PRIVATE SECTOR ACTIVITY (PSA) Quarterly Progress Report

Year 1. Quarter 1: September 18 – December 31, 2019

Jarchi Hagverdiyev’s team received recommendations regarding to the construction of warehouse in accordance to ISO 22000

Prepared for review by the United States Agency for International Development under USAID Contract No. 72011219C00001, Private Sector Activity (PSA) implemented by CNFA. Private Sector Activity

Quarterly Progress Report

September 18 – December 31, 2019

Submitted by: CNFA USAID Contract 72011219C00001 Implemented by CNFA

Submitted to: USAID/Azerbaijan Samir Hamidov, COR

Submitted on December 13, 2019 Table of Contents Executive Summary...... 5 Detailed PSA Progress by Activity and Component ...... 5 Operations ...... 5 Legal Registration ...... 8 Document and Deliverables Submission ...... 8 Programs ...... 10 Berry Value Chain ...... 10 Hazelnut Value Chain ...... 11 Orchard Fruit Value Chain ...... 13 Pomegranate Value Chain ...... 14 Vegetable Value Chain ...... 16 Second U.S.-Azerbaijan Agricultural Forum ...... 16 Azerbaijan Food Safety Agency (FSA) ...... 17 Azerbaijan Small and Medium Business Development Agency (SMB) ...... 18 Azerbaijan State Agrarian University...... 18 Agro Procurement and Supply Open Joint Stock Company ...... 19 State Tourism Agency ...... 20 World E-Commerce Forum ...... 20 Azerbaijan Rural Women’s Association ...... 21 Technology Transfer Fund ...... 23 Facilitating Linkages with U.S. Agribusiness ...... 23 Access to Finance ...... 24 Quality and Food Safety ...... 24 Monitoring, Evaluation and Learning (MEL) ...... 25 Environmental Management and Monitoring ...... 25 Appendix A. Draft PSA Year One Performance Monitoring Plan (PMP) ...... 26 Appendix B. Short-Term Technical Assistance/International Assignments ..... 26 Appendix C. Finance Research Reports ...... 26

3 Private Sector Activity (PSA) Quarterly Progress Report Acronyms

ABPEA Azerbaijan Berry Producers and Exporters Association AHPEA Azerbaijan Hazelnut Producers and Exporters Association ASAU Azerbaijan State Agricultural University AzPromo Azerbaijan Export and Investment Promotion Foundation BDS Business Development Services BMSB Brown Marmorated Stink Bug BSP Business Service Provider CBI Center for the Promotion of imports for developing countries CNFA Cultivating New Frontiers in Agriculture DAS Deputy Assistant Secretary of State ERC Environmental Review Checklist FSA Food Safety Agency GAP Good Agricultural Practices HACCP Hazard Analysis and Critical Control Points HSE Health, Safety, and Environmental ICD Islamic Cooperation for Development ICT Information and Communication Technology IPM Integrated Pest Management IR Intermediate Result MELP Monitoring Evaluation & Learning Plan MoA Ministry of Agriculture MOU Memorandum of Understanding PERSUAP Pesticide Evaluation Report and Safer Use Action Plan PMP Performance Monitoring Plan PPE Personal Protective Equipment PPEAA Pomegranate Producers and Exporters Association of Azerbaijan PVE Preventing Violent Extremism PY Project Year ROC Record of Compliance SEDA Socioeconomic Development Activity SMB Small and Medium Business Development Agency SME Small and Medium-Sized Enterprise STTA Short-Term Technical Assistance TA Technical Assistance TTF Technology Transfer Fund USACC United States-Azerbaijan Chamber of Commerce VC Value Chain

4 Private Sector Activity (PSA) Quarterly Progress Report Executive Summary

On June 25, 2019, USAID and CNFA signed a contract for the Private Sector Activity (PSA), a five-year, $15 million project with the goal of utilizing a partnership and co-investment approach to support a more resilient Azerbaijani economy and improve the business enabling environment. The project, underpinned by a belief that supporting the non-oil sector, by improving the competitiveness of the private sector with a special emphasis on agriculture, and reducing the administrative barriers that hinder the development of micro, small, and medium enterprises (MSMEs), will contribute to a more secure and sustainable Azerbaijani economy.

The quarter not only marked the start of the Project’s operation, but also was an extremely busy period for implementation. Within the reporting period, PSA provided significant funding for and co-organized a series of events such as the second U.S.-Azerbaijan Agricultural Forum, which took place this time in Oklahoma, a Safe Use of Food Additives workshop and a Fruit and Vegetable Juice Production Quality and Safety event in Baku, and exhibited at the third International Hazelnut, Walnut, and Chestnut Festival held in Zagatala region and the Tea, Rice, and Citrus festival held in Lankaran region. Within its work with Azerbaijani government agencies, PSA supported the four Food Safety Institute laboratory employees to attend a training in Dubai, provided translation services for a plant protection short course taught by a U.S. professor at Azerbaijan State Agricultural University (ASAU) in Ganja, and organized a series of meetings for the chairman of the Small and Medium Business Development Agency (SMB) with U.S. counterparts in New York City and Washington, DC.

While many of the aforementioned events were large, high-level events requiring a great deal of organizational efforts, PSA also continued its start-up activities in parallel. PSA is following in the footsteps of the USAID Agricultural Support to Azerbaijan Project (ASAP), a previous CNFA- implemented project, which closed out one day prior to PSA’s launch. This eased the Project’s start-up, which included PSA drafting and signing agreements with major subcontractors Nathan Associates and WCC International, recruiting new staff for open project positions, expanding upon existing or building new relationships and partnerships with state agencies, conducting a value chain study with its Serbian subcontractor SEEDEV, and drafting the work plan for the first year of the Project’s operation. The PY1 Work Plan will serve as a guide to implementation of a robust slate of activities over the remaining months of the Project’s first year.

Detailed PSA Progress by Activity and Component

Operations

Establishing an Office

Although PSA is a distinct project, it is following in the footsteps of the USAID Agricultural Support to Azerbaijan Project (ASAP), a previous CNFA-implemented project, which closed out one day prior to PSA’s launch. During the first week of the project, PSA conducted a review of office space availability and pricing in central Baku within walking distance of the USAID office in order to determine an ideal office location that would facilitate frequent meetings and coordination between PSA and USAID. Based on its findings, PSA decided to remain in ASAP’s

5 Private Sector Activity (PSA) Quarterly Progress Report former office, at least initially, as the location is ideal, the rental price is competitive and within the PSA budget, and it was fully equipped and available for use from day one of PSA. Thus, CNFA signed a one-year lease agreement during the first week of the project. During the first month, CNFA upgraded its internet access from a telephone line to a dedicated fiberoptic line in order to provide for more reliable internet access. Though the office space may prove to be smaller than ideal once PSA is fully staffed, the initial project workload, which included the organization of several high-profile events over the project’s first 60 days, was deemed sufficiently demanding that the time and effort needed to conduct a further search for a larger space, and to make ready and move into a new premises, would not be workable until after the initial 90-day project start- up period, at a minimum.

Staffing

Because most of PSA’s personnel were identified in the project proposal, CNFA was able to quickly contract most full-time staff within the project’s first week. CNFA conducted a competitive selection process to select an experienced legal firm to assist it in exploring legal options for engaging this personnel both prior to and upon legal registration of the project, as well as to review PSA’s various employment, travel, and office-related policies to ensure maximum compliance with Azerbaijani legislation and CNFA policies. Project personnel were initially engaged on consulting agreements, but it is planned that staff will be transitioned to employment agreements upon legal registration of the PSA project.

The Chief of Party (COP) of the project was already in the country and started work on day one of PSA, thus meeting the USAID requirement that the Contractor’s COP arrives in-country no later than 30 days following the contract award date. Unfortunately, the designated Deputy Chief of Party (DCOP) could not accept his position in Azerbaijan due to family medical circumstances and withdrew from the position one week prior to scheduled deployment. CNFA immediately commenced a search for both an Interim DCOP and long-term DCOP. An Interim DCOP, a former Deputy Minister of Agriculture in Georgia and currently the Technical Unit Lead of the USAID Georgia Agriculture Program, was deployed to Baku from October 20 through December 6, 2019, and he supported PSA’s start-up and program implementation activities. The process of interviewing long-term DCOP candidates was ongoing as of this report’s drafting.

CNFA also advertised to fill three additional local project positions, namely for a Business Environment Improvement Manager, Accountant/Office Manager, and Procurement Assistant. Application deadlines for all three positions have passed and over 100 individuals have applied in all, though as has often proven to be the case in Azerbaijan, very few applicants have followed the application instructions. For example, of 58 applicants to Accountant/Office Manager position, only five have followed the application instructions. In November, CNFA received USAID approval to hire the selected individual for the Procurement Assistant position, and she commenced her assignment on December 3rd. CNFA interviewed Accountant/Office Manager applicants in November and was preparing to submit a personnel and rate approval request to USAID for the selected candidate as the present report was being drafted. Finally, Business Environment Improvement Manager applicants were shortlisted in early December and will be interviewed starting the week of December 16th.

6 Private Sector Activity (PSA) Quarterly Progress Report Subcontracting

As envisaged in its proposal, CNFA will have two major subcontractors under the PSA project. Nathan Associates Inc., which manages a portfolio of programs worldwide to strengthen macroeconomic and fiscal policy, trade, investment, and business enabling environments, will provide leadership under PSA Objective 3 “Support for Azerbaijan’s Economic Reforms,” where it will establish a responsive, flexible mechanism for supporting the Government of Azerbaijan (GoAJ) with its Economic Reform Agenda and support the GoAJ in the streamlining and operationalization of regulations governing MSMEs in Azerbaijan. Ms. Zeynep Akalin, a development economist, will lead PSA Objective 3. CNFA subcontracted with Nathan Associates on September 18 and Ms. Akalin was deployed to Azerbaijan on October 22.

WCC International, a U.S. small business that supports international trade with a focus on Azerbaijan, the Caucasus, and Central Asia, and has a close relationship with the United States- Azerbaijan Chamber of Commerce (USACC) and U.S. agribusinesses, will support the U.S. agribusiness linkages and export promotion activities of PSA, as well as facilitate relations between analogous U.S. and Azerbaijani government agencies in order to catalyze experience exchange and collaboration. An initial subcontract was signed with WCC early in the first month of PSA to support the Project to organize the First Oklahoma-Azerbaijan Agricultural Forum, which took place in early November. A longer-term subcontract for WCC’s remaining engagement on PSA will be signed with WCC in early 2020.

PSA also subcontracted with SEEDEV, a company based in Serbia with substantial experience in agricultural research and analysis around the world, including the Caucasus, to conduct a Value Chain Prioritization and Gaps Assessment for Azerbaijan’s horticultural sector and fielded a two- person team’s visit to Azerbaijan in November under the assignment. PSA is in the process of finalization of consultant recruitment for an Agritourism Assessment to be conducted starting in late January 2020.

Consulting with Stakeholders and Donors

In order to develop a detailed Year 1 Work Plan, PSA held a wide variety of meetings with agricultural, tourism, governmental, and other stakeholders to identify and map needs, resources, and opportunities that will enable the project to refine its goals, strategy, activities, partners, and beneficiaries. This process entailed ground-truthing assumptions that were incorporated into CNFA’s PSA proposal, exploring feasibility of proposed activities from both a cost and time perspective, and identifying new opportunities and resources that the project can tap into.

At least two major reports that are anticipated to come out of these efforts, including a Value Chain Prioritization and Gaps Assessment and an Agritourism Assessment. Building on a methodology used last year under USAID’s Agriculture Program (AP) in Georgia, SEEDEV’s work with the PSA Team will build upon this knowledge, much of which is applicable to Azerbaijan, in the PSA Value Chain Prioritization and Gaps Assessment, thereby allowing the PSA Team to more rapidly conduct and conclude a similar assessment for Azerbaijan. The Assessment is completed in three steps.

7 Private Sector Activity (PSA) Quarterly Progress Report 1) Analyzing the competitiveness of a wide range of products and product groups. 2) Conducting a market system mapping for an in-depth gap analysis. 3) Developing value chain action plans.

Finally, the PSA Team will confer with USAID and relevant government agencies in order to gain buy-in and consensus on final value chain selection and action plans.

For the Tourism Analysis, the PSA Team will bring an expert to Azerbaijan to work with PSA staff to study and gain a better understanding of the strategy and capacity of the Bureau of Tourism as well as the nascent agritourism and ecotourism ventures and support activities recently launched in the country.

Legal Registration

After nearly five years of attempts to legally register a CNFA branch in Azerbaijan, on July 23, 2019, the branch received its official registration certificate, valid as of July 17, 2019, and received its official stamp and tax identification number the following month. The next step is to register the PSA project in order to ensure the legality of its operations in the country, to qualify for exemption from VAT and other taxes, and to expedite importation of equipment, machinery, and other items into Azerbaijan for program use. CNFA conducted a competitive selection process in order to select a law firm to help the Project navigate the reporting, human resources, and other initial implications of its branch being registered in Azerbaijan, as well as to assist it in the efforts to register the PSA project. PSA management is moving this effort forward in close consultation with the law firm, CNFA Headquarters, and USAID.

Document and Deliverables Submission

CNFA submitted the following deliverables and other documents to USAID during the quarter: USAID Submission USAID Approval/ Document Submission Date(s) Acknowledgement Status 1. Quarterly Reports Year 1 Quarter I Quarterly December 13, Submitted Pending Progress Report 2019 2. Program Design PSA Start-up and Preliminary Work Submitted October 19, October 29, 2019 Plan 2019 3. Grants Manual Submitted November 22, Pending 2019

4. Other Documents and Deliverables Weekly Updates Submitted Weekly Various Research Report: “Analysis of 2020 October 16, Submitted October 18, 2019 Azerbaijani State Budget” 2019 Research Report: “Are Banks November 22, Submitted Pending Lending to Agribusiness?” 2019

8 Private Sector Activity (PSA) Quarterly Progress Report Research Report: “Azerbaijan’s Major Steps in Monetary/Financial Policy in 2019 to keep inflation and the exchange rate stable, and what In Progress Pending Pending the current situation looks like”

9 Private Sector Activity (PSA) Quarterly Progress Report Programs

Berry Value Chain

• Meeting with Lenkaran Executive Committee Chair (ExCom) Taleh Garashov: On October 4, 2019, USAID PSA COP David Blood and several project staff met with Mr. Garashov in the ExCom office to introduce themselves, briefly present the PSA project, and request permission for PSA to exhibit at the then upcoming third annual Lenkaran Tea, Rice, and Citrus Festival, a regular event that celebrates the annual harvest. Mr. Garashov was welcoming and expressed support for and willingness to assist the new project and to provide a space for PSA to place its exhibition stand in order to provide outreach to the community about the new project and distribute technical materials on horticultural growing practices to local farmers. Mr. Garashov also briefly acknowledged his awareness that CNFA, through ASAP, had previously provided assistance to Lenkaran and expressed his gratitude. • Adalat Nahmatov, former ASAP agronomist in the South, provided service for a fee to Iskander Sharifov to help him set up an additional 40 ha of strawberry cultivation in Vilvan village, Lenkaran, where this crop was not previously cultivated. • Mohubbat Ibrahimov Cold Storage: Another successful cold storage project from the previous ASAP project became operational for storing feijoa/kiwi crops, which is important for Lenkara and the whole southern region. The feijoa harvesting period started in early October, and Mohubbat Ibrahimov has already purchased 65 tons of feijoa from the farmers for resale, including exporting to foreign markets.

USAID representatives at the USAID-supported cold storage operation in Lenkaran • Raftara Shukurova Farm: Ms. Shukurova, who may be the only female agribusiness owner in Lenkaran, started a successful project on processing feijoa, kiwi, and other fruits. The farmer already makes various kinds of value-added products, such as pickles, beverages, and jams from fresh fruits. She has concluded several contracts with HoReCa and governmental organizations for sale of these processed products.

USAID representatives at Raftara Shukurova’s farm

10 Private Sector Activity (PSA) Quarterly Progress Report • Raftara Shukurova started to host groups of tourists within the framework of the “From the City to the Village” project, which is implemented by the Agro Procurement and Supply Company of the Ministry of Agriculture (MoA), on her farm as part of new initiative on agritourism and gastrotourism. The visitors tour the farm, pick fruit, taste local cuisine, and later have an opportunity to purchase fruit as well as processed goods from the farm. The visitors on average spend 2.5-3 hours at the farm. The farm earns revenue from the tourists by selling the fresh and processed for retail, not wholesale, prices and from serving food. • On November 24, 2019, the USAID PSA took part in the 3rd Annual Tea, Rice, and Citrus Festival in Lankaran. Through an exhibition stand at the event, which was designed to promote the region’s agricultural and tourism potential, PSA provided visitors with information on USAID’s activities in the region and distributed seven different agricultural production manuals to interested farmers and growers. In addition to welcoming the regional ExCom to the stand, PSA team members in attendance also met with representatives of the region’s tourism department and the State Agro Procurement and Supply Company to discuss potential future collaboration in developing the region’s agricultural and agritourism potential. Many hotels and restaurants from the south had stands displaying local cuisine and tourism amenities, while agribusiness producers displayed their tea, citrus, rice, and other local production. Both attendance at and interest in the festival were at a high level.

USAID stand at the 3rd Tea, Rice and Citrus festival in Lenkaran

Hazelnut Value Chain

• PSA met with the leadership of the Azerbaijan Hazelnut Producers and Exporters Association (AHPEA) and proposed the formation of a self-governed union of growers within the Association. This union would help the growers to better represent their interests and needs in the Association and would attract more growers as members of this public union. Another initiative is to establish a grower certification program, which will enable farmers to obtain the organic certificate and be able to sell their crops at a higher value than that paid by the regular market. According to the AHPEA management, there is a growing international market demand for the organic hazelnuts and they trade at 5-8% higher that the competition. • BEO field visits: From October 23-25, 2019, PSA and the USAID environmental bureau jointly facilitated travel to AHEC and Jaarchi Hajiyev hazelnut processing facilities in Zagatala, which received Technology Transfer Fund (TTF) support from the ASAP project, and a drip irrigation hazelnut demo plot in Mirzabayli, Gabala. All visits went well, and the group identified no negative effect of the beneficiaries’ activities on the environment and confirmed 11 Private Sector Activity (PSA) Quarterly Progress Report that plants and orchards where ASAP worked before are in full compliance with the necessary environmental requirements and the PERSUAP, where applicable. • The Third Annual International Hazelnut, Walnut, and Chestnut Festival was held in Zagatala region on September 28. The main goal of the festival was to promote the economic, cultural, and tourism potential of Zagatala district. The festival was attended by the local ExCom, MoA, Agrarian Procurement and Supply, Ministry of Culture, and other guests from Baku and other regions. The Chairman of the Azerbaijan Hazelnut Producers and Exporters Association (AHPEA) led the dignitaries as they toured the exhibition stands. The products of various companies and farmers, national dishes and sweets, handicrafts and folk-art works made from hazelnuts, walnuts, and chestnuts were demonstrated at the festival. As in the previous year USAID PSA had a stand at which it exhibited hazelnut production manuals, and distributed them to local growers and visitors interested in hazelnut cultivation. During the event, the Minister of Agriculture and the Rector of the Azerbaijan State Agricultural University visited the PSA stand, allowing the project to brief them on USAID’s previous activities in the hazelnut value chain and the resulting improvement of the production and export of hazelnuts in Azerbaijan. At the event, AHPEA displayed the machinery recently purchased with USAID ASAP TTF assistance for the Agricultural Service Center in Mukhakh, which is run by the Association. The tractors, air-blast sprayers, and flail mowers attracted wide interest from the growers from many villages of the northwest. PSA also supported AHPEA through the design, development, and procurement of an association stand, which the association staff and members used to reach out to the community members and promote AHPEA’s services and other benefits of membership. The festival was also attended by Progress LLC, a vendor of high-quality motor and mechanical orchard care tools, which the previous USAID project purchased for utilization in the demo plots and to introduce growers to the purpose-built tools, which are a great improvement on those used by most growers. Progress had recently noted an increase in demand for its tools from hazelnut growers, and thus agreed to participate and exhibit farm tools at the festival in acknowledgement of this new expanding market opportunity. • AgroCenter, an Azerbaijani consultancy with which CNFA previously collaborated, invited a prominent Turkish hazelnut agronomist to Azerbaijan to scout a variety of hazelnut orchards in the northwest of Azerbaijan. The goal of the effort was to evaluate the agricultural practices utilized by various growers in the main hazelnut cultivation areas of the country. Among many orchards visited by the group, one orchard stood out as the best orchard with the most practices properly applied. That orchard, which is located in in Mirzabayli, Gabala, belongs to Tofig Hajiyev, a former ASAP beneficiary. ASAP used his ten-hectare orchard as a demonstration plot and also installed a drip irrigation system on four hectares of the orchard. The Turkish agronomist noted high The status of construction at Najaf Mirzayev’s site quality yields thanks to proper irrigation, pruning, soil and leaf fertility, and harvesting technologies.

12 Private Sector Activity (PSA) Quarterly Progress Report • The community-owned hazelnut drying and storage facility in Turajli, Gakh is under rapid construction by Najaf Mirzayev, a beneficiary who was granted TTF support by the previous USAID ASAP project to serve the needs of growers in Gakh region. (See photo on previous page.) Besides buying the land and preparing the soil, the beneficiary has welded the six metal dryers and procured all the necessary equipment and parts to operate them. Mirzayev also has hired a professional construction crew that has finished the foundation works, laid a concrete floor, and mounted scaffolding and concrete pillars for the storage facility. The beneficiary is planning to finish the construction and installation by mid-spring 2020, which will be in plenty of time before next year’s harvest.

Orchard Fruit Value Chain

• Former ASAP agronomist Jabbar Heybatov provided technical assistance to local farmers Musa Huseynov, Ali Bagirov, and Bakhtiyar Aghayev, on gauging apple maturity and implementing best harvesting techniques free of charge. • PSA staff met with farmer Rafiq Mustafayev, who has a one-hectare greenhouse in Goranboy and plans to establish intensive fruit and berry orchards on his farm. He requested PSA assistance on importing blackberry and stone fruit saplings from Turkey. PSA linked him to Beta Fidan LLC (Turkey) and local farmer Manaf Arabov, who is also expected to purchase some fruit saplings from Turkey. • ASAP-assisted grower Saleh Arabov is successfully running his cold storage business and has already procured a total of 220 tons of apples from local farmers for long-term storage. He plans to procure an additional 200-250 tons of apples soon. • During a trip to the Ganja-Gazakh region, Minister of Agriculture Inam Karimov visited former ASAP TTF beneficiary Shamil Jahangirov’s cold storage and fruit dehydration facilities in Samukh. He expressed The Minister of Agriculture visiting Shamil deep satisfaction with his successful business Jahangirov’s cold storage and fruit-drying facility operations. • PSA linked ORELAY to farmers and nursery owners Mahammad Shirinov and Ilqar Ibrahimov from Tartar, as well as the Azerbaijan Sapling Producers Association, to assist ORELAY to sell its in-vitro rootstocks. ORELAY representatives met with a group of nursery farmers and the Chairman of Azerbaijan Sapling Producers Association in Tartar and provided them with background information on its products and services. The company is currently negotiating with them to purchase saplings. • PSA organized meetings to assist David Lelashvili, the Caucasus Sub-regional Representative for the USAID EDGE project, to meet with the representatives of the Sustainable Agricultural Services Development project and with Mr. Mirsahab Mirzoyev, an agricultural expert who has been involved in many agricultural and specific value chain assessments through the World Bank, EU, USAID and other donor projects. • USAID Azerbaijan's desk officer visited Jabbar Heybatov's training center, which was supported by USAID ASAP, and his nursery in Guba. The agronomist and farmer Jabbar Heybatov gave the visitor a detailed description of the services and trainings

13 Private Sector Activity (PSA) Quarterly Progress Report that he provides to local farmers and expressed deep gratitude to USAID for supporting his operations. • PSA linked the aforementioned Jabbar Heybatov, the owner of a farm in Guba, to AgriCool to construct a cold storage with a capacity of 350-400 MT near his training facility in order help improve the quality of services that he is currently providing to small and medium-sized farms in the region. AgriCool has started to design the planned cold storage facility. • PSA provided technical assistance on intensive planting of 80 blackberry seedlings at the Azerbaijan State Agricultural University (ASAU) research station in Ganja. The seedlings were donated by the PSA beneficiary Ayaz Alakbarov. PSA will continue to help ASAU to manage the blackberry production through training and TA.

Pomegranate Value Chain

• Shamkir Agropark, which belongs to Agro Food Investments LLC and is part of PMD Group, has contacted PSA requesting support on several aspects of production, processing, and marketing. The company has a 50-hectare experimental orchard with more than 10 different fruits, including persimmons, pomegranates, almonds, apples, cherries, and plums. The company is interested in establishing an additional 150 hectares of orchards, of which at least 40% would consist of pomegranate production. Shamkir Agropark requested PSA assistance in collecting data for identifying commodities that would be planted, input supplies, intensive production methods, and post-harvest handling. There is also a good opportunity to develop a tourism activity through the Agropark, which has already launched operations. The Agropark also owns a huge sorting line (50 MT per hour) and over 20,000 MT of cold storage capacity, which unfortunately is still not available for use due to lack of raw material supply. The company is planning to develop 150 ha of orchard, at least half of which will be devoted to pomegranate production. To invest profitably in this activity, the company needs strong expertise in assessing soil and climate conditions, as well as supplying marketable varieties. PSA drafted a short blueprint for Shamkir Agropark to help the company improve its production, processing, and marketing practices. The document provided recommendations on how the agribusiness could more effectively utilize its 152 ha of land and 10,000 MT cold storage. Although operational, the Agropark is currently at only 10% of its capacity. • Former ASAP agronomist Mr. Zaur Hajiyev was hired by PPEAA as a regional representative. He was supported to establish a pomegranate producers and exporters cooperative (APPEC) under PPEAA. The EU-funded Support to Rural and Regional Development Project in Azerbaijan (SRRD), Ministry of Economy, and Azerbaijan Agricultural Support and Export Company OJSC also supported this initiative. With the participation of all above mentioned parties, Mr. Hajiyev and three pomegranate producers signed a foundation protocol to establish APPEC on November 5, 2019. • PSA staff attended an event in Baku on “Extension Service Center Development: practical methods and planning” organized by FAO Azerbaijan. • PSA’s Processing and Technology Promotion Specilist met with the Support to Rural and Regional Development project (SRRD) to discuss PSA-SRRD potential collaboration for pomegranate and persimmon cooperatives development in Goychay area. The next step will

14 Private Sector Activity (PSA) Quarterly Progress Report be participation in the cooperative’s general assembly in Goychay to discuss potential interventions. • Azerbaijan National Television prepared and aired a report on the pomegranate sector, with an interview with USAID ASAP/PSA beneficiary Eyvaz Samedov. The farmer described the support he received in applying good agricultural practices and accessing new technologies, and how it led to increased productivity. • For monitoring purposes, PSA met with former ASAP beneficiaries Mr. Zaur Hajiyev, Mr. Eyvaz Samadov, and Antim LLC. Hajiyev, who is also an agronomist, was able to produce saplings from the early growing pomegranate variety Akko, which he brought from Battistimi nursery in Italy 2.5 years ago. He was successful in producing fruits from that variety and is interested in planting a nursery to propagate the variety in the future. Samadov expects over 150 MT of fresh pomegranates from his orchard this year and has already sold over 40 MT. His future goal is to build a cold storage for pomegranates. Vagif Taghiyev has made significant improvements to Antim LLC’s cold storage, including repairing of the walls and electrical system. He plans to store over 200 MT of pomegranates in the cold storage this year. However, there remains a need for renovations to the facility’s other 6 rooms. The company is currently seeking credit or investment to pursue this goal. • Azersheker LLC (PMD) laboratory, located in Yevlax region, expressed its readiness to conduct informational meetings and trainings for pomegranate growers on the necessity of soil analyses if PSA would provide organizational support for the event. As most of the pomegranate and persimmon growers do not conduct soil analyses and are not aware of the benefits of such diagnostics, the participants of this event might greatly benefit from the provided knowledge. In preparation for the event, Azersheker laboratory provided the price list of its services on soil analysis and plant disease identification. • Raspberry Agribusiness LLC, an Indian consulting and input supplying company specializing in organic pomegranate production, visited Azerbaijan to meet with several pomegranate producing companies recommended by PSA. The company held a meeting with Shamkir Agropark and Mabat LLC at the PSA office to discuss opportunities for collaboration. Raspberry Agribusiness also met with Mars FK LLC regarding further development of organic pomegranate production. Although Raspberry Agribusiness did not manage to sign any agreements to provide consulting services to Azerbaijani agribusinesses during the trip, they did provide preliminary recommendations on organic pomegranate production to Mars free of charge, and negotiations with Mars and other companies are ongoing. Previously, the firm, under its former name Patil Biotech, provided services to Aznar on organic pomegranate production under a consulting agreement. • USAID ASAP Project beneficiary Antim LLC shared a report that was broadcasted on local TV about the company’s successful development in recent years. ASAP assisted Antim LLC to improve its cultivation practices and post-harvest handling. The company has expressed interest in applying for PSA matching funding for the purchase of field stone cleaning machinery for its recently purchased 100 ha of land for pomegranate production. • The Pomegranate Producers and Exporters Association of Azerbaijan (PPEAA) met with PSA to discuss potential collaboration, especially for the import of marketable varieties of saplings and improvement of technology transformation centers, which the Association will create under its new EU-funded project. PPEAA is going to develop and provide support to pomegranate growing centers in seven regions for agronomic and cultivation practices. Those centers will initially provide services free of charge, but later

15 Private Sector Activity (PSA) Quarterly Progress Report require fees in order to facilitate sustainability. Earlier in the quarter, PSA had shared USAID’s Request for Information (RFI) on association development with the association’s executive director.

Vegetable Value Chain

Although it is anticipated that PSA will select Vegetables as one of its target Value Chains, work with this sector did not commence during the reporting period.

Collaborative Efforts

Second U.S.-Azerbaijan Agricultural Forum

From November 6-8, USAID Azerbaijan PSA helped organize the second U.S.-Azerbaijan Agricultural Forum in Oklahoma. USAID Azerbaijan PSA co-organized the event with the U.S.-Azerbaijan Chamber of Commerce (USACC), Oklahoma Department of Commerce, and Oklahoma Department of Agriculture, Food, and Forestry. A 28- person Azerbaijani delegation traveled to Oklahoma, and included officials from the MoA, Azerbaijan’s Embassy in Washington, the American Chamber of Commerce in An Oklahoma rancher explains to the Azerbaijani visitors the role and operations of Azerbaijan, the Azerbaijan State Agrarian University the Oklahoma National Stockyards, the largest (ASAU), the governor of Gadabay region, and private stocker and feeder cattle market in the world agribusinesses. During visits to Oklahoma State University’s Food and Agricultural Products Center and its dairy production teaching operation, the group discussed best practices in livestock production, processing, packaging, and marketing. The final day of the forum was dedicated to panel presentations and discussions on the prospects for bilateral trade, investments, and collaboration between the United States and Azerbaijan. Some of the topics discussed Governor Kevin Stitt delivers a certificate proclaiming November 9th to henceforth be surrounded education and vocational training in agriculture, recognized as Azerbaijan Day in Oklahoma modern technologies, and innovations in livestock production, processing, and management. Outcomes from the Forum included ASAU and Oklahoma State University signing a memorandum of understanding on cooperation in the agricultural field, and a preliminary sister-city agreement reached between Gadabay, Azerbaijan and Stillwater, Oklahoma. It is anticipated that these agreements will lead to a variety of exchanges and future collaboration. The private business- to-business and government-to-business meetings will help ASAU and Oklahoma State University signing a memorandum of understanding on foster business linkages between Oklahoma and Azerbaijan. cooperation in the agricultural field Participation by the governor of Oklahoma, mayor of

16 Private Sector Activity (PSA) Quarterly Progress Report Oklahoma City, and several members of Congress helped lend visibility and credibility to the event. At the Forum, Governor Kevin Stitt committed to leading a delegation to Azerbaijan in the spring of 2020. The forum also facilitated the exploration of several potential business deals between the U.S. and Azerbaijani companies. The mission will continue to track the relationships built during the forum and the potential purchases of goods and services from small and medium-sized businesses and experts in Oklahoma.

Private Sector Engagement Event

On October 3, in collaboration with the USAID Mission and AMCHAM, PSA hosted a dinner in Baku for over 40 key private sector and government officials to discuss developing private sector partnerships to advance Azerbaijan’s economic diversification and to initiate relationships that can be nurtured under PSA.

Azerbaijan Food Safety Agency (AFSA)

• PSA Partners With Public & Private Sector to Promote Safe Use of Food Additives: The AFSA, Azerbaijan Food Safety Institute (AFSI), Coca-Cola, and PSA jointly organized a one-day Food Safety Workshop with a focus on food additives. The workshop, which took place in Baku, brought together public and private sector representatives from the agricultural, food, and regulatory sectors. They discussed international best practices as well as the current situation in Azerbaijan vis-à-vis food safety, risk analysis, and nutrition in the area of Food Additives Seminar Participants food additives. The workshop also sought to educate its over 60 attendees about the role the private sector can play in leading the way toward stricter food safety standards. Presenters and speakers included experts from the Netherlands, Georgia, and Turkey, as well as Azerbaijan. PSA provided extensive logistical support in arranging and implementing the event, including negotiating the conference venue and moderating the forum, among other responsibilities. Broadcast media provided extensive coverage of the workshop. This event is an example of USAID’s support in building government capacity to regulate and ensure food safety, as well as to facilitate public-private sector engagement. • AFSI Team Attending Trainings in Dubai: During the first week of November, the USAID PSA facilitated attendance by four laboratory technicians from the Azerbaijan Food Safety Institute (AFSI) at a training program on Next Generation DNA Sequencing (NGS). The five-day course, which took place in Dubai, empowered the participants to apply genomics techniques to DNA sequencing in the Azerbaijan Food Safety Institute staff at the laboratory. The training took place at Alliance Global PSA-supported training in Dubai

17 Private Sector Activity (PSA) Quarterly Progress Report Group’s DNA Center of Excellence at Dubai Science Park. Previously, AFSI had no staff with practical expertise in sequencing, including NGS, which is an innovative, fast, and inexpensive method for bacterial identification and pathogenicity assessment in food safety. Having completed the training, the participants will be better placed to assume their roles as a core team for AFSI’s planned genotype sequencing laboratory.

Azerbaijan Small and Medium Business Development Agency (SMB)

In September, as part of its ongoing effort to increase linkages between Azerbaijan and the United States, USAID PSA arranged for Azerbaijan’s Small and Medium Business Development Agency (SMB) to meet with the New York Director and International Trade Specialist from the U.S. Small Business Administration (SBA); a Regional Manager for Export Solutions from the U.S. Commercial Service’s New York City Export Assistance Center; and the Director of the New York Small Business Development Center. The Azerbaijani delegation was pleased with the outcomes of each meeting and expressed interest in further collaboration with their New York-based counterparts. Upon their return to Azerbaijan, USAID PSA supported the SMB’s communication with the New York Small Business Development Center, requesting continued cooperation, including an official invitation to visit Azerbaijan, to exchange experiences and to further deepen the working relationships. SMB also offered to SMB chairman, Orkhan Mammadov with counterparts from the U.S. small cover the entire cost of the New York counterpart’s visit to business administration Azerbaijan.

Azerbaijan State Agricultural University

• PSA staff met with ASAU President Ibrahim Jafarov and ASAU Vice-Presidents Anar Hatamov and Ramin Mammadov to identify potential areas for mutual cooperation, including PSA interventions through trainings, technical assistance (TA), and other capacity building efforts. Following the visit to the ASAU experimental stations, PSA may plan to implement the following activities: o Increasing student awareness of the importance of agriculture through presentations on successful businesses and farmers. o Providing trainings in the application of food quality and safety standards such as HACCP and GlobalG.A.P. to senior students and post-graduates. o Assisting university students to receive practical trainings in intensive orchards during their summer holidays. o Supporting ASAU to establish small cold storage facilities and intensive orchards in their research stations. o Developing and strengthening the existing ASAU laboratories. o Building the capacity of ASAU’s planned vocational school. • At ASAU’s request, Agro Cool Company, which is currently working with PSA, submitted the designs and cost estimates for two small cold storage chambers, one for 10 MT and the second for 20 MT, to university management. ASAU would like to establish a cold storage

18 Private Sector Activity (PSA) Quarterly Progress Report facility at one of its experimental stations to train students and nearby community members in cold chain management, as well as to store crops grown by the research stations and local farms. • PSA supported an intensive course in agronomy in partnership with Azerbaijan State Agricultural University (ASAU). The 10-day training was taught by Dr. Mohammad Babadoost, an American professor at the University of Illinois. A total of 24 people attended the course in Ganja, including ASAU faculty, graduate students, and employees of the Azerbaijan Scientific-Research Institute of Plant Protection. While ASAU brought Dr. Babadoost to Azerbaijan to deliver the training on “Plant Disease Diagnosis and Management,” PSA provided technical interpretation for the trainings, and organized a field visit to one of its beneficiary’s operations for the trainees as well.

Professor Babadoost delivers a lecture during the second day of a course on Plant Disease Diagnosis and Management at ASAU

Agro Procurement and Supply (APS)

During the quarter, PSA staff met with the leadership of Agro Procurement and Supply (APS), an open joint stock company (OJSC) that is a subsidiary of the Ministry of Agriculture (MoA) to present the project and seek ways to collaborate with the agency. In particular, they discussed the marketing of agricultural produce and the development of agritourism. Tentative agreement was reached on the following:

o End of Year APS Agritourism Event: PSA offered to help APS to conduct this event on Raftara Shukurova’s farm in Lenkaran on December 15th for senior Azerbaijani and foreign diplomatic officials. This will include a tour and activities on the farm, including presentations by APS and PSA on their respective activities, as well as short field trips to Yesilchay green tea prodcuer and the USAID-supported cold storage of former beneficiary Mohubbat Ibrahimov. The goal of this activity is to promote both PSA’s and APS’s agritourism development activities in a dynamic and picturesque setting. o STTA/Videos/Referrals: Other potential PSA agritourism support could include bringing an international STTA in agritourism development to Azerbaijan to help build the capacity of both the APS agritourism team and of the agritourism beneficiaries assisted by APS, helping to produce and distribute videos and other training materials for agritourism businesses, and PSA could also refer its interested beneficiaries to APS’s agritourism development program, as well as to APS’s From Village to City Program. o Azerbaijani Women in Agriculture (AFAQ) : PSA could assist this new initiative of APS in its efforts to assist women farmers. PSA will try to learn more about this new project and will meet with its coordinator soon to discuss possibilities, which could include subsidized

19 Private Sector Activity (PSA) Quarterly Progress Report equipment provision, perhaps with Agency for Agro Credit and Development (AKIA) as an additional partner. o Training and Technical Assistance in Food Safety and Quality Implementation and Certification: PSA may provide APS beneficiary farmers/growers with group trainings on various international standards and their importance. These could be held at DAIM centers, which are located in each rayon. o Sustainable Agricultural Sales and Export Initiative: APS may join this MOU envisaging a joint project between PSA, FSA, and AKIA to focus on three target products (dried fruits, persimmons, and strawberries) and support selected companies involved in their production to improve food safety and achieve compliance with other requirements that will enable them to initiate and/or diversify exports.

PSA team discussing the potential collaboration efforts with the APS chairman State Tourism Agency

ASAP met with the State Tourism Agency (STA) and discussed collaboration opportunities. Specific needs were identified by the STA, one of which is the need for capacity building through trainings in agritourism. In addition, STA requested expertise on developing and designing hiking trail signs and maps. PSA will consider including these trainings in the PSA PY1 Work Plan.

PSA also initiated discussions on bringing together under one umbrella to meet on a regular basius for coordination purposes representatives of similar rural tourism-oriented stakeholders, including private, public, and donor organizations such as GIZ, APS, Coca-Cola, and STA. There is also potential for such regular meetings to help design joint activities, including work with women and youth involved in business, agricultural tourism, and providing trainings on different subjects. After developing and successfully fine-tuning such a communications and coordination mechanism, PSA may hand it over to the STA.

World E-Commerce Forum

Several PSA staff and selected beneficiaries whom the project invited, including an ASAU professor and From USAID supported e-commerce event graduates, attended the partially USAID-supported World E-Commerce Forum, which brought together e-commerce leaders from Eurasia and 20 Private Sector Activity (PSA) Quarterly Progress Report Azerbaijan in Baku from November 26-27, 2019. During the forum, experts provided local producers and business leaders with detailed information about existing e-export trends and applications with a focus on practical solutions to challenges in e-commerce. The forum included small group discussions among representatives of government agencies (SMBDA, AFSA, State Customs Committee, etc.), non-governmental organizations, and business leaders on topics such as barriers to e-commerce, challenges, and solutions. The organizers of the event MyBroker, Worldef, and Innoland will provide a summary of forum outcomes to GoAJ agencies to help catalyze support for the growth of e-commerce in Azerbaijan. PSA and ASAU highlighted the importance of promoting e-commerce in Azerbaijan’s agricultural sector.

Azerbaijan Rural Women’s Association

In October, a PSA staffer attended an inaugural fair for over 200 rural women that was held in Agjabedi district. The fair provided an opportunity for rural women from different rayons of the country with traditionally diverse production to exhibit their agricultural and non-agricultural products. The Chairperson of Azerbaijan Rural Women’s Association stressed the challenges faced by Women Development and Enterprise Groups in her opening speech. Recognition of the Women Development and Enterprise Groups which play a successful role in the business and social life of the communities was also on the Agenda. The women’s groups have a strong need for capacity building on microfinance and access to the market. Participants, who are very active in social networks, including the Association’s WhatsApp group, were extremely pleased to meet in person and talk with one another. The association has 38 Women’s Development and Enterprise Groups and bring together a total of 462 women active in 14 rayons: Ismayilli, Balakan, Zagatala, Agjabedi, Agdam, Goranboy, Barda, Imishli, Lenkaran, Masalli, Neftchala, Beylagan, Saatli, and Sabirabad. PSA met with the groups separately to provide them with an overview of the project’s future activities and collect first-hand information in order to identify potential areas for supporting their development. They expressed deep interest in working with PSA.

Component 3: Economic Reforms

Identification and Clarification of the scope for PSA Objective 3 Support for Azerbaijan’s Economic Reforms The Economic Reforms Manager (ERM) gave a presentation to PSA’s COP and cting DCOP to propose a vision of PSA Objective 3 based on the RFP and USAID’s debriefing comments. After internal discussions, the presentation was delivered to the USAID Azerbaijan Contracting Officer’s Representative (COR), and the pursuing discussions helped clarify USAID’s expectations for the component work. Meetings with Government and Partner Agencies The ERM set up meetings with potential government and partner agencies, starting with those recommended by the USAID COR and continuing with other prominent organizations in the private sector development and economic reforms context in Azerbaijan. Results of Meetings with Government Agencies PSA established an initial understanding for collaboration for all the government agencies that it was able to hold meetings with during the ERM’s first six weeks in the country. These

21 Private Sector Activity (PSA) Quarterly Progress Report government agencies are: Center for Economic Reforms Analysis and Communication (CAERC), Azerbaijan Accreditation Centre (AzAK), State Tourism Agency, Agency for Agro Credit and Development (AKIA), and Small and Medium Business Development Agency (SMB Agency). The most advanced relationship at this point in terms of details of possible PSA work is with CAERC, followed by AzAK. During meetings with the agencies, the ERM tried to focus on beneficiary requests that are linked to economic reforms and gathered more details about requests of this kind. The main potential areas of collaboration for each agency are listed below: 1. Center for Economic Reforms Analysis and Communication (CEARC): M&E Capacity Enhancement and other potential activities such as legislation support for Intellectual Property Rights and Competition Code; strengthening Azerbaijan’s competitiveness in attracting investment; and linking Azerbaijani MSMEs into Global Value Chains (GVCs). 2. Azerbaijan Accreditation Center (AzAK): Strengthening the knowledge and application capacity of standards for all sector products, including operational standards for implementing entities. 3. State Tourism Agency: Legislative support for infrastructure, concession services, and taxes for homestay establishments; technical assistance for raising quality and safety standards in the tourism sector, tourism product development, and tourism awareness, among others; support for facilitating coordination with other government agencies and donor organizations; monetary/physical resource support for building accommodation and facilities. 4. Agency for Agro Credit and Development (AKIA): Policy research on a) new subsidy schemes, b) obstacles on obtaining certificates of origin for internally displaced farmers; technical assistance on a) agri-processing SMEs, b) agro-leasing, c) warehouse receipt system, d) logistics services/ infrastructure, e) contract farming, f) state strategy for livestock, among other potential areas. 5. Small and Medium Business Development Agency (SMB Agency): Technical advisory services a cluster development strategy and implementation; model factories for lean production (for all sectors); support to workforce development; identifying SMB constraints in specific areas and assisting with solutions; capacity building for business associations; providing assistance to SMBs on writing business plans, among other potential areas.

Results of Meetings with Potential Partner Agencies The PSA team met with potential partner agencies composed of international donor organizations and private sector representatives including associations. In addition to establishing relationships for future collaboration, these meetings added substantial value by providing essential information on the Azerbaijani economic reforms context, leads for areas/issues that are high on the government’s agenda that PSA can work on, and referred contacts for other meetings. Conclusions Over the first two months of PSA Objective 3 work, PSA established a good foundation for building project activities during the first and following project years. The ERM initiated key relationships, formed an information and knowledge base to inform the sensitive political environment around this work, and gathered relevant documentation and contacts. PSA/ERM established initial understanding for future collaboration with five government agencies and six

22 Private Sector Activity (PSA) Quarterly Progress Report potential partner agencies. All meetings involved conversations on the details of collaboration, although to varying degrees. In addition, PSA delivered a good start in terms of introducing the project to government agencies and demonstrating good faith to the agencies that PSA is there to assist them with their economic reforms activities in the next five years. In conclusion, there is substantial demand from the government agencies we were able to meet with to date for potential PSA support related to economic reforms. In addition, based on other meetings and research, there are many indications for more demand on high-agenda issues from other government agencies that our team did not get a chance to meet with to date. The demand for PSA work covers a wide range of areas in terms of technical areas and type of assistance (legislative, capacity-building, analysis/ research, policy advisory, organizational change, and material resources, among others). PSA/ERM believe Objective 3 would benefit from a public event to inform multiple government agencies more extensively about PSA. There seems to be a lot that the project can support on economic reform agendas, and the distance between the project and these agencies seem to be substantial. PSA’s good start with CAERC will be instrumental in publicizing the project to implementing bodies of economic reforms.

Cross Cutting Activities

Facilitating Linkages with U.S. Agribusiness

Among its various objectives, PSA seeks to strengthen the commercial presence of U.S. agricultural companies in Azerbaijan and help them to introduce or expand their sales in the country. Thus, PSA continued its efforts to facilitate the establishment of business linkages between Azerbaijani companies and foreign, primarily American, companies.

• Electronic cold chain monitoring technology: One of the biggest challenges in the transportation of temperature-sensitive products is management of the proper temperature, which, if neglected, can adversely affect safety and quality. When a perishable load is exposed to various means of transportation, with multiple handoffs between the participants of the logistics process, quality can be compromised through delays in time and changes in temperature. Electronic monitoring technology allows both senders and receivers of goods to oversee and administer a delivery’s cold chain history and automates the data collection for each trip. Thus, during the quarter, PSA researched contacts of logistics and transportation companies registered and operating in Azerbaijan. The project intends to learn about the demand for such technologies by local logistics companies that transport perishable goods such as berries, fruits, vegetables, and nuts. Provided that there is sufficient interest in the technology, PSA will begin researching the international market for the latest available wireless technology. The project aims to help establish a business linkage for this technology between a local distributor and, preferably, a U.S. producer. During the quarter, the project held a telephone call with the representative office of Sensitech in Ukraine. Currently, PSA is learning about technical and pricing information for Sensitech’s solutions for hazelnuts, pomegranates, berries, and other greenhouse production. It has been

23 Private Sector Activity (PSA) Quarterly Progress Report discussed that PSA may assist the facilitation of meetings and organizing of the presentation conference for the technical specialists of Sensitech in the first quarter of 2020. The project aims to help establish a business linkage for this technology between preferably the U.S. producer and a local distributor.

Access to Finance

PSA's Access to Finance Specialist engaged in the following activities during the quarter: • The PSA Access to Finance Specialist drafted three analytical reports/briefing notes requested by USAID COR?: “Brief Analysis of State Budget of Azerbaijan for 2020,” “Are banks’ lending to Agri-Business?” and "Azerbaijan’s major steps in the monetary policy/financial sector in 2019." The report "Are banks' lending to Agri-Business?" was translated into Azerbaijani and distributed among Project beneficiaries. • PSA’s Access to Finance Specialist had an initial meeting with the Chairman of the International Bank of Azerbaijan (IBA) to discuss the bank’s vision and the new USAID project. It was agreed that a follow-up meeting will be held with IBA in order to identify potential opportunities for collaboration. • PSA’s Access to Finance Specialist met with the Deputy CEO of AFB Bank to find out more about the effects of its sale to a new owner. The bank will now increase its focus on SME lending. • PSA's Access to Finance Specialist met with the Director of Projects of AKIA. The potential areas for cooperation, beneficiaries referring to AKIA, terms and conditions of available credits, and credit limits were discussed. It was agreed to have a follow up meeting in early January. • PSA’s COP, Access to Finance Specialist, and Economic Reforms Manager met with Azerbaijan Micro-finance Association (AMFA) management team. During the meeting, parties described the current activities and discussed potential opportunities for collaboration.

Quality and Food Safety

PSA's food quality and safety activities this quarter included the following: • On October 31, USAID and its private sector engagement partner, Coca-Cola, jointly supported the International Fruit and Vegetable Juice Producers Forum, hosted by Sure-Global- Fair (SGF) and the International Fruit and Vegetable Juice Association (IFU), in collaboration with the American Chamber of Commerce in Dr. Jay Singh giving a speech in Baku at the 2019 Eurasia Road Show Azerbaijan (AmCham). The SGF/IFU Eurasia Road Show is a series of forums aimed at educating juice producers about available resources to support member access to international markets. The event attracted nearly 50 local producers and entrepreneurs, as well as government and international donor representatives. The forum is held on a different continent each year, having previously taken place in Latin America in 2016, Asia in 2017, and in Africa in 2018. This initiative is 24 Private Sector Activity (PSA) Quarterly Progress Report an example of USAID’s private sector engagement in action, as well as its support to business and professional organizations to boost the diversity of Azerbaijan’s non-oil economy. • A PSA staffer attended a HACCP training co-organized by the Food Safety Agency and Asian Development Bank.

Monitoring, Evaluation and Learning (MEL)

During the quarter, PSA’s MEL & Communications Manager started to work on developing the Project’s draft Monitoring, Evaluation, and Learning (MEL) Plan and data that presents the PSA’s strategy for tracking progress and measuring achievement of PSA objectives, goals, and the contract deliverables. The robust PSA MEL system will include a system of rigorous data collection and timely analysis and reporting, supporting both reporting for accountability to the expected results as well as adaptive management of the Activity. The MEL unit will track a set of performance indictors to measure PSA results and Contract Deliverables.

Environmental Management and Monitoring

During the quarter, the USAID’s Environmental Mission visited several PSA project locations in Zagatala and Gabala rayons to monitor environmental compliances in targeted projects. The result of the monitoring was positive from an environmental compliance point of view. The Bureau Environmental Officer (BEO) shared some mitigation and preventive ideas for the future projects as well as proposing some activities for inclusion in the new PERSUAP.

The Project on Installation of Hazelnut Drying Equipment in Najaf Mirzayev’s Facility in Gakh Rayon (ASAP Project) is still under implementation by the beneficiary. The construction works continue and the PSA trained the construction crew on HSE issues.

In November, the Environmental Compliance Specialist prepared and submitted a PERSUAP Revision Scope of Work for PSA in early December.

25 Private Sector Activity (PSA) Quarterly Progress Report Appendices

A. Draft PSA Year One Performance Monitoring Plan (PMP)

B. Short-Term Technical Assistance/International Assignments

C. Finance Research Reports

26 Private Sector Activity (PSA) Quarterly Progress Report APPENDIX A Draft PSA Year One Performance Monitoring Plan (PMP)

# Indicator Titles PY1 Actuals to Date PY 1 Targets

Dollar value of cost-share leveraged from grant 1 organizations 0 $ 0.5 Increased agricultural exports to markets in 2 Europe, Middle East, and Asia 0% 2%

Percentage increase in sales by assisted enterprises 3 0% 4%

Improved rural livelihoods in targeted regions 4 0% 4%

Increased value of US exports to Azerbaijan in 5 targeted sectors 0 $2 M

Number of farmers using 6 new agronomy and business practices 0 2,000

Amount of business loans 7 to private sector facilitated under this activity 0 $0.4 M

Number of economic 8 administrative barriers removed 0 0

Number of economic reforms implemented 9 through assisted agencies 0 0

27 Private Sector Activity (PSA) Quarterly Progress Report

APPENDIX B Short-Term Technical Assistance/International Assignments

Name/Functional Area of In-Country # Purpose of Trip Expertise Dates Otabek Rakhimov, Sevior Program September 18- 1. To assist PSA on in-country project start-up Officer October 8, 2019 George Melton, Agribusiness To contribute to the planning of field visits, identification of speakers, October (10 days 2. Technical Support and provision of guidance on presentations to be delivered by LOE in U.S.) Consultant participants in the First Oklahoma-Azerbaijan Agricultural Forum Kathleen Doherty, Start-up 3. Year 1 Work Plan support Dec. 2-4, 2019 Consultant

APPENDIX C: Financial Research Reports

1. Research Report: “Analysis of 2020 Azerbaijani State Budget”

2. Research Report: “Are Banks Lending to Agribusiness?”

PRIVATE SECTOR ACTIVITY (PSA)

Brief Analysis of the State Budget of Azerbaijan for 2020 October 16, 2019

Introduction

The Ministry of Finance of the Republic of Azerbaijan recently presented the draft of the 2020 State Budget.1 The 2020 Consolidated Budget is expected to be 28.19 billion AZN ($16.58 billion at the current exchange rate), while revenues are projected at 27.60 billion AZN ($16.23 billion). The Consolidated Budget deficit is projected at 586 million AZN ($344.70 million). State Budget2 expenditures are expected to be 25.62 billion AZN ($15.07 billion), an increase of 427.7 million AZN ($251.58 million) from 2019. Despite a strategy of optimizing budget expenditures that was widely proclaimed during the 2016-17 financial crisis, the Ministry of Finance continues to maintain the pace of spending, thereby continuing to rely on oil-revenue-based growth. In this brief report, I will summarize some of the most important aspects of next year’s budget.

Declining GDP growth

According to the budget, the growth rate of Azerbaijan’s Gross Domestic Product (GDP) will decrease next year compared to 2019. While GDP is projected to grow by 3.2% in 2019, this rate is expected to be a more modest 2.4% in 2020. GDP is forecasted at 82.7 billion AZN in 2020 ($48.64 billion at the current exchange rate). The Ministry of Finance predicts a 3.3% rise in non-oil GDP, which means it will generate 54.2 billion AZN ($31.88 billion) next year. The decline in overall GDP growth will be related to the projected downturn in oil production and the current volatility in world oil prices. Thus, although the non- oil sector generates a significant share of GDP, oil prices retain a crucial influence on macroeconomic indicators.

Increased inflation

Amid rising budget spending, there will be some changes in the inflation rate as well. According to the government’s forecast, annual inflation will reach 4.6% by 2020, versus a 2019 Central Bank forecast of 3.7%. Although the government of Azerbaijan forecasts higher inflation next year, the official inflation rate is still in single digits. Amid growing budget spending and expanding social benefits, the demand for more resources for the consumer market will increase as well. At the same time, import dependence will continue to threaten to weaken the Azerbaijani manat, fueling inflationary pressures in the coming years. Therefore, independent economists expect increased, even double-digit, inflation in the near future.

1 Preliminary Statement of the State and Consolidated Budgets of the Republic of Azerbaijan for the 2020 Fiscal Year: http://finance.gov.az/en/news/5377/preliminary-statement-for-the-state-and-consolidated-budgets-of-the- republic-of-azerbaijan-for-the-fiscal-year-2020 2 The State Budget differs from the Consolidated Budget in that, unlike the latter, it does not include the budget of the Nakhchivan Autonomous Republic and non-budgetary state funds, such as the State Oil Fund, State Social Protection Fund, and the Unemployment Insurance Fund.

Budget largely funded by oil income

The draft State Budget assumes a $55 price of oil per barrel in 2020. Budget revenues are projected at 25.5 billion AZN. In all, 57% of revenues will be provided by the oil sector. Nearly 11.8 billion AZN will be transferred to the State Budget from the State Oil Fund (SOFAZ). It should be noted that in 2019 the SOFAZ should contribute 11.4 billion AZN to the State Budget.3 After the financial crisis that Azerbaijan suffered from 2015-2017 due to declining world oil prices, one would expect that the Ministry of Finance would focus on reducing the Fund’s transfers, not on increasing them, because reducing the budget’s dependence on oil and, in particular, the oil market, remains a main priority. The non-oil sector’s share in budget revenues will grow by 11.3% compared to 2019. Although this development is seen as positive, economists stress that the government should still strive to generate at least half of its budget revenues from the non-oil sector. We observe an increase in transfers from the SOFAZ to the State Budget even after the 2015 oil shock and Azerbaijan’s resulting measures to shore up the country’s economy and state finances. It is projected that the State Oil Fund will remain the most important source of income for the state budget in the coming years, but economists believe that the budget’s increased dependence on the SOFAZ is unsustainable

State Oil Fund Transfers to State Budget, billion USD

11.364 11.767 12

10 9.216

8 6 6.1 6

0 2016 2017 2018 2019 2020

Source: State Oil Fund of Azerbaijan (SOFAZ)

Budget spending growing

The Ministry of Finance forecasts that the growth in budget spending will continue in the coming years, although this is not considered desirable from the budget spending optimization point of view, i.e., the stated government policy to decrease reliance on funding from the SOFAZ. As is becoming clear, the burden of tax revenues falls on the oil sector; thus, the price of oil will have a leading influence on the cost of expenditures. With regard to costs, 40% of the budget’s spending will be on social expenditures, including implementation of a mandatory medical insurance mechanism, pensions, increasing social allowances to vulnerable segments of society, and other social expenditures. In contrast, in 2019 social expenditures make up only about 30% of total expenditures. These costs are forecasted to increase by 2.7 billion AZN in 2020, thus representing a single-year increase of 33% (!) in social spending as a share of total spending. Expenditures to cover labor compensation will reach 6.7 billion AZN, while pensions and

3 State Oil Fund of Azerbaijan reports, https://oilfund.az/en/report-and-statistics/recent-figures

3 social allowances will reach 3.2 billion AZN. Furthermore, the Government of Azerbaijan is dedicating 900 million AZN to instituting nationwide mandatory medical insurance in 2020.

Conclusion

The Ministry of Finance recently presented a summary of the 2020 State Budget draft to the public. An analysis of the draft shows that the budget will still be dependent on oil next year. Fifty-seven percent of budget revenues will be generated by the oil sector, which will be driven mainly by transfers from the State Oil Fund. According to the budget, the estimated price per barrel will be $55, which is $5 less than the figure in the 2019 budget. On the other hand, the rise in budget expenditures in 2020 will raise pressure on the consumer market, which is reflected in both official and independent inflation forecasts. Thus, more price increases are expected. The Ministry of Finance forecasts that the rate of the manat to the dollar will not change next year. However, in spite of positive tendencies such as growing non-oil revenues and an optimistic forecast of oil prices, how the manat exchange rate will actually fare in 2020 will largely depend on the world market price for oil and the exchange rate of the currencies of Azerbaijan’s non-oil trading partners.

PRIVATE SECTOR ACTIVITY (PSA)

Are Banks Lending to Agribusiness?

November 22, 2019

Introduction

In order to assess the current status of lending in Azerbaijan, in particular to businesses, ASAP contacted a variety of banks in the country. In general, the table below shows that more banks have re-started lending and have developed more loan products targeting business customers, increased limits and in several cases decreased interest rates. The banks that have decreased their interest rates and improved their credit terms include Amrahbank, ASB, Bank Avrasiya, BTB, Bank of Baku, Bank Respublika, Expressbank, Xalg Bank, Kapital Bank, NBC Bank, Rabitabank, and TBC Credit. Three financial institutions – VTB Bank, Finca, and Gunay Bank – have resumed lending to businesses since the previous survey was conducted in April of this year. Unfortunately, however, two banks have still not restarted their credit programs and don’t offer any loans to businesses or consumers. One of the banks – Silk Way Bank has rebranded and is now called Premium Bank.

Another observation is that, the Agricultural Loans and Development Agency under the Ministry of Agriculture, which previously used to work with only two correspondent banks, has now started working with more banks. Besides the pure loans that they provide through correspondent banks, they offer loans for acquisition of agricultural equipment and machinery (up to AZN 1 million for the purchase of agricultural machinery) as well as pure-bred animals. Thus, the entrepreneur prepays 20% of the cost of the agricultural machinery and, the state provides a 40% subsidy (grant) and, the remaining balance is provided by the bank as an interest-free loan. For buying a pure-bred animal, the prepayment amount is 25% of its cost, while the state provides a 60% subsidy (grant), and the remaining amount is provided by the bank as a loan with an interest rate of 7% per annum.

BANK CURRENT LENDING STATUS

Access Bank The bank offers the following types of business loans to agribusiness:

a) Microloans: 300 - 30,000 USD equiv., 6-60 months, 19-29% b) SME loans: 50,000 – 3,000,000 AZN, up to 60 months, % is negotiated and dependent on loan amount, duration, collateral, financial situation and credit history of the borrower c) Agricultural credits: in AZN and USD, 300 - 30,000 USD equiv., 6 - 60 months, interest rate 19-28% d) National Fund for Entrepreneurship Support (NFES) loans: 5,000 – 10,000,000 AZN. 6- 120 months, interest rate 6% e) Agricultural Loans and Development (ALDA) loans – AZN 5000 – 200 000, 6-36 months, interest rate 7%

2 The bank also offers letters of credit and bank guarantees to business customers.

AFB Bank The bank offers the following types of business loans to agribusiness:

a) Microloans: up to 50,000 USD equiv., 36 months, 20-24% b) Business loans: starting from 50,000 AZN, up to 36 months, 10-16% for USD loans, 20- 25% for AZN loans c) Corporate loans: more than 20,000 AZN, up to 60 months, 8-16% for USD loans, 18-25% for AZN loans. d) Small entrepreneurship loans: up to 50,000 AZN, 24 months, 28-30% interest rate e) NFES loans: 5,000 – 10,000,000 AZN. 6-120 months, interest rate 6%