Transcript PPT by Fikret Pashayev

Economic Development
in Azerbaijan
FIKRET PASHAYEV, PhD
CIS & Eastern Europe Business
Forum
Tucson, Arizona
11/5/2004
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Quick feedback on Azerbaijan
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Azerbaijan declared its independence from
Soviet Union on August 30,1991
Population is 8,2 million
The capital City is Baku – population 2
million
Azerbaijan covers an area of 86 000 sq. km
Macroeconomic situation
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Low inflation (2-3%) for the decade of years
Budget deficit/GDP ratio is around 1%
GDP growth rates for the last 6 years
averaged 10.4% (11.2% in 2003, 10% in 9
months of 2004)
In 2003 industrial output grew up 4.3%,
agriculture grew up 5.6 %, construction –
61%, services – 8 %
Budget
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Budget proposal for 2004 – revenue growth
25%, expenditures – 27%.
Major new expenses – substantial increase of
wages, development of SMEs (40 mln USD),
regional programs, agriculture projects (20 mln
USD), infrastructure projects.
Budget proposal envisages price of oil as 25
dollar/barrel [conservative approach]
Economic reforms
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Further strengthening of legislative basis
Liberalization of prices
Restructuring of banking system
Modernization of tax system
Privatization state-owned enterprises
Attraction of foreign investment
State Programs
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Decree of the President on measures for acceleration
of the social and economic development in the
Republic of Azerbaijan
State Program for Social and Economic Development
of the Regions for 2004-2008. Creation of 600.000
jobs in 5 years.
State Program for Poverty Reduction Strategy and
Economic Development – SPPRED was adopted in
2003. Target - manage oil revenues, creation of jobs,
infrastructure development
Long-term strategy for use of oil revenues
Investment Climate
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Law on protection of Foreign Investment
adopted in 1992
Government established Investments
Promotion Fund
Potential investment projects identified
Potential areas: chemical industry, machinery,
textiles, food processing
Volume of Investment
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Azerbaijan has the highest ratio FDI per capita
among transition economies
In 2003 from various sources $3.6 bln was
invested in economy of Azerbaijan,
Foreign Investment totaled $2.9 bln.
There are 3,250 companies with foreign
investment in Azerbaijan
In recent 10 years $20 bln have been invested
in economy of Azerbaijan
Good Governance
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Very transparent budgetary system
(USAID assistance)
Azerbaijan joined to Extractive Industries
Transparency Initiative (EITI)
In 2003 Milli Majlis (Parliament) adopted
the Law on Fight against Corruption.
Good Governance - II
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In 2003 Parliament of Azerbaijan ratified the
“Criminal Law Convention on Corruption of 1999”
of Council of Europe.
In the framework of Organization of Economic
Cooperation and Development (OECD) Azerbaijan
participates in Europe-Caucasus Anticorruption
Initiatives Program.
In 2003 Azerbaijan has prepared National Plan on
Fight against Corruption [in the framework of OECD
Europe-Caucasus Anticorruption Initiatives
Program].
Good Governance III
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0) Report “Anticorruption in Transition 2”
published by World Bank in 2004 says
“Significant declines in the perception of
corruption as an obstacle occurred in some of
the countries where 1999 levels were high,
including Azerbaijan, Croatia, Kazakhstan, the
Kyrgyz Republic, Lithuania, and Russia.”
(Executive Summary p. xii, p.14)
Banking system
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There are no separate regulations in regard of
operation of foreign banks. The law named “Banks
and banking activities in the Republic of Azerbaijan”
adopted in 1996 regulates all banking operations
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For 1 January 2003 - minimum level of charter
capital established at $2.5 million for existing and $5
million for new establishing banks (93 banks have
received licenses, among them 2 state banks and 15
banks with foreign capital participation)
Major Banks
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There are only 2 state-owned banks in
Azerbaijan
 United Universal Stock bank – 15% of
market
 International Bank of Azerbaijan – up to
70% of market
 Both banks will be privatized in the years
2003-2004
Tax system
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Adoption of Tax Code
Tax Code used recommendations of IFIs, IMF
in particular
Tax Code – decrease of number of taxes,
reduction the tax rates, creation of favorable
investment environment
Income tax (14-35%, 12-70% before), Profit
tax (24%, 30-55% before), VAT (18%, 20%
before)
Privatization
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During First Program in 1995-1998 around
35,000 small enterprises have been privatized
Second privatization program targeted to
medium-size and large enterprises (started in
2000)
Sectors for privatization - transportation,
communications, machinery, chemical, etc
Private sector share in GDP totals 73%
Land ownership
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Land Code provides 3 forms of land
ownership: public, private, municipal
99.7% of the land [designed for
privatization] was privatized
3.3 million people (871.8 families)
entitled to get land share
Trade
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Azerbaijan is trading with 112 countries
Goods turnover increases 30-40%
annually
40.4% of foreign goods turnover - EU,
28.2% - CIS countries
Accession to the WTO
Customs regulations
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Valuation
transparency
International standards
Licenses applied to alcohol and tobacco
Tariff Council has been established (31
January 2002) – state control over forming of
tariffs and duties
Key Business Development Areas
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Oil and Gas
Renewable energy
Construction and Building material
Information and Communication
Technologies
Food processing and Agribusiness
Tourism
History of oil industry
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The existence of petroleum was known
since 8th century
By the 15th century oil for lamps was
obtained from surface wells
Commercial exploitation began in 1872
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Oil and Gas
Reserves estimated energy reserves
6.7 billions barrels of oil and 10.7
trillion cubic feet of gas
 Since 1994 Azerbaijan signed 23 oil
contracts with 35 companies from 15
countries
 Total value – more than $60 bln
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BTC & SCP
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Baku-Tbilisi-Ceyhan Main Export
Pipeline – 85% finished. Length - 1760
km. Capacity 1 mln barrels of crude oil
per day.
South Caucasus Pipeline – for exportation
of natural gas (Baku-Tbilisi-Erzerum).
Length - 442 km. Gas comes from
Shahdeniz field.
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SOFAZ
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State Oil Fund of Azerbaijan (SOFAZ) was
established in 2001 to save resources for the
future generations
Main purpose is to diversify economy
Reserves $810 million, will increase $1 bln
annually starting 2006
Azerbaijan joined EITI initiative by UK
Government
Renewable energy
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Visits to ORNL and NREL
Executive Order by the President of
Azerbaijan on adoption of “State program on
development of alternative and renewable
energy sources” – 10/22/2004
TDA Projects – Projects for Nakhichevan
region of Azerbaijan
USAID sponsored programs
Agriculture
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USAID implements several programs to
develop private sector in agriculture
Production of cotton, tobacco and grapes
reduced (comparing 1995 to 2003)
Production of grain increased 2.1 times,
vegetable – 2.4 times, fruit - 1.2 times, sugar
beet – 13 times, potato – 4.7 times (19952003)
Construction
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Construction and Building materials
Cement industry
Steel plant
Apartment and office buildings
Infrastructure
ICT
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National ICT Strategy was approved in 2003 (for
2003-2012). The Government decided to replace it
with the State Program of Development of ICT
technologies. It will include more tasks and projects.
Regulatory framework and liberalization of sector
BAKUTEL 2004 – Annual Exhibition
Global ICT conference on "Digital Divide and
Knowledge Economy: Problems and Solutions"
Baku, Azerbaijan – 25 -28 November 2004
Tourism
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TDA – Master plan for development of
tourism for 50 years
Ministry of Youth, Sports and Tourism has
licensed 127 tourist service operators (122
companies and 5 operators)
Annual income is $40 mln, 97 % private
tourist companies
Tourists mainly come from CIS, Turkey, EU
Important tasks
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Adoption of banking law
Privatization of International Bank of
Azerbaijan (IBA) and BUSBank
Adoption of competition law
Accounting law
Accession to WTO
Challenges
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Macroeconomic stability
Strengthening of regulatory functions of
government institutions
Development of non-oil sector
Liberalization of prices
Privatization
Economic growth
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Import substitution policy (IFIs, investment,
legal framework)
Export oriented production (IFIs, FDI,
incentives, infrastructure)
FTA and Custom Unions
Membership in World Trade Organization
(WTO)
Useful links
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www.azembassy.com
www.economy.gov.az
www.sahibkar.biz
www.bisnis.doc.gov
www.usacc.org