LIVING TWICE AS BETTER

We all know that forecasting is a thankless task in our ever-changing world, but when it comes to the economy it is essential. Even though we long ago set out on the path of a market economy and proclaimed the capitalist principles of management of the economy, life and experience have shown us that there is nothing to be ashamed about in planning and forecasting certain areas of development.  On the contrary, state programmes for the development of various spheres of the economy, designed for a certain period of time, are one of the main pillars of Azerbaijan's model of economic development.

And since there are specific tasks, which are due to be fulfilled in the current year, as well as governmental reviews expressed in predictions of macro-economic indices, it is possible to give a rough picture of Azerbaijan's economy in 2012.

Financial-monetary stability from the CBA

The rosy prospects for the Azerbaijani economy seem somewhat unrealistic when seen against the background of the continuing gloomy forecasts about the economic situation in Europe, the USA and the world in general. Although, judging from a statement by the Central Bank of Azerbaijan about the directions of monetary and financial stability policy for 2012, world processes carry no particular danger for the country: rather the opposite. For example, in 2012 the current account surplus of Azerbaijan's balance of payments is expected to be at the level of 20-25% of GDP. "The prices of Azerbaijan's export goods could have a positive impact on the country's balance of payments, taking into account recent global predictions for next year," the Central Bank statement says.

It should be emphasized that for this year the International Monetary Fund is predicting that the price of oil will exceed $100 a barrel, whereas in the budget package its price is set at $80. "In this context, due to the current account surplus, there will continue to be an increase in currency reserves," the CBA statement says.

According to the Central Bank, in 2012, in the context of high domestic state demand, there will be continued economic growth in the country. "Taking macro-economic forecasts into account, there is an increasing need to tighten supervision, coordinated to inflation factors," the CBA statement says. This year inflation is expected to be shaped based on domestic demand and also external factors. The main objective of the CBA's monetary policy for 2012 will be to keep inflation in single figures. Maintaining inflation at a low level is a decisive factor in providing purchasing power, ensuring the real value of financial charges to the population and business, reducing interest rates and the competitiveness of the real exchange rate of the manat. 

In order to solve tasks on inflation the CBA will use the money supply and the exchange rate as interim objectives. The exchange rate of the manat will continue to be a significant factor in maintaining macro-economic stability in managing financial stability, as well as in ensuring the international competitiveness of the non-oil sector. An increase in foreign currency earnings in 2012 will be the main macro-economic factor to impact on the exchange rate of the manat. Taking into account the significant impact of oil revenues on the real effective exchange rate of the manat, possibilities are being considered for the gradual switch in the mid-term perspective to a more flexible exchange-rate regime.

As far as the CBA's financial stability policy is concerned, this year it will be directed towards continuing its remedial measures in the banks and taking pre-emptive measures to avoid risks. In this context, risks linked with the quality of assets in the banks, especially in banks of systemic importance, and also liquidity, will remain the focus of attention.  There will continue to be lively capital activity in the "healthy" zone and the adoption of the ratio of "leverage" (the index of the ratio of capital of the first level of a bank to balance-sheet assets and off-balance-sheet liabilities) is expected to continue.

Now and forever and…another 10 years

If one accepts the global forecasts for the economy, then according to the promises of the country's government, this year and in the subsequent three years there will be a continuation of the vigorous policy of diversification of the country's economy where the leading role is allocated to the development of the non-oil sector. This will mean that the ratio of the oil sector to GDP in 2015 will be reduced to 29.3% from 48.5% in 2010, and the non-oil sector from 44.4% to 61.3% in 2015.

According to Sahin Mustafayev, the minister for economic development, just as it has been of late, in 2012 economic growth will be achieved through the non-oil sector. Its growth is forecast at the level of 8.6%, but in the next three years it will be an average of 8%. "This is a result of the policy aimed at the dynamic development of the non-oil sector and the diversification of the country's economy," the minister said. In particular, in 2012 about 57% of GDP will be down to the non-oil sector, 14bn manats will be directed towards the country's economy, which is 10% more than last year, and the proportion of domestic investment will be over 70%.

The positive dynamics of the non-oil sector will be based on a vigorous imports substitution and an accretion of export potential. For example, whereas in 2012 the ratio of non-oil exports to Azerbaijan's overall exports will be 7.6%, by the end of 2015 this figure will increase to 10.23%. At the same time, the ratio of the oil sector for the same period will be reduced from 92.3 to 89.7%.

That said, it needs to be emphasized that in the development of the non-oil sector as a whole a large role is being allocated to the implementation of measures provided for in the State Programme for the socio-economic development of Azerbaijan's regions for 2009-2013, including the construction of enterprises in the food and services spheres.

But GDP is too much of a global economic indicator and in order to explain to what extent this growth will impact on the welfare of each individual in the country one needs to consider a more personal component - per capita GDP. It should be pointed out that since 2008 Azerbaijan has been included in the list of countries with a higher than average level of per capita income. According to the methodology of the World Bank, this category includes countries with a level of per capita income from $3,946 to $12,195. In 2012 the figure for our republic will be as much as $6,004.4.

That said, there will be a continuation in the trend towards an excess of real rates of growth of population incomes over the level of increase in consumer prices in the country (inflation). Thus, whereas in 2011 the real rate of growth of population incomes in Azerbaijan was 14.2%, average annual inflation was 9.8%. In 2012, according to government forecasts, population incomes in Azerbaijan will be $46bn with a real growth of 6.8%, and average annual inflation in the country is expected to be 6%.

Consequently, as every year passes a middle class will take root and grow in Azerbaijan - a large proportion of an economically active population with a correspondingly modern level of material and financial security which is achieved as a result of highly-paid work. And a middle class is the basis of development in any country.

It should be said that this year could become a landmark year for the country in that work is being started to update Azerbaijan's economy in order to double GDP in the next ten years and bring the ratio of the non-oil sector to GDP to 80%. According to Economic Development Minister Sahin Mustafayev, the Azerbaijani government has defined five basic areas for the modernization of the economy. First of all there is innovative development, which means Azerbaijani companies mastering state-of-the-art technology, the manufacture of new competitive products and the expansion of export markets.

The second area is the strengthening of dynamically developing market institutions and providing competition. Thirdly, there is to be a continuation of the diversification of the national economy, an expansion of the manufacture of finished products using state-of-the-art technology and an increase in the competitiveness of the processing industries and the "economy of knowledge". "Work is continuing today on improving the legal and economic foundations of innovative activity in order to boost innovative development, which is an important element of the policy of modernization," Mustafayev said.

The fourth area is to achieve a new quality of human assets and to bring the training of personnel into line with the requirements of the economy. "With this in mind, measures are now being continued to update the form and content of education in the country," Mustafayev said.

The fifth and final area of the modernization of the economy, the minister said, is the continuation of work to create new sources of economic growth. "From this point of view the construction of the Baku-Tbilisi-Kars railway and the international maritime commercial port, which will increase the country's transit potential, as well as the construction of industrial townships, a shipyard, three cement works and other new production and processing enterprises are all important," Mustafayev said.

Many of these measures will be started this year. However it would be wrong, when speaking about factors to boost the development of the economy, not to mention the Eurovision contest to be held in the country in May this year. A major role in this will be played by the tourism sector which has been offered a unique chance to show off all its potential to a large number of foreign visitors. At the same time, virtually all segments of the economy are preparing for this event in their own way, speeding up the implementation of the necessary reforms. This cultural competition will, in essence, be a kind of examination for the Azerbaijani economy and will, naturally, play a very big part in the formation of statistics. The main thing is that these great hopes and expectations are justified…