FROM AVERAGE TO HIGH

By 2025 Azerbaijan plans to move away from the category of countries with an average level of income and approximate to those with a high level of income, according to a classification of the World Bank based on the level of national per capita income. Also, the UN Development Programme forecasts that it will draw closer to the group of countries with "the highest level of human development" from those in the "high human development" category.

The government's plans were announced in the draft of a long-term strategy of Azerbaijan's economic development for 2011-2015, prepared by the Ministry for Economic Development.

It should be noted that Azerbaijan was the first country in the region to present a post-crisis document setting out the long-term directions of the economy's innovative development.

The standpoint of the strategy was "not to try to catch up with the past". In other words, not to try to recreate the economy as it was in the 1970s and 1980s, but to try to create an economy based on those areas which will be the driving force of the economy for the next 10-20 years. This means supporting those areas linked with a post-industrial type of economy. But such an economy cannot be created absolutely exactly without "planting", which means helping small, but very rapidly developing companies. And it was in precisely these breakthrough areas that the strategy was drawn up.

A commercial centre of the region 

The draft document sets the task of bringing non-oil exports per capita up to $5,000 by 2025, thus turning the country into a commercial centre of the region.

Another basic long-term objective is to increase export volumes in the non-oil sector, because strengthening the economy's competitiveness is conducive to transforming Azerbaijan from a regional leader into a serious global player in international economic relations. There is even a proposal to set up a specialized bank to fund export operations in order to boost exports and export operations.

Economic competitiveness will be achieved by maintaining macroeconomic stability, raising the effectiveness of monetary and fiscal policy, developing the financial services market, improving the funding of businesses and the business environment, streamlining investment and foreign-trade policy, developing the transport infrastructure and energy supply, broadening the possibilities of information and communications technology and innovations, developing the human potential and raising the effectiveness of state management.

Optimizing the structure of the economy will be achieved by developing the services and trade sector, optimizing the investments structure, improving the country's financial solvency, developing non-oil production and processing, regional specialization and supporting balanced development in the regions, optimizing agricultural production and the agrarian structure, expanding the utilization of alternative sources of energy and developing the petrochemical and oil-and-gas refining industry.

According to the projections, Azerbaijan's GDP is expected to double within 15 years to $103.6bn. The proportion of the non-oil sector in the gross product will increase from the current 3.2% to 14.2%. And the economy's dependence on the oil-and-gas industry will be substantially reduced - the proportion of this sector of GDP will go down from 50.9% in 2009 and 48.5% in 2010 to 13.8% in 2025.

At the same time, Azerbaijan plans to focus on the development of alternative and renewable energy sources in the country and bring its ratio from 2% in 2009 to a minimum of 6% by 2025.

Among measures in energy, petrochemicals and environmental protection, bringing the quality of fuel produced in the country to Euro-5 ecological standards can be singled out. This calls for the construction of a new refinery complex and gas-processing plant. A whole number of measures to modernize the country's petrochemical industry and work on a production network of finished products involving the private sector are envisaged.

Exchange rate flexibility 

In the long term the Central Bank of Azerbaijan plans to move to a free-floating national currency exchange rate against a background of a flexible exchange rate policy.

In the draft strategy the average annual change in the nominal manat exchange rate is projected at a level of 1%. The exchange rate of the national currency was consolidated by 1.8% in 2009 and in by 0.6% in 2010.

The country's Central Bank controls the national currency rate to avoid it being unduly consolidated. In the domestic currency market there has been an increase in the dollar supply which has led to a deepening of the exchange rate of the manat, but the Central Bank is keeping the situation under control and is preventing an excessive strengthening of the exchange rate of the national currency, as happened last year. A strengthening of the rate of the manat may to a certain extent hinder the development of the country's non-oil sector, but in the question of inflation this is, undoubtedly, a positive factor, because a strengthening of the national currency means cheaper imports.

That is why today the main task facing the Central Bank is to keep inflation at a stable single-digit level, which is what is being forecast for the long-term. The country is setting itself the task to keep inflation at a low level and to avoid a sharp change in the national currency exchange rate towards depreciation or appreciation.

It will be noted that in the draft strategy up to 2025 the rate of the annual change in the consumer price index is being projected at a level of 3%.

Apart from a switch to a flexible exchange rate to ensure more effective targeting of inflation, provision is being made for a new framework of monetary policy and its effective adaptation, a reduction in interest rates in a synchronized way by means of the implementation of the objectives of inflation.

In the long-term period, the strategic objective for the Central Bank is to ensure the active role of the financial system in the diversification of the economy.

The banking sector remains the core of the country's financial system. The government's projections presume an increase in the ratio of the banks' credit portfolio to GDP from 24.7% in 2009 to 50% by 2025. Taking into consideration the forecasts for an increase in the ratio of the deposit portfolio to 35% (from a level of 12.4%), it is very important to strive even more to increase confidence in the country's banking sector.

In the long-term strategy, measures to develop the banking system include a proposal to consolidate the banks, to restructure banks which are important for the system, to raise the potential of banks for stress-testing, to create a single model in this sphere, and also to create in pilot banks incubators for risk-management, to improve the instruments of banking control and to integrate a notification system. Up to 2025 provision is also being made for a broadening of the use of corporate management and systems of new prudential accountability, the development of payment systems and card payment services, indexation on people's contributions to the Savings Bank of the Azerbaijani SSR and their return, and so on.

Along with the banking sector, the government has great expectations for the development of other areas of the financial sector - insurance and leasing. The potential of the insurance and leasing markets in the country is assessed in virtually the same way and it is being forecast that in the course of 15 years the volumes of each of them will reach 3% of GDP, or $3bn.

Enough safe food

The subject of food security may be most directly applied to our country, which is rich in land resources. The question of the mass production of genetically modified produce is a fairly acute one worldwide. How this affects people's health is a separate subject. But right now one thing is already clear: mankind, which is increasing rapidly in numbers, will not be able to feed itself using natural resources alone. Foreign scientists suggest that in about 40 years' time the problem of the world's food security could become especially acute. Genetically modified goods will be cheaper and more accessible - that is a fact. However, natural produce remains the most in demand. And our country can gain a great deal by placing its stakes on a growth in the production of ecologically pure food products. This will be a business with a high marginal income which should be encouraged right now. In connection with this the government is implementing a package of financial support for farming, rendering all kinds of social assistance to people living and working in rural areas and offering subsidies. The industry faces most important tasks in increasing labour productivity and attracting workers. After all, eco-production is the basis of the protection and development of the traditions and image of rural life.

The draft long-term strategy of Azerbaijan's economic development for 2011-2025 proposes increasing the farming area per capita roughly from 3% in 2009 to 10% in 2025. An increase in the ratio of ecologically pure agriculture in general crop acreage from 0.45 to 10% is being projected.

Furthermore, an increase in the norms of the rational consumption per capita of meat and meat products, dairy products, eggs, fruit and berries, vegetable oils, sugar, sweets and fish products is anticipated. The projections for the norms of rational consumption have been based on the recommendations of the All-Russian Health Organization.

In order to improve supplies of state-of-the-art technology, fertiliser, seeds and saplings to producers the broad use of tax and customs privileges is being proposed.

It is also being proposed to set up an exchange of agricultural products in Azerbaijan which will cover exporters, importers, private farmers, wholesalers, banks, insurance organizations and warehouses and trade relations between them.

Generally speaking, the range of measures within the framework of the long-term strategy will also help to resolve global social problems, among which a reduction in poverty and unemployment are of special importance. Thus, the government is setting itself a target to reduce the level of unemployment from 6% in 2009 to 3% in 2025.

These objectives are, clearly, quite ambitious but they are perfectly feasible, bearing in mind the current situation in the country's economy, existing possibilities and political will. And if Azerbaijan succeeds in implementing these plans in full measure, then in 15 years' time the country will enter a qualitatively new stage in its development and will occupy a completely different niche in the world classification of countries for level of development.