ASIA AT THE HELM

The financial-economic crises of recent years have led to a situation where the "Old World" of Europe has handed over the controls of the locomotive of the world's economy to progressive Asia. And so it is perfectly logical that today economic and financial "friendship" with Asia is a promising and very beneficial matter.

Azerbaijan has been following this trend for some time, developing quite friendly relations with the leading Asian economies, and more importantly, their rapidly developing financial institutions. To take just one example, the country responded quite quickly to the creation of a new powerful financial institution - the Asian Infrastructure Investment Bank (AIIB), expressing its wish to become a member of it.

Another vivid example was the 48th session of the Board of Governors of the Asian Development Bank, held in Baku from 2 to 5 May, which was attended by about 3,000 people from 67 countries and was rightly described as a hugely important economic event of 2015.  

AZERBAIJAN

The fact that the meeting of the ADB came at a time when the situation on the country's currency market had changed because of the fall in oil prices only strengthened the significance of statements about the readiness of one of the world's leading financial institutions to support the efforts of the Azerbaijani government in the diversification of the economy.

"Naturally, the sharp change in oil prices arouses concern among us as oil and gas producing countries. However, I would also like to point out that this is a kind of challenge for us to be more rational, to strengthen our budget, to reduce unnecessary expenditure and focus attention on good administration and management," Azerbaijani President Ilham Aliyev noted in his speech at the opening of the 48th annual meeting of the ADB.

In pointing out that the past 10 years have been a period of Azerbaijan's rapid development, the head of state added that the country remains very attractive for foreign investment. "I think our biggest success is linked with the eradication of poverty. Whereas 10-15 years ago this figure was 50 per cent, today it is 5 per cent. This shows that we have not been subjected to the Dutch disease, a one-sided development of the economy. We have succeeded in turning "black gold" into human capital assets," Aliyev added. He again stressed the priority nature of the question of diversification of the economy for the country's development, noting that it will be the focus of attention.

The country's finance minister, Samir Sarifov, also spoke about Azerbaijan's vested interest in the experience of Asian countries in seeking potential mechanisms and models of economic growth. Indeed, as has already been mentioned, in recent decades the economies of the Asian countries have been growing at an appreciable rate, with an average annual growth of 6 per cent. But that said, they have different models of development, and Azerbaijan, which wants to avoid the domination of the energy factor in its economy, is seeking new ways of economic development. "The growth of the non-oil sector was the main driving mechanism of growth in the country, even outstripping the oil sector. Nevertheless, the growth in the non-oil sector has come about through state investment, and the government has used the funds from the oil revenues to support the non-oil sector. But we need to find an optimal path of development," Sarifov concluded.

In this connection, developing the country's export potential and organizing access of Azerbaijani goods to foreign markets, especially the rapidly developing markets of Asia, is quite natural. In the opinion of Sahil Babayev, Azerbaijan's deputy minister of economy and industry, Azerbaijan has every possibility of becoming a bridge between East and West. "Today, China is the world's biggest manufacturer, and the European Union the greatest consumer. Azerbaijan can be a kind of bridge between them," Babayev said. And in this context the support of international financial institutions for the long-term projects behind Azerbaijan's export potential development and feeding the government's infrastructure undertakings but not setting draconian conditions in return could be described not just as a mutually beneficial deal, but also as a friendly bolster. 

According to Azerbaijan's Minister of Economy and Industry Sahin Mustafayev, since 1999, i.e. during the period of cooperation, the ADB, in the context of 12 projects, has allocated to the country loans of 1.64bn dollars and technical aid of 10m dollars; and on 7 projects loans to the private sector of 163m dollars. And both parties are so pleased with the outcome of the fulfilment of these projects that the scale of cooperation is increasing, so to speak, by leaps and bounds. In Baku Azerbaijan and the ADB signed a memorandum of mutual understanding on an investment programme to the sum of 1bn dollars providing for the reconstruction and modernization of the country's power-transmission system. In accordance with the investment programme project, the ADB would allocate in three tranches 750m dollars (each of 250m dollars), and the remaining 250m dollars would be allocated by the Azerbaijani government. These funds would be directed towards updating the power distribution network and substations, improving services to clients, replacing existing meters to digital and strengthening the workforce capacity of the Azerisiq open joint-stock company.

The head of the Asian bank, Takehito Nakao, also promised that the ADB would direct its resources to matters linked with solar and other renewable sources of energy and would focus particular attention on measures to protect the environment and landscaping. "We have started creating a green bus system in Baku. We have been able to attract the main investors and so we have succeeded in protecting many people in the sphere of low-cost activity," he said in his speech at the opening of the meeting. He also pointed towards Azerbaijan's successes in social policy - according to the ADB, the level of education among the adult population in Azerbaijan is almost 100 per cent, and the mortality rate at birth is one of the lowest among the member-countries of the ADB. As regards the deficiencies, to which the government needs to pay attention, Nakao said that Azerbaijan's GDP is only 5-per cent dependent on agriculture, whereas about 40 per cent of the country's population is employed in this sphere. "I believe that the development of agriculture should be one of the priorities for the country. I should also mention the need to develop tourism, bearing in mind the beauty of the region and the fact that Azerbaijan embraces the culture of Asia, the Turkic world and other worlds," he said. The bank's president added that to achieve this the infrastructure needs to be developed, and the ADB is supporting infrastructure projects in Azerbaijan, as a result of which great successes have been achieved.

Competition for the region

The ADB meeting could arguably be described as the most far-reaching economic event in Azerbaijan this year. As Nakao remarked at a press conference in Baku, this was the first such high-level meeting in the South Caucasus and it acts as a bridge between West and East.

Considering the extensive agenda of the event, it could be said that it achieved its objective.  However, the most intriguing aspect of the meeting was the mutual relationship between the ADB and the AIIB - there was no press conference, seminar, and so on, at which this question was not raised. After all, in theory the regional sweep of these two financial institutions cancels each other out - is the ADB not afraid of being forced out? Nakao maintains that this is not the case. Moreover, during the meeting the Board of Governors stated that the ADB plans to work with the AIIB and to jointly fund infrastructure projects in Asia - the prospects for joint work were discussed during a meeting with the secretary-general of the interim secretariat of the AIIB, Jin Liqun. The partnership will follow the most diverse directions - from joint funding of major projects to cooperation in penetrating other markets, more precisely in Africa and Latin America.

The parties also agreed to continue to exchange vital information and to discuss specific possibilities of cooperation. However, it is clear that competition cannot be avoided. But the ADB intends to hold its ground. According to Nakao, the ADB will be increasing the size of its loans in the next few years and will be funding infrastructure projects in Central and South Asia. Financiers estimate that up to 800bn dollars will be required to implement a number of leading projects in the Asia region. The head of the ADB pointed out that the loan organization is prepared to conclude agreements with countries for longer terms of cooperation. The bank will be able to meet the demand for loans without any problems, the head of the ADB believes. Generally speaking, he said, the ADB has over the past years considerably increased its financial potential and improved the quality of project execution. And in the next few years the rates of economic growth in the Asian and Pacific regions will exceed the corresponding figures for the eurozone and Japan.

"We want to implement new global initiatives. I want the Asian Development Bank to be a stronger, more mobile structure, doing more effective work. We want to bring the operations of the Asian Development Bank up to 20bn dollars. Our support for the poorer countries has already been raised to 70 per cent. In this sphere there are possibilities for activity in the private sector. As far as co-funding is concerned, our investments should be increased to 40bn dollars," the head of the ADB claims. In this connection, as well as the AIIB, the ADB also plans to work closely with the Eurasian Development Bank (EDB), a delegation of which also took part in the meeting. Besides this, a first-ever joint consultative agreement on public-private partnership between the ADB and world banks - from Japan, Canada and Australia - was signed in the Azerbaijani capital. In the opinion of Ryuichi Kaga, head of the public-private partnerships office of the ADB, bearing in mind Asia's huge requirements in infrastructure, the governments of the Asia-Pacific region countries need to have more opportunities for funding and increasing the effectiveness of work on infrastructure projects. According to the agreement, the ADB and these eight banks will be able to work together to provide independent consultation to the governments of the developing countries of Asia with the aim of improving the structuring of public-private partnership. The agreement is valued at 64m dollars, of which 40m dollars has been provided by Japan. Aside from this, the Board of Governors of the ADB supported an initiative to combine the credit operations of the Asian Development Fund and the Ordinary Capital Resources Fund. This will help to increase the annual budget for ordinary capital resources and grants by 50 per cent, i.e. to 20bn dollars. In other words, the ADB is prepared to "bite the bullet" and prove its right to continue to operate actively in the region.  All the more so as the potential and economic possibilities of this region fully allow for the coexistence of several financial institutions.

Consequently, the first meting of the ADB in the South Caucasus turned out to be very fruitful both for the bank itself and for Azerbaijan. All that remains is to mention Nakao's valedictory words that the debates held during the 48th meeting in Baku will help the ADB to become stronger and better and in a short space of time. "We shall continue to focus more attention on the openness and stability of infrastructure investments," the head of the bank said. He went on to say that this year preparations will begin for a new strategy in the development of the bank after 2020, which will also take into account an enlargement of the ADB's financing and a change in the conditions of development in the Asia-Pacific region.

As far as Azerbaijan is concerned, this meeting, apart from the aforementioned financial dividends in the form of the loan agreements that were signed, was more valuable experience for us in staging a major international economic event. The splendid Baku Congress Centre, which was built precisely for the ADB meeting, will remain a memorial to it…

FIRSTHAND

"Naturally, the sharp change in oil prices arouses concern among us as oil and gas producing countries. However, I would also like to point out that this is a kind of challenge for us to be more rational, to strengthen our budget, to reduce unnecessary expenditure and focus attention on good administration and management."

Azerbaijani President Ilham Aliyev

"We want to implement new global initiatives. I want the Asian Development Bank to be a stronger, more mobile structure, doing more effective work. We want to bring the operations of the Asian Development Bank up to 20bn dollars. Our support for the poorer countries has already been raised to 70 per cent." 

Takehiko Nakao, head of the ADB