Azerbaijan: 6 reasons for successful economic diversification
By Ilaha Mammadli
Deputy editor-in-chief for economic issues - Trend
Azerbaijan is gradually reaching economic diversification and
modernization to improve its competitiveness, to ensure the
country's sustainable economic growth and to improve the welfare of
its citizens.
In general, Azerbaijan has six good reasons for achieving
successful economic diversification:
-Macroeconomic and political stability in the country
-Acceptable investment climate
-Availability of currency reserves for ensuring the country's
financial independence
-Availability of own unique model for the development of non-oil
sector
-Existence of opportunity to expand Azerbaijani products' transit
to world markets
-Azerbaijan's recognition as a reliable partner by the world's
leading economic powers
As of January- March, the country's non-oil GDP has increased by
8.8 percent. The growth of non-oil economy amounted to 11.4 percent
for the same period of last year.
Indeed, the word "diversification" has recently become one of the
most popular while discussing Azerbaijan's economic policy.
In brief, this is what this concept is about: Azerbaijan must
develop new sectors of economy to become less dependent on
unpredictable hydrocarbon prices.
Besides stability, diversification must bring us wealth through
higher value-added manufactured product. The aim seems to be
worthwhile, but it is usually offered to be achieved through
re-allocation of funds from oil and gas industry to other sectors
of economy.
As Azerbaijan's president said recently, the country has managed to
preserve the dynamic pace of development and to achieve rapid
growth in non-oil sector of the economy in January-March.
"This has been the main index for the country for the recent years,
reflecting its economic development," Ilham Aliyev said at the
meeting of the Cabinet of Ministers, dedicated to the socio-
economic development in the first quarter of 2014 and the further
challenges.
Exceeding the population's income over the consumer price growth
pace more than two-fold confirms the success of the economic and
social reforms conducted in the country.
Azerbaijani citizens' savings in the banking sector increase, while
their welfare improves as well. This expands the opportunities of
banks to lend in the real economic rector. The population's
deposits in the banks have increased by more than 20 percent since
early 2014, while inflation has hit two percent. It is planned to
keep it within these limits by the end of 2014.
President Ilham Aliyev said that today Azerbaijan is among the most
dynamic and successfully developing countries worldwide, adding
that one can expect the country's further successful future while
preserving the current dynamics of the economic development.
Meanwhile, oil and gas sector is our comparative advantage in the
world trade. This does not necessarily mean that we need to live at
its expense. It is necessary to fight for country's economic growth
by using other economic sectors, not just the oil and gas
sector.
Namely, thanks to high oil prices, Azerbaijan created the so-called
"safety cushion".
Azerbaijan has already been included in the list of the leading
countries of the world on foreign exchange reserves per capita. And
despite implementation of major investment programs, foreign
exchange reserves of the country continue to grow, reaching $53
billion in the first quarter of the year.
"I have repeatedly stated that we certainly need to use our
financial resources for the development of our economy,
entrepreneurship and infrastructure projects, but at the same time
our foreign exchange reserves should continue to grow every year,"
President Aliyev said during the meeting.
Stabilization of financial situation secures the independence of
Azerbaijan, as economically free, independent country can
decisively exist in the international arena.
Azerbaijan has become the initiator and a major participant of
major projects of international importance. Among such projects are
the second phase of development of Azerbaijani "Shah Deniz",
offshore gas- condensate field, the construction of the
Trans-Anatolian (TANAP) and Trans Adriatic (TAP) gas pipelines,
which are the largest infrastructure projects of Europe.
Programmatic approach
Significant contribution to the dynamic development of the non-oil
sector of the country and increase in production volume of the
export-oriented and competitive products contributes to the
implementation of government programs on socio-economic development
of Baku settlements and the regions of country which gave a
jump-start to the expansion of business activities.
The Azerbaijani president instructed to accelerate the
implementation of state program activities on socio-economic
development of the country's regions, as well as Baku and
surrounding settlements designed for 2014-2018 and 2014-2016
respectively.
The goal is clear - they must contribute to the comprehensive
development of all sectors of the Azerbaijani economy, as well as
play a fundamental role in opening of new enterprises and job
opportunities, implementation of major infrastructure projects.
Nearly 100 industrial, agricultural, trade and service enterprises
started to operate in the country's regions in the first quarter of
2014 alone. The construction of about 500 more enterprises still
continues.
Along with the creation of new enterprises, traditionally, the
projects related to gas supply, construction of rural roads, laying
of water supply lines and sewerage, will also be implemented in
2014. The projects related to water supply and sewerage have been
considered to be among the priority projects by the head of
state.
Additionally, Ilham Aliyev urged the government to speed up the
works on creation of industrial areas that must be created in each
economic region of the country.
The first four industrial areas will be located in Baku, Sumgait,
Ganja and Mingachevir. These cities haven't been chosen
accidentally, as they are historically the industrial centers of
Azerbaijan and the agro-industrial sphere here is poorly
developed.
Balakhani Eco-Industrial Park, designed for recycling plastic
waste, tires, electrical appliances, batteries, non-ferrous metals,
cables and other domestic waste, is being created in Baku.
Meanwhile, the works in the Sumgait Chemical Industrial Park, as
well as the works on creation of a metallurgical industrial area
oriented for aluminium production in Ganja, are being carried out
successfully. At the same time, an industrial area in the sphere of
light industry will be created in Mingachevir.
Throughout ten years of implementation of two previous state
programs on the development of regions, the number of registered
business entities in the regions has increased by 7.2 times, while
the tax revenues increased by more than 12.7 times.
The increase in the volume of tax revenues enabled the cities of
Sumgait, Shirvan, Mingachevir, as well as Absheron and Imishli
regions to fully cover their own expenses with local taxes.
As a result, the share of private sector in employment has
increased to 74 percent, while its share in tax revenues amounted
to 72.5 percent. The number of business entities increased by 2.5
times and the share of private sector in GDP exceeded 80
percent.
International recognition
Today, Azerbaijan retains a leading role in the CIS in terms of
volume of foreign direct investments. Azerbaijani president said in
his speech that foreign investments should be first of all
attracted to the priority sectors.
"We should try to attract foreign investments in the development of
industry, agro-industrial complex, tourism, services and
information and communication technologies. We must work to create
conditions to attract foreign investments to the areas that need it
the most," Ilham Aliyev said.
The successful placement of Azerbaijan's first sovereign bonds in
March 2014 amid the market situation in the region also explains
the investors' confidence in the fact that oil income is managed in
a balanced manner.
This event also expands Azerbaijani companies' opportunities to
attract both high-quality and cheap resources. Azerbaijani
Eurobonds were acquired by investors from the U.S., European
countries, Singapore and Israel.
Azerbaijan released its first Eurobond issue totalling $1.25
billion with demand of $4 billion. The bonds were issued for a
period of 10 years with a yield of five percent per annum.
The macroeconomic stability and loan ratings allow Azerbaijan to
increase the loans volume, however the government pursues a careful
policy, thanks to which today Azerbaijan holds one of the leading
places in the world in terms of foreign debt level - eight percent
of the GDP.
At the same time, Azerbaijan's rapid economic development
allowed the country to increase its financial capabilities and to
create favourable conditions for making investment in foreign
countries.
Azerbaijan has today become a country exporting investments, which
exceed $10 billion. Most of these investments account for
Azerbaijan's State Oil Company (SOCAR), and thus on expansion of
SOCAR's participation in other countries' energy market.
Azerbaijan has already been recognized by the world community as a
reliable energy partner. Along with supplying oil, the country also
delivers gas to almost all its neighbouring states in the region,
which facilitates the improvement of their energy security,
economic stability and diversification of supply sources.
Azerbaijan's achievements are also highly appreciated by the
international organizations and rating agencies. The country ranks
39th among world countries in the global competitiveness report and
has, for five years, maintained its leading position in the
CIS.
In turn, the international rating agencies annually confirm a
stable outlook of Azerbaijan's investment ratings.