Azerbaijan seeks business partnership with Sri Lankan entrepreneurs

Speaking at a press conference held on Tuesday evening, the Ambassador said the country needs partnership for all sectors to build good relationship with Sri Lanka.

Explaining current situation in his country, the ambassador told the media, they have similar ethnic problem and a challenge from terrorists. The country follows a peaceful way to solve its conflict, he added. However he noted his country needs Academics and professionals.

He said Azerbaijanis still follow Cattle Breeding, Viticulture & Wine-making, Olive Growing, Cotton Growing Industry, Textile & Carpet Weaving Industry, Construction Industry, Food Industry etc.

According to the Ambassador following Azerbaijan's independence in 1991, which was an act of historical justice, the early period was one of great hardship for the nation. A number of dramatic challenges confronted the country, including military aggression by Armenia, transport blockade, domestic political turmoil, and the threat of civil war, several coup attempts and misappropriation of public property.

Failure by the executive to set up a consistent programme for improving and reforming the economy resulted in a situation where any new acts designed to assist the transition to the market economy were destined to remain dormant.

The highly adverse policy pursued in finance, credit and foreign trade, coupled with inflation took a heavy toll on Azeri industries and eventually brought the national finance and banking system to collapse.

Finally, Azerbaijan lost all economic contacts and market outlets in the post-Soviet republics.

The evolution of early elements of market-type relationships, especially in trade, services, transportation, procurement and banking was largely a disorganised and "top-down" driven process, which in some instances took criminal forms.

As a result of the general inexperience in foreign trade and lack of an adequate legal framework, many businesses, especially newly-fledged ones, were exporting millions of dollars worth of oil products, aluminium, cotton and other commodities at dumping prices. Azerbaijan's economy sustained serious damage; in addition, the lion's share of the revenue was transferred to overseas banks.

Efforts were made to enhance interaction with major international economic and financial institutions, whose technical assistance was essential for the design and implementation, in 1995-1999, of three successful government programmes aimed at strengthening macroeconomic stability, restructuring and reviving the economy and improving the living standards of the people.

The government adopted stiff budget, credit, tax, customs and social policy. As a result of liberalisation of prices, activation of foreign trade and currency market, and the withdrawal of the state from economic activities (which included the removal of government contractual work practices, quotas, licensing, etc.), the fall of GDP was contained, the budget deficit and inflation rates brought to an acceptable level, the national currency stabilised and the impoverishment of the population halted. In general, economic development became largely controllable by market means.

Privatisation, land reform and policies designed to encourage the development of private businesses facilitated the growth of the non-public sector share in GDP to 68% in 2000, as compared to 29% in 1994; this share increased to 44% (against 2.1% in 1994) in industry, 98% (57%, respectively) in agriculture, 52% (39%) in investment, 85.6% (14.3%) in passenger transport, 98% (83%) in trade, 20% in education, 38% in health, and 79% in utilities.

An important achievement has been the increase in foreign investment flows over the past years. Whereas in 1993 Azerbaijan's economy received no foreign capital at all, during 1994-2000 the country attracted $5.5 billion of direct investment, including $3.3 billion (60%) allocated to the oil sector and $2.2 billion for infrastructure development in other industries.

A surge of foreign capital was a principal precondition of the rehabilitation of the Azeri construction industry, transport, communications, and other service sectors. Over the past five years, domestic contractor organisations who were successful with many tenders rendered various services to foreign companies with a total value of about $600 million. Currently, about 50,000 residents of Azerbaijan are employed in industrial and non-industrial ventures established by foreigners, enjoying relatively high remuneration.

In parallel with foreign capital, investments from local sources have been growing steadily during recent years. Thus, in 1995-2000, total investment in industrial and servicing facilities and residential buildings from the state budget, domestic companies and individuals exceeded 9.7 trillion manat ($2.3 billion), which included 52% allocated for industries, 29% for residential buildings and utilities, 9% for transport and communications, and 10% for trade and cultural facilities, services, hotels, etc.

The liberalisation of foreign trade and simplification of export/import procedures prepared the soil for rapid development of Azerbaijan's ties with international markets. By 2000, the republic was trading with 123 countries (as compared to 57 countries in 1994), with a total turnover of $3.9 billion - a 2.5-time increase over 1994. The ultimate goal of the economic course followed by the Azeri government has always been the people's welfare and restoration of their faith in a prosperous future, which was lost during the years of hardship. Over the last six years, all the shortages in the domestic consumer's market have been eliminated. The improvement in the population's purchasing power is reflected in an upward trend in consumption of goods and services, which averaged 14% and 4%, respectively, in 1995 and 2000. The same time span saw an increase in population's cash income and average monthly salary by 2.52 times and 13.8 times, respectively, whereas inflation was effectively frozen. Another remarkable trend was the increase in population's spending on cultural and educational items.

Azerbaijan is one of the oldest oil and gas producers in the world. Its industrial structure is dominated by oil facilities, which account for nearly 60%. This sector includes oil and gas production, processing and marketing.

At present, the Azeri oil industry is about to experience a new boom. This real prospect of an increase in oil and gas production is principally associated with the development of new offshore fields.

In September 1994, Azerbaijan entered into an agreement with major international oil companies, which was named "the contract of the century", on joint exploration and development of Azeri, Chirag and a deep-water portion of Guneshli.

A new consortium, entitled Azerbaijani International Operational Company (AIOC), was founded with the participation of oil companies from the USA, Great Britain, Norway, Russia, Turkey, Japan and Saudi Arabia.

Systematic efforts aimed at strengthening democracy, law and market economy all worked to attract foreign investors, and soon another 20 contracts were concluded on oil prospecting and production in a number of promising fields. Direct foreign investment under these contracts totals about $60 billion.

Since November 1997, over 12 million tonnes of crude oil have been extracted and shipped to Europe under the first contract. By 2000, total annual oil yield grew from 9 to 14.1 million tonnes. International and domestic specialists are expecting that, in the next decade, annual production will be as high as 45-50 million tonnes of oil and 18-20 billion cubic metres of gas.

Thus, a sound contractual basis has been provided for the development of Azerbaijan's oil sector over several decades, as part of the presidential Oil Strategy.

However, at present the proportion of oil sector in national GDP does not exceed 18-19%, the remainder being made up of machinery, ferrous and non-ferrous metals, chemicals, petrochemicals, light industry goods, foodstuffs, building materials and agricultural products (the latter accounting for 20%).

The above industries were introduced in Azerbaijan during the Soviet period, with the aim of exporting 80-85% of their output to other republics. Following the break-up of the USSR, the demand for these goods shrank sharply and, as a consequence, decline in production was the overall trend in non-oil industries and agriculture up to 1996.

Although some growth in output of these sectors has recently been seen, the ability of most non-oil facilities to produce competitive goods is severely restricted by their obsolete equipment and technology. Therefore, Azerbaijan is facing the vital task of modernising its non-oil sectors and bringing them to a competitive level. However, according to estimates, the financial and technological potential of the country will not be sufficient for such an all-embracing measure in the near future. In this connection, the government intends to focus on the setting of a favourable environment for foreign investors, rather than rely on limited domestic resources.

Adequate economic incentives for foreign capital flow were provided for in a number of specially drafted acts and regulations.

Another important implication of foreign investment flow is Azerbaijan's increasing role in the integration of the regions. Apart from international oil and gas pipeline projects, which are meant to provide an outlet in Europe for energy resources not only from Azerbaijan, but also Kazakhstan and Turkmenistan, the country is seeking to use its advantageous geographic location as much as possible, since it represents an excellent prospect of becoming a transit centre on the Europe-Caucasus-Asia route. This route is assigned a key role in the restoration of the Great Silk Road, a venture which is to be supported by 32 European and Asian countries.

In the view of experts, the prospective transport route will be the most efficient of all. If, as is expected, cargo transit via Azerbaijan increases by 8-10 times in the near future, an annual revenue of more than $1 billion will arise. The Baku-Ceyhan and Baku-Erzerum pipelines are seen as important elements of this system.

Land reform gave Azeri agriculture, once a prosperous sector, a chance of revival. Due to Azerbaijan's favourable natural and climatic conditions, the agriculture sector has a potential to supply domestic demand for most foods, provide input for the food and light industries, engage 30% of the country's labour resources, contribute to the export range and precipitate the development of a land market. Therefore, the government's short-term strategy envisages encouragement of this vast potential to contribute to the overall economic turnover by economic means.

Equal development of all the country's regions is a priority issue that should be addressed over the next few years. It is well known that uneven regional development can represent the soft underbelly of a state. Due attention must be given to the potential of sectors such as mining (including alunite, copper, lead, zinc, silver, gold, bismuth, quartz sand, dolomite, Iceland spar, nitre, salt, clay, volcanic ash, limestone, detritus, facing marble, travertine, etc.), and tourism. At present, a special highland areas development programme is being worked out. The unused potential of the regions is also being counted on in the programme to fight poverty.

The conceptual industry, agricultural and investment policy for the near future will be implemented against the background of a relaxed tax and monetary regime. Provoking mild inflation (5-6% per annum) and "loosening" the manat exchange rate are being considered as possible tactics which would allow the monetary mass to increase to 25-30% of GDP (and thus optimise the application of currency resources), eliminate the "hunger for finance" in industry, and stimulate export.

The anticipated scenario for the next few years is that foreign loans will gradually cease to be the principal means of financial stabilisation, ceding this function to the domestic banking system. The latter is expected to turn towards the real sector of the economy and supply the demand for credit from industrial and agricultural enterprises, regardless of their form of ownership.

The privatisation of large companies will continue. This process calls for a flexible approach, especially in instances where investment is involved. The practice of "squeezing out" as much money as possible based on the fixed book value of a lot is far from being universal. The ultimate considerations should be the fundamental upgrade and reasonable restructuring of an enterprise, creation of new jobs and enhancement of export and import substitution capabilities. These objectives may well justify price concessions to potential investors.

The current social and political situation in Azerbaijan, and its adherence to the course towards open democratic society, form a sound basis for the country's evolution, over the next 10-15 years, into a prosperous state with high living standards and optimistic prospects.

The Republic of Azerbaijan is favourably located between the East and West. The country has historically served as a bridge between the Western and Oriental traditions, having benefited from both.

Azerbaijan is one of the foremost economic reformers in the CIS. Its liberal economic system is based on institutional development, privatisation, support for businesses, co-operation with the international financial institutions and large scale international oil and gas projects. Azerbaijan is among the leaders in Central and Eastern Europe in terms of foreign direct investment per capita.

Today’s priorities include enhancement of the legal framework, diversification of economic growth and improvement of the general business environment and people’s welfare. State development programmes backed by international financial institutions are currently underway to support these goals.

The “open door” policy for foreign businesses is intended to take advantage of the great potential for international economic co-operation in such areas as manufacturing, agriculture, infrastructural development and services, among others. As part of this strategy we are happy to provide newcomers to the Azeri market with every kind of support and information.

Azerbaijan is also the largest and the fastest growing economy in the South Caucasus. It is the most effective transport link connecting South-eastern Europe with increasingly important regions of Central Asia and the Caspian Sea. Increasing numbers of professional shipping companies have engaged in transportation of goods by this link over the last ten years.

The country has a well-developed network of railways and rail ferry connections to the main ports of the Caspian Sea in Russia, Iran, Kazakhstan and Turkmenistan. The Heydar Aliyev International Airport in Baku is one of the biggest airports in the region. Direct flights operated by major international airlines connect the capital of Azerbaijan to the principal European destinations and other cities of the globe. The airport serves as a transit point for Central Asia and Afghanistan.

The government of Azerbaijan has adopted a policy of denationalization of formerly state owned property and openness to foreign capital. Azerbaijan has a number of privatized industries and others that are currently open for privatization. Foreign companies may participate in the process on equal terms with local investors.

The government of Azerbaijan welcomes foreign direct investment (FDI) in the country. In the relatively short period since independence, it has made continuous efforts to open up the economy and establish laws and regulations that are favourable to foreign investors.

New opportunities for FDI have emerged in the process. The clarity of the legal regime and the welcoming policy of the government of Azerbaijan have turned the country into one of the leaders in Central and Eastern Europe in attraction of FDI. Asian Tribune