ALL SYSTEMS GO

Azerbaijan 2016 | ECONOMY | INTERVIEW

TBY talks to Shahin Mustafayev, Minister of Economy, on developing SMEs, attracting foreign investment, and how the country is diversifying its economy.

Shahin Mustafayev
BIOGRAPHY
Born in 1965, Shahin Mustafayev was educated and graduated from the Baku branch of the Institute of Finance and Economics named after M. Voznesenskiy. He started working for the government in 1992, and took on various roles including Director of the Department of Economic Analysis and Accounting. He was the Minister of Economic Development from 2008 until 2013. The name changed to the Ministry of Economy and Industry in 2013, and then to the Ministry of Economy in 2016.

Support for SMEs in Azerbaijan is an important way to achieve growth. What are the ways in which the Ministry is working to create more favorable conditions for SMEs within Azerbaijan?

The private sector plays an important role in the development and diversification of the non-oil sector of the economy, with the development of entrepreneurship is one of our priorities. In line with the strategic quote from President Aliyev, “the development of our country depends on the development of entrepreneurship,” special attention is paid to the private sector for the stimulation and development of entrepreneurship. As a result, the share of the private sector GDP exceeded 80% while maintaining 73% in employment. According to statistics, more than 660,000 people are engaged in entrepreneurial activities. Over the past years, procedures and rules regulating entrepreneurial activity were liberalized, the mechanisms for state financial support for entrepreneurship were improved, effective mechanisms were established for the protection of the rights of entrepreneurs, state registration procedures of businesses were simplified, and electronic services were expanded. Moreover, foreign trade transactions and the registration of real estate rights became simplified and amendments were made to the legislation regarding the issuance of construction permits, optimization of corporate governance, protection of investors' interests, and bankruptcy. In addition, inspections of businesses were suspended for two years in October 2015, administrative procedures in the fields of licensing and customs were simplified, the number of business activities requiring licenses was significantly reduced, licenses became permanent, and the amount of state fees for the issuance of licenses was reduced twice in Baku and four times in the regions. These licenses are issued by the Ministry of Economy via the ASAN service centers and an Electronic License portal was created. In accordance with the amendments to the law on public procurements, discounts of up to 20% for local entrepreneurs will increase the opportunities for them to win tender projects and will provide additional support for the expansion of domestic production. Tax and customs privileges applied to investors with a view of investment promotion will lead to the further development of entrepreneurship, attraction of foreign investments, an increase in non-oil exports, and the development of the non-oil sector as a whole. Thus, entrepreneurs are exempted from customs duties on machinery, equipment, and devices imported for investment purposes in priority areas of the economy for 7 years. Moreover, a certificate of origin is issued to businesses in a single day, simplifying export procedures. Measures aimed at the development of entrepreneurship in the country are appreciated by international organizations. Azerbaijan has risen from 80th to 63rd place, improving its position by 17 points and becoming one of 24 countries that carried out three or more reforms in Doing Business 2016. According to Global Competitiveness Report 2015-2016, Azerbaijan ranked 40th among 140 countries, and keeps its leading position among the CIS countries for the seventh consecutive year. In general, comprehensive state support measures pave the way for rapid development of the private sector, especially SMEs, which are of particular importance for achieving the targets set in the Development Concept Azerbaijan-2020: Look into the Future.

Political stability in Azerbaijan is an important condition for foreign investment. How does this help promote investor confidence as the country looks to attract new funds amid a decrease in domestic expenditures?

It should be emphasized that the political and economic stability in Azerbaijan and the protection of the rights and interests of investors are important indicators of the business and investment climate of the country. Furthermore, the geographical location, hydrocarbon reserves, rich raw resources of precious metals and building materials, and a favorable climate for agriculture and tourism create many opportunities for local and foreign investors. To increase the efficiency of transit and logistics operations, the Coordinating Council was established to regulate the transit of goods. Cargo transportation tariffs were also reduced, creating favorable conditions for increasing the transit cargo transportation capacity of the country. Within investment promotion measures carried out in 2015 alone, AZPROMO organized 261 events, out of which 177 took place in Azerbaijan and 84 abroad. These events showcased investment opportunities in the country to local and foreign businessmen, promoted Azerbaijani products for exports, and saw export contracts signed with foreign partners. Exemplifying Azerbaijan's investment attractiveness in the world, in 2015 alone over $20 billion was invested in the country's economy. In total, during the period of 1995-2015, investments in the Azerbaijani economy totaled $220.4 billion, about half of which came from foreign investments. In addition, there are more than 7,000 foreign- invested companies currently operating in various fields.

How does the hosting one of the large sporting events in the world, the Formula One Grand Prix in Baku, work to have a positive impact on the overall economy of Azerbaijan?

Azerbaijan is considered a sporting nation throughout the world. Organizing the Formula One Grand Prix in Azerbaijan after the first European Games in 2015 is the result of political and economic stability, the international reputation of Azerbaijan, and the country's experience in holding major events and competitions. This event will have a significant impact on sport development, it will contribute to the economy, and the increase in the number of visitors will stimulate the tourism and service sectors. In addition, the positive image of the country will be highlighted and long-term investments will increase. The athletes and guests taking part in the competition will have an opportunity to get acquainted with the country and observe the successful development model of Azerbaijan

Industrial parks have greatly increased non-oil sector activity in Azerbaijan and added to the socio-economic development of the regions. What are your plans and areas of focus for developing additional parks in Azerbaijan?

Work is under way to establish industrial zones, industrial parks, and industrial estates. These will create new industries alongside traditional industrial areas, strengthen the industrial capacity of the regions, and maintain the development of industry on the basis of innovation. In accordance with the policy of industrialization, we continued to provide support for the establishment of industrial parks and estates. In addition, up to 270 industrial enterprises, including technical equipment, metal structures, concrete products plants, and textile factories commenced activity. The construction of new important industrial facilities began through- out the previous year. Work to establish the Sumgait Chemical and Industrial, Balakhani Industrial, Mingachevir, and Garadagh Industrial Parks, and the creation of infrastructure in Neftchala Industrial Estate has been proceeding intensely. The first phase in building the infrastructure for Sumgait Chemical and Industrial Park is almost completed, and five residents plan to invest more than $1 billion. Azertechnoline, a resident of the Park, has already signed an agreement to export 60,000 tons of pipes worth $45 million. The building of the external infrastructure at Balakhani Industrial Park is almost completed and more than AZN10 million is planned to be invested by four residents. Now, work is continuing on modern technologies in the field of shipbuilding in Baku Shipyard, a resident of Garadagh Industrial Park. Azerbaijan Investment Company (AIC) is one of the main shareholders of Baku Shipyard. Moreover, the establishment of a specialized industrial park for the steel industry in Ganja is planned. Consistent and systematic measures in the field of industry, the establishment of enterprises based on advanced technologies and best practices, have all had a positive impact on increasing the country's self-sufficiency and import-replacement efforts.

What are some steps that Azerbaijan can take with a view to ensuring economic growth against the background of a decline in global energy markets?

I gave information about the works done for ensuring economic growth in the new economic conditions. Systematic and durable measures for further improvement of business environment, development of entrepreneurship, stimulation of export, the state programs of rural development pave the way for non-oil sector development. Along with other fields, the agriculture sector is of great importance for the development of the non-oil sector. The development of this field is one of the country's economic priorities in terms of employment and the food security of population. As a result of the work done and state support for the agricultural sector, food production and the country's self-sufficiency rate has increased. In the coming years, targeted measures will continue to build necessary infrastructure for the storage of agricultural products, apply tax concessions, grant subsidies and soft loans, and organize leasing and agricultural services. In addition, logistics centers within the country and abroad look to boost the country's export potential and accessibility in foreign markets. The first logistics center of Azerbaijan has already been established in Aktau, Kazakhstan. This logistics center, which will serve for storage and sales of agricultural products and other food commodities, provides a number of opportunities and advantages for entrepreneurs, especially for exporters. Moreover, a number of large-scale projects are being implemented in order to increase the transit potential of Azerbaijan. The commencing of operations at the Baku International Sea Trade Port, Baku Shipyard, reconstruction of Baku-Boyuk Kesik Railway, construction of the Baku-Tbilisi-Kars railway projects, as well as the construction of international airports, North-South International Transport Corridor, all further expand the transit potential of our country and strengthen the transport infrastructure of Azerbaijan. In the rapidly growing ICT sector, the launch of satellites into orbit, the organization of high-technology parks, and new e-services have created additional opportunities. Actions have been taken for the development and promotion of the tourism potential of the country. The number of tourists visiting our country and the revenues gained from this sector have considerably increased. Attracting local and foreign investment in the tourism sector, further improving the quality of services, and hosting international sporting and cultural events provide additional stimulus for the development of tourism.