FOREIGN TRADE TURNOVER

The volume, make-up and direction of foreign trade in most countries are changing under the influence of the continuing worldwide financial and economic crisis and the steepest fall in raw materials prices since the post-war years, the result of an increase in supply and sluggish economic activity. Assessment of foreign trade turnover is extremely significant in the statistics of foreign trade, as average prices, the balance of trade, the effectiveness of foreign trade overall, the elasticity coefficient etc. are calculated on its basis. The foreign trade deficit is calculated in current market prices, that is, in prices that are in line with the times, and also in permanent prices which for their part can neutralize the influence of price fluctuations in analysis of the dynamics of foreign trade turnover and its structure. Azerbaijan has recorded steady growth in volumes in this sector over recent years, although of course the make-up of trade and the balance between imports and exports have changed from time to time in line with the development of domestic production and changes in consumer demand. But since the end of 2008 the crisis has begun to make itself felt…

The changing top three

The changeability of the situation in the world economic arena sometimes causes changes in the countries' statistics which their inhabitants might not expect. Foreign trade turnover, which acts as a mirror to a state's economic success and integration into the world economy, is no exception to the rules in this case. Taking into account the weak, even scarcely perceptible, influence of the global crisis on Azerbaijan last year, the growth of oil prices in the first half of the year and the increase in the country's export capacity in the fuel and energy sector, the 370 per cent growth in foreign trade turnover to $54.9 billion can be considered entirely reasonable. It is remarkable and pleasing in this instance that the growth in imports was 25.4 per cent and exports 690 per cent against a backdrop of a positive balance of $40.5 billion.

The oil factor was the reason that 52.8 per cent of foreign trade was with EU members who are the main buyers of Azerbaijan's energy resources (a 770 per cent growth). The country's main export partner in 2008 remained Italy, which had 40.25 per cent of all exports, while the USA also made the top three (12.59 per cent) and Israel (7.55 per cent). Exports to Italy and the USA alone exceeded the volume of Azerbaijan's trade turnover with all the CIS countries in the reporting period. 

It is interesting that in January 2009 the top three, which had kept their positions since July 2008 and remained the top three on the results of the year as a whole thanks to the boom in Azerbaijani oil exports, unexpectedly changed. Israel lost its position and fell out of the list of even Azerbaijan's top five trade partners and its place was taken by Russia, which last year accounted for just 3.5 per cent of the republic's trade. The current trends can be expected to continue until 2010, since our northern neighbour intends to bring the trade turnover between the countries in $2.5 billion in 2009.

Alongside the change in the leaders, the number of trade partners fell noticeably in January from 140 to 90 countries which is also a consequence of the global crisis. The sharp fall in prices for finished products make their sale unprofitable which causes recession in the manufacturing process in many of the world's leading companies. Major enterprises are cutting and sometimes even suspending the manufacturing process, including because of a fall in demand which is bound to influence countries' foreign trade turnover. In this regard Azerbaijan is still holding up thanks to its main export, oil and related products which make up more than 95 per cent (last year 96.8 per cent) of all the country's exports. But will it be profitable this year for the country and the operating companies working the deposits here to sell this resource in the same quantities as in previous years, bearing in mind the fall in prices on the oil markets?

Diversify and rule 

In one way or another, the crisis has shown once more how dangerous it is for the country to depend on one export resource and how great the need is to develop the non-oil sectors of the economy and increase their role in the country's export potential. It is realistic to increase the volume of exported foodstuffs, which last year made up just 1.1 per cent of the country's exports, and to increase manufacturing… Many experts think the desired results can be achieved even with the current volumes of output. It is another matter that all Azerbaijan's enterprises are still far from having the opportunity to export their output, despite its good quality. A good way out of the situation might be provided by the country's entry into the Generalized System of Preferences applied by the USA and European Union. GSP is a system of privileges offered, mainly, by developed countries to developing countries. It allows the export of certain goods to developed countries without duty or at low tariffs. After numerous, lengthy negotiations and attempts, at the end of last year Azerbaijan was at last included in the list of countries in the system both by the European Union and the USA. These decisions are extremely important for Azerbaijan as a country that has not yet joined the World Trade Organization and, as a result, does not have the opportunity to enjoy the WTO's trade benefits. The system of preferences does not require additional bureaucratic formalization thanks to the inclusion of the country in the list of territories to which the programme applies. Moreover, GSP is mainly used in the export of textiles and agricultural produce, which is today Azerbaijan's main non-oil production.

 However, it's too early to expect a resultant surge in the foreign trade turnover graph in 2009. First, far from all the country's enterprises, even those with more advanced marketing, have a clear understanding of what GSP is and what to do with it. Time is needed for the relevant state bodies and non-governmental organizations to explain the system and spark businessmen's interest in it. In addition, the low level of Azerbaijan's use of GSP (just 20-30 per cent) is also connected to the failure of Azerbaijani exporters' goods to meet international standards. It has to be taken into account that serious importers are interested only in stable supplies of guaranteed volumes of unchanging quality, as set out in the contract. Before a deal is signed, an enterprise will be inspected, its technical condition, its technical capacity and staff qualifications etc. studied. In this way, Azerbaijani enterprises will have to really improve their quality indicators and also change their management to become more transparent. The state will probably also provide assistance in this regard, as the final result will be improvement and diversification of the country's export potential.