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Business Outlook in Azerbaijan 2019 Business outlook in Azerbaijan Fourth Edition Deloitte CIS Research Centre 1H 2019 Brochure / report title goes here | Section title goes here Contents Introduction 03 Azerbaijan in figures Macroeconomic outlook (GDP, inflation, currency rates etc.) 04 Key industries of economy 12 Business outlook in Azerbaijan Research Centre analysis 22 About respondents 38 Contacts 39 02 Business outlook in Azerbaijan Introduction We are delighted to present the fourth edition of the Business Outlook in Azerbaijan, the Deloitte Research Centre’s macroeconomic journal. We focus on the current trends in the Azerbaijani economy and present our key research findings. Nuran Kerimov In March-April 2019, Deloitte conducted a survey Managing Partner of the top management of leading Azerbaijani Deloitte Azerbaijan companies. This allowed us to identify the overall economic environment, scrutinize how the non-oil sector is developing and examine foreign direct investment attraction. Complex analysis helped reveal hidden trends, and comparisons with Russia and Kazakhstan produced additional insights. The macroeconomic analysis in this edition features a in-depth study of Azerbaijan’s financial system. If you have any questions or suggestions regarding this research, please do not hesitate to contact us at: [email protected] 03 Business outlook in Azerbaijan Azerbaijan 01in figures 04 Business outlook in Azerbaijan Key macroeconomic indicators Gross domestic product (GDP) 129.8 117.4 GDP, AZN bln 103.8 (current prices) 89.7 84.6 79.8 Fact 70.3 60.4 EIU forecast 59.0 58.2 54.7 54.4 52.1 42.5 40.1 35.6 GDP growth rate, % 28.4 18.7 (constant prices) 12.5 Fact EIU forecast IMF forecast 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019* 2020* 2021* 2022* 2023* 26.4 34.5 25.0 10.8 9.3 5.0 0.1 2.2 5.8 2.8 1.1 -3.1 0.1 1.4 1.8 2.1 2.6 2.9 2.7 3.4 3.1 2.1 1.6 1.5 Source: UN statistics, State Statistical Committee of the Republic of Azerbaijan *Forecast: Economist Intelligence Unit (EIU), International Monetary Fund (IMF) “We have plenty of resources Azerbaijan’s Credit Rating to ensure macroeconomic stability Agency Rating Forecast Date in 2019. The 2019 is similar to 2018 in terms of the macroeconomic Moody’s Ba2 Stable 12 March 2019 situation. The main policy was built S&P BB+ Stable 25 January 2019 on low inflation and the ideology of a sustainable exchange rate.” Fitch BB+ Stable 15 February 2019 Elman Rustamov Chairman of the Central Bank of Azerbaijan Brent oil price forecast, USD/barrel 2019 2020 2021 2022 2023 “Azerbaijan’s economy expanded EIU 66.5 60.5 69.8 75.6 75.0 at a moderate pace in 2018 aided by stable oil production and a modest IMF 61.8 61.5 60.8 60.4 60.6 pick-up in domestic demand, as higher ECB 67.1 61.3 60.6 - - oil earnings boosted fiscal spending and real wages rose. As natural gas exports rise, economic growth is forecast to accelerate over the medium-term.” Natural gas price forecast, USD/mmbtu "Europe and Central Asia Economic 2019 2020 2021 2022 2023 Update", an overview by World Bank EIU 2.8 3.0 - - - IMF 2.7 2.7 2.6 2.6 2.7 WB 2.7 2.7 2.8 - - 05 Business outlook in Azerbaijan Key macroeconomic indicators Real GDP growth by sector, % 103.9 103.0 166.3 163.2 136.8 106.8 114.0 101.8 90.2 94.9 100.9 97.1 100.6 100.1 94.7 100.5 114.9 113.6 108.3 111.9 111.4 115.9 103.7 107.7 109.4 109.7 109.9 107.0 101.1 95.6 102.8 101.9 Oil & gas sector Non-oil sector 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 In 2018, both the oil and non-oil sectors demonstrated moderate growth; however, the growth rate of non-oil sector has been higher for the last two years. Real GDP growth by economic activity in 2018 Activity Activity Information and communications 9.3% Agriculture, forestry and fishing 4.6% Transportation and storage 7.8% Trade, repair of transport means 3.0% Accommodation and food services 7.6% Mining and quarrying 0.4% Manufacturing 6.9% Construction -9.0% Information and communications sector demonstrated the highest growth rate of real GDP in 2018 (9.3 percent) while construction fell by 9 percent. Source: State Statistical Committee of the Republic of Azerbaijan 06 Business outlook in Azerbaijan Key macroeconomic indicators Foreign trade, USD bln EIU forecasts for the period 2019–2023, 31.8 the value of exports to be almost double 28.3 that of imports. This will provide a solid 22.1 21.3 19.6 positive trade balance and support 19.5 17.8 18.1 15.6 15.2 13.2 Azerbaijan’s financial stability. 12.2 12.6 11.5 11.6 11.5 11.4 11.2 9.8 9.3 9.0 9.0 The EIU estimates that exports will recover in 2021 after a decline in 2019 (exports could be constrained 2013 2014 2015 2016 2017 2018 2019* 2020* 2021* 2022* 2023* by declining output from the oil sector and the sharp depreciation Exports of goods of the Turkish lira), and then demonstrate Imports of goods fast growth of up to 10 percent per year, while imports will rise only Source: EIU, State Customs Committee slightly during the forecast period *EIU forecast (at an average of 2 percent annually). Structure of goods exported in 2018, USD mln Structure of goods imported in 2018, USD mln Machinery Petroleum 17,875 91.9% and electrical 1,808 15.8% products equipment Food and Food and 1,703 14.9% agricultural 705 3.6% agricultural products products Metals 1,410 12.7% Metals 253 1.3% Chemicals 1,459 12.3% Chemicals 197 1.0% Vehicles, aircraft, 819 7.1% vessels Other 429 2.2% Other 4,266 37.2% Total 19,459 100% Total 11,465 100% Source: State Customs Committee 07 Business outlook in Azerbaijan Key macroeconomic indicators External debt 40 37 36 35 34 26 31 External debt, USD bln 27 25 Fact 16 EIU forecast 14 14 13 20.0 11 12 19.5 10 10 19.0 18.2 17.5 16.9** External debt, 15.3 6 15.0 13.8 percentage of GDP 12.3 10.1 9.6 Fact 8.1 7.1 4.8 EIU forecast 3.0 2.6 2.0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019* 2020* 2021* 2022* 2023* Source: EIU, Central Bank of the Republic of Azerbaijan *EIU forecast **Including USD 8.9 bln of sovereign debt as of 31 December, 2018 According to the State Debt Management Strategy, sovereign debt will reach a peak of USD 10.1 bln at the end of 2019, then dropping to USD 6.5 bln by the end of 2025. Source: Medium- and long-term strategy for public debt management in the Republic of Azerbaijan Foreign exchange reserves 16 18 15 12 13 Foreign exchange 8 10 10 7 7 6 reserves, USD bln 4 6 Imports, USD bln 14.2 13.8 Imports coverage 11.5 11.7 by reserves, 10.7 10.5 9.8 months 9.7 9.2 9.2 8.8 8.5 7.2 6.6 6.4 6.1 6.1 5.6 5.7 5.3 5.3 5.0 5.2 4.0 4.0 2.0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Source: State Customs Committee, Central Bank of the Republic of Azerbaijan Azerbaijan’s currency reserves have declined since 2014 due to interventions by the country’s Central Bank on the foreign exchange market to keep the AZN/USD exchange rate at a stable level. Nevertheless, they remained sufficient to cover about six to seven months of imports in 2015–2018. 08 Business outlook in Azerbaijan Key macroeconomic indicators Average monthly wages Average monthly 823 nominal wages 745 687 and salaries, AZN 637 637 587 539 529 500 Fact 467 445 425 398 364 332 298 274 EIU forecast 149 216 124 124 Average real wages, % Fact EIU forecast 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018* 2019* 2020* 2021* 2022* 2023* 13.5 11.4 24.1 5.2 7.0 5.2 1.9 4.1 4.5 5.1 0.0 -4.8 -5.6 2.6 2.8 2.7 3.8 3.8 3.7 Source: State Statistical Committee of the Republic of Azerbaijan, EIU *EIU forecast and estimate Average monthly nominal wages and salaries are growing steadily: the EIU expects to see them increase by about 50 percent by 2023. Despite the fact that average real wages have been declining over the past two years, the EIU gives a positive forecast for next 5 years (about 3 percent per annum on average). Average consumer price index, % 20.8 Price indices 16.7 Fact 12.4 12.9 EIU forecast 9.6 8.3 7.9 IMF forecast 5.7 4.0 2.3 1.5 1.1 3.5 3.7 3.5 3.6 3.8 2.4 1.4 2.5 2.5 2.7 2.7 3.0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019* 2020* 2021* 2022* 2023* Source: State Statistical Committee of the Republic of Azerbaijan *Forecast: EIU, IMF Consumer price inflation decelerated CPI in 2018 by components considerably in 2018 reflecting Total 2.3% modest domestic demand and low external inflationary pressures.
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