Expert: Lower oil prices on the world market will naturally cause the decline in Azerbaijan’s state revenues

Expert: Lower oil prices on the world market will naturally cause the decline in Azerbaijan’s state revenues

Interview with Dr. Vugar Bayramov, Chairman of Center for Economic and Social Development (CESD)

– Which nonoil sectors can be developed in Azerbaijan considering the current decline in world oil prices below $50?

– Lower oil prices on the world market will naturally cause the decline in Azerbaijan’s state revenues. All the same, the low oil price has a positive side for Azerbaijan. First, the current situation signalizes the need to develop nonoil economic sectors and start developing most promising fields. I would say that if tomorrow the oil price on the world markets gets up, the price may drop any time. The decline in prices depends rather on political than economic factors.

In the presence of political factors prices may drop anytime in the future. In this view, this is a call and exam for the country. Azerbaijan must, undoubtedly, develop the nonoil sector. Over the past years the share of nonoil sector in the state budget revenues has risen.

On the other hand, if we look at the period when oil prices on the world market were high, especially in 2013-2014, we will see that the share of nonoil sector of GDP grew to 68.8%. At the same time, in this period the share of nonoil sector in state budget has risen to 35%. It is natural that in 2016 the share of nonoil sector in country’s state budget will be close to 50%. This is also connected with the fact of low oil prices on the world markets.

Unfortunately, in period of high oil prices the share of nonoil sector made just 5%. In fact, Azerbaijan entered the period of low oil prices on the world market with the share of nonoil export at 5%.

Naturally, this had a direct impact on state revenues, since it shows that GDP and formation of state budget revenues occur at the cost of internal sources, at the cost of investments from foreign sources. The increase in the volume of export, especially the share of nonoil sector of export will clearly allow Azerbaijan to reduce dependence of country’s revenues on oil prices on the world market.

– Which spheres do you think should be developed in Azerbaijan?

ICT, tourism and agrarian sectors were identified as priority spheres in the state concept of ‘2020: Vision of the future’ in Azerbaijan. Naturally, tourism is a priority sector and it must be developed, since each tourist brings additional revenues to the country. All the same, Azerbaijan loses to neighbor Turkey in the quality of tourism services and to Georgia in prices.

We may be equal to Georgia for the quality of services, but the matter is that high prices in the country lead to Azerbaijan’s disadvantage in comparison to the neighbor country. 5.5 million tourists visit Georgia within a year against 2.4 million people visiting Azerbaijan, despite the fact that Azerbaijan is twice as big as Georgia in territory and population and has a more developed infrastructure.

There is a need for numerous reforms and events to develop tourism and strengthen competition on the market. Food safety and food provision is of great importance in agrarian sector.

We offer to develop food industry in the country along with agrarian sector. Development of food industry will allow Azerbaijan to supply its food products in a form of crude to the foreign markets.
ICT sector has an advantage, but the competition in the sphere of information technologies is weak in Azerbaijan. This is because the ICT services are expensive and always requires financial investments. There is a potential, but along with ICT services the matter is about export to other countries, which is naturally not easy and takes time.

It is also necessary to bear in mind that this requires huge investment. Thus, it is necessary to store ICT equipment, its amortization which requires huge funds. On the one side, ICT is an innovative sector, here it is always necessary to apply innovations. That is, the state must constantly allocate funds for inventions in this sphere.

The conclusion is that though the ICT sector is a priority, it takes state funds and can be profitable for the state but in the long-term perspective.

Also along the food industry, we highly value the opportunity of developing light industry. It is hard to compete with China and Turkey in the region but Azerbaijan can cover a definite part of local production at the cost of light industry.

– As you have noted earlier, the current oil prices have dropped below $50 and dollar continues to rise against manat. Entrepreneurs say they suffer from the global economic crisis. What would you recommend them to do to overcome crisis without losses?

We consider that the measures to protect entrepreneurship taken by country’s president over the past weeks, especially in October, are encouraging. Thus, suspension of inspections for two years and the simultaneous reduction of the number of licenses prove that Azerbaijan has stepped to a new period of entrepreneurship development.

This all is a state support of entrepreneurs. State investments improve business climate. Unfounded inspections are prevented. The number of procedures is reduced. An opportunity is created for obtaining licenses and other special agreements. All the same, we support direct support and assistance of the state, like it is in many developed countries.

First, this support must be manifested in subsidizing export in Azerbaijan like in a number of other countries. Thus, if within a quarter the company exports production in more than $100mln, it must get subsidies from the state. This must encourage the companies to export more production and thus increase

Let’s view an example. China is one of the three biggest exporter countries in the world. Increase in the volume of export there enables the companies to get more subsidies. We offer to apply this system in our country, too.

As for entrepreneurs, they must also be ready for difficulties, since global crisis affects the export of their production. By preparing electronic export maps for entrepreneurs, the Ministry of Agriculture will raise the opportunity of their export.

The export map gives an opportunity to select countries for export. For example, the agrarian goods imported by Italy, the prices, the supplier countries, etc. The farmers can get the whole information about this country by touching the electronic map.

It is also important for the farmers to be able to diversify their activity, to have an opportunity of entering alternative markets.

Russia and CIS countries are priorities for Azerbaijani farmers. After sanctions were imposed on Russia in 2014 and ruble fell down Azerbaijani farmers suffered from huge losses. Thus, Guba farmers were obliged to throw down their products to the river, since they were not able to take it to the market.

Thus, in order to avoid such cases the ministry must prepare export maps for farmers. We believe that this will lead to the sale of products for a higher price and give an opportunity to enter alternative markets.


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