WE HAVE UNLIMITED OPPORTUNITIES IN DEVELOPMENT OF THE TURNOVER
MINISTER OF ECONOMIC DEVELOPMENT OF AZERBAIJAN, HEYDAR BABAYEV
Exclusive interview of the Minister of Economic Development of the Republic of Azerbaijan Mr. Heydar Babayev.
Caspian Energy (C.E.): What is your estimation regarding present level of economic development in Azerbaijan, which problems does region have, what else is there being solved?
Minister of Economic Development of the Republic of Azerbaijan, Heydar Babayev: Macroeconomic stability presence in the republic today. The problem with economic decline was solved and this process replaced by economic growth beginning since 1996. The amount of budget deficit is not danger, money-and-credit sector is being regulated as positive, and bank system is smoothly enhanced.
Non-oil sector is being developed with high speeds. Oil strategy is being successfully developed owing to which the country is at the threshold of the largest oil revenues. Annually strategy currency reserves exceeded 2.2 bn USD and effectively controlled.
There was formed good investment climate in the country. It should be remembered that according to amounts of foreign investments to a soul of population Azerbaijan borrows the one of the first places among nations with transition economy. It is necessary to emphasize that along with this there are being increased domestic investments which growth speed significantly outstrip the dynamic of foreign capital investments from year to year.
For last years many was done in the field of our economic integration process’s intensification into the system of world culture. There is ongoing mutual advantageous cooperation with the international financial institutes. The serious steps are being done for Azerbaijan accession to World Trade Organization.
At the same time, a number of economic problems are still being stand as unsolved. First of all, this is the national economy’s dependence on oil sector and presence of "Holland sickness" threats. Branch and regional structures of economy need in improvement. There are not many problems in provision of free and justice competition.
The matters regarding economic agents and population should be fast solved by infrastructure services both on quantity and quality. Housing and communal reforms should be made with provision by necessary social defense of poor level of population. In result of State program on reduction of poverty and economic development (2003-2005), there happened significant reduction of poverty but not quietly enough. The Government of Azerbaijan is ordered to reduce its level to 2 times by 2015.
I am sure that we will solve presence difficulties and Azerbaijan’s economy will be dynamically developed in future contributing to increasing of population’s life level.
CE: What share from GDP does borrow industrial sector? Could you please to provide us with dynamic of Azerbaijan’s processing growth for last 10 years? How do you comment present situation?
Heydar Babayev: For last years the growth of processing sector’s role in GDP structure is stable. If during 1998 this figure amounted 55.4% from GDP then 2005’s index was 66.8% from GDP. Such kind of high index of processing sector’s role was conditioned in result of successful realization of oil contracts, stable growth of non-oil industry (averagely 12% for 2000-2005), construction boom, increasing the amounts of agricultural manufacturing supported by stimulating state measures. Owing to high growth in oil sector the given tendency will be continued in the nearest time as well.
CE: According to your opinion, what does GDP’s optimal structure providing the demands of state’s citizens? Which branches should play important role in the economy of country?
Heydar Babayev: According to 2005’s results, GDP structure in our country is being characterized on the base of following figures: oil sector’s share is 41.3% and non-oil – 58.7%. At the same time, the role of industry in GDP amounts 47.5%, agricultural – 9.2%, construction – 10%, services – 25.6%.
On the base of presence forecasts, the sharp increasing of oil production will be followed by growth of oil sector and industry’s role in GDP structure as a whole. According to our opinion, an optimal can be thought such GDP structure as will be able to provide stable, balanced development of Azerbaijan’s economy without taking into account oil sector.
Foreign countries’ experience certifies that as far as economic development the role of services in GDP structure increased. However, according to our forecasts, during medium-term prospective the given figure will reduce in Azerbaijan. It is connected first of all with faster speeds of industry’s development caused with oil production growth.
However, during the long-term prospective from the point of view of stable development the priority will be non-oil sector, particularly the development of services.
For success realization of definite priorities is necessary to determine the branches with comparative priorities. It demands the serious and extremely hard work, which we are going to fulfill.
CE: Do not you think that the basic branches of Azerbaijan’s economy are needed in deepening of system’s development and not natural as it is possible to observe in construction field for example?
Heydar Babayev: Let me not agree with question’s build about natural development in construction field. The point is that during last times the sharp increasing of demand to its production. It is connected with the realization of oil strategy within of which there is considered the largest construction-assembling operations at Azeri-Chirag-Gunashli units and also Baku-Tbilisi-Ceyhan oil pipeline’s construction. The second, on the one hand the increasing of population’s revenues and presence of differed demand to habitation formed for many previous years on the other. The third, it is necessary to take into consideration the construction of new and reconstruction of old plants.
Concerning the importance of system’s development of basic branches then I am completely agree with you. We think that future economic development of the country in definite degree depends on how it will be possible to optimize the branch structure of economy.
It means that along with oil sector there is necessary in the long-term prospective to develop fast the non-oil sector too. It should provide with forming an optimal structure of non-oil sector.
CE: What are basic positions of state program on waste from raw material economy dependence and how is it being realized?
Heydar Babayev: Azerbaijan is a country with big economic potential having significant crude hydrocarbon, other minerals’ reserves.
Today, economy of our country mainly depends on oil sector. But oil – not renewed resource and sooner or later it will finish. We should be ready to it. That’s why the government of our republic as one of priority subjects of economic development of country defined the reduction of dependence on oil sector. First of all, it stated at approved strategy of long-term usage of oil revenues. At the given document there is a red idea connected with priority direction of these revenues to development of those branches contributing to reduction of country’s dependence on raw material and improvement of human potential.
At an average-term for development of non-oil sector the important is the realized State program of social-economic development of Azerbaijan regions (2004-2008), including the measures on creation of processing plants, the expansion of services and tourism development in the country. The same measures were considered by State program "On reduction of poverty and economic development (2003-2005)", which realization was recently completed.
Presently, there is being carried out the work over project of the long-term state program to 2006-2015. The fundament of this program will be the matters regarding non-oil sector and processing industry’s development, creation working places and decision of employment matters.
CE: Which economic reforms are being expected during the nearest years? What do you think, did the situation with unstable euro course reflect to Azerbaijan economy?
Heydar Babayev: The reforms fulfilled in Azerbaijan provided high speed of economic growth. The necessity of their saving demands the continuation of the reforms’ realization in future. First of all, they should be directed to improvement of regulation system concerning economy, saving macroeconomic stability in the terms of sharp growth of economy, inevitable sectoral disproportion, intensively financial flows and changes of foreign infrastructure.
The special place among offered reforms takes infrastructure sector of economy such as transport, communication and energy. We can include here the problems regarding housing-communal culture. Reformation of state segment of economy will be resulted to increasing of its activity effectiveness, significantly improve the quality of supplied goods and services, remove the problems connected with financial discipline. Big work should be done regarding country’s accession to World Trade Organization. Particularly, in accordance to its requirements there will be reformed legislation base and procedure of state regulation of foreign economic activity.
The key reforms for today are those connected with reorganization of pension and social support to population system. Began pension reform supposes the clear division of social insurance and state social support systems, transfer to personification system of pension supply and address social support.
Of course, the reforms regarding education and health fields will be continued and deepened in order to more complete satisfaction of economy and societies’ demands at these types of services.
And what about the second part of your question – influence of euro course fall to national economy.
Countries joining to the European economic zone are basic partners of Azerbaijan. Thus, their roles in total external turnover amounts 38.3%, in total export – 46.7% and total import – 29.6%.
In this connection, the changes of euro course reflect definite influence to external trade with EuroZone. At the same time, taking into account its predominate in the structure of Azerbaijan export the fall of euro course will not be reflected to significant influence to export of oil and oil products to this zone. More it will influence to native import from EU. At that time, it is important to remember that the character and level of euro course’s reduction influence significantly will depend on conducted course policy in the republic. Along with above-mentioned, the course falling in respect of USD can be resulted with reduction of import prices from EU contributing to increasing of import from EU on the one hand and partial weakening inflation of pressure forming in result of big USD incomes from hydrocarbon export realization on the other. Secondly, the given process will increase the turnover with EU and so, it will be contributed to changing of the geography of external trade and creation of profitable conditions for import of innovations at processing industry.
CE: How do you estimate the economic relations with EU’s countries? What are perspectives in this sphere? Will Azerbaijan be able to compete with the famous European brands in future and which steps are being done in this direction?
Heydar Babayev: By the beginning of the third millenium, the economy of Azerbaijan has entered to new qualitative level of development. The basic purposes at this stage for us are increase of a standard of living of the population and reduction of poverty. For achievement of these purposes macroeconomic stability, maintenance of high rates of economic growth, creation of as much as possible favorable conditions are necessary for development of business and also the attraction of investments in economy.
Azerbaijan location at the turn of Europe and Asia, passage of transport corridors the Europe-Asia through territory of the country, presence of big hydrocarbon reserves in the Caspian Sea and Baku is the greatest seaport in the Caspian sea play the important role in definition of Azerbaijan’s position in region.
Today, Azerbaijan has partner relations with many countries of the world the international financial and economic organizations, is the participant of many regional projects.
It is necessary to note that integration into the Europe represents special importance for our country. Azerbaijan has the Agreement on partnership and cooperation with EU signed in 1996 and providing a legal basis for cooperation with the EU countries in every probable areas and in particular in political and trading spheres.
According to terms of the given agreement between Azerbaijan and EU are created such structures as:
- Cooperation Council (defines the strategy of partnership and the basic directions of development);
- Cooperation Committee (develops offers for the statement on behalf of Council, considers the matters in detail);
- Subcommittee concerning trade, economy (is basic worker, the expert body in detail considering{examining} all aspects of cooperation);
- Subcommittee concerning power and transport (again created worker, expert body concerning power and the transport, formed in 2005).
At sessions of all these structures various aspects of development of relations with EU there are considered economic processes in Azerbaijan, matters regarding promotion with energy resources of Azerbaijan in the European markets, expansions of transport corridors between EU and Azerbaijan are discussed.
The special attention is deserved with cooperation with EU within the limits of the program of the Technical Assistance to the Commonwealth of Independent States (TACIS). In 1992-2005 on line of TACIS the technical help at a rate of 90 million euro, which proceeds and to this day has been given to Azerbaijan. The intergovernmental programs financed within the limits of TACIS, are one of the important projects encouraging regional cooperation between the Caucasian countries, and also with other regions. The European Union, giving through program TACIS grants for realization of the projects directed on introduction of the European technologies in Azerbaijan, supports development of market economy and a democratic society in the country.
It is necessary to note such programs as "Restoration Program" aimed to restoration of destroyed social and technical infrastructure in Fizuli, Aghdam and Agdzhebedi areas of Azerbaijan during Armenian aggression, "Emergency Assistance Program" covering the activity on restoration of the center for storage of radioactive waste, to prevention of flooding, etc. For realization of agriculture projects, land reforms, liberalization of the market there is "Food Security Program" which is realized in the country since 1996. Cooperation with EU is conducted as well within the limits of regional programs. So, through the line of energy program "INOGATE" has been invested 50 million euro for restoration and modernization of an infrastructure and systems of regional oil and gas pipelines thus far.
The purpose of other regional program "TRACECA" (a transport corridor the Europe-caucasus-Asia) is creation economically the most favourable route from the Europe to the Central Asia through the Black Sea and Caucasus. Within the limits of this program 39 projects of the technical assistance at 57,7 million euro and 14 investment projects in the total cost 52,3 million euro have been financed.
One of parameters of successful cooperation of Azerbaijan from EU is connection of Azerbaijan to the Policy of the European Neighbourhood. Within the limits of this policy the Plan of action, which will cover political, economic, legal, cultural spheres will be developed. The plan of action is meant as the concrete document, with the detailed description of actions which performance should transform relations with the European Union at qualitatively new level. The document assumes the extensive technical and financial assistance from the European Union on carrying out of reforms in the above-named spheres.
The commodity circulation of Azerbaijan with EU nations in 2005 amounted more than 3 billion US dollars, including import of Azerbaijan the EU countries amounted 1,2 billion US dollars, and export - 2,0 billion US dollars. In comparison with 2004 the general commodity circulation with the EU countries has increased on 8,3%, including import - on 5,2 %, export - on 10,3%.
According to parameters of 2005 the 38,3% from the general external commodity circulation of Azerbaijan is necessary on a share of the EU countries.
The special attention needs to be given projects which are realized in close cooperation as with private, and the state structures of the countries of the Europe. Alongside with activity in oil sector, the European countries actively cooperate and in not oil sector of economy. So, as a whole the European companies work in building, transport, service, public health, agricultural and other non-oil branches of economy.
Till now in a national economy it has been invested from above 28 billion US dollars, of 71,8 % have made foreign investments of them.
Large European investors in the country are the Great Britain, Turkey, Norway, France, Russia, Italy, Germany, the Netherlands, Spain, Switzerland, etc. Since 1993 these countries have enclosed more than 12 billion US dollars in economy of Azerbaijan.
Considering last achievements in the field of economy of Azerbaijan, including carrying out of various reforms, acceptance of the certain state programs directed on social and economic development of the country, creation favorable business-environment are available all opportunities for the further expansion and a deepening of cooperation with the countries of the Europe.
CE: Which countries does Azerbaijan have higher trade turnover, and is there being planned its growing due to any projects?
Heydar Babayev: Thus, total amount of foreign turnover of Azerbaijan made more than 8.5 bn USD, including import – 4.2 bn USD, export – 4.3 bn USD in 2005. In comparison with 2004 total amount of foreign turnover increased to 20%, including import – 19.9% and export – 20.3%.
The most active trade European partners of the country are Italy, Great Britain, France, Germany, Netherlands, Russia, Ukraine, Turkey and others. Our foreign trade tendency’s growth is ongoing in 2006 too and there are unlimited opportunities in development of the turnover with countries of the world.
Thanks for your interview.