TBY talks to Emin Aliyev, Chairman of the Board at Baku Stock Exchange, on the development of key indicators, the local capital markets, and FDI.
TBY What is your outlook on Azerbaijan’s key economic indicators?
EMIN ALIYEV For the last several years there have been many positive internal and external indicators showing the strength of the Azerbaijani economy. These include macroeconomic achievements, economic growth, and banking sector expansion together with other indicators that are facilitating the stimulation and development of the economy. Azerbaijan’s economy has been developing at the fastest rate in the world for the past few years, doubling its GDP twice over the last five years. Today, the Azerbaijani economy makes up 80% of the entire economy of the South Caucasus. Azerbaijan’s growth was made possible by the realization of large-scale regional projects, such as the Baku-Tbilisi-Ceyhan (BTC) pipeline, the Baku-Tbilisi-Erzurum gas pipeline, Baku-Tbilisi-Kars (BTK) railway project, and a new port in Baku for the handling of goods from Central Asia. Such investments have established the foundation for new prospective projects to handle the transit of energy from Central Asia to Europe. All of these projects are transforming Azerbaijan into a locomotive of regional economic development.
How has the BSE contributed to the overall development of the economy over the last decade?
Since being established in 2000 as a joint-stock company, the BSE has reached several milestones. In July 2000 the BSE was granted a stock exchange license by the State Committee for Securities of Azerbaijan. Two months later, in September 2000, the first short-term government bond was sold via the BSE. Then, the first repo was introduced to the market in November 2001. In 2004 the BSE recorded the first transactions with corporate bond equities. Thus, during the first several years of its activity, the BSE started to work in close cooperation with both the private and public sectors. These dynamics are now continuing with the aim of fulfilling the main mission and vision of the BSE, which is to become a leading financial institution by establishing deep capital markets and effectively managing risks. It is also working to carry out its vision of organizing a transparent and fair market with wide-ranging financial instruments and creating attractive investment tools for investors. Regarding the contribution of the BSE to the development of the of the economy, the “State Program on the Development of the Securities Market in 2011-2020,” which was adopted in May 2011, is of great importance. The main objectives of the program include the institutional development of the securities market, the organization and promotion of financial intermediation activities and collective investment schemes, the maintenance of demand and supply on the securities market, the expansion of the application of principles of financial transparency and corporate governance, the improvement of the legal and normative framework in respect to the securities market, and the improvement of market awareness and professional skills. The realization of the program has been divided into three phases. The first phase is the modernization of the infrastructure of the securities market. The time framework for phase one is 2011-2014. The second phase concerns the automation and consolidation of transactions on the securities market, and it covers the years 2015-2017. And the third phase will focus on the introduction of new and more complex tools and services in the securities market. This phase will be realized during 2018-2020. The infrastructure of the Azerbaijani capital markets consists of the State Committee for Securities, which is the regulatory body, the BSE, the National Depository Center, which is the central securities depository and registrar, and the brokers and dealers, who are the professional participants acting as the securities trading intermediaries on the market. With this regard, the realization of the targets of the state program is very important for the development of the whole securities market and its actors. The BSE is now correlating its newly adopted strategic plan in parallel with the state program’s main directions.
What are the main activities the BSE carries out currently?
The BSE’s main activity is the trading of securities. We organize and conduct real-time auctions by means of an electronic and fully automated trading platform, which is the property of the BSE. We also carry out clearing and settlement activities using the BSE’s clearing account at the Central Bank. The BSE keeps records of the mutual obligations of counter-parties during trading sessions and ensures those obligations according to the auction’s results. We additionally provide depository services for government securities. The BSE also provides the necessary market information to all stakeholders by means of its official website, and periodic data bulletins.
What is your evaluation of the BSE’s trading activity in the recent past?
Let’s compare 2010 and 2011. The difference is clear and it is huge. For example, in October 2010, the average daily turnover was around AZN5.65 million. In October 2011 the same figure was AZN18.4 million. The Azerbaijani business community is becoming more and more aware of the capital markets. The possibilities are expanding every day. Such periods of interest historically result in massive overhauls of the markets and rapid development. The outcome of these periods are the development of an appropriate trading architecture, favorable investment possibilities, and regional expansion. Azerbaijan today is on the threshold of such a period.
What level of FDI have you seen over recent years?
The number of practical regulation changes liberalizing the process of conducting business has been exceptional. Among them one can mention the law on the protection of foreign investment and the law on investment activity. Later, Azerbaijan carried out some revolutionary legal reforms including the adoption of the new Tax Code, civil procedures, land and labor regulations, customs courts, and foreign exchange law, as well as a the law on international arbitration that made the system more transparent and business friendly. Azerbaijan is the leading FDI destination in the region. In the last decade FDI in Azerbaijan exceeded $100 billion. It is a very good signal that FDI is becoming diversified. More and more investors are looking to the non-oil sector. The creation of favorable conditions for this dynamic is the one of the main aims of the government.
In which non-prime sectors do you see the greatest opportunity?
The state priority is for the development of the non-oil sector. Within this, great opportunities can be found in all the non-prime sectors. FDI is more commonly seen in the transport, agriculture, construction, telecoms, and retail sectors. Starting from the first days of its activity, the BSE has been establishing relations with foreign investors. These relations developed with the coming of the first foreign investors to the Azerbaijan capital markets from 2004. Later, this interest became wider and deeper from the point of view of investment volumes and the increasing number of investors. Together with other sectors, the financial sector of Azerbaijan has a good base to become the financial hub of the region. That is why we strive toward becoming a regional financial hub by providing a fertile environment and favorable investment opportunities for investors in our capital markets.
What level of cooperation does BSE have with its international counterparts?
The BSE has always paid attention to increasing relations with its international counterparts. It is necessary from the one hand in order to obtain more experience from them, and on the other hand to make the international financial community more aware about us. It is necessary in order to attract more foreign investors to Azerbaijan’s capital markets. Azerbaijan is a member of the Federation of Euro-Asian Stock Exchanges, and one of the BSE’s shareholders is the Istanbul Stock Exchange (ISE), which has always been useful for us. Thus, one of our main objectives is to generate more continuous interest in our capital markets by establishing strong cooperation with more and more counterparts.
What are your expectations for the future?
We expect to become more institutionally strong, and are working hard to organize, manage, and develop transparent, easily accessible, and effective markets. We aim to organize market possibilities for investors, issuers, and intermediaries so as to contribute to the financial and economic growth of Azerbaijan.
© The Business Year