TBY talks to Shahin Mustafayev, Minister of Economic Development, on his outlook for the Azerbaijani economy over the medium term.
TBY Since you took over the Ministry in 2008, what key reforms have you sought to implement at both the ministerial and national level?
SHAHIN MUSTAFAYEV The Ministry of Economic Development plays a leading role in the implementation of state economic and social policy. We have a wide scope of responsibilities that include the development of various sectors of the economy, trade relations with foreign countries, investments, the development of entrepreneurship, the elimination of unfair competition and promotion of competition, as well as the protection of consumer rights. During the first years of independence, the economy was based almost entirely on petroleum revenues. These revenues were then redirected to develop the non-petroleum sector in order to encourage diversification. At present, the development of the non-petroleum sector forms the basis of Azerbaijan’s economic policy. In 2010, the growth rate of the non–petroleum sector exceeded the overall economic growth rate of 7.9%. In the same year, the growth rate of the non-petroleum industry was 6.2%, while telecommunications grew by 29.7%, and goods transportation saw an increase of 3.1%. Additional growth rates in 2010 include 16.2% growth in the chemicals industry, two fold growth in equipment production, 44.6% growth in metallurgy, and 2.4% growth in food production.
Our government is also applying systematic and successive measures to further develop favorable business conditions to promote an entrepreneurial spirit, to attract investment to the non-petroleum sector, and to diversify exports. Our Ministry closely participates in the process of governmental credit supply to improve financial aid for new businesses in the non-petroleum sector. In 2010, we granted a total of AZN115 million to 1,430 entrepreneurs through the Ministry’s Entrepreneurship Support Fund. The fund assigns AZN125 million of preferential credit to priority sectors of the economy. The Fund for the Motivation of Export and Investments in Azerbaijan (AZPROMO) was founded by the Ministry of Economic Development to promote investment and exports. The Azerbaijan Investment Company (AIC) was also founded to support foreign investments, provide loans to the non-petroleum sectors, and attract foreign and local entrepreneurs to the non-petroleum sector.
In 2010 alone, nearly 100 business forums and conferences were held in Azerbaijan to attract foreign investment and develop non-petroleum exports. Azerbaijani businessmen have also participated in business forums and business meetings organized both in Baku and overseas by AZPROMO, and established relations with foreign partners. We are currently working on opening trading houses in foreign countries to widen the possibilities of reaching overseas markets. The Ministry plays the lead role in coordinating government programs including poverty elimination, regional, social, and economic development, and food provision. With the successful results of these programs, our country can better develop its economy—the poverty level is decreasing year by year, new enterprises are being established, and new job opportunities are being formed. The standard of living is rising and the economic situation in the regions is improving.
What measures are being taken to boost GDP growth in 2011 and over the medium term?
During the global financial crisis in 2009, Azerbaijan’s economy grew by 9.3%. There are then objective causes for the decrease of the growth rate in 2010. After signing the “Contract of the Century” in 1994, the large-scale exploitation of Azerbaijan’s rich petroleum and gas deposits increased the export capacity of the country and dramatically increased the GDP growth rate. Oil and gas production is still largely carried out in accordance with the contract today. In the past two years, the growth of the petroleum sector was 14% in 2009, while in 2010 it accounted for just 1.8%. This shows that in 2010 economic development was mainly in the non-petroleum sector. We will be focusing on realizing infrastructure projects, further improving the business environment, and attracting investment into the non-petroleum sector. The government will be paying special attention to our industrialization policy, which supports the production of competitive goods, the implementation of new technologies, and extends access to the financial markets, and adapts product and service quality to international standards. It is also necessary to work towards perfecting our legislative foundations, as well as forming special economic zones and new industrial complexes. These measures will guarantee the dynamic development of our country.
Which sectors will play the greatest role in the diversification of the economy?
The ICT sector is a crucial part of the non-prime development program. It is not surprising then that President Ilham Aliyev has declared ICT the second priority sector after the petroleum industry. Secondly, strengthening the transit potential of our country has enormous importance in the development of the non-petroleum sector. The construction of the Baku-Tbilisi-Kars railway, the re-construction of the Europe-Caucasus-Asia (TRACECA) highway, and the construction of the International Sea Trade Port are especially important. The new port, together with contributing to the development of transit possibilities, will lead to the strengthening of the position of our country in the region. Furthermore, important measures have been taken to stimulate the investment-innovation process and the implementation of ecologically safe technologies, which help to save energy and resources. The agrarian sector has enormous importance regarding our country’s food security. Currently, our attention is focused mainly on the intensification of production volume expansion. There is also big potential for developing the tourism sector considering the history of the country, its geographical position, and favorable climatic conditions.
What key sectors of the economy is your Ministry seeking to promote from an FDI perspective?
The development of the non-oil and gas sector is the main priority to provide stable economic development. This sector has enormous potential due to the geographic position of the country, its climate conditions, natural resources, the formation of the infrastructure system, and a favorable business environment. In order to stimulate non-petroleum exports, our strategy is to stimulate export goods production, improve export infrastructure, perfect our quality control system, and develop education for export. Foreign investments also have an important role in the development of the economy. For this reason, the existence of favorable conditions for foreign investments is always on the agenda of the government. Measures to improve the investment environment in the country have increased the flow of foreign capital into our economy. Currently, government consent is not required for foreign companies in Azerbaijan and they enjoy full rights. Business registration procedures in Azerbaijan have been simplified, and rules for the regulation of entrepreneurship activities have been considerably liberalized, while export duties have been annulled, and the maximum limit of 15% for import duties has been determined. There are lots of possibilities for foreign investments in such non-petroleum sectors as machinery, construction, the chemical industry, metallurgy, electricity production, construction materials, light industry, the food industry, and tourism. There is also big potential for foreign investment in the production of ecologically safe agricultural goods.
What is your outlook for the economy in 2011 and for the medium term?
The stable development of the Azerbaijani economy is expected to continue in 2011, and according to forecasts, the growth rate of Azerbaijan’s economy will come in at 3.8%. The non-petroleum sector’s growth rate will again surpass the rate of the petroleum sector with, according to our predictions, a 7% growth rate.
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