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Azerbaijan 2012 | ECONOMY | INTERVIEW

TBY talks to Adil A. Mammadov, President of AZPROMO, on the country's legal trade and investment framework, the import-export profile, and FDI in the non-oil sectors.

Adil A. Mammadov
BIOGRAPHY
Adil A. Mammadov worked in the UN Economic Commission for Europe in 2003-2004. From 2005 until November 2009 he worked as Head of the Extractive Industries Transparency Initiative (EITI) Secretariat at the State Oil Fund (SOFAZ) of the Republic of Azerbaijan. In November 2009 he was appointed the President of the Azerbaijan Export and Investment Promotion Foundation (AZPROMO).

How has Azerbaijan's legal trade and investment framework evolved to support economic growth?

The government has successfully opened up the economy to international business and introduced investment-friendly laws and regulations. There have been many important legal developments in Azerbaijan since its independence, including the enactment of modern civil, labor, tax, and customs codes. The authorities have also worked toward streamlining activities for the granting of licenses and permits, and established central property and mortgage registries. Furthermore, international financial reporting standards (IFRS) have been adopted, and a single-window system for company registration, work-permit formalities, and customs procedures has been introduced. The legislation enacted has established a very open environment for FDI. The government has lifted limitations on foreign participation in the banking sector, and the privatization process is open to foreign investors as well. Incentives have been granted to the trading system, and recent amendments in legislation have focused on simplifying the regulations governing imports and exports.

How would you assess the evolution of Azerbaijan's export-import profile?

During the first 11 months of 2011, the trade turnover in Azerbaijan increased by 9.2% and amounted to $33.2 billion, compared to $28 billion in 2010. Azerbaijan exports far more than it imports, and it recorded a trade surplus of $16.1 billion for the year. Local exports exceed imports by 2.9 times, and the main destinations for Azerbaijani products are mostly European countries. Major exports include oil and gas, petrochemicals, metals, and agricultural products, though Azerbaijan is working to diversify its export profile. The priority is to expand the country's offering in terms of agriculture, industrial products, and services. Azerbaijan already exports to several EU countries, the US, and the Middle East. The Commonwealth of Independent States (CIS) continues to be the largest market for Azerbaijani products, while Russia, Turkey, China, Germany, Ukraine, Kazakhstan, the UK, and the US are among Azerbaijan's main import partners. In 2011 Azerbaijan traded with about 150 countries. The country ended the year with a positive trade balance. The government supported this with a policy aimed at encouraging entrepreneurship by providing loans and a number of tax incentives. Companies with a turnover of less than $191,000 annually pay only 4% tax in Baku, and just 2% in areas outside of the capital.

What are your views on the key trade partnership between Italy and Azerbaijan?

Italy has been the main importer of Azerbaijani oil and petroleum products since 2003, and it is the gateway to Europe for Azerbaijani crude. The volume of exported products through Italy makes up about 51.9% of total exports. At the same time, we import pipes, tobacco, leather goods, and furniture from Italy. AZPROMO's main aim is to diversify the portfolio and trade relations with Italy. There is huge potential in many sectors, such as agriculture, ICT, and tourism. We are cooperating with the Italian counterparts to organize business meetings, forums, and other joint promotional activities.

What factors are driving investment and growth in the non-oil sector? What sectors offer the best potential to attract FDI?

Azerbaijan is a country with a wide range of investment opportunities, and is undoubtedly one of the most attractive destinations for FDI in the region. Over the past 16 years almost $120 billion has been invested in the Azerbaijani economy, more than half of which was invested by foreign businesses. The year 2011 attracted a record-breaking $20 billion in investments. Domestic investments totaled $13 billion, while $7 billion came from abroad. The non-oil sector of the economy received the largest portion of these investment flows. For foreign investors, the agriculture and food-processing sector possesses great potential for development, with a wide range of investment incentives and strong profitability.

What role will new transport infrastructure, such as the expansion of Baku's seaport and airport, play in attracting more FDI and strengthening the economy?

The development of infrastructure is a key strategy to attract investment. The government has paid special attention to the development of this area since Azerbaijan became independent in 1991. Many large infrastructure projects are currently underway. One such project is the Baku-Tbilisi-Kars railroad, which is also called the “Iron Silk Road." After completing this project in 2012, Azerbaijan will become a logistics hub as it restores ancient trade routes connecting Asia to Europe. The Baku International Sea Port will be the largest in the Caspian Sea. It will be capable of transporting 21 million tons of goods per year, or 150,000 TEUs. These are only a few examples of efforts aimed at increasing the capacity for moving people and goods to and from Azerbaijan, and eventually making the country a key logistics hub for the region.