SUPPORT PRIORITIES

The stabilisation of global oil prices and the growth of the non-oil industry of Azerbaijan give reason to believe that the country's economy will reach pre-pandemic growth rates in the near future. In any case, this is the conclusion of the World Bank (WB), which predicts GDP growth rates this year at 3%, and in 2022 - already 4%.

Investment in human capital

Moreover, according to the head of the WB Baku office Sara Michael, the actual economic growth rates may outstrip the WB forecasts mainly due to the high rates of vaccination, and the increase in government spending and investment to ensure the restoration of the liberated territories. If everything goes well, and if there are no more shocking external factors that have been observed over the past two years, then we can expect a return to the previous life, i. e. positive economic indicators already in 2H2022.

One of the key priorities of the Azerbaijani government is to double GDP by 2030, reduce dependence on oil, and develop non-oil sectors of the economy. At the same time, the World Bank believes that in order to achieve these goals, it is necessary to use the potential of agriculture, tourism, trade and logistics, and transportation.

Also, the restoration of the liberated territories, namely the reintegration of these areas into the national economy, will contribute to the restoration and increase in the growth rates of the economy. This will significantly increase the prospects for Azerbaijan's transformation into a logistics hub.

The objective is to diversify the economy and reduce its dependence on oil. Thus, the WB is ready to support projects with both recommendations and loans.

At the same time, international experts believe that in order to achieve the planned goals, it is necessary to increase investments in human capital and their efficiency. But even in 2010-2020 Azerbaijan was considered a reformer in improving human capital, which determines the quality of education, the degree of development of the healthcare sector, etc.

According to the latest calculations, the human capital index in Azerbaijan is 58%. So it is necessary to improve the education system, since it cannot currently provide the labour market with a labour force with necessary skills. According to Sarah Michael, Azerbaijan has good indicators in terms of the number of university graduates and access to higher education facilities, but the labour productivity indicator is still at low level. Discipline offered by educational institutions must be in line with the realities of the labour market. “Students need to have skills in accordance with modern market requirements. Perhaps today there are still no professions that may be required in about ten years, but now we need to start appropriate reforms in the education system so that professional personnel with skills that meet the requirements of the time are ready at the moment they are needed. Such professions of the future may require, for example, the skills of digitalization, knowledge of foreign languages,” says Ms. Michael.

Alternative to oil

Along with human capital, international experts recommend that the Azerbaijani government pay attention to the need for additional changes in the structure of the country's exports given the decrease in oil reserves. At the same time, Ms. Michael named the sectors that need to be focused on. For example, agriculture: the quality of Azerbaijani fruits and vegetables is well known in the region, which makes it possible to increase their productivity to increase sales abroad. World Bank believes that the potential of Azerbaijan's export of agricultural products to post-Soviet and European countries is still far from perfect. In addition, the processing of agricultural products in Azerbaijan has not yet reached the proper level.

The second sector with great potential is tourism. Tourists from the countries of the Persian Gulf have already fallen in love with Azerbaijan, and they, of course, will return to us after a complete victory over the coronavirus. Azerbaijan may also develop gastronomic tourism, etc. The peculiarity of this sector of the economy is that Azerbaijan is attractive both for wealthy tourists and for the middle strata of the population. Favourable conditions have been created for visiting the country, including the simplified procedure for obtaining electronic visas through ASAN Visa. Before the pandemic, favourable connections for air travel were organised, and the quality of services is quite good. The possibility of pre-ordering a hotel in regions, including remote ones, also helps to increase the tourist potential of the country, says Sarah Michael.

Favourable geographic location of Azerbaijan is a good factor for the development of trade and logistics, the implementation of cargo transportation from China to Europe. The situation in the Suez Canal and its impact on the world economy necessitate additional routes, the creation of a middle corridor, and Azerbaijan has great potential in this regard. But this will require additional investments to upgrade the railway infrastructure, and to build digital logistics.

Does Azerbaijan need loans?

The economic memorandum for Azerbaijan prepared by the WB identifies the potential of each sector as an alternative to oil, including the conduct of relevant research. The document will be ready in three months. A similar document was prepared for Azerbaijan back in 2013. In theory, it should be updated every five years. World Bank delayed both the development of the document and a partnership strategy with the Azerbaijani government.

As Sarah Michael explained, the development of a new partnership strategy was started even before the pandemic, however, due to COVID-19, the process was stopped, and not only with Azerbaijan. After all, today it is still difficult to say when the world will be able, and whether it will be able at all, to return completely to its former life and how the world economy will develop as a result.

Considering that the Azerbaijani government is working on a new national strategy, it is expected that the WB partnership will be based on it and the five main priorities identified in the strategy. It is possible that reconstruction works in Garabagh will also be reflected in this document. “I cannot say yet how much support will be provided, but its directions will be based on the priorities that will be determined for us by the government. Since Azerbaijan cooperates not only with the World Bank, but also with other international organisations, only after the country has identified national priorities and the distribution of work for each institution, we will prepare our partnership strategy,” said the representative of the bank.

The document is expected to be ready by mid-2022. However, the absence of a strategy does not mean that the bank will not finance new projects. If necessary, WB can start work on a new project at any time, even without the approval of the strategy.

The question is to what extent the Azerbaijani government is interested in attracting loans, that is, in increasing the external debt. The recent refusal by the Azerbaijani government of a $95 million WB loan for an emergency response to COVID-19 project suggests that the country intends to adhere to a conservative foreign borrowing policy even during the pandemic.

This and other high-level statements show that the country will give preference to investment over loans. Thus, as part of the program for the restoration of Garabagh, the government holds negotiations to attract investments from various countries. Hopefully, international financial institutions will incorporate this policy into their new partnership strategies.