18 October 2017

Wednesday, 06:14

CURRENCY

BARGAIN IS POSSIBLE

Trading partners ready to support Azerbaijan's efforts on mutual trade turnover increase

Author:

01.03.2017

This year, the main focus of Azerbaijan’s economic policy will be the promotion of export growth. Thus, President Ilham Aliyev has recently made his final decision by signing a decree on additional measures to strengthen Azerbaijan's position as a trade hub and the digital expansion of foreign trade operations.

The good news is that Azerbaijan’s main trade partners are ready to support the efforts on increasing mutual trade turnover up to the transition to the settlements with the local currency.

 

Digital Trade Hub

As mentioned above, the Internet portal www.azexport.az launched by the Centre for Analysis of Economic Reforms and Communications is a promising major tool tailored for the potential Azerbaijani exporters. Its mission is to provide information about local products and a platform for profitable selling of these products in both local and international markets.

This web-resource is maximally simplified so as to make regional entrepreneurs with different levels of education and skills capable of using it effectively. At the same time, it has unique capacity to provide access to the largest electronic trading platforms such as Alibaba, which makes the Azerbaijani products available for potential buyers anywhere in the world.

According to the recent presidential decree, azexport.az section shall include a section Azerbaijan’s Digital Trade Hub within the coming four months. It should allow individuals registered in Azerbaijan as entrepreneurs, complete and sign electronic documents including agreements with their foreign business partners, as well as providing cross-border electronic services in real time. In addition, the web-portal will make the procedure for the authorization of exports of goods sold through e-commerce much simpler.

It is noteworthy that azexport.az confidently meets the demand for export operations of medium and small businesses, which is essential in encouraging the development of this sphere.

According to the Director of the Centre for Analysis of Economic Reforms and Communications Vusal Gasimli, azexport.az has significantly increased the demand for Azerbaijani products in the world. “Every week through this portal we are receiving orders for local products worth about $10 million. This shows the great interest in Azerbaijani goods”. The analysis of data for the past two months since the launch of the website indicates that the largest number of orders for Azerbaijani commodities come from China, Russia, Ukraine, Turkey, Iran, as well as a number of European and Arab countries.

“The greatest interest are food and agricultural products, various kinds of drinks and furniture. In addition, the devaluation of Manat increased the competitiveness of selected commodities. If earlier the demand for products such as poultry meat and eggs was small, currently we receive a large number of orders”, said V.Gasimli.

 

The currency union

It is no secret that agricultural production  the basis of non-oil exports of Azerbaijan. Therefore, many trade missions and meetings are focused on stimulation of its rapid growth. Last year, the main trade partner of Azerbaijan was Turkey with a turnover of $2.3 billion (13.09% of total turnover) with almost equal shares of exports and imports. It is clear why high-ranked officials of both countries are willing to joint commercial projects. “The recent crisis in relations with Russia has created problems in agricultural exports of Turkey. But it was a lesson for us to diversify export markets. Today, Turkey's agricultural sector is the largest in Europe, with a production of $59.4 billion. Turkey exported 1680 types of agricultural products to 192 countries ($17 billion) but these figures are not sufficient for us, and I believe that together with Azerbaijan we can do more”, said the Turkish Minister of Food, Agriculture and Livestock Faruk Celik. Thus, Turkey offers Azerbaijan to jointly export agricultural products to the third countries. Turkey has access to Europe and the Middle East, while Azerbaijan - to Russia and Central Asia, where one can create effective cooperation between Ankara and Baku. Cooperation between Turkey and Azerbaijan allows to work together in third markets.

However, a new page in trade and economic relations between Azerbaijan and Turkey can begin after the adoption of a preferential trade agreement. In his statement at the 5th business forum attended by representatives from Turkey - Azerbaijan – Georgia in Istanbul, the Turkish Minister of Science, Industry and Technology Faruk Ozlu said that this would lead to an increase in bilateral trade volume between Turkey and Azerbaijan in national currency. “In 2016, 6.5% of foreign trade operations were carried out in Turkey in the national currency. Switching to national currencies in mutual trade will protect businesses from external financial factors and fluctuations of the dollar”.

At the end of 2016, the Turkish Ministry of Economy launched negotiations on the implementation of trade with countries such as Azerbaijan, Georgia, Kyrgyzstan and Iraq in national currencies. The Turkish President Recep T. Erdogan said that he appealed to the leaders of Russia, Iran and China with a proposal on the implementation of the trade turnover with these countries in national currencies. According to him, colleagues supported this proposal.

 

Abandoning of the dollar

Such a proposal from the trading partner is not a precedent. Other neighboring countries such as Russia and Iran have offered the expansion of transactions in national currencies up to the amount of their predominance in the total turnover long ago.

For example, the recent announcement by the Central Bank of Iran to terminate the use of the dollar in official statistics intensified speculation about the transition between Iran and Azerbaijan in national currency calculations. Thus, the Governor of the Iranian Central Bank Valiollah Seif said that since the beginning of the new year (Iranian calendar year starts on March 20), Iran will replace the dollar in financial and statistical reports to other world currencies or can use multiple currencies in calculations.

According to financial sources, there is a certain protocol for proposals for the transition to payments in national currency between Azerbaijan and Iran but talks between Baku and Tehran have not yet yielded concrete results. According to the State Customs Committee, the trade turnover between Azerbaijan and Iran in 2016 amounted to $210.76 million, of which $49.68 million is the export of Azerbaijani commodities to Iran.

International trade transactions with Russia in national currencies are already in use but their share is not significant. In 2015, the Russian President Vladimir Putin offered to stop using the US dollar in all CIS countries quoting transactions in national currencies only. But the real progress of this idea is insignificant.

In fact, similar attempts are seen by a number of experts politically motivated. In some ways they are right. Indeed, the currency of any of the CIS countries, even Russia, has not yet the “weight” and the strength of the dollar, euro and other world currencies. That is, today, a course in relation to these currencies is determined in general on the basis of their fluctuations against the dollar and the euro. Accordingly, it is difficult to imagine an effective mechanism of mutual settlements in national currencies without reference to world currencies.

Meanwhile, Azerbaijan’s main export product is still oil, which is sold in dollars. It is the main component of the basket of currencies of Azerbaijan’s trade turnover. It is based on this factor, monetary policy of the country and exchange rate fluctuations in foreign exchange market. A significant change in the pattern will require a radical revision in this area.

On the other hand, according to experts, if implemented properly, settlements in national currency can significantly weaken the dependence on the US dollar and strengthen the Azerbaijani manat. This is possible only if the non-oil trade is able to “compete” with the trade volume of energy resources.

Therefore, such transitions require a very careful analysis and forecasting. For the moment being, Azerbaijan’s main challenge is to ensure significant increase in the volume of export sales of non-oil products.


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