Oktay Hagverdiev, ex-Head of the Economics and Finance Department under the Azerbaijani Cabinet of Ministers and distinguished statesman sums up Azerbaijan’s financial year for VK.
- What was the 2010 economic year like for Azerbaijan?
- All in all, it was a successful one. We didn’t experience any of the consequences of the crisis; we have economic growth and financial stability. People’s incomes are rising faster than inflation. Compared to many other countries, our situation is much better; government policies are aimed at social and economic stability.
- What major enterprises were launched in Azerbaijan this year?
- According to the development strategy, several processing plants and refrigeration stations were opened, as well as other enterprises connected to the farming sector. Most of our efforts were aimed at promoting the oil industry and several of the newly-opened oil processing plants are already exporting their products abroad. Some 3,000 jobs were created, which is a big figure for Azerbaijan. We didn’t have to introduce major changes to the law, but we upgraded our tax collection and banking systems to meet contemporary demands. 2010 was a year of dynamic growth for Azerbaijan’s macro- and microeconomic sectors.
- Which branches of industry are the highest priority?
- Oil production forms 60% of GDP, 70-75% of the state budget and 90-92% of our exports. In the next 20-30 years we’ll have to develop scientific-intensive branches of the economy as well.
- Which country has the highest trade turnover with Azerbaijan?
- Italy – but that’s only because it hosts the oil exchange distributing Azerbaijani oil to its purchasers. In fact, we don’t supply Italy itself with oil. So the EU is really at the top of the list, followed by Russia, then Turkey. We have trading relations with 130 countries.
- What was the inflation indicator in 2010?
- Not too high – 5% at the beginning of the year and not higher than 6% at its end. And these figures are acceptable, as we don’t exist in an economic vacuum. We import high-tech machinery for the most part – and their price on the world market is increasing. Besides this, our agricultural output fell by 10% due to natural cataclysms.
- How do the banks help reduce the vulnerability of the economy?
- Thanks to the changes introduced into the legal system, we have managed to re-direct some 1.5 billion dollars to deal with liquidity, so our country was not gravely affected by the crisis’ consequences. The only problem we faced was a failure to repay credits – some 5% of credit funds. It’s not critical, but the Central Bank is looking into it.
- What is the level of the shadow economy in Azerbaijan and how do you fight it?
- A shadow economy exists in each and every country, for example its share in the state’s economy is 12% in Germany, 80% in the Southern USA and 8-9% in the Northern US , 80% in Italian Sicily and 12-13% in Milan.
There are two methods of counting the gross domestic product indicator: by production and by public consumption. We use the first way; however, if one wants to calculate the consumption indicator the figure will be completely different. For example, we produce 100 dollars-worth of product, but according to the consumption indicator, it’s 120. There are always some items that are impossible to account for. For example, sometimes spontaneous employment exchanges take place.
The consumption indicator is always higher than the production one so many countries count their GDP according to consumption. As for Azerbaijan’s shadow economy sector, I estimate it at 18% to 24% at different periods of time. The State Statistics Department offers other figures: 7-8%, and some foreign experts say it’s 60% - I think that’s not true though, as such a share of shadow operations would render the country’s economy completely uncontrollable.
- Does a so-called ‘black market’ exist in Azerbaijan?
- We had it when we didn’t have official currency exchange points. As for drug-trafficking – we are fighting it.
- What branch of Azerbaijan’s economy at a disadvantage?
- We suffered severe losses in the farming sector, and that is why we have worked out a special programme, stipulating storage and transport development. And we also have some problems with the level of energy consumption for each unit of production – it’s too high. This is an issue of the technological level of our enterprises – unfortunately, this problem has not been attended to yet. There are two different concepts: economic growth and economic development. Growth depends on the state of the market (for us – the oil market) and economic development is about intensification, so our 20% growth is a less significant result compared to Japan’s 0.5%. Saudi Arabia produces 350-360 million tons of oil per year, however there are only 12,000 employees in the sector, foreigners for the most part. And we employ 50,000 people in oil production – and they produced 50 million tons of oil per year. So you see how important labour efficiency is.
- What is your prognosis for 2011? Will growth continue?
- Yes, we won’t face any problems here. However, the rate will go down, as our economy, practically based on oil production, is too dependent on the state of the global oil market.
- Could Azerbaijan enter the WTO next year?
- No. I think it’s not a good idea for Azerbaijan to enter the Organization before 2015, before the completion of the state programme for the creation of competitive enterprises. It wouldn’t be profitable for us.
- What perspectives does the development of the ‘Umid’ gas field open?
- Prospecting of the field was started back in Soviet times. Gas there is bedded at a depth of 6,000 meters . We can supply gas, but we have to find a prospective buyer or our investments will be lost. And geopolitics influences the process – you see how many difficulties we have with Russia, Iran and Turkey. And that makes me wonder whether we are on the right track here. I think we can become a major gas importer for Europe.
- Will the manat’s position be rectified in the next year?
- According to the Central Bank, yes. However, there are some social aspects to the issue. Economically speaking, the policy of strengthening the manat-to-dollar and manat-to-euro rates is wrong. However, if we let go, the price will gallop up, so the Central Bank had to spend 1.5 billion dollars to hold the exchange rate. The manat’s real value depends on oil prices. I think we should continue this policy for two years and then slowly let the rate fall.
Interview by Ramin Naziev, exclusively to VK
