DRACONIAN EVENTS

The Fire Dragon of 2012 further kindled the flames of the crisis which has been raging over the world for the last few years, gradually burning hope for a settlement of the situation in the near future. The flames have now spread from a number of European countries, which are on the verge of a precipice, to the seemingly prosperous East. Even China's economy, which was considered unshakable, has begun to bulge at the seams. Statistical indicators for many industries have been steadily declining, as have been the global rankings of countries where the deteriorating social component has caused public protests and strikes.

At the same time, looking at the economic events of the past year in the countries not directly involved in the crisis troubles, it seems that some of them have somewhat adapted to the protracted problems of the Old World.

As for Azerbaijan, thanks to its pragmatic approach and diversified economic policy, growth continued to be observed in many macroeconomic indicators. Moreover, the year of the Dragon was crucial for a number of major economic development plans. 

Paying the bills

One of the most important decisions in the socioeconomic life of Azerbaijan last year that directly affected the interests of a large group of the population, of course, was the decree of President Ilham Aliyev on the repayment of deposits left in the Savings Bank of the Azerbaijan SSR as of 1 January 1992 to the citizens of Azerbaijan (or their heirs).

The process covered about 2.4 million citizens of Azerbaijan who owned personal deposits. The amount of compensation paid to depositors depends on the sum of the deposit as of 1 January 1992. The repayment began in June 2012 and will be completed by the end of 2013. According to the Ministry of Finance, the payment will require a total of about 800 million manats.

SOCAR'S "window into Europe" 

For SOCAR, the main engine of the Azerbaijani economy, the year of the Dragon got off to a good start. The third day of the third month of the winter 2012 can be described as historic for SOCAR. This is when the company successfully completed the placement of its first issue of Eurobonds in London. The company worked on the move for almost five years, and the first issue has attracted the interest of 290 investors who have placed a total volume of application worth as much as $4.6 billion.

Already in January, the leading rating agencies Moody's Investors Service and Fitch Ratings awarded SOCAR's first Eurobond issue the preliminary ratings of Ba1 and the senior unsecured foreign currency rating of BBB-(exp) respectively. The total amount of Eurobonds issued was $500 million with annual yield of 5.45 per cent. The maturity date of the primary Eurobond issue has been set for 9 February 2017.

The investors with whom the debut issue of bonds was placed represent Great Britain (46 per cent), other European countries (38 per cent), US offshore companies (12 per cent), and Asia (4 per cent). As a result, 63 per cent of Eurobonds were bought by stock participants, 16 per cent by banks, 11 per cent by insurance companies and pension funds, and 10 per cent by hedge funds.

TANAP and the battle of pipelines 

The end of June saw two major events - two important steps towards the implementation of plans for the export of Azerbaijani gas to Europe were taken. First, the intergovernmental agreement between Azerbaijan and Turkey on the construction of the Trans Anadolu Pipeline (TANAP) was signed in Istanbul. It is designed to transport Azerbaijani gas from the Georgian-Turkish border to the western border of Turkey.

Secondly, the "Shah Deniz" consortium completed the evaluation of potential gas export routes to South-East and Central Europe. As a result, Nabucco West was chosen as yet another priority project for the supply of gas in this direction. We recall that in February 2012 of the two options of Azerbaijani gas exports to Italy (the Trans Adriatic Pipeline, TAP, and the Interconnector Turkey-Greece-Italy, ITGI), the TAP project was selected for further evaluation.

The agreement on TANAP was signed by President of Azerbaijan Ilham Aliyev and Turkish Prime Minister Recep Tayyip Erdogan in Istanbul on 26 June.

Banks driven by reform 

For Azerbaijan's banking sector, the summer of 2012 proved very hot. It all started with the Central Bank of Azerbaijan (CBA) revoking the license of the RoyalBank on 12 July because of the latter's failure to deliver on its obligations. More specifically, as the official CBA report stated, the reason for the move was "bank's failure to observe capital adequacy requirements, equity capital, default on its commitments to creditors, violation of prudential standards and a lack of confidence in the implementation of activities."

RoyalBank was a member of the Azerbaijan Deposit Insurance Fund (ADIF). This has been the first bankruptcy instance in its history and essentially the first occasion and opportunity to show its effectiveness and responsiveness. And the fund coped with the task quite well.

On 25 July, the Central Bank made a decision that can be seen as crucial for the country's banking sector. The minimum total capital of existing banks and the charter capital of newly established banks have been increased five times to 50 million manats. The new regulation for the minimum total capital will enter into force on 1 January 2014.

The CBA is confident that the introduction of the new requirement, along with strengthening capital positions of Azerbaijani banks, will promote equity and efficiency of financial mediation and result in greater reliability of the banking system and overall financial stability. At the same time, it will have a positive impact on the development of financial markets, in particular, the inter-bank market, empower economic actors to access financial and banking services, and contribute to a reduction of their cost.

Finally, at the end of the year, by a decision of the Central Bank of Azerbaijan (CBA) from 10 December, the discount rate was reduced from 5.25 to 5 per cent. The decision was made to support economic growth in the non-oil sector by reducing interest rates, which is possible given the optimal level of inflation.

Key to a house where gold lies

Major changes have taken place in revenue management at the Oil Fund of Azerbaijan (SOFAZ). Thus, according to the investment strategy of SOFAZ, 5 per cent of the investment portfolio may be invested in equities, 5 per cent in real estate and 5 per cent in gold for the first time since 2012.

Over the past year, SOFAZ has purchased property in London and Paris. In the UK capital, the Fund acquired an office complex worth 177.35 million pounds and in France a building for 135 million Euros. These properties meet the conditions under which SOFAZ may invest in foreign assets. As the Fund has noted, the liquidity of the acquired properties must be high, while their price and yield must be stable. The requirements included the availability of a long-term lease agreement, location in downtown areas of cities, excellent condition, provision of modern equipment, etc.

Also, on 1 February 2012, the Oil Fund began weekly purchases of 10,000 ounces of gold. The Oil Fund acquires physical gold at the London market of precious metals and temporarily stores it at London's JP Morgan. In total, over the next two years the Fund plans to buy about 30 tons of gold in stages due to a risk of price changes. By a decision of the Cabinet of Ministers, gold imports into the country for the needs of the Oil Fund have been declared exempt from customs duties and VAT.

A little about everything 

After three years of discussions, the Milli Maclis has adopted the final version of the Town Planning and Building Code of Azerbaijan. Besides incorporation all laws and regulations governing construction activities in a single regulatory document, the new code has also established the functions of construction companies which also be monitored by a single government agency.

The Ministry of Taxes this year has significantly stepped up efforts to expand the market of non-cash payments. Today, the hotels operating in tourism centers, catering services, retail and entertainment facilities, gas stations, healthcare and pharmaceutical facilities, as well as taxis throughout the country, particularly in Baku, have POS-terminals. The devices have also been installed on the vehicles of the State Traffic Police. Before the end of 2015, POS-terminals will be installed in all the villages and towns of the country.

The Central Bank has completed the preparation of a draft State Program on the development of non-cash payments in the country until 2017. The main directions of the program include the expansion of the infrastructure for electronic payments, strengthening of institutional capacity, improving its efficiency, educating and encouraging the population and economic entities to use these services more actively.

A look into the future

And finally, an important document defining the way forward not only for our economy, but also for the whole of Azerbaijan was adopted at the end of the year. The development concept is called "Azerbaijan - 2020: A look into the future".

In 2020, Azerbaijan is expected to become an economically and socially developed and competitive country in all respects.

Even the most remote villages of Azerbaijan will be provided with all the necessary communications (communication, Internet, banking, utilities, roads, etc.), health and education. Azerbaijan will become a high-income country with the minimum level of unemployment, highly developed human capital, protected and healthy environment, and ample opportunities for each citizen.

The implementation of the measures envisaged under the concept, the country's GDP per capita will more than double by the end of the period, reaching 13,000 dollars. The goal has been set: in 2020 Azerbaijan will be at the forefront of "countries with high human development" according to the World Bank's "Overall national income per capita" classification and among "countries with high average incomes" according to the UNDP human development classification.

In terms of economic development, the status of the Republic of Azerbaijan will increase from a regional leader to a highly competitive player in international economic relations. To this end, considering the favorable geographical location and the broad potential, there are plans to transform the country into a trade center of the region and bring the per capita volume of non-oil exports to 1,000 dollars.

To achieve the said goals, the guiding principles will include effective public administration which would provide sound competition in the market economy, transformation into an export-oriented economy efficiently using energy and creating high added value, and a comprehensive approach to the development of socioeconomic spheres. The concept aims to transform the economy based on an increased productivity.

Let's hope that the wise Snake will contribute to the implementation of these plans!