Azernews.Az

By Aynur Karimova

The recent slowdown in the global economy shattered many national economies, making them reconsider their corresponding policies.

Four-fold decline in the oil prices over the past year in fact reduced the income of oil producing countries significantly.

Azerbaijan, holding 0.5 percent of the global crude production, has encountered the impact of the current crisis as the public budget revenue dropped considerably.

As a response to this uneasy challenge the government is redesigning its economic policy to get adapted to the new realities.

Privatization

Privatization is considered to be one of the important tools in the world economic practice to ensure inflow of foreign direct investment to the country. By privatizing state-owned enterprises, the entrepreneurs make investments in the country, on the one hand, and the government reduces the burden of the state budget, on the other hand. Currently, many large states which face economic difficulties are keen to apply this practice.

President Ilham Aliyev's statement before World Economic Forum was aimed at attracting investment in Azerbaijan.

"It is necessary to prepare an extensive program of privatization," he said at a meeting on economic and social issues on January 18. "We need to attract both foreign and local investors to this... In order to improve the business environment and accelerate economic recovery, we must implement a broad program of privatization. This program should be completely transparent. We need to engage international experts in this. We need to create suitable conditions for local and foreign investors to show great interest and to invest."

Properties abroad

Investing in real estate was and continues to be one of the most revenue-generating fields. It is the safest kind of investment in the world. It cannot be lost or stolen, but, if needed, can be granted on lease or sold for good money.

Azerbaijan has also used this practice by investing in real estate abroad. The country's state oil fund SOFAZ, that accumulates and manages oil and gas revenues, has already purchased Gallery Actor, a mixed-use office and retail complex located on Pushkin Square in Moscow for $133 million, an office complex in London's West End for £177.35 million and a property in Paris for €135 million, and Pine Avenue Tower A worth $447 million in Seoul.

The fund has also acquired landmark retail property Kirarito Ginza in Tokyo, Japan for 52.3 billion yen jointly with Mitsubishi UFJ Trust and Banking Corporation, and agreed with the sovereign-wealth funds of Abu Dhabi and Qatar to invest a combined 350 million euros to buy and develop three separate properties in Milan.

These properties are stable sources of income for the budget. It is expected that Azerbaijan can earn huge revenues from granting them on lease or selling them if needed.

Banking sector

Another source of income to fill the budget can be the financial and banking sector of the country.

Azerbaijan's booming economy almost solely relied on the oil and gas sector in the last decade, but in recent years, the government has made a concerted effort to diversify the economy. Realizing that the energy boom cannot last forever, the state began to direct its hydrocarbon revenues to grow the non-oil sector and efforts to boost the banking sector have become part of the state strategy.

In this regard, regulation of the currency market of Azerbaijan is one of the important tasks of the government. Currently, the Central Bank of Azerbaijan is taking intervention measures by purchasing or selling foreign currencies deliberately to influence the currency market of the country.

Taxes

One of the most stable sources of revenues to the state budget is the taxation system of Azerbaijan. In 2015, the Taxes Ministry of the country brought 7.118,2 billion manats ($4.457 billion) to the budget.

Meanwhile, Azerbaijan should hold the tax reforms in the fields of administrative reforms, reforms in the application of different tax rates depending on the region and economic activity.

Local production

The Azerbaijani government is keen to further transfer oil and gas revenues to the development of local production. It is believed that the development of the non-oil sector will enable Azerbaijan not to depend on imports.

Today, Azerbaijan can largely meet its need for building materials and food. But there is a foreign component within these locally produced goods. In the coming years Azerbaijan needs to eliminate this external component, so that the raw materials of all food produced in Azerbaijan was of Azerbaijani origin.

In December 2015, Azerbaijan canceled 22 types of licenses, and narrowed a list of the licenses required for doing business in Azerbaijan from 59 to 37 to improve the economic situation in the country and to attract entrepreneurs to the doing business.

Also, in early October 2015, licensing procedures for entrepreneurship were simplified, paving the way for encouraging business transparency in the country. Moreover, the number of inspections among entrepreneurs was also reduced for two years.

The simplification of the licensing procedure, decrease of their number, application of online license portals offering issuing licenses, reduced amount of duties, issuance of perpetual licenses, and most important - online issuance of licenses have allowed to get licenses without making any illegal payments and avoid illegal procedures.

All implemented works will create conditions for further liberalization of economy and a more flexible operation of tax and customs systems in the country.

Transport

Azerbaijan’s favorable geographic location at the crossroads of East and West can be a new pot of gold for the country to increase revenues to the state budget. In this regard, the development of the transport sector is a priority for the country’s leadership in 2016.

Azerbaijan has invested billions of dollars in the development of sea, railway, road and social infrastructure. Developed infrastructure and good business climate have paved the way to attract foreign direct investment in this sector, as well.

Azerbaijan also applies the principle of single window for transportation of transit cargoes through its territory via the railways, maritime transport, ports and terminals. This makes the country more attractive for entrepreneurs.

Moreover, the country has recently reduced transit costs by around 40 percent for foreign carriers heading to the Kazakh port of Aktau and Turkmenbashi port of Turkmenistan. The government also applies a 30-percent discount on the services of transit of oil and oil products by railway and transshipment via the sea terminals.

Capital city Baku is poised to become a major regional transportation and communications hub for the Trans-Caucasus and Central Asian republics.

The case is modern Silk Road route that is expected to be as important as its processor. Ferry across the Caspian Sea, railways and highways of Azerbaijan with access through the Baku-Tbilisi-Kars railway to Turkey, made the most important link of the new Silk Road.

Azerbaijan also enjoys significant opportunities to develop civil aviation. Today, thanks to Azerbaijan's favorable geographical location, which creates good opportunities in terms of the establishment of the regional transport infrastructure and logistics, the further development of civil aviation is an important part of the country's economic strategy.

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Aynur Karimova is AzerNews’ staff journalist, follow her on Twitter: @Aynur_Karimova

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