Pashaev

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Published on November 22, 2007

Author: Alexan

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Economic Development in Azerbaijan:  Economic Development in Azerbaijan FIKRET PASHAYEV, PhD CIS & Eastern Europe Business Forum Tucson, Arizona 11/1/2003 Economic Development in Azerbaijan:  Economic Development in Azerbaijan Achievements Challenges Prospective Quick feedback on Azerbaijan:  Quick feedback on Azerbaijan Azerbaijan, the “Land of Fire” Declared its independence from Russia for the first time in May 1918 But became the Azerbaijan Soviet Republic in April 1920(after the invasion of Soviet army) 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 Azerbaijani-US Relations:  Azerbaijani-US Relations Strong bilateral relations and removal of Section 907 restriction Azerbaijan is key US ally in fight against terrorism, recently 151 Azerbaijani troops have been send to Iraq for peace-keeping operations In 2002 number of US companies in Azerbaijan grew by 30% (100) US is largest foreign investor in Azerbaijan - US investment amounted $ 1,990 billion for 1993-2002 Economy of Azerbaijan:  Economy of Azerbaijan For last 5 years GDP growth averaged nearly 10% annually (10.6% in 2002) Inflation is very low - 2-3% a year The share of private sector in GDP reached 73% in 2002 National Poverty Reduction and Economic Development Program was adopted in February 2003 Investment climate:  Investment climate Sound legislative framework Law on protection of Foreign Investment adopted in 1992 Property Law, Law on Land Reform, Law on Privatization of State Property, Law on Joint-Stock Companies, Law on Entrepreneurial Activity, Tax Code, Customs Code, etc Investment Climate (c):  Investment Climate (c) According to the Decrees of President in 2002 the licensing system substantially liberalized – number of licenses decreased from 240 to 30 Simplified tax system was introduced (top income tax rate – 35%, top corporate tax rate – 25%) Volume of FDI:  Volume of FDI Recent Years –Azerbaijan received more than 10 billion dollars of foreign investment, in 2002 foreign investment amounted 34% of GDP Azerbaijan has highest ratio of FDI (Foreign Direct Investment) per capita among all Eastern European Countries Financial system:  Financial system In 1994 budget deficit concluded 10.3% of GDP, in 2002 that indicator totaled 0.4% Since mid 1997 transition to Treasury system, better management and control of state budget During last 7 years ratio of banking assets to GDP increased 10.2 times, investment through banking loans in economy grew 2.3 times Banking system:  Banking system 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 The preparatory works on establishing rules for insurance of deposits are in progress 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:  Major Banks There are only 2 state-owned banks in Azerbaijan United Universal Stock bank (100% ownership) – 15% of market International Bank of Azerbaijan (50.2% state ownership) – up to 70% of market Both banks will be privatized in the years 2003-2004 Privatization:  Privatization First stage of privatization was implemented in 1995-1998 (state program) Second stage of privatization was launched in 2000 (State Program and Law) According to second privatization program large enterprises in various industries will be privatized (chemical industry, machine building, etc) During last 7 years about 24.000 SMEs. 1500 enterprises became joint stock companies Land ownership:  Land ownership Land Code provides 3 forms of land ownership Public Private Municipal Trade Policy:  Trade Policy weighted average tariff rate – 6.7 % Azerbaijan has not joined to any custom’s union yet Subsidies – According the state budget of 2003 the amount 347.000 US dollars is considered for the Ministry of Agriculture Accession to WTO - priority Customs regulations:  Customs regulations 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:  Key Business Development Areas Oil and Gas Construction and Building material Information and Communication Technologies Food processing and Agribusiness Potential: Tourism Health (development of oil industry pushes forward health industry. Today Germany, Turkey, Japan do well in investing to this sector in Azerbaijan ) The economy of Azerbaijan is based on the production of oil and natural gas:  The economy of Azerbaijan is based on the production of oil and natural gas With its huge Caspian Sea reserves Azerbaijan has great potential for economic development. Due to natural resources, its geopolitical location, and large intellectual potential it is one of the attractive countries for investors. History of oil industry :  History of oil industry 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 Oil Barons:  Oil Barons Alfred Nobel made his fortunes here, and many oil barons built great palaces in Baku. By beginning of the 20th century Baku oil field was the largest in the world NEFT DASHLARI:  NEFT DASHLARI First off-shore oil exploration in the world Neft Dashlari is the giant floating city of the off-shore field of Neft Dashlari (Oil rocks), which production was launched in 1948 45km North-East of Baku This archipelago of wells is linked through a labyrinth of bridges. Oil and Gas:  Oil and Gas Oil in Azerbaijan has been produced for 150 years by 1911, half of the world oil was produced in Azerbaijan In 1994 - 2002 than 22 contracts were signed with 35 large multinational oil companies from 15 countries According to this contracts in the years to come 60 billion dollars of foreign investment will be invested in oil and gas sector Oil and Gas:  Oil and Gas Baku-Tbilisi-Ceyhan (BTC)Main Export Pipeline-completed 15% by July 2003 -is aimed at bringing rich oil resources of Caspian Sea to the world markets through Mediterranean port of Ceyhan (July 2005 - first delivery for BTC) SOFAZ:  SOFAZ 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 Construction:  Construction Construction and Building materials Cement industry Steel plant Apartment and office buildings Infrastructure ICT:  ICT National Information Communication Technologies Strategy (2003-2012) is adopted by Decree of the President of Republic of Azerbaijan Enhancing Local development opportunities Attraction of foreign investment www.nicts.az Food processing and Agribusiness:  Food processing and Agribusiness Azerbaijan has 9 climatic zones from existing 12 cultivation of vegetables, fruit, cotton, crops, tobacco, subtropical cultures, silkworm and sheep breeding) TDA definitional mission in July 2003 Tourism:  Tourism State Program on Development of Tourism for 2002-2005 was adopted in 2002 there are about 90 national tourist companies, industry is developing fast TDA definitional mission in August 2003 Health:  Health Development of oil industry pushes forward health industry (Alaska) Today Germany, Turkey, Japan do well in investing to this sector in Azerbaijan Development of Pediatric ED and Trauma Center Affiliation with Western Medical Schools Telemedicine Challenges:  Challenges Political stability Macroeconomic stability Sustainable economic growth Development of oil and gas industry Diversification of economy Further improvement of legal framework Political stability:  Political stability New President was elected recently Geopolitical situation Conflict with Armenia in and around Nagorno-Karabakh region of Azerbaijan Macroeconomic stability:  Macroeconomic stability Sound financial policy Cooperation with IFIs (IMF) Solid banking system Better managing with externalities (oil prices, etc) Diversification of economy:  Diversification of economy Priorities in non-oil sector SOFAZ, IFI FDI in non-oil sector Privatization Development of SME State programs Solid banking system Dutch disease Economic growth:  Economic growth 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:  Useful links www.azembassy.com www.economy.gov.az www.sahibkar.biz www.bisnis.doc.gov

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