DISTRIBUTE AND MANAGE

Azerbaijan has made notable progress in questions of the diversification of the economy and reducing the level of its dependence on the oil sector and, according to the government's objectives for the next seven years, by 2020 the export of output from Azerbaijan's non-oil segment is due to increase fivefold. And this means that the country will be able to protect itself from oil price fluctuations on world markets and rid itself for good of the threat of the "Dutch syndrome", with which not so long ago we were being intimidated by international organizations and financial institutions. Incidentally, today these organizations not only recognize Azerbaijan's achievements in the sphere of the diversification of the economy but also recommend that other countries use its experience.

The objective - 80% of GDP

According to Azerbaijani Finance Minister Samir Sarifov, Azerbaijan's economy over the last ten years has demonstrated record growth rates. Having successfully overcome the consequences of the global economic crisis, the country has become a serious player in the region. "Today 80% of Azerbaijan's GDP is formed in the private sector. In the past ten years the rates of growth of Azerbaijan's non-oil GDP have been on average 8% annually, there has been macroeconomic stability and billions have been invested in the economy," Sarifov noted in his speech at a business forum organized by the Azerbaijani government and the Black Sea Bank of Trade and Development (BSBTD).

At the same time, according to the finance minister, in recent years Azerbaijan has been faced with new challenges, specifically the diversification of the economy, a doubling of GDP for the period up to 2020 and the development of the transport, logistics and transit infrastructures and IT technology.

According to Deputy Minister of Economic Development Sevinc Hasanova, the proportion of Azerbaijan's non-oil sector will be 80% of GDP by 2021. "According to the 'Azerbaijan-2020: looking to the future' strategy, the country should be a competitive partner by 2021. The strategy entails a doubling of Azerbaijan's GDP, mainly through the development of the non-oil sector and the diversification of the economy. By 2021 the proportion of the non-oil sector will be 80% of the republic's GDP," Hasanova said. It will be recalled that last year the proportion of the non-oil sector was 52.7% of GDP.

To achieve this task the annual rate of growth of Azerbaijan's non-oil sector must be at least 7%, she believes, and as part of this task the government intends to continue carrying out institutionalized reforms to create a favourable business climate, to provide financial support for the development of entrepreneurial activity and will create clusters of development (various technology and industrial parks) and simplify transit procedures. If all these plans are achieved, then by 2021 the export of output from Azerbaijan's non-oil sector should increase fivefold.

Recognition and support

However, the statistics are already impressive enough, and, as has already been said, they even impress those who were previously very dubious about the resilience of the Azerbaijani economy to the inflow of revenue from the sale of oil. Today virtually all international financial institutions recognize the Azerbaijani government's efforts to diversify the economy and are prepared to assist in the implementation of these plans.

According to the head of the Baku office of the European Bank of Reconstruction and Development (EBRD), Neil McKain, the EBRD is holding consultations with the Azerbaijani government and is implementing joint projects aimed at the development of the financial sector, capital markets and non-banking credit organizations. "The Azerbaijani government is conducting a correct policy of investments in the restoration and development of the infrastructure and creating an e-government. All this helps to develop the private sector," he claims. "We have a plan of action in this direction and we are having a political dialogue on this question with the ministries of finance and economic development and the Central Bank of Azerbaijan," McKain said.

The head of the Baku office of the World Bank, Larisa Leshchenko, also recalled the country's successes in advancement in the Doing Business report, noting that the WB is providing support for Azerbaijan in questions of the development of the non-oil sector and reforms in the education system for the improvement of human capital. "Behind all Azerbaijan's achievements in the diversification of the economy lies a well-chosen policy of the distribution of the revenue obtained from oil. Azerbaijan's experience could become a fine example for other countries and we intend in the future to provide support in the development of these and other sectors in the republic," she added. Specifically, the International Finance Corporation (IFC - a sub-structure of the WB), according to its regional manager for the countries of the Southern Caucasus, Thomas Lubeck, has already provided $350m for projects to develop the private sector in Azerbaijan. And it plans to continue to implement projects in the republic in three areas: improving the business environment and legislation, improving permit issuing systems and reducing the number of checks in business structures.

Regional security

It has to be said that although the impact of the world crisis on the Azerbaijani economy was on the whole virtually imperceptible, for overall economic stability on a regional and global scale cooperation and mutual support are necessary at such a difficult time.

For example, one area that suffered most from the crisis was the Black Sea region, which led to a slump in rates of economic growth in 2012 to 2.1%. Furthermore, the rates of export growth in the region were also substantially reduced. Whereas in 2010 export growth in the region was 26%, and in 2011 28%, last year it was just 2.3%. In these conditions, the role of such international financial structures as the BSBTD, of which Azerbaijan is a shareholder, increases. "Last year alone 15 operations were signed totalling 168m euros. The BSBTD's contribution to the development of the region cannot go unnoticed," Sarifov said.

At the same time, in the Azerbaijani minister's opinion, the bank needs to increase its credit portfolio. "To be frank, a credit portfolio of about $1bn for a bank which has 11 member-countries and high political support is clearly not operating to its potential," Sarifov said. BSBTD's president, Andrey Kondakov, told journalists that this year BSBTD plans to increase its credit portfolio to a level of 8-9%. In addition, the bank's management faces the task of diversifying its credit portfolio.

The importance the bank attaches to working with Azerbaijan is illustrated by the fact that, according to a strategy of cooperation for 2011-2014, the BSBTD has planned to allocate 90m euros to the implementation of 8 projects in the republic, and an offer of 70m euros for 10 projects has already been approved. At the present time the bank's active portfolio on projects in Azerbaijan is 10% of the BSBTD's credit portfolio.

The desire and aspiration of international organizations to participate in the processes of strengthening Azerbaijan's non-oil sector are recognition of its record in this sphere. It is also a fine boost to the implementation of future plans and new projects to maintain parity in the economy.