03-02-2012 19:29:05

Competitiveness and economic growth prospect of Azerbaijan`s economy

By Arthur Bayhan

In the rapidly integrating global economy, long-term growth will depend increasingly on knowledge-based activities and trade in services. Globalization became a reality that countries can no longer escape and competitiveness is the only way to benefit from globalised economy. There is no doubt that improved competitiveness leads to sustained economic growth which has proven to be effective in employment generation and poverty reduction.

The World Economic Forum`s Global Competitiveness Report is the most influential ranking of a country`s economic competitiveness and it affects Azerbaijan`s image in the world among business, governments and financial leaders.

In the last 10 years, Azerbaijan made a tremendous progress towards a fully functioning market economy. Despite the world financial crises and followed debt crises in Europe and the US, the economic reform efforts of the Azerbaijan government deserves credit for achieving tangible results in terms of improving its competitiveness, invigorating   investment into Azerbaijan, as well as more than tripling Azerbaijan`s GDP per capita.

In October 2011, the World Economic Forum (WEF) released its Global Competitiveness Report (GCR) for 2011-2012. According to the Report; Azerbaijan is the leader, in terms of competitiveness, within the nations of the former Soviet Union and even well ranked in comparison with some of the European Union members in Central and Eastern Europe. Azerbaijan`s competitiveness position in the world economy ranked at 55 out of 139 countries.

Azerbaijan is heading all other emerging market economies in the region in the GCR for 2011-2012.  Out of 139 countries, Russia ranked at 66, Kazakhstan at 72, Ukraine at 82, Georgia at 88, Armenia 92, Moldova 93, and Tajikistan at 105 and Kyrgyzstan at 126. Uzbekistan and Turkmenistan are not included into the report

Azerbaijan ranked even better than some of the European Union members such as Bulgaria at 74 and Rumania ranked at 77.

Among the top 10 countries, Switzerland maintains the top of the overall ranking in the GCR for 2011-2012. The United States falls to fifth position, Singapore (2), Sweden (3) and Germany ranked at (6). The Nordic countries continue to be well positioned in the ranking, with Sweden, Finland (4th) and Denmark (8th) among the top 10.

However, to sustain long -term economic growth, the Azerbaijan Government has to undertake further steps towards improving the competitiveness of its economy. 

The most problematic areas that need the attention of the Azerbaijan policy-makers are the requirements including the 4th pillar ``health and primary education`` ranked at 105, the 8th pillar ``financial market development`` ranked at 94, the 6th pillar ``goods market efficiency`` ranked at 79, the 11th pillar ``business sophistication`` at 73, and the 12th pillar ``innovation`` ranked at 6o.

On the health and primary education Azerbaijan ranked weakest on quality of primary education ranked at 122. On the financial market development, soundness of banks ranked at 135, availability of financial services ranked at 93, regulation of securities exchanges ranked at 88 and financing through local equity market at 77.

As regards, Azerbaijan`s good market efficiency (6th pillar), the main problems concern intensity of local competition ranked at 133, prevalence of trade barriers at 128, effectiveness of anti-monopoly policy at 113, prevalence of foreign ownership at 107, burden of customs procedures at 105, and business impact of rules on FDI 99.

Business sophistication (11th pillar) includes local supplier quality and quantity is ranked at 102 and 107. Extend of marketing at 90 and state of cluster development ranked at 80.

On the innovation pillar, Azerbaijan ranked weakest on university-industry collaboration in R&D ranked at 106, quality of scientific research institutions at 87 and company spending on R&D at 83.

As far as Azerbaijan`s macroeconomic environment (3rd pillar) is concerned, it is essential to address inflation annual % change which is ranked at 101, interest rate spread % 109 and country credit rating at 72.

Innovation, investment and trade are essential to spark sustainable economic growth and competitiveness in Azerbaijan. Fostering innovation requires attention to all components of the innovation ecosystem and a comprehensive national innovation strategy that can stimulate public-private-university dialogue around specific measures to take full advantage of Azerbaijan`s potential for innovation that results in economic growth.

The way forward: Develop a strategic framework for competitiveness with the objective to increase GDP growth, reposition local industries in world markets, boost exports, mobilize investment and create sustainable employment. The secondary objectives will be to build on the strengths and improve the weaknesses of the areas identified in the report mentioned above and increase the country`s global competitiveness rankings, coordinating the economic reform agenda, fostering productive private-public dialogue and generating popular understanding and support for competitiveness-related reforms.

Furthermore, Azerbaijan may wish to undertake the important steps forward towards the membership in the World Trade Organization (WTO) to increase the capacity of their firms to compete in- and outside of the region. The membership in WTO will stimulate more economic cooperation with its main trading and investment partners such as Russia, Turkey, US and the EU countries.

Otherwise, growth prospects in Azerbaijan will be facing geographic, resource and other constraints to development and economic activity will likely remain anchored in activities primarily like oil industry.

About the author: Mr. Arthur Bayhan is one of the leading experts on economic growth policies, national competitiveness initiatives with over 20 years of experience in transition economies of Europe, the republics of the former Soviet Union, in the Middle East, as well as in East, in South- and Southeast Asia and Latin America. He has designed and implemented more than 15 national economic growth strategies including competitiveness and innovation initiatives in working with and advising more than 20 governments around the globe. Mr. Bayhan is a German national and accessible at. arthur.bayhan@telefonica.net, arthur.b77@gmail.com

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