THROUGH CRISIS TO DEVELOPMENT

The economic year 2008 was extraordinarily difficult ac-ross the world. At the end of 2008 the indices for the leading stock exchanges fell by at least 40 per cent. The loss to stock exchanges in developing countries was even more significant - their indices fell by 50 to 75 per cent. Prices dropped sharply as a result of the reduction in global demand on the world's commodity markets, including a fourfold fall in the price of Azerbaijan's main export commodity, oil, and a 2-2.5 fold fall in the price of light and heavy metals and other commodities.  

As a result many industrial enterprises have significantly cut or completely stopped production and the volume of cargo transport has also fallen. Reductions in the work force in both the financial and industrial sectors are the inevitable and logical consequence of this downturn. 

The financial crisis that has swept the world has presented serious challenges to the economies of all countries without exception, including Azerbaijan. Not only is our country still managing to keep its head above water, it is still attaining economic growth, not at the rate of previous years but significant in the context of the worldwide situation. 

Lower than forecast but higher than elsewhere

Real GDP growth throughout the year was 10.8 per cent with 7 per cent growth in the oil sector and 15.7 per cent in the non-oil sector. The nominal volume of GDP per head of population increased fivefold in comparison with 2003 and stood at 4,440 manats. In 2008 the private sector accounted for 84.5 per cent of GDP. According to the government's revised forecast for 2008, GDP growth was expected to be 21.3 per cent, so GDP was 92.4 per cent of the forecast for the year while the growth rate was 10.5 percentage points lower. This can be explained by the reduction in the rates of economic growth in the last two months during the global crisis. The crisis has, therefore, reached Azerbaijan after all and had an effect on the country's main macroeconomic figures. 

Meanwhile, the volume of industrial output produced in 2008, the main basis of economic progress, was 28 billion manats, an increase of 7 per cent on last year and 150 per cent over the past five years. Oil reached record production levels for Azerbaijan - 44.5 million tonnes (including condensate) and 16.3 billion cubic metres of gas were extracted. This is 4.6 and 50.4 per cent more, respectively, than in 2007. 

Growth was 28.2 per cent in the communications sector in 2008 compared with the previous year, 13.5 per cent in the transport sector, 36 per cent in construction, 17.5 per cent in trade; the retail trade turnover grew by 16.1 per cent and paid services to the public by 29.7 per cent. 

Over the past five years 38 billion manats have been invested in the country's economy, of which 16 billion manats were internal investment and 22 billion foreign investment. It is remarkable that internal investment accounted for just 25 per cent in 2003, but reached 75 per cent in 2008. Over the past five years investment in the non-oil sector grew by a factor of 6.2; in 2003 it was 26.8 per cent of total investment but more than 69 per cent in 2008. This is evidence of practical action being taken in the country to diversify the economy and develop the non-oil sector.

In 2008 the overall volume of state capital investment was 4.2 billion manats, of which almost 60 per cent was invested in infrastructure projects and around 20 per cent in social projects. The country's strategic currency reserves increased 11-fold in comparison with 2003 to $18bn, 6.2 times higher than the state debt, which at the end of 2008 was $2.9bn.

However, against the backdrop of the global fall in all prices, inflation remained high - 20.8 per cent according to the final figures for the year - which is cause for some concern. The head of Azerbaijan's State Statistics Committee, Arif Veliyev, did say in this regard, however, that in the last two months of 2008 the rate of growth in the consumer price index fell and in January an overall fall in prices is being observed. If this trend continues to the end of 2009, even deflation can be expected.

Meanwhile, as Azerbaijani President Ilham Aliyev said at the meeting on the results of the past year, in order to avert more fully the real influence of the global crisis on the Azerbaijani market the consumer market needs to be controlled more thoroughly and an artificial increase in prices needs to be prevented. "I think that prices should be falling more rapidly," Ilham Aliyev said. "The prices for foodstuffs and building materials must fall further which does of course require serious supervision of the whole sphere. There must be an end to unjustifiable monopolies and unhea-lthy competition." 

Of course, the fall in the rate of price increases could at least slightly neutralize the negative influence of the crisis on ordinary people, as it's no secret that many enterprises in the country have had to cut production because of falling export demand. If an enterprise's income falls, then logically it has to reduce its expenditure, including on staff or at least reduce the wage bill. True, the State Statistics Committee has not yet observed any worrying signs on unemployment, but, as its chief said, it is difficult to make accurate calculations as the heads of enterprises prefer not to cut staff, i.e. not to dismiss them, but to give them indefinite unpaid holiday and keep their jobs. This makes it extremely difficult to calculate how many people in the country have lost their income over the past two months. 

However, it's known for certain that incomes increased 3.5-fold in 2008 compared with 2003 and 3.3-fold in terms of head of population. The income per head of population was 2,343.2 manats (an average of 195.3 manats per month, 51.9 manats more than in 2007) which is 36.2 per cent more than in 2007. In 2008 the rates of growth in income were 17 points higher than the growth in consumer prices and the real growth was 14.1 per cent. At present the average monthly wage in the country is 268 manats, 24.2 per cent more than in the corresponding period last year. Income per head of population in 2008 was 2,343 manats, an increase of 36.2 per cent on the previous year. Over this period the population had available funds of 18 billion manats, which is 42 per cent more than last year. Wide-ranging measures led to a reduction in the level of poverty in the country from 44.7 per cent in 2003 to 13.2 per cent in 2008.

A year combating the crisis

The situation in 2009 could worsen and the most optimistic scenarios do not expect the crisis to end before late 2010-early 2011. This makes it more likely that the influence of the crisis on the country will be more noticeable in 2009. Therefore, the government's main objective this year is to keep to a minimum the effect of global financial and economic crisis on Azerbaijan. 

Finance Minister Samir Sarifov has instructed budget-funded organizations to pay more attention to financial discipline, to cut back on unnecessary expenditure and travel that can be deferred, purchases and other events. "Local service, consumer and energy spending, expenditure on fuel, gas and water need to be economical," the minister said. "Organizations operating in the municipal sector must make payment for materials and fuel in full and on time without reservation, while the tax bodies must collect tax and duty for the state budget in full and on time."

He said that in 2009 the State Oil Fund would play a special role in stabilizing revenue to the state budget. Despite the volatility of oil prices on the world market, manat transfers from the Oil Fund to the state budget will ensure that all the financial obligations set out in the budget will be met; first of all that pensions, grants, social assistance and wages will be paid in full, that the most important social programmes and events will be financed, investment projects that began in previous years will be completed and development programmes that have been adopted will be implemented. 

The government has a raft of other proposals, in particular on ensuring the sustainability of the country's banking sector. There is a proposal to place part of Azerbaijan's foreign currency reserves in local banks. This step might appear very risky, but on the other hand in the past year major international financial companies, whose reliability was in no doubt at all, have gone bankrupt. President Ilham Aliyev thinks that some of our foreign currency reserves at present held abroad can be placed in the most reliable local banks but only with the tightest state control over their expenditure and the proviso that they be invested in the real sector of the economy. 

Another serious effect of the global crisis on Azerbaijan is the reduction in export opportunities for a range of our major enterprises, as was noted above. It looks as though the time has come in Azerbaijan, as in the rest of the world, for state support for these enterprises. The head of state thinks that the best option will be to sell export produce on the internal market. "This requires the creation of serious, modern processing enterprises. In a number of cases we export produce because we do not have the capacity to process it in country," President Ilham Aliyev thinks. As a result, this step could make a significant contribution to ensuring the state's food security too. "Energy security is assured, food security will be assured and transport security, which is important to us, is being assured too," Ilham Aliyev said.

In other words, the country's economic independence remains the top priority at present, even amidst the difficulties caused by the global crisis. Today Azerbaijan boldly refuses foreign financial assistance as there is another side to this coin. It leads to the country's dependence on lenders and sometimes even to compromises that run counter to the state's interests. Our country is insured against this even during the toughest economic crisis. "Azerbaijan is one of those countries that solves its problems itself and has no need of anyone or anything. Azerbaijan does not depend on anyone, is not expecting any gifts from anyone and if any were offered, would not accept them." And events have shown that the country moved into 2009 adhering to this important principle.