NO HOLDS BARRED AGAINST

Azerbaijan ended the year with pretty good figures. GDP growth was 11 per cent despite the global economic crisis that began in the autumn and the more than three-fold fall in oil prices. This is one of the highest GDP figures in the CIS. In 2008 revenue to the state budget increased by 80 per cent, with a not insignificant part due to growth in the non-oil sector. All this is a sign of significant reserves of strength in the national economy and its ability to resist global challenges. However, experts predict that the current downturn will affect practically all sectors of the economy in most countries of the world and will affect our country too, one way or another. In order to lesson the influence of the global crisis the government of Azerbaijan is preparing a range of anti-crisis measures.

"The government had to work last year in tricky conditions, in the worsening global economic crisis, and it looks as though this year could be much tougher. Nevertheless, our country is ready for this sort of test: at the start of 2009 Azerbaijan's hard currency reserves exceed $18bn and this will help to effectively protect the economy from negative influences," the chairman of parliament, Oqtay Asadov, said during discussions in the Milli Maclis on the government's report on 2008. He also said that the main objectives of the anti-crisis programme have been set by the Azerbaijani president and include lowering inflation, developing competition, making investments in the real sector, support for business and ensuring food security.

Risk group

Our country is not yet experiencing catastrophic problems. Nevertheless, a fall in output can be seen in a range of sectors - construction, metallurgy and the production of building materials. There are risks for agriculture, the processing and mining sectors too and also tourism and the transport sector that is bound up in international transit. Of course, the difficult situation in the oil sector could get worse with the continuing fall in world oil prices. Things are relatively healthy in the electricity and ICT sectors: production and services here are primarily oriented towards the domestic market and their volume is not yet shrinking. A possible fall in production in machine-building, car production etc. will not have a significant influence on the overall economic situation, as these sectors are relatively poorly developed. 

In any event in February a number of ministries and departments already outlined possible risks and published information in the media about a possible freeze on various projects.

The head of the State Oil Company of Azerbaijan (SOCAR), Rovnaq Abdullayev, said that proposals have been made to suspend several projects in connection with the economic crisis and fall in the oil price. Specifically, this applies to ecological projects planned for this year and next. The SOCAR president stressed that he was not talking about international projects - they will be continued.

Comparatively, the greater cutbacks will be in transport. Transport Minister Ziya Mam-madov said that reconstruction of a number of flyovers and projects to repair district and village roads had been put on hold indefinitely. At the same time the ministry intends to continue work on road and rail modernization as part of the international North-South transport corridor.

Of course, Azerbaijani companies, whose output is mostly aimed at foreign markets, could suffer from the economic crisis. This applies to companies such as Sumqayit's Azerboru pipe-rolling factory, enterprises that are part of the Azneftekimmash holding company, bentonite producers and others. Private companies that work as contractors on budget-funded projects to lay pipelines and capital construction projects fall into the group at significant risk. 

In the prevailing situation the government and parliament of Azerbaijan are drawing up a range of preventative, anti-crisis measures. The Milli Maclis is preparing to pass a law "On the application of a special economic regime to export activity in the oil and gas sector". The law will allow the creation of a special, favourable tax regimen to unleash the country's industrial potential during the implementation of regional energy projects, raising export potential and boosting the competitive advantages of the country's oil and gas complex.

Support for business

For its part, the Ministry of Economic Development (MED) has devised an action plan to support export companies working in the non-oil sector. Export privileges will be extended as part of the US administration and European Union's GSP and GSP+ programmes, to which Azerbaijan has access. Significant relaxation is also expected in the National Fund to Support Entrepreneurship (NFSE), part of the MED. 

"The possibility is under consideration of increasing the maximum size of investment credit from 3 to 5 million manats, reducing the maximum interest rate and adjusting the terms of lending," Economic Development Minister Sahin Mustafayev said. Certain changes will also apply to the procedure for presenting projects for credits. The Economic Develop-ment Ministry is proposing the introduction of a system in which businessmen will approach authorized banks and banks in turn will approach the fund. The banks will devote 15 days to studying the desirability of lending to a project. The whole period from the moment that an application is received to its approval by the fund will take 28 days, and preference will be given to manufacturing projects. 

Deputy Prime Minister Yaqub Ayyubov thinks that the NFSE has become a real source of financing for small and medium-sized businesses and the expected changes will significantly increase the structure's potential. "However, support for entrepreneurs will not be limited to changes in the work of the NFSE; the government is finalizing a State Programme to Develop Entrepreneurship in 2009-13 and this document envisages a complex of measures to liberalize the registration and start-up process for businesses, to ease access to credits, expand export capacity and defend the rights of entrepreneurs," Yaqub Ayyubov explained. The new programme consists of six blocs, which are in turn divided into economic areas. The programme covers financing issues for small and medium-sized businesses, improvement and liberalization of legislation, improvement of the business environment and the application of new financial instruments. A very important part of the programme will be training, consultancy services and infrastructure support for entrepreneurs for which it is planned to create industrial estates and business incubators. Relaxation of the fiscal regime in innovative areas of the economy is envisaged, in particular through the development of free economic zones, and also the introduction of the one-stop shop system in registering property, the improvement of the certification system and the elimination of unfair competition. 

The country's public associations will also make their proposals on the anti-crisis measures. The National Confederation of Entrep-reneurs of Azerbaijan has prepared a package of proposals and submitted them for review to the Economic Development Ministry. Its main points envisage the provision of direct state assistance to major private enterprises (with more than 2,000 employees), which work mainly in the construction sector and agriculture (processing agricultural output). It is also proposed to increase the volume of funds allocated by the state via the NFSE to small and medium-sized businesses to more than 1bn manats. 

However, the main part of the non-governmental organization's proposals concern fiscal preferences. In order to avoid redundancies it is proposed that companies should be offered social insurance payment holidays and after the crisis companies can gradually pay off these sums. Changes are proposed to the simplified tax system too. Today the simplified tax rate is 4 per cent if the quarterly turnover of a physical person does not exceed 22,500 manats. The confederation is proposing increa-sing the size of quarterly turnover on which simplified tax is paid at least 10-fold to 225,000 manats. The need to protect small and medium-sized enterprises from the consequences of inflation, which significantly increases the volume of quarterly turnover, is the main argument in favour. 

It is not yet clear which of the proposals of the National Confederation of Entrepreneurs and other business associations will be included in the government's anti-crisis package. How-ever one thing is clear and that's that with the many falls in the price of raw hydrocarbons private enterprises in the non-oil sector will bear the brunt of funding the state budget for the next year or two. And this means that the government has a vital interest in ensuring that they work efficiently and profitably.