COMMERCIAL UNION

In conventional economic theory, the trade sector is the main drive of economic development contributing, inter alia, to creating jobs and expanding productive capacity by stimulating investment and technology transfer. However, some countries, including Azerbaijan, despite the sufficient development of local trade and foreign trade relations, cannot benefit from them in entirety, one of the important reasons being the remoteness of the country from world markets and a set of regulatory and methodological measures that increase costs and undermine competitiveness in the commercial sector. In order to eliminate these problems, on February 20, the Central Bank of Azerbaijan (CBA) decided to liberalise the currency regime in foreign trade operations.

Fined for nothing

In essence, the customs declaration or other documents confirming the import of goods and services should be submitted to the bank within two years (versus 270 days previously). If the cost of imported goods and services does not exceed $10,000, it is not necessary to notify the currency supervisory authority either.

Currently, entrepreneurs are required to make an advance payment through a partner bank in order to bring a large batch of goods or certain services to Azerbaijan. At the same time, the bank needs to document the operation based on a customs declaration and other documents indicating the fact of purchase. If the documents are missing, the bank may sue and fine the entrepreneur. This is what the new decision of the Central Bank is all about.

In reality, 270 days for the above process was not enough for importers to get the necessary documents. Although we should admit that earlier the period of delivery of goods from abroad through advance payment was generally limited to 180 days, which created serious difficulties for entrepreneurs in carrying out import operations. After numerous requests from businessmen and at the proposal of the Confederation of Entrepreneurs of Azerbaijan (ASK), this period was extended to 270 days, but this was not enough either. Due to the violation of rules, 12,000 court cases were initiated, half of which are still under review. According to the deputy chairman of CBA, Alim Guliyev, in 2019, banks applied to the regulator about 13,000 times in connection with the currency regime. Of these, 8,000 applications were sent to courts, with administrative penalties applied in 5,000 cases.

In most cases, businessmen were not responsible for the delays in providing documents. “Sometimes, particular in winter season, entrepreneurs may experience delays due to weather conditions or contingency. In such cases customs do not issue a declaration until the goods arrive in the country. The businessmen then suffer twice, as they have to wait for the goods, and pay a fine,” economist Vugar Bayramov said.

As far as the notification of the regulator is concerned, previously entrepreneurs had to submit a report. Given that the current legislation of Azerbaijan allows exporting up to $10,000 in cash without any documents, why not apply this practice to imported goods and services either? Indeed, numerous reports, declarations mean wasting of time and resources from entrepreneurs that they could devote to the development of their business.

Businesses are happy

Entrepreneurs voiced their concern with the current situation during the last meeting of the CBA chairman Elman Rustamov and bank leaders. Following the meeting, a working group was created and amendments were made to the "Rules for conducting transactions with residents in foreign currency, as well as non-residents in national and foreign currencies."

The statement of the Central Bank released after the meeting noted that the above decision was made considering the improvement in Azerbaijan's balance of payments over recent years, as well as the positive results of reforms aimed at strengthening customs control and foreign exchange supervision in general. “Currently, the ratio of the current account surplus of the balance of payments to GDP is measured in double digits. Diversification of the economy and promotion of non-oil exports have played an instrumental role in creating a surplus in the balance of payments,” CBA statement said.

In addition, according to the Central Bank, in recent years, indicators of capital flows and finances have improved significantly. The regulator expects that liberalisation of the currency regime will also contribute to further improvement of the business environment in the country.

Business communities immediately responded to the decision, considering it another success in protecting the rights of entrepreneurs, developing the private sector and trade relations. In particular, ASK representative Kristina Mammadova believes that a positive resolution of this problem means the termination of about 6,000 court cases.

Foreign businessmen also welcomed the decision of the Central Bank on the currency regime in Azerbaijan. According to the head of the Turkish-Azerbaijani Public Association of Entrepreneurs and Industrialists (TÜİB), Huseyn Boyukfirat, this step will positively affect local and foreign businessmen, as well as the business world and economy of the country as a whole. He believes that the CBA decision is designed to facilitate the supply of equipment, raw materials and semi-finished products and will eliminate the problems existing in this area.

In addition, the new currency regime will open the way for potential investors and businessmen, and will allow exporting foreign currency from the country only for its intended purpose. The head of TÜİB believes that such steps will lead to even greater activity of business people in Azerbaijan, strengthen support for the economy and increase the flow of investment in the country.

One more blow to money laundering

Meanwhile, the CBA deputy chairman Alim Guliyev linked the decision to liberalize the currency regime with measures to prevent the laundering of dirty money. “Today, Azerbaijan’s balance of payments shows a surplus. Serious reforms have been carried out regarding imports and the currency regime. Today, every citizen can easily export up to $10,000 from the country. Therefore, it was decided that the currency regime should be applied to transactions that exceed this amount as well, ” Guliyev said.

This is also important as the MONEYVAL expert group of the Council of Europe plans to discuss in 2021 a report on the 5th round of the assessment of Azerbaijan’s measures against financing terrorism, laundering of money and other property obtained as a result of criminal activity.

Azerbaijan is taking the necessary steps to ensure compliance with the standards of the Financial Action Task Force on Money Laundering (FATF). Financial Monitoring Service notes that the government is carrying out systemic measures, such as the introduction of legislative acts, new projects and supervision. By the way, CBA's latest decision to liberalise the currency regime also allows a positive assessment of reforms in the field of combating the financing of terrorism and the legalization of money and other property obtained as a result of criminal activity.

On December 5, 2018, the measures taken in Azerbaijan have been approved at the 57th MONEYVAL Summit, noting that Azerbaijan has successfully fulfilled all the obligations assigned by MONEYVAL. The committee considers that this work of Azerbaijan fully complies with the standards existing at the international level.

Other international organisations also praise the reforms carried out in the country in this area, emphasizing the successes achieved in improving the legal framework, control mechanisms, and strengthening institutional capacity.