy concerning agriculture is represented in such documents as the “Armenia Development Strategy 2014-2025” and the “Agriculture Development Strategy 2010-2020”. Several trends in the agriculture sector impact the F&B sector.The main trends in agricultural development related to F&B processing, which are particularly impacted by government policy in recent years, are the following:

• Increase in agricultural export opportunities, 27 especially to Russia (from 2014, Armenian companies again have the opportunity to export meat to Russia).

• New opportunities of foreign trade within the Eurasian Economic Union.• Growing interest in organic foods, as a result of the new project Organic Agriculture Support

Initiative in Armenia (OASI)started in 2016.• Increased number of farms that employ modern technologies, such as modern greenhouses or

orchards, and vineyards with modern technological solutions are improving the efficiency and productivity of F&B and agriculture.

• Development of internal resources for food security, supported under the ENPARD programme local production of buckwheat will start in 2016.

• Increasing numbers of agricultural cooperatives. Due to implemented legislative reforms, farmers are more interested in carrying out their activities within the framework of cooperatives.

26 National Statistical Service of the RA.27 Some statistical data about export and import is presented in the annexes.

66


• Implementation of new irrigation technologies, in particular drip irrigation, leading to use of water-saving regimes. For instance, one of the components of the IRFSP project was improvement of water infrastructure in rural areas.

The main directions of agriculture and rural development policy represented in these documents are• promotion of gradually replacing imported foodstuff by local production (increasing self-sufficiency

in wheat, sugar, vegetable oil, leguminous plants, animal oils, different types of meat and fish);• deepening agrarian reforms, development of different types of agricultural cooperatives, which in

turn will increase their opportunities in the F&B processing sector;• solving the problem of regular electricity with effective use of solar, land, underground, and water

energy alternatives;• improving the quality of education in rural communities. For that purpose, the Ministry of Education

is negotiating with the EU in the framework of providing technical assistance to TVET colleges and higher education institutions to provide professionals with higher or vocational education in the agriculture field.

Besides government involvement, several international donors are also engaged in supporting agriculture and F&B processing sector development.

The main focus of EU agriculture and rural development projects is sector modernisation, according to modern trends. Since 2014, two programmes are implemented, totalling EUR 28.3 million. Overall, the programmes implemented by EU in the agriculture and rural development sectors have contributed to

• performance of agriculture-related institutions,• farmers associations, cooperatives and business-oriented farmers’ groups,• accessible and affordable food for Armenians,• agriculture statistics and information systems, including a national agricultural census,• increasing the local value added of Armenian organic products,• increasing efficiency of relevant public and private institutions.

Although both programmes are ongoing and it is not possible to present their results, some notable achievements can be shared. Thanks to the EU ENPARD agricultural programme, 40 primary production cooperatives are being established in five different Marzes: 33 will produce buckwheat, 4 broccoli, and 3 fruits and berries. Around 570 farmers involved in these cooperatives will be provided with seeds and saplings, fertilizers, agricultural machinery, drip irrigation, greenhouses and anti-hail nets.

Armenia also receives support from different international donor organisations: the World Bank, Eurasian Development Bank, IFAD, and USAID. Taking into account the importance of agriculture and rural development in the donor programmes, the following main goals are highlighted:

• improving productivity and sustainability of pasture-based livestock,• increasing the marketed production from selected livestock and high-value agri-food value chains,• replacing manual irrigation with automatic irrigation systems,• reconstruction of primary and secondary irrigation canals,• modernisation of WUAs’ irrigation networks,• institutional development of WUAs,• stimulating sustained growth of rural enterprises by delivering an interrelated package of business

development training and financing.

The results of the completed project show the impact of these support efforts: increased livestock productivity and increased farm net income from livestock; improvement of degraded pasture resources in project areas; improved natural resources management; reduced losses from brucellosis infection in sheep and cattle; decreased service costs by 20-30%; 82 units of agricultural equipment installed in participating communities.

67

7.2.3. Sector Performance Indicators (by subsectors)

The information provided by the National Statistics Service of Armenia shows that in 2014 the GDP share of the agriculture and manufacturing sectors are respectively 18.5% and 26.6%.

Table 28. Volume of share of agriculture and manufacturing production in GDP (USD million)28

2006 2007 2008 2009 2010 2011 2012 2013 2014TOTAL GDP 6,385.1 9,205.7 11,660.9 8,647.5 9,259.3 10,142.1 9,957.0 11,122.2 11,645.0Agriculture 1,191.0 1,675.6 1,878.6 1,462.5 1,574.0 2,061.4 1,901.3 2,050.3 2,149.7Share of GDP 18.7% 18.2% 16.1% 16.9% 17.0% 20.3% 19.1% 18.4% 18.5%Industry 1,546.9 2,093.1 2,455.1 1,827.5 2,205.8 2,663.3 2,788.6 3,028.8 3,097.3Share of GDP 24.2% 22.7% 21.1% 21.1% 23.8% 26.3% 28.0% 27.2% 26.6%

The share of manufacturing of food products in total manufacturing was 36.4% in 2014 and 35% in 2015. Clearly, the influence of food processing on total manufacturing, and therefore in total GDP, is rather significant.

Table 29. Volume of industrial production by types of economic activity (at current prices, USD million)29

2010 2011 2012 2013 2014 2015Total industry 2,235 2,663 2,805 3,029 3,090 2,777

1 Manufacturing 1,459 1,718 1,747 1,894 2,042 1,7181.1 Food production 504 641 620 670 740 602

1.1.1 Processing and preserving of meat, production of meat 33 37 41 40 53 39

1.1.2 Processing and preserving of fish, crustaceans and molluscs 0 0 1 1 3 2

1.1.3 Processing and preserving of fruits and vegetables 23 31 28 31 35 311.1.4 Production of vegoil and tallow oil, fats 2 1 3 5 5 21.1.5 Production of dairy 85 110 97 103 125 109

1.1.6 Production of milling industry, starch, and food containing starch 69 99 107 120 127 91

1.1.7 Bread and pastry production 198 217 207 226 236 2171.1.8 Production of other food 94 143 135 141 150 1061.1.9 Production of prepared forage 0 1 0 3 6 5

1.2 Production of beverages 225 188 251 307 300 215

Another important performance indicator of manufacturing in the food products industry is production volumes of basic products types. For instance, compared to 2014, in 2015 highest growth of production volume was registered for ice cream production (51.9% growth), followed by production of cigarettes (43.1% growth).

28 National Statistical Service of the RA, yearbooks29 National Statistical Service of the RA, Main Indicators of Industrial Organisations by Economic Activities (five-digit code),

for January-December.

68


Table 30. Production of basic products by types of economic activity30

2010 2011 2012 2013 2014 2015

Meat (1,000 t) 54.6 61.1 65.9 72.3 81.3 85.8

Sausages (t) 3,187.0 3,577.0 3,717.0 4,030.0 5,240.0 5,996.0

Cheese (1,000 t) 17.1 17.6 17.6 17.4 18.3 18.6

Milk (million litres) 300.0 316.0 320.0 363.0 430.0 447.9

Ice cream (1,000 l) 3,314.0 3,481.0 3,628.0 4,265.0 6,345.0 9,639.5

Canned products (t) 8,029.0 11,514.0 9,681.0 10,325.0 11,729.0 11,163.4

Grape wine (1,000 l) 5,865.0 6,192.0 5,808.0 6,680.0 6,174.0 5,931.9

Brandy (cognac) (1,000 l) 12,749.0 15,385.0 18,527.0 20,453 18,705.0 16,947.6

Beer (1,000 l) 15,353.0 14,744.0 13,668.0 19,848.0 23,717.0 20,686.5

Champagne (1,000 l) 607.0 623.0 479.0 536.0 634.0 658.1

Non-alcoholic beverages (1,000 l) 38,232.0 45,725.0 45,321.0 63,400.0 80,150.0 81,718.5

Mineral water (1,000 l) 30,000.0 29,668.0 33,188.0 43,215.0 56,963.0 45,066.3

Natural juices (1,000 l) 11,690.0 14,591.0 16,730.0 19,547.0 21,121.0 17,080.0

Cigarettes (million units) 4,127.0 3,361.0 6,155.0 7,730.0 12,774.0 18,277.0

Salt (extraction) (1,000 t) 29.4 35.6 37.8 30.8 29.8 27.4

There are also several negative tendencies in food industry production volumes; however, they can be explained by general economic trends in the Russian Federation. Russia is the main trade partner of Armenia, and unfavourable economic conditions in the country tend to decrease import volumes, and in turn also decrease production volumes in Armenia. However, it should be underlined that stabilisation of the Russian economy as well as the entry of local producers in new international markets will have a positive influence on industry.

7.2.4 Human Resources and EmploymentAgriculture is the largest employment-providing sector, accounting for 34.8% of total employment in 2014, according to the National Statistical Service of Armenia.

Table 31. Population employment by agricultural and non-agricultural activities (average annual, 1,000 persons)31

2010 2011 2012 2013 2014

Total employed 1,185.2 1,175.1 1,172.8 1,163.7 1,133.6

Agriculture (including forestry, fishing) 457.4 457.4 437.2 422.1 394.8

employed in farms 422.5 441.4 427.1 408.1 386.7

Non-agricultural 727.8 717.7 735.6 741.6 738.8

30 National Statistical Service of the RA.31 National Statistical Service of the RA.

69

In 2013, employment in the agriculture sector decreased by 6.5%, which is mainly explained by low incomes in the sector. In comparison, for the same period employment in the manufacturing sector decreased only by 2%.

Table 32. Employment by economic sectors (annual averages)32

2010 2011 2012 2013 2014 2015Total industry 80,978 83,676 83,074 83,748 83,530 81,865

1 Manufacturing 49,113 51,229 50,581 51,076 51,472 48,8281.1 Food production 13,043 14,112 13,351 13,977 14,375 14,499

1.1.1 Processing and preserving of meat, pro-duction of meat 1,693 1,968 2,081 2,047 2,123 1,976

1.1.2 Processing and preserving of fish, crus-taceans and molluscs 6 11 33 33 77 79

1.1.3 Processing and preserving of fruits and vegetables 1,130 1,183 1,294 1,409 1,413 1,497

1.1.4 Production of vegoil and tallow oil, fats 85 89 92 87 101 961.1.5 Production of dairy 1,744 1,684 1,657 1,629 1,774 1,894

1.1.6 Production of milling industry, starch, and food containing starch 1,276 1,473 1,349 1,454 1,402 1,340

1.1.7 Bread and pastry production 4,025 4,303 3,972 4,217 4,328 4,5141.1.8 Production of other food 3,019 3,331 2,800 2,981 2,986 2,9561.1.9 Production of prepared forage 65 70 73 120 169 149

1.2 Production of beverages 5,173 5,581 5,765 5,886 6,054 5,641

In 2015, 29.6% of the employed population in the manufacturing sector worked in food processing, with the highest share in the “bread and pastry production” subsector (4,514, or 31.1% of total food processing employees).

On the other hand, there are only 79 and 96 employees engaged in “processing and preserving of fish, crustaceans and molluscs” and “production of vegoil and tallow oil, fats” respectively. The small numbers can be explained by the weak development of these sectors as well as local market size and difficulties in entering foreign markets.

In addition, it should be underlined that in 2015 the number of employees engaged in production of beverages decreased, despite the stable growth of the subsector during 2010-2014. One of the main reasons for this shrinkage in 2015 is the unstable economic situation in Russia, which negatively influenced beverage exports from Armenia. However, it should be underlined that the stabilisation of the Russian economy as well as the entry of local producers in new international markets will have a positive influence on the industry.

32 National Statistical Service of the RA, Main Indicators of Industrial Organisations by Economic Activities (five-digit code), for January-December.

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8. SPECIAL NOTES ON PRECISION ENGINEERING AND TEXTILE INDUSTRIES

8.1 Precision Engineering• The existence of a strong and all-encompassing sector association, UITE (Union of Information

Technology Enterprises), can allow establishing well-functioning social partnership within a TVET system on sectoral level. For the precision engineering sector, UITE can play the role and perform the functions of a sector skills development centre.

• Developing an efficient cooperation framework between UITE and secondary schools can be considered as a unique opportunity and well-functioning prototype for UITE–TVET system partnership on sectoral level.

• The development of IT and Precision Engineering TVET professions and qualifications in the regions is of high importance. The existence of regional precision engineering hubs, such as Gyumri and Vanadzor technology parks, can support the development of regional-level social partnerships in TVET. Such partnerships can be established with selected IT and precision engineering TVET institutions and regional technology parks with the introduction of specific dual TVET schemes.

• The precision engineering sector provides unique opportunities for developing both regional- and sectoral-level social partnership, thus creating fertile soil for dual TVET schemes both in Yerevan and the regions.

• FGDs identified high demand for initial and middle TVET professions in the precision engineering sector (especially mechatronics, automated production line operations, car diagnostics and electronics repair).

• There are 60-70 companies operating in this industry, employing about 4,000 people. According to the sectoral strategy, it is envisaged that the sector will provide about 7,000 jobs by 2020. In 2010, gross revenues for the sector stood at USD 35 million, with USD 17 million in exports.33 According to the sectoral development strategy, it has huge potential to increase gross revenues up to USD 220 million and export volumes up to USD 185 million.

• The sectoral development strategy is mainly concentrated on improvement of the higher education system to increase labour productivity and address quality issues. Moreover, the State Engineering University of Armenia was considered as the only educational institutions for the development of human capacity for the sector.

• As for middle vocational education, currently Yerevan State College of Informatics is positioned to be a key player; in 2011 the college developed and introduced the qualification of “mechatronics”. The graduated of this qualification are demanded in different sectors of economy where new technologies based on precise engineering is applied and used. During the last two years, the college had 19 alumni: 11 in 2015 and 8 in 2016. None of them are currently employed: some are in army and others are attending higher educational institutions. However, this is not the overall number of student with this qualification. Most of them are men, and due to the conscription requirements they have been released from study to complete their army service, with the intention that they will continue with their studies thereafter. Currently there are 80 students in all grades of this 4-year study. National Instruments and ANEL are the most active partners among sector representatives that cooperate with the college in the organisation of internships.

33 Precision Engineering Sector Strategy, 2011-2020.

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• The key implementers of the strategy were the Sector Development Board and the Armenian Development Agency, which were merged into the Development Fund of Armenia. UITE and Enterprise Incubator Foundation have key supporting roles in implementing the strategy.

• According to the sectoral strategy, the following capacities exist in the sector:

3 extensive scientific heritage from the former Soviet Union, 3 availability of production facilities with developed infrastructure (e.g. the under-capacity

operation of the “Mars” plant), 3 free trade regime with most CIS countries and Georgia, 3 close ties and technological standards and cultural similarities with countries from the former

Soviet Union, 3 presence of leading international technology companies in Armenia (National Instruments, ST

Engineering, Synopsys, Cambric), 3 university of engineering and experience in successful education projects with MNCs.

• According to the sectoral strategy the following critical shortcomings exist in the sector:

3 lack of economic infrastructure for attracting FDI, 3 weak R&D capacity of local companies, 3 narrowness and poor availability of financing instruments, 3 low level of marketing and management skills in local companies, 3 lack of graduates with appropriate knowledge and skills relevant to company needs, 3 lack of laboratory facilities in the education system, and poor compliance of educational

programmes with international requirements.

• According to the sectoral strategy capacity building will focus on three main directions:

3 ANEL engineering labs, 3 establishing an industrial park at the Polytechnic University, 3 redesigning Polytechnic University according to international research university standards.

8.2 Textile Industry• Armenia has a rich and long tradition in textile, including the thread/fibre producing, knitting,

garment making, leather processing and shoe making, and carpet making subsectors. Already in the middle ages Armenia was well known for production of variety of gentle fabrics and carpets as well as “vordan karmir” organic red paint. During the Soviet period several textile factories were built in Yerevan and other cities, such as Gyumri, Vanadzor, Charentcavan, etc. The light industry output comprised about one-third of the economy of Soviet Armenia, and it was the biggest sector in terms of employment (115,000, or 25-30% of total industrial employment).

• A new recovery era of the Armenian textile sector began in the 1990s, when Armenian textile factories started to receive orders from abroad. Today, there are two types of textile companies in Armenia: those that produce for specific export orders and those that manage their own production, selling it on local and foreign markets.

• From the 90 companies in the sector, 76 are micro and small companies (less than 50 employees); 5 are middle-size companies (51-100 employees). About two-thirds of gross monetary output and employment are generated by the eight largest textile companies (each employing more than 100 people).

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• Textile could be classified among those sectors that can help address unemployment in the regions, especially for women and young people.

• Textile is one of the most labour-intensive sectors, with high potential for promoting employment of women. The industry employed more than 2,700 people as of 2012,34 according to official statistics. Considering the prevalence of shadow employment in the sector, real employment figures could total 3,200-3,900. As of the end of 2015, the number of officially registered employees in this sector reached 3,566, primarily in the garment-making subsector. In light of the sectoral development strategy and action plan, these numbers are set to increase, reaching 7,500 in 2018 and 11,000 in 2023. More than half of all employment is at Yerevan-based companies.

• The existing industrial capacities of the sector remain underused, due to limited financial resources and the low level of productivity of the labour force (e.g. 40% lower than productivity in Bulgaria). Only 40% of the productivity loss can be attributed to poor quality machinery and equipment; the rest (60%) is due to the lack of required qualification and skills in the workforce.

• Another challenge is that the skills gaps hinder the process of transition of the industry from contracting business (tolling scheme) to own product development units, which can guarantee higher future profits for the companies that can bringing in design as an added value.

• Key challenges that need to be overcome to promote development of the sector are

3 introducing new technologies and techniques for organising production, 3 introducing new a management culture and tools, 3 increasing labour productivity, professionalism and higher qualification (especially important for

developing local Armenian designs, collections and brands).

• It is assumed that with the implementation of the sectoral development strategy action plan, the annual increase of productivity of the sector’s workforce would be 8.5-9.5%, thereby reaching the 2012 level of productivity in Bulgaria by 2018.

• To address this challenge, the sectoral development strategy suggests focusing on improving workforce qualifications, through qualification and retraining of production workers, industrial design and modelling professionals, brand creators, production organisers and managers, quality controllers, sourcing and resource management specialists, logistics specialists, marketing and promotion professionals, merchandisers, etc.

• Increasing private investments in workforce development is of high importance, not only from the perspective of improving labour productivity but also to promote specialisation in highest quality and value-added products, optimisation and maximum efficiency of logistics processes and costs, decreasing the salary related fixed costs ratio, and others.

• However, a number of key challenges in the education sector hinder education providers to meet the requirements and expectations of enterprises. Among them are poor compliance of the educational offers (qualifications, curricula, teaching and learning materials) to the developments in the world of work, poor links and interaction between education providers and enterprises, outdated teaching methods, etc.

• Higher education in textile is mainly provided by the Gyumri and Vanadzor branches of the Armenian State Engineering University and the Yerevan State Academy of Fine Arts for the qualifications of “design of textile and light industry products”, “technology of textile and light industry products”, and “garment modelling”.

• There are about ten state TVET institutions, mainly located in the regions, which primarily train specialists in “garment sketching and modelling” and “garment making technology”. Each TVET

34 Development Strategy of Textile Industry of Armenia, 2013.

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institution annually produces 5-30 graduates from these disciplines. With the recent EU budget support programme to TVET as well as with the support of the UNDP TVET programme, all ten TVET institutions have been equipped with modern workshops. Also, a new handbook on sewing technology was developed with UNDP support. However, these changes in the colleges did not lead to improved quality of education and did not help to fill the existing skills gap and shortage on the labour market. As a result, most companies in the sector, particularly the ones specialised in the tolling scheme, periodically organise internal, short-term trainings for their production staff.

• Also, it is a much more common practice that companies organise professional trainings for new employees, starting from the basics leading to final qualification. However, these trainings are informal; they are not based on national educational standards and do not lead to formal qualification. Most are targeted to meet the immediate requirements and needs of the private company. In this regard, fostering cooperation between enterprises and education/training providers is of high priority.

• There is some potential to work on addressing the existing challenges by developing social partnerships on sectoral level, given the well-established and functioning sectoral professional structures.

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Published by:Deutsche Gesellschaft fürInternationale Zusammenarbeit (GIZ) GmbH

Registered officesBonn and Eschborn

AddressPrivate Sector Development South Caucasus Programme4/1 Baghramyan ave.0019 Yerevan, Republic of ArmeniaT +374 (0) 10 560396E [email protected] www.giz.de

Printed by“Asoghik” LLC

Location and year of publicationYerevan, 29 January 2017

Photo credits/sources:© GIZ/Tatev Mnatsakanyan

Edited byGIZ

GIZ is responsible for the content of this publication.On behalf of the Federal Ministry for Economic Cooperation and Development (BMZ).

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