BUSINESS MADE EASY

Azerbaijan has become one of the 10 countries that got the best results in 2013-2014 according to the World Bank (WB) Doing Business ratings, but, in the view of the International Monetary Fund (IMF), the improvement in the business environment forthe activity of the private sector will allow the Azerbaijani government to meet its target of doubling GDP by the year 2021. These assessments by the "Bretton Wood Sisters" [World Bank Group] are proof yet again that, by staking on its own economic policy in developing the non-oil sector, actively attracting entrepreneurs into this process, the government has chosen a course which will allow it not to worry about fluctuations in fuel prices or political crises in the future.

The IMF: ifs and ans were pots and pans…

But there have been sufficient external impacts on Azerbaijan's economic development throughout the years. Today, the first place obviously belongs to the irrepressible oil prices and the Ukrainian-Russian crisis, although the IMF is convinced that the second factor is unlikely to affect the Azerbaijani economy adversely. The IMF Mission Chief for Azerbaijan, Advisor to the IMF's Middle East and Central Asia Department, Raja M. Almazoqi, said at the press conference on the outcome of the visit to this country that Azerbaijan's economy is more orientated on the export of hydrocarbons, so the crisis in Ukraine may only have an indirect effect on its development. He explained that the crisis was holding back the region's development, but Azerbaijan's economy was capable of tackling these problems, while oil prices were relatively high. The IMF representative is moreover convinced that the mutual sanctions imposed by the West and Russia may have a positive effect on Azerbaijan, since it will allow it to increase its own exports of agricultural produce.

As far as oil prices are concerned, the IMF thinks that the government of Azerbaijan needs to continue with fiscal consolidation. According to Almazoqi, although the price of oil registered in the State Budget is, according to a cautious forecast, registered at 90 dollars per barrel, commitments relating to conducting international measures are limiting the fiscal possibilities. At the same time, the budget should be in a state to take account of expenditure on future diversification of the geography of natural gas exports, R. Almarzoqi said. 

Just as before, the government's most global and important aim is to improve the business environment for activity in the private sector, and it is precisely that, in the view of the IMF, that will allow the Azerbaijani government to meet its target of doubling GDP by 2021. It has to be said that the IMF is expecting Azerbaijan's GDP growth to be 4 per cent in 2014, which is higher than the government's forecast of 0.4 per cent. Next year the Fund expects the rates of economic growth to be 3.5 per cent (the government forecast is 4.4 per cent). The Fund links its forecast with the continuing drop in oil extraction and also with the slowing down of the growth rates in the non-oil sector owing to a cautious budget and taxation policy and the necessary crackdown on macro-prudential measures.

Doing Business-2015: it depends how you look at it…

The government has however already made serious progress on many of the points indicated, and the best proof of this is the fact that the country has improved its position in the Doing-Business 2015 annual ratings ("Introduction of Business-2015") of the World Bank and the International Financial Corporation (IFC) by eight points. We would like to note that this is already the twelfth WB report in a row, which embraces 189 countries. In it there is a study of the regulation norms promoting or hindering the development of business throughout the entire cycle in which these norms were effective, including the setting up of enterprises, starting a business, trading across borders, paying taxes, as well as the standard of protection for investors' rights.

The ratings influence the attractiveness of making investments in a country, they are therefore awaited with interest on the part of both governments and business communities. This year Singapore tops the world ratings regarding the creation of the most advantageous conditions for starting a business. Besides Singapore, the leading 10 countries in the ratings were New Zealand, Hong Kong, Denmark, the Republic of South Korea, Norway, the USA, Great Britain, Finland and Australia. It turned out during the video conference held at the Baku WB mission with the authors of the ratings, that a new method was used in compiling the ratings this year, called the "principle of distance to the frontier" score. 

The indicators of distance to the frontier for a country range from 0 to 100, where 0 is allocated to the worst indices, while 100 is the top mark. For example, according to the additional topic "ease of doing business" the top mark goes to half a day (the period  needed to register a new business), fixed in New Zealand, and that country scored 100 marks on this point. This year the extent of three out of the 10 indicators has been expanded:  resolving insolvency, protecting minority investors and getting credit.

Incidentally, the adjustments this year are not the last. According to the WB spokesmen, the process of upgrading the methodology is to take two years and next year adjustments are expected in relation to five additional topics: dealing with construction permits; getting electricity; registering property; paying taxes and enforcing contracts.

Three successful reforms

In the opinion of the banks representatives, in order for it to be possible to draw a comparison, the previous year's indicators were recalculated according to the new methods. "For example, according to the new methods, last year Azerbaijan was calculated as occupying 88th place compared with 80th place this year. According to the new method, Azerbaijan's index last year for distance to the frontier was 61.97 marks, while this year it scored 64.08 marks," the authors of the ratings noted.

"Azerbaijan has simplified the transfer of real estate to property by installing an online system for obtaining information on liabilities. Besides, the country has simplified companies' tax payments by introducing an online system of registration and payment of national insurance contributions," it reports in the ratings. 

It is also noted that Azerbaijan has joined the TOP-20 on the ease of doing business. According to the indicators, Azerbaijan occupied 12th place out of 189 countries, achieving this by cutting down the time needed to obtain an electronic signature for on-line registration of tax accounts.

"Azerbaijan has successfully improved conditions for starting a business. Whereas in 2005 113 days were needed to register a business, now only five days are needed," the authors of the report asserted.

They believe that the country's progress in the ratings should serve as a good stimulus to the government to make further reforms, so that next year even better results can realistically be achieved.

Thus, the forecasts and assessments of the "Bretton Wood Sisters" with regard to economic development and reforms in Azerbaijan are sufficiently positive. The main thing is that international financial institutions recognise the government's efforts to build up the non-oil sector and improve the business climate in the country, which can ultimately only improve the country's investment image and act as spur to continue carrying out reforms.