Azerbaijan expects to weather economic storm

/By AzerNews/

By Gulgiz Dadashova

The year 2014 was one of the most challenging years for the world in terms of foreign policy and global economy. A series of economic shocks put many states into crisis and instability; however Azerbaijan was among those few countries which managed to avoid the challenges with minimum damage.

In 2014, Azerbaijan pressed ahead with its economic development. One of the great and historic achievements of the country was taking of the 38th place in terms of competitiveness by the Davos World Economic Forum.

The macroeconomic indicators of the past year were bright enough as the rate of poverty and unemployment stood at 5 percent. Meanwhile, investments worth $27 billion were made in the country's economy. The foreign debt accounted for only 8 percent of the country's gross domestic product. Foreign exchange reserves hit $54 billion.

Banking

The country recorded a development trend in banking and insurance sectors. Assets of banks and companies grew and no company declared bankruptcy in 2014. In addition, the vast majority of Azerbaijani banks met the minimum requirement of the Central Bank to the authorized capital set at the volume of 50 million manats (roughly $64 million).

The rate of the manat remained stable, which can be regarded as the main achievement of the country’s economic policy last year. As neighboring countries, one after another announced the devaluation of their currencies, Azerbaijan boated of its strong economy that resisted crisis waves of the Russian-sanctions-hit-economy. The Central Bank of Azerbaijan followed a wise policy of keeping the manat rate stable. The CBA pursues a policy of intervention, aimed at redemption of foreign currency from the market and increase in foreign exchange reserves. In 2014, the volume of interventions amounted to $1.5 billion.

Meanwhile, the CBA announced that it will set up frameworks to regulate the operational risks. The Central Bank will continue with measures to improve the stability of the banking sector for potential risks and to limit risks in a preventive mode in 2015. “The processes of consolidation in the banking system will also continue. The choice of control limits in accordance with the risk profile of systemically important banks will remain in the focus and the arrangements will be made for the restructuring, if necessary.”

“In 2015, improvement of banking supervision will be continued taking into account the system of Basel III and characteristics of the local environment,” said the CBA statement. “Measures to establish a political model that will allow implementing countercyclical and prudential regulation on the basis of risks will be progressing, the possibilities of using new prudential instruments of controls to prevent the growth of risks in the banking sector will be studied.”

In 2015, the system of protection of the interests of consumers of financial services will be strengthened as part of the activities aimed at increasing confidence of public and the corporate sector in the banking system.

Oil & gas sector

Another big shock of 2014 for mostly energy exporters was a sharp drop in oil prices. The fall in prices began in June, and since then the price of oil has lost almost 45 percentage points. However, even with such indicators, Azerbaijan was able to complete the 2014-state budget with surplus. The government also assured that the country will not face any strong obstacles in 2015 and the Azerbaijani economy can survive at a price of $60 per barrel and the implementation of major infrastructure and social projects will go ahead with no problem.

Despite the volatility in the global markets, 2014 was quite successful and memorable for the oil and gas industry of Azerbaijan.

The launch of Southern Gas Corridor project in September was the highlight of 2014. Given the ambitious plans of Azerbaijan to export its gas to Europe, this project is very important both for the country and for all involved parties.

Promotion of all projects included in the Southern Gas Corridor, continues despite all problems. Contracts worth $10 billion have already been signed only within the 2nd phase of the development project of Shah Deniz , which opens the Southern Gas Corridor.

The year was successful also for the TAP project. TAP consortium received permission to build the Albanian and Greek sections of the pipeline. Also it "restarted" the procurement process, including pre-qualification stage started over tenders for the supply of goods and services. Meanwhile, TANAP consortium made vital decided on the pipes and pipeline construction contractors.

Another achievement of the Azerbaijani oil and gas sector under these rather difficult market conditions in the past year was the conclusion of PSA-contract by SOCAR and BP for the joint exploration for potentially promising structures located in the shallow water areas of the Absheron peninsula in the Azerbaijani sector of the Caspian Sea.

SOCAR opened a path into the European retail gas distribution market as Azerbaijan signed a deal with Albania on cooperation in the development of a master plan for Albania’s gasification.

Industry

The strong economic buffer was achieved thanks to the active development of the non-oil sector, which already accounts for 60 percent of GDP. The development of the non-oil sector remains a priority for the government, which recorded 7 percent increase in 2014.

The announcement of 2014 the Year of Industry boosted the rapid development of this sector. This year more than 230 new industrial enterprises were opened which had a positive effect on the elimination of unemployment and the development of our export potential. Azerbaijan already provides itself with basic food commodities. The government seeks to achieve the same results in the market of building materials.

The state program on development of industry for 2015-2020 is expected to further give impetus to the expansion of industrial zones, parks, free economic zones and development of the economy as a whole.

The state program sets the direction for improving the competitiveness of local production and export capacity, improving the regional structure of the industry and, finally and the creation of Azerbaijani brands. Moreover, priorities highlighting the development of both traditional and non-traditional industries to diversify the industry include creation of new production facilities with high-tech, envisaged expansion of production of electronic equipment and organization of pharmaceutical production.

Azerbaijan applies new mechanisms for concentration of production capacity. To this end, different profiles of industrial parks and business incubators are created in the country. Moreover, these structures are tasked with new challenges. For example, industrial parks, primarily designed for localization of relatively large factories are aimed at maximizing the mass production, including the supply of products to foreign markets. The task of business incubators is somewhat different. Here it is supposed to run as a business idea, designed for the development of the ICT sector, small series or high-tech industry development initiatives in the field of innovative services, research, agriculture, industry, services, etc.

Azerbaijan has created industrial parks. It has already opened Sumgait and Balakhani industrial parks, as well as the High-Tech Park. It is also expected to lay down the foundation of modern industrial towns in Ganja and Mingechevir cities and Garadagh district of Baku.

All of these activities will be supported by the state, private and foreign direct investment, technical and financial assistance from international organizations and foreign countries will also be involved.

Azerbaijan became more active not only for domestic indicators but also in terms of entering the overseas markets. Azerbaijan, enjoying sufficient foreign exchange reserves has begun to actively invest abroad. There is a long list of countries which have expressed a desire to cooperate with Azerbaijan not only in the field of exports and imports, but also in making mutual investments, as well as the use of its territory as a transit zone for the resale and transportation of the goods.

All these end-of-year reasons unveil an increasing optimism about the government's performance in economic field. The Azerbaijani economy has demonstrated its resilience, stability and ability to grow even under hard external conditions.

Despite a number of challenges and tests of strength, experts say there would be good news in 2015.