TWENTY YEARS OF INDEPENDENCE AND THREE YEARS AFTER TRANSITION

October marks three years since the election of President Ilham Aliyev for a second term. Already in 2009, Ilham Aliyev announced that Azerbaijan had completed the transitional period in the economic sphere. This is an important milestone - a reality that marks transition to a new level

During the short historical period that has elapsed since Azerbaijan gained its independence, the country not only made a full economic recovery virtually from the ruins and became a leading regional economy, but also created, in effect, an entirely new Azerbaijani model of economic reform and development. The socioeconomic figures of recent years are clear evidence of the viability and efficiency of this model.

From the crisis swamp to free floating

Back in the early 1990s, Azerbaijan had only one goal - to survive and not to drown in the deep mire of political and economic crisis. The struggle for power, food shortages, high inflation, the failure and collapse of the new national currency, total chaos and lawlessness in all areas and poverty among the population - this was the picture facing the young, independent Azerbaijan. Endless internal political strife, the complete absence of any normal ties with the outside world and, more importantly, Armenia's aggressive war did not give hope for the speedy improvement of the situation.

It all seemed so hopeless that even after Heydar Aliyev came to power at the demand of the people, many still doubted the possibility of economic recovery. Amid all this, the conclusion of the "Contract of the Century" in 1994, which envisaged the development of the Azari-Ciraq-Gunasli fields together with foreign companies, was truly revolutionary for Azerbaijan. Major foreign investors, who were previously wary of Azerbaijan, an unstable and war-torn country mired in problems, expressed their willingness to invest billions of dollars - Baku could now be relied upon: the guarantor was Heydar Aliyev - an experienced politician with a worldwide reputation. It was a very good start for the oil strategy launched by Heydar Aliyev - the beginning of the country's economic ascent to the peak of regional leadership. Owing to this strategy, oil production in our country increased 6.1-fold in the period of independence and gas 3.1-fold. A total of $35.8 billion in foreign investments were made in the oil industry, including $24.4 billion in the ACG project.

In parallel, the government began to actively cooperate with international financial institutions, obtaining loans for essential economic reforms. Their key point was the refusal of methods of administrative planning - economic management was carried out through the adoption and implementation of government programmes in different industries and regions. Also, the formation of a legal framework, characteristic of a market economy and up to international standards, started. Prices were liberalized, monetary-credit and fiscal-customs legal frameworks were formed and an enabling environment for business development and foreign investment was created.

Liberalization also affected foreign trade: the free movement of finances, capital and labour was secured, the number and rates of import tariffs were reduced, export duties were repealed and foreign trade procedures were simplified.

In addition, the country created a variety of forms of ownership and conditions for fair competition among enterprises of all forms of ownership. In a word, one of the most important areas of sustained and systematic economic reforms in the country since 1995 is the privatization of state property and the creation of an enabling environment for free enterprise. Because of this, the private sector accounts for 99.4 per cent of the internal trade (commodity) turnover, 20 per cent of foreign trade (export-import operations) and 63 per cent of the republic's tax revenue.

Finally, significant progress has been made in the creation of market institutions, including in the credit and financial sphere: markets of loans, securities, leasing, insurance, currency exchange, etc. were created. We should also add that in recent years, Azerbaijan has conducted a conservative policy of financial sector development.

Stability the main achievement

All these factors led to the main achievement of the economy of independent Azerbaijan -

steady annual growth in all sectors, reduction of dependence on the oil and gas sector, full avoidance of Dutch disease, low inflation and poverty reduction from 49 to 9 per cent.

Within a short period of time, inflation was curbed, the practice of financing the budget deficit was ended, and it dropped to 1-2 per cent of GDP. As a result of these changes, as early as 1996 a country that was experiencing an economic crisis established macroeconomic stability, and from 1997, it became possible to ensure dynamic economic development.

This is not the first year that Azerbaijan has been recognized as the economic leader of the region. Today, the country plays an important role in ensuring energy security not only in the region, but also in the continent, exporting natural gas, petroleum, petroleum products and electricity to neighbouring countries. This export is becoming more diversified each year, its geography is expanding, and the volume is increasing. During these years, following the discovery of large gas fields, Azerbaijan switched from being an oil-producing country into an oil- and gas-producing country. Today, there is fierce competition among dozens of countries and large companies for the right to purchase and transport "blue fuel" produced in our sector of the Caspian Sea. Each year sees an increase in the fuel-energy power of the country and the capabilities of the State Oil Company, which boldly takes up independent exploration and development of new fields.

At the same time, as already noted, receiving considerable income from the implementation of the oil strategy, some of which is accumulated in the State Oil Fund for future generations, Azerbaijan was able to develop such areas as agriculture, transport, ICT, the service sector, particularly tourism and ecology. For example, from an institutional point of view, land and agrarian reform has already been completed. More than 1,350 hectares of land were distributed to farmers free of charge, and as a result of agrarian reforms, private farms were established instead of collective and state farms. Currently 99 per cent of agricultural products are made by the private sector, while the importation of certain food products (meat, milk, potatoes, onions, etc.) has fallen considerably. The country has established a grain fund, the revenues of which are also provided in part thanks to domestic production. All this allows us to successfully solve the problem of food security, over which the whole world is scratching its head today.

The Azerbaijani government annually adopts measures to support and develop the private sector. Last year alone, more than 5,000 companies were set up in the country, while the volume of investments made in the economy is accompanied by positive changes in their structure -

two-thirds of investments are domestic Azerbaijani capital.

Moreover, Azerbaijani entrepreneurs and companies began to invest in other countries. From 2003 to 2010, Azerbaijan actively carried out its investment policy and invested $5.7 billion in other economies.

Over $4 billion have already been invested in the Turkish economy alone, and in the coming years, it is planned to increase it up to $6 billion. Investment in Georgia's economy reached $1 billion. A vivid indication of Azerbaijan's importance as an investor in Georgia is the naming of an Azerbaijani company (SOCAR's subsidiary in Georgia) the largest investor and tax payer of the year. Undoubtedly, the financial resources of Azerbaijan will make it possible to increase this figure several times and establish Azerbaijan's presence in important global projects in several regions of the world.

Leaders in the non-oil sector

The proper and transparent distribution of revenues from oil and gas resources allows the Azerbaijani government to conduct a cautious policy on external borrowing. Funds are borrowed from foreign creditors rarely and only for large infrastructure projects, while private financial institutions are not encouraged to get into excessive debt. The result is an acceptable level of external debt with regard to Azerbaijan's GDP, while the neighbouring countries are experiencing debt-servicing difficulties. In particular, Armenia's foreign debt is about to cross the red line.

As shown by the global financial crisis, the policy of tight control over the rate of the manat carried out by the Central Bank of Azerbaijan is justifying itself. A cautious policy is being conducted in the insurance field, which has made it possible to avoid defaults here.

The sphere of information and communication technology is the undisputed leader in the non-oil sector of Azerbaijan. According to the dynamics of its development over the past three years, Azerbaijan is a leader among CIS countries. For example, according to the UN report United Nations e-Government Survey-2010, which reflects the country's success in e-government, Azerbaijan took 83rd place among 192 countries, and in the "e-participation" index - 68th place among 157 countries. Azerbaijan is seeking to further improve its position. The government's objective is to bring the revenues from ICT to the level of current income from oil production. This goal is expected to be achieved in 2025. Undoubtedly, the construction of the first Azerbaijani telecommunications satellite Azerspace, which is expected to be launched before the end of 2012, can be considered the greatest success in this industry.

A truly phenomenal level of growth is demonstrated by the construction sector, infrastructure renewal and the transport sector. In recent years, the country has built a countless number of new housing complexes, facilities, roads, bridges, junctions and interchanges. The problem of electricity, gas and water supplies has been solved almost 100 per cent in the country, and public utilities are being upgraded.

At present, the construction of roads of regional importance linking the north and the south, the east and the west, is under way. The Baku-Tbilisi-Kars railway is being built, which will connect China to Europe. In parallel with this, new locomotives, trains, planes, ships and ferries are being purchased due to the increasing volume of cargo transportation through Azerbaijan. The implementation of these infrastructure projects and the construction of a new airport and sea port in Baku will undoubtedly contribute to the transformation of Azerbaijan into a central transport hub and a competitive logistics centre in the region.

The development of the infrastructure and transport sector in the country affected the growth in tourism - in recent years the country has opened large hotel complexes one after another and created new tourist facilities and a huge complex in the field of winter tourism.

All this affects, respectively, the growth of social welfare. Quite an important indicator is that at a time when whole companies were shutting down around the world and issues of employment were on the agenda, Azerbaijan continued to create new jobs. In addition, the demand for labour is becoming more intelligent and professional.

Looking to the future

It must be noted that October also marks three years since the election of President Ilham Aliyev for a second term. Already in 2009, Ilham Aliyev announced that Azerbaijan had completed the transitional period in the economic sphere. This is the end of an important milestone in the history of the economic development of Azerbaijan - a reality that marks transition to a new level. The Azerbaijani state, which has an independent political and economic base, has been built.

And all this is despite the fact that the country has lived, and still lives, in a state of war with Armenia for all these years. The conflict imposed on Azerbaijan still affects the economic development of the country - Azerbaijan suffered damage worth $60 billion, while 20 per cent of the country is occupied, resulting in over one million people becoming refugees. For this reason, Azerbaijan is increasing its defence capabilities every year. The country has created several defence industry enterprises, and in a couple of years, this sphere became a lucrative sector of the economy.

In general, the success of economic reforms in Azerbaijan in a short historical period of time prompts ambitious predictions about the future development of the country. For example, in 2025, Azerbaijan intends to move to the group of countries with high income from the category of countries with average per capita income by World Bank standards. Also, according to the UN Development Programme, it is predicted that from the category of countries with a "high human development level", Azerbaijan will approach the group of countries with "the highest human development level". This is precisely what is implied by the draft long-term strategy for the economic development of Azerbaijan in 2011-2025, prepared by the Ministry of Economic Development. And the 20-year independent path of development travelled by the economy of Azerbaijan leaves no doubt that the goal will be achieved.