CALL TO MARKET
TBY talks to Fariz Azizov, Chairman of the Executive Board of the Baku Stock Exchange (BSE), on the main developments in the capital markets.
BIOGRAPHY
Fariz Azizov studied accounting and auditing at the Azerbaijan State Economy University. He holds a project management master’s certificate from G. Washington University (US) and an MBA from the Lancaster University Business School (UK). His professional experience includes both corporate and entrepreneurial leadership roles. He has 20 years of corporate experience in the financial sector of the country, including management positions in banking sector, senior management, and COO at three diversified, high-growth insurance companies, securities market institutions, and so on. He joined the National Depository Center of the Republic of Azerbaijan in 2008 as a Vice-Chairman and was appointed Chairman of the Center in 2011. He is also a Project Manager for the Capital Markets Modernization Project between the World Bank and the Government of Azerbaijan. Since January 2014, he has been the Chairman of the Board at the Baku Stock Exchange.What have been the main developments in the capital markets of Azerbaijan over the past year?
The capital market situation in Azerbaijan underwent substantial changes. There has been pressure generated by the state of the commodities market, which naturally led to the decrease of traded value on the BSE. There has been a substantial capitalization of existing players, coming partially from the state and partially from commercial enterprises taking out loans at the BSE, as well as companies simply expanding their businesses. The state continues to play the role of the main investor. It is clear that the companies are unable to play this role at the moment; the state invested its fixed assets in the economy, particularly in the country's infrastructure, and this financial redistribution transpired through the tools of the capital market. The decrease in state profits lead to fiscal consolidation and a decrease in state expenditures, putting pressure on the national currency. Adding to this is militarization and unrest in the region. All of these factors lead to cautious behavior from internal and external players. Nevertheless, our year-end report shows the traded volume on the BSE decreased only by 10-12%, a result of a replacement in the product structure. Along with the traditional instruments, such as stocks and bonds, investors redirected their attention toward hedging their risks with currency tools. The currency tools began to play a larger role in the BSE product structure and comprise around 70% of the total traded volume at present. In 2015, 2016, and partially into 2017, we are going to pay close attention to infrastructure projects that have to do with the market, the institutions, and the tools of the capital market.
In May 2015, the President signed a law calling for reconstruction of the stock market. In what ways will this new law affect the BSE?
The law “On the Securities Market Law” was enacted this summer. It is a central part of what we at the BSE call a three-step normative reform. The first step is the legislative act itself, which includes provisions for almost all aspects of the capital market development. The second step is about 30 regulatory acts that cover the professional activities of all the participants in the capital market. The licensing in the securities market is becoming much more transparent. The key points of this legal reform also include the protection of the investor's rights through special funds and more disclosure of information. The third step is the operating rules for the BSE and the National Depositary Center, the two central institutions. The process of subscription and placement, including IPO, is being aligned with international standards following the law's pragmatic approach. The law cements new listing rules and requirements for the BSE and creates conditions for developing new markets and tools within all three markets: the specially regulated government security market, the corporate instruments market, and the derivatives market. This strengthens the trade, post-trade, and intermediary infrastructure.
How can the capital markets become more appealing to the companies in Azerbaijan?
Over the next decade, the capital market will somewhat change its main function. The previous 10 years saw the intensive growth of state and corporate revenues made during an era of booming commodities prices and the capital market had the function of offering a fair redistribution of revenues and channeling them into the economy. Now, the capital market and all its institutions will have a new function. The key mission for the next decade will be boosting growth in the non-oil sector, attracting more savings of companies and households, and transforming them into investments on the BSE. For the last three consecutive years, the non-oil GDP of the country has been growing two times as fast as the oil sector, and we see it as having big potential for the capital market institutions.
CALL TO MARKET
TABLE OF CONTENTS
Year In Review
Good Times Ahead
<strong></strong><strong>In a year dominated by the overarching theme of low hydrocarbons prices, Azerbaijan showed resilience and verve in putting in place bold measures both to counter the slump in energy prices and put its economy on a surer footing.</strong>
read articleReview: Diplomacy
Operation Outreach
In 2015, Azerbaijan's military budget increased by a notable 27%, to $4.8 billion, or 17.9% of the government's total budget for the year. The first Azerbaijan Defence Exhibition (ADEX 2014), drew over 200 companies from 34 countries, including Russia and the US.
read articleInterview
Rufat Mammadov, President, Azerbaijan Export and Investment Promotion Foundation (AZPROMO)
TBY talks to Rufat Mammadov, President of the Azerbaijan Export and Investment Promotion Foundation (AZPROMO), on large-scale events and their ability to attract FDI and the potential Iran may hold.
read articleReview: Banking
More Interest
In a sector faced with relatively flat growth for 2015-16, new opportunities are still there aplenty, led by the nascent Islamic banking sector, e-banking, and microfinance initiatives. Together, these areas should make banking more diversified and less reliant on a buoyant energy sector for its capital inlay.
read articleReview: Capital Markets
Taking Stock
As Azerbaijan grapples with the knock-on effects of low hydrocarbon prices, the Baku Stock Exchange (BSE) finds itself at the center of the country's efforts to stave off a budget deficit this year. In January, the government announced plans to sell $500 million worth of bonds on the BSE.
read articleReview: Industry & Mining
In The Bag
Industry in Azerbaijan is long established, diversified, and, in many areas, fast growing. Together, these qualities make the sector well placed to see through the global slump in commodity prices, while at home, the manufacturing industry continues to find ways to use its hydrocarbons expertise in other fields, including high technologies and research.
read articleInterview
Khanlar Fatiyev, , Chairman of the Supervisory Board, Ganja Automobile Plant Production Association
TBY talks to Khanlar Fatiyev, Chairman of the Supervisory Board of the Ganja Automobile Plant Production Association, on the role of the plant in driving growth in the non-oil sector.
read articleReview: Transport
The New Node
With major new railways linking the region, the opening of the new Baku International Sea Trade Port Complex, the completion of a massive program of road building and upgrading, investment in state-of-the-art fleets ranging from Boeing 787s to rail locomotives, Azerbaijan can rightly claim the title as the Caucasus' transportation hub.
read articleReview: Agriculture
Lots More
Farms across the country are pursuing a policy of increased yields for year-round fruit and in the wheat harvest to stave off an over-reliance on imports. With carefully targeted increases in exports, better routes to port and to market, and greater sophistication of agricultural facilities, farming could soon be the morning star of Azerbaijan's diversified economy.
read articleReview: Health
Under One Umbrella
Life expectancy at birth (2015) is 75 years for women and 70 for men. The median age is 30. For both sexes, longevity increased by six years between 2000 and 2012. Azerbaijan is a relatively youthful country—an important factor in healthcare—with 22% of its populace aged under 15 and just 9% aged over 60.
read articleReview: Education
Baku to School
Azerbaijan's culture has always harbored a deep respect for educational values. This is embodied in the country's Azerbaijan 2020 mission statement, which seeks to raise standards across the sector and introduce ICT as a standard part of the learning experience at all levels.
read articleInterview
Elkhan Mammadov,, Secretary General, Association of Football Federations of Azerbaijan (AFFA)
TBY talks to Elkhan Mammadov, Secretary General of the Association of Football Federations of Azerbaijan (AFFA), on the experience Azerbaijan is gaining in hosting international events.
read article