A Word From Executive Director of AmCham Dear AmCham members and friends,

On 25th of April we are going to celebrate the 1st anniversary Issue 25 of “Entrepreneurs Day” in Azerbaijan, which was signed by HE Ilham Aliyev in 2016. Majority share of the economy is represented by the private Credits sector. The government is putting serious steps further towards further developing position of this sector and diversifying AmCham Executive Director: economy – improving business conditions, increasing export potential, attracting investment and many others. As a first rank Natavan Mammadova advocacy and business growth professional association in the country, we are honored to contribute to further improvement of business climate in Editor: Azerbaijan and strengthening the competitive economy to make Azerbaijan a better home Aykhan Nasibli for businesses. In our magazine, we do our best to highlight developments in various profit-gaining sectors of the economy aimed to ensure further sustainable economic growth. This time, within 25th edition of IMPACT, AmCham brings the position of diverse Articles contributed by: stakeholders on innovative approaches to the development of agriculture sector, which Mammad Musayev is one of the most promising sectors of the economy and is among 10 sectors described Elman Alaskarov in the Strategic Road Map approved by H.E. President Ilham Aliyev. Agriculture is the traditional, as well as a new business behavior for Azerbaijan. People Suleyman Kalashov living in this territory, have engaged in this sector for a long period of time. However, Ashraf Hajiyev thanks to innovations and existence of high technology, nowadays it requires a new Seymur Niftaliyev approach; which brings change in perception and behavior of people. This paradoxical Javid Mammadov, Borchali Araz outlook has been revealed from different angles by governmental higher level officials Nargiz Karimova, Orkhan Rajabov and experts. You will be able to read interesting contributions from the Deputy-Minister of Agriculture, leaders of business associations, Head of Food and Agriculture Organization & Gunel Farajova as well as member companies. They reveal different aspects and successful case studies Vugar Babayev towards agriculture development. Bahar Kavuzova Happy "Entrepreneurs Day" and best wishes in your business endeavor. Advertisers: Kind regards, Azerfon Natavan Mammadova Mosaik PASHA Insurance Turkish Airlines Editor’s Comment Azersun Holding Dear friend, PMD Hospitality Welcome to the 25th edition of “IMPACT Azerbaijan” magazine, ITECA devoted to achieving higher productivity with application of in- novative approaches in agriculture. Publisher: During the process of diversification of economy, agriculture is American Chamber of Commerce considered to be one of the promising sectors in Azerbaijan. in Azerbaijan Thanks to geographic location and climate condition, there is an existence of big room and opportunity for further development of agriculture. Recently, public discourse has been dominated Tel: (+994 12) 497 13 33 by legislative changes, new mechanisms and behaviors, as well Fax: (+994 12) 497 10 91 as focus of investors to the regional part of the country. In this regard, this edition carries www.amchamaz.org rich content with two major focus. First of all, officials and leading people of this sector have contributed with an interview or article covering recent activities, short term achievements and perspectives of agri- Advertising opportunities: culture in Azerbaijan. Secondly, with stock of international expertise and best practices, Please contact the Editor at member companies have provided fresh vision and future steps towards sustainable [email protected] development. Overall, this edition will be very interesting to read and find potential for your businesses. Herein, it is my pleasure to appreciate one more time for interviewed officials, authors of Tel: (+99412) 497 1333 articles, as well as for the companies who see deep value to advertise their business in IMPACT, including Azerfon, Mosaik Printing, PASHA Insurance, Azersun Holding, PMD The articles in IMPACT Azerbaijan Hospitality, Turkish Airlines and ITECA. express the opinions of the authors Keep reading and enjoying! and do not necessarily reflect the position of the American Chamber of Sincerely, Commerce in Azerbaijan Aykhan Nasibli contents IN FOCUS 4 25 A Word From the The Perspectives of Remote Sensing President of AmCham Azerbaijan Application Products for Increase of the Efficiency in Agriculture Elman Alaskarov, Azercosmos Nuran Kerimov President of AmCham Azerbaijan 34 5 Value-added Agricultural Products: Special Interview with Run Away From Laziness Deputy Minister of Agriculture, Ashraf Hajiyev Mr. Ilham Quliyev SIAR Research and Consulting Group

10 38 Diversification and Development Modern Technology and Innovations of Agriculture Remain High are Applied in Agriculture Sectorthe Priority for Azerbaijan Vugar Babayev Ganja Agribusiness Association Mammad Musayev, National Confederation of Entrepreneurs (Employers`) Organizations of Republic of Azerbaijan MEMBER CONTRIBUTION 14 40 Active Engagement of FAO to Working Time Challenges in Agricultural Development of Oil & Gas Industry Azerbaijan Bahar Kavuzova Melek Cakmak, FAO in Azerbaijan PwC Azerbaijan

18 From Know-how Production AMCHAM AZERBAIJAN Technologies to Higher Productivity 43 Savash Uzan About Us Azersun Holding

20 50 The EU Market is Open to Committee Highlights Azerbaijani Products Dr. Olaf Heidelbach, European Union Delegation to Azerbaijan 55 AmCham Legal Update 22 The Current Situation and Development Perspectives of Agriculture in Azerbaijan 62 Members’ News and Events Suleyman Kalashov, AmCham Calendar of Events Azerbaijan Micro-finance Association 64

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A Word From the President of AmCham Azerbaijan

part in economic transformation is going to be one of top priorities for AmCham. Our organization enjoys great level of cooperation with the President and the Government of Azerbaijan, and we consider it very important to continue this dialog. We will continue working hard in connecting the private sector with the Government with the purpose of improving business climate in Azerbaijan. We have been consistently producing the White Paper with our recommendations around improving business climate in Azerbaijan, and we look forward to delivering our new proposals reflecting new economic realities. AmCham brings together many businesses not just from US but from different countries. Among our members we have a great number of Azerbaijani companies. The Board and the management team of AmCham will continue creating exceptional business opportunities and supporting our First of all, using this opportunity, I would like to express members in advancing their commercial interests. my gratitude to the members of AmCham for their trust and We are going to continue working hard on delivering greater selecting me as new President of the organization. value for our members by introducing new member services, Over the years AmCham has become a hugely successful through the work of our committees and organizing various organization. AmCham is special. What makes our events. We find it very important that more members are organization special is its purpose and mission. This is a involved in numerous initiatives and programs organized by unique group of people united by common values of ethics in AmCham. business and fair competition. This business association is In the end, on behalf of the Board of AmCham let me wish a driven by goals of making Azerbaijan a better place for doing very happy Novruz to all our members, and I look forward to business, contributing to mutual trade between the United working closely with them. States and Azerbaijan. Starting from 2016 the Government of Azerbaijan has Nuran Kerimov commenced substantial economic reforms, and taking active President of AmCham Azerbaijan

Photo: New AmCham Board of Directors

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Special Interview with Deputy Minister of Agriculture, Mr. Ilham Quliyev associated with science and education in modern times called the “Knowledge Age”. In this regard, the curricula and educational plans of Azerbaijan State Agricultural University, the country’s staff training center in agriculture, are being improved in collaboration with leading universities of the world, all the labs have already been completely renovated and equipped with modern facilities and new experiment bases have been established in the university. In parallel, an international master's program on “Business management in agriculture” has been launched within a project co- implemented by the Ministry of Agriculture and ADA University in order to further expand the qualified staff training in various fields of agriculture since 2016. Institutional reforms have been performed in the direction of empowering the agricultural research institutes and transforming those institutions into an information and consulting network, Azerbaijan Agricultural Science Center has been restructured as Information and Consulting Center for Agricultural Sciences and the structure of scientific research institutes operating under the center has been optimized. The regional “Farmer house” pilot project was implemented in 2015 under the Regional Information Agriculture is a traditional economic area with great and Consulting Center for Agricultural Sciences to provide potential in Azerbaijan. Recently, new reforms have been information and consulting services to farmers in Guba launched to further develop the sector. What do You district. The reforms are underway towards the fundamental think about the extent agriculture will have an impact on modernization of the agricultural science and education the GDP growth as a continuation of the current growth system. dynamics? Comprehensive measures have been carried out to improve Since 2014, the political decisions adopted by the President the targetness and effectiveness of subsidies extended to regarding the contemporary phase of agricultural reforms agricultural producers. Thus, the amount of rebates provided have addressed the establishment of a base for transition for mineral fertilizer sold to producers have been increased up to a new stage of development in this area in parallel to to 70 percent and the rebates have covered sales of natural promotion of complex measures aimed at the improvement fertilizers (biohumus), as well. Furthermore, the rebates have of mechanisms for institutional, economic and technological been applied to pesticides up to 70 percent. The amount of development of the agricultural sector in the country. It state subsidies provided for fuel and engine oils used for the necessitates the strengthening of institutional capacities in planting of each hectare has been increased by 25 percent accordance with modern requirements to ensure sustainable and the subsidy policy has been applied to final products in development above all. cotton and tobacco growing for the first time. Additionally, In this context, measures have been implemented to improve a 40 percent discount has been applied to the amount of the management in agriculture starting from the year of 2014. agricultural machinery and modern irrigation systems leased First of all, regional and city offices of the Ministry of Agriculture or sold through leasing to producers by the “Agroleasing” have been established to ensure the effective implementation OJSC. of agricultural policies. Moreover, rooted structural changes The state support activities targeting long-term development have been initiated to improve the result-oriented and efficient goals have yielded successful outcomes in a short period of activity of the administration and subordinate agencies of the time. So, the utilization of fertilizers and pesticides increased ministry, and to contribute to the innovative development. by 2 times in 2016 compared to 2013. Also, 40 percent of Increase of the competitiveness of any field is, of course, agricultural machinery, including 36.2 percent of grain

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What are the 3 highest priorities set forth by the government to develop the agriculture? The priorities set by the government are clearly stated in the “Strategic Roadmap for the production and processing of agricultural products in the Republic of Azerbaijan” aiming to achieve competitiveness and sustainable development of the agricultural sector in the country. In this respect, the development of market infrastructure for agricultural products, the improvement of agricultural insurance and financial system and the fundamental modernization of agricultural science and education system can be considered as 3 important priorities of the government.

What should be done to widely attract banks and insurance companies to this sector? As I mentioned above, the improvement of agricultural financing and insurance mechanisms is currently acting as a harvesters, 100 percent of cotton harvesters, 42 percent of priority, because the existing situation is not satisfactory in this tractors and 39 percent of other equipment sold during a 12- area for a number of objective and subjective reasons. Thus, year period in which the “Agroleasing” OJSC has operated factors such as high dependence of agricultural production were purchased in 2014 to 2016. Thus, the issues related on climatic conditions, low rate of capital turnover, etc. lead with the provision of agricultural machinery to farmers and the to a lower rate of savings, which consequently reduces problem of equipment shortage was resolved in recent years. the ability of agricultural producers to make investments at It has been started to establish specialized seed companies their own funds and ensure appropriate funds from financial that meet modern requirements to improve the provision markets. In line with the abovementioned, the situation of agricultural producers with high conditioned seeds and stems from the poor economic potential of mostly small- seedlings. sized farms, problems related with collateral assurance for All the above was an overview of the large-scale activities the acquisition of loans due to the insufficient development performed in recent times. As for the question regarding the of land and property market in rural areas, poor development additional effect of agriculture based on the current dynamics, of agricultural insurance, as well as lack of a guarantee we should, first of all, have a short look at the trends observed mechanism for agricultural credits and other reasons. over the past period. The key elements impeding the development of agricultural Agricultural production grew entirely by 2.4 times, including insurance system include natural disasters, animal and plant plant-growing by 2.3 times and cattle-breeding by 2.5 times diseases, climate data and lacking database of the last 30-40 during the past 20 years of the commencement of the first years. Also, the absence of a relevant insurance fund widely phase of agricultural reforms in Azerbaijan. The production applicable in global experience in the field of agriculture has a of grain increased from 1.018 mln. tons to 3.065 mln. tons negative impact on the development of the sector. (growth by 3 times), potatoes from 214.6 thousand tons Extensive measures have been considered for the to 902,4 thousand tons (growth by 4.2 times), vegetables improvement of financing and insurance mechanisms for from 570 thousand tons to 1.269 mln. tons (growth by 2.2 agriculture within the Strategic Roadmap. Thus, measures times), horticultural products from 52 thousand tons to 464.5 are planned to be implemented in the fields of exploring thousand tons (growth by 9 times), meat products from 115.7 possibilities to establish “Loan Guarantee Fund” for thousand tons to 303.8 thousand tons (growth by 2.6 times), agricultural loans, elaborating mechanisms for the application dairy products from 843.3 thousand tons to 2.009 mln. tons of innovative and unsecured loans in agriculture, improving (growth by 2.4 times) and eggs from 477 mln. pieces to 1,6 financial literacy of agricultural producers, etc. Regarding the bln. pieces (growth by 3.4 times) in 1996 to 2016. As You know, the “Strategic Roadmap for the production and processing of agricultural products in the Republic of Azerbaijan” was approved by the Decree dated December 6, 2016 of the President of the Republic of Azerbaijan. The priorities to be carried out in the agricultural production and processing sector are expected to increase the actual GDP directly by 575 mln. manat, indirectly by 660 mln. manat, totally by 1235 mln. manat in 2020 within the implementation of the Roadmap targeting the fulfillment of 9 strategic objectives in order to create a favorable environment for the formation of a competitive agricultural production and processing sector relying on the principles of sustainable development in the country.

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Domestic agricultural products are traditionally exported to neighboring countries, namely Russian Federation. What measures are being taken to get access to the EU market on a large scale? At present, Russia and CIS countries import 76 percent, European countries import 17 percent, Turkey and Middle East countries import 1 percent, China and other countries import 1 percent of agricultural and food products exported from Azerbaijan. 99 percent of agricultural and food products exported to European countries includes hazelnut kernel and pomegranate juice. The diversification of export markets for agricultural and food products, including increase of exports to large and expensive European markets is, of course, amongst the priorities of the country, as the President has set specific tasks before the government with this respect. In this context, one and perhaps most urgent of the particularly important issues is to ensure the compliance of standards for quality control of agricultural development of agricultural insurance system, the intended and food products with international requirements. measures include the improvement of a risk management As You know, a decision was recently adopted by the mechanism for agriculture, the assessment of opportunities President regarding the conduction of comprehensive reforms to establish an insurance fund for agriculture, the elaboration in the food safety and quality control system in Azerbaijan. of the insurance events registry and other activities. One of the main objectives set under the reforms is to ensure the compliance of food safety standards of the country with What about the trend of recent years for agricultural international requirements, including those of the Codex products? What products have a comparatively high Alimentarius Commission. competitive advantage in the global market? At the same time, a mechanism was created for state support The level of participation of our country in export markets to the expansion of participation of local entrepreneurs in significantly increased thanks to the strengthened capacity export markets and for establishment and strengthening of of domestic production in recent years. For instance, the the "Made in Azerbaijan" brand in 2016. In addition, electronic volume of exports of agricultural and food products increased databases were created to contribute to the promotion and by 11.1 times, including that of exports of primary agricultural sale of Azerbaijani products in the world market. products by 8.5 times and processed agricultural products by 14.7 times in 2001 to 2015. According to the reports on Which areas of agriculture can be attractive for foreign international trade of goods, Azerbaijan’s share in the global investors? Also, what stimulating conditions are available exports of agricultural and food products increased from for attraction of foreign investors in the country’s 0.014 to 0.054 percent in this period. Presently, higher growth agriculture? dynamics are observed in the exports of agricultural products. Currently, it is quite profitable to make investments in So, the level of exports of key agricultural products increased agriculture in several directions. For instance, the development by 20.7 percent in 2016, whereas by 69.7 percent in the first of market infrastructure for agricultural products. From this two months of 2017. point of view, we can underline the construction of wholesale Agricultural products exported from Azerbaijan in 2016 and retail sale points in accordance with modern standards for included fruit (57 percent), vegetables (30 percent), cotton, tobacco, and leather stuff (10 percent). These products have high competitive advantages in the group of primary agricultural products. Particularly, fruits with comparatively high competitive advantages include nuts, dates, pomegranates, apples, pears, strawberries, cherries and peaches, while vegetables with comparatively high competitive advantages include tomatoes, potatoes, onions and cucumber. It would be better to note that the comparative advantages of traditional agricultural products such as cotton, tobacco and raw silk are also high in Azerbaijan. This is why, great success have been achieved in the direction of increasing the production of those products since 2016. For example, production of cotton products increased by 2.5 times and cocoon products by 300 times within a year. Azerbaijan’s participation in the world market will also be expanded owing to the increase in the production of these products.

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Strategic Roadmap. The main goal of those activities is to achieve the acceleration of integration of the country to the global value chain through attraction of investments by world famous agricultural and industrial, as well as food producers to the country.

What is the level of integration of ICT to agriculture? According to the policy of expansion of e-government as a means of improving transparency and effectiveness in management, large scale activities were implemented in the country towards the establishment of an “E-Agriculture” system based on the principles of the Integrated Administration and Control System (IACS) compatible with European practice in short time. Relevant software has already been created with 7 sub-modules through the involvement of international experts. Graphical data have been prepared on 4.87 mln. hectares of agricultural lands, including 1.59 mln. hectares of ploughed fields, 104 thousand hectares of perennial gardens, 1.60 mln. hectares of pastures and other agricultural areas in quality compatible with European standards and inserted in a map-based geographical information system. At the same time, relevant measures are being implemented on the issues such as vegetation cover, calculation of productivity, soil agricultural products, the organization of logistics, including fertility conditions, etc. based on the images of the satellite packaging services for fruit and vegetables in the regions, “Azersky” and tests are being conducted in selected pilot the construction of meat-cutting facilities compatible with the areas in this regard. The applications of producers for subsidy relevant sanitary norms and technological standards, and the will be realized via the “E-Agriculture” system starting from the establishment of small- and medium-sized grain warehouses. current year. Moreover, significant market potential is available for Additionally, the transition of relevant operations carried out investments in export-oriented and import-substituting areas by “Agroleasing” OJSC to an electronic registry system has of agriculture. been successfully completed within the alignment of activity For example, it is very beneficial to invest in the establishment of “Agroleasing” OJSC with international leasing standards. of fruit orchards and grape farms by intensive method, the Applications are being accepted online through the information increase of early potato production, the increase of hasting system created via the official websites on the services of in greenhouses, the expansion of the network of small and “Agroleasing” OJSC. medium-sized fruit and vegetable processing enterprises, The “State technical supervision automated information including the increase of the production of dried and frozen system” of the Main State Technical Supervision Inspectorate fruit and vegetables as areas with highly comparative of the Ministry of Agriculture has already been commissioned. advantages in Azerbaijan. The accounting, registration and unregistration of agricultural Also, there is great potential for the establishment of large machinery, tractors and mechanical vehicles are carried out livestock complexes compatible with the intensive farm model electronically via the information system. ensuring import substitution and the development of livestock A daily updated electronic price information system for products processing industry and areas of feed production by agricultural products within the project jointly implemented industrial method. with FAO The development of cotton, tobacco, silk, leather and wool clusters is promising in terms of both domestic and Our guest’s biography international market demand. Mr. Ilham Quliyev is Deputy Minister of Agriculture of the Stimulating conditions for investments in agriculture are Republic of Azerbaijan. He has been in this position since quite favorable, as well. For example, the agricultural sector 2005. Before the appointment, he has worked in different is exempt from all taxes. Investments over 400 thousand leading positions at the Ministry, including Chief of Supervision manat in the above areas are granted extra tax and customs Department, Deputy Chief of the Office at Technical Progress incentives. and Agrarian Services, as well as Chief Inspectorate at State Azerbaijan has concluded large scale free trade agreements Technical Supervision. with Russia and CIS countries. Mr. Guliyev carries degrees from The Academy of Public It should be pointed out that agricultural investment maps and Administration under the President of the Republic of projects will be drafted for each administrative district and Azerbaijan on State and Municipality Governance and from additional activities will be implemented to further improve the Azerbaijan University of Architecture and Construction on investment environment in agriculture as considered in the Industrial and Civil Construction.

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Diversification and Development of Agriculture Remain High Priority for Azerbaijan Mammad Musayev National Confederation of Entrepreneurs (Employers`) Organizations of Republic of Azerbaijan, President is coverage of social aspects, as well as prioritization of economy in solution of all problems. Implementation of all state programs, orders and decrees provide an opportunity for accelerating economic development; thus, create an opportunity for increasing role and position of private sector. Successful implementation of recent state programs and activities, influence sustainable development of non-oil economy, growth of entrepreneurship climate, increase of investment climate, opening of new companies and new job places. It should be also mentioned that activities within the socio-economic development of Azerbaijan created foundation for sustainable development in process Historical return of national leader of Azerbaijan, Heydar manufacturing and created a room in access to job market. Aliyev, created basis for fundamental changes in all spheras Formalization of free business climate enabled development of life. The scope and influence of Heydar Aliyev's reforms, of entrepreneurship sector. as well as ability to have an impact to overall view of life of the country made urgent the need for establishment of a new Actions and real changes society. On January 10, during the meeting of Cabinet of Ministers Currently, comprehensive stage of development is blooming devoted to socio-economic development of 2016 and under the leadership of Ilham Aliyev. The main charateristic upcoming steps, agriculture was one of the areas within the feature within economic policies implemented by the President focus of President Ilham Aliyev. Head of the state mentioned

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upcoming years, it is planned to implement activities towards development of traditional manufacturing areas, including cotton growing, tobacco, silkworm, carpet weaving and other crafts. The last 13 years have results with fundamental economic changes, sustainable growth and modernization. Within this period national economy grew by threefold, foreign direct investment increased and international economic integration has deepened. The development of non-oil sector, especially, small and medium entrepreneurship, is the top priority for the country leadership. Existence of diverse benefits for farmers, having no taxation in this sector (in exception of land taxation), providing access for low interest loans, receiving various subsidies from the government create an important role for development and increase of efficiency of agriculture sector. The works done enabled the agriculture sector, primary part of non-oil economy, to increase its share on this concluding speech: “the previous year non-oil sector in the overall economy in 2016. Programs and orders signed developed by 5% and agriculture by 2.6%. For this reason, in 2016 play a fundamental role in this process. it was an important event.” I assume this year growth will be even high. I would like to shed light to various directions of Snapshot to agro fields agriculture. We have brought glory of cotton growing. Despite It should be mentioned that the previous year was a turning of being a bit late, we have achieved to good results. If we point in diversification of agriculture. The value of agriculture compare with 2015, we have cultivated cotton in over 51.000 products went up to 5.6 billion manat, in comparison with ha (compared to 18.000 ha). If in 2015 around 35 thousand the previous year, 2.6% of increase. Having such a general tons of cotton was supplied, this year the statistics is expected increase was vivid in most of the products. Increase for to move up to 90 thousand tons. We have got lots of plans for cocoon was over 300 times, soybeen 2.8 times, cotton this year. They will be reflected at Azerbaijan State Investment 2.5 times, green tea leaves 75%, subar beet 73%, wheat Program. This year we have to increase area for cultivation of 9.8%, potato 7.5%, etc. For this reason, the growth rate of cotton. If during the previous year we have allocated around agriculture products significantly exceeded the growth rate of 51 thousand ha available for cotton, this year it should be at country population; and this created increase in level of self- least 120.000 ha.” sufficiency for separate products. Export of goods increased In 2016 we aimed to protect foreign currency reserve and by 73 million or 20.7% in comparison with 2016; thus, reached thanks to 8 billion USD foreign and 3.7 billion national to 426 million USD. In exception of potato and onion, export investments, we have achieved to our aim. Unlike some oil of all other products have increased. For the first time, barley abundant countries, SOFAZ provides a room for efficient was exported in worth of 2.6 million USD. All these prove use of resources. As Mr. President indicated, all activities correctness of Presidential decisions and orders towards implemented in Azerbaijan are appreciated highly by diversification of economy with agriculture development and international financial institutions and Davos Economic preserving competitiveness of locally produced goods. Forum considers competitiveness of Azerbaijani economy on Development of cotton growing is in progress. There is an N37 globally, with more than 100.000 permanent jobs opened existence of subsidy for farmers by 0.1 azn for each kg. this year. As it was indicated by the President on 30 January, 2017, devoted to the implementation of 3rd year result of “State Program on Socio-economic Development of Regions of the Republic of Azerbaijan in between of 2014-2018”, 2004 is a historic period and achievement when this program has been launched. This state program has contributed substantially for enterpreneurship development within the agriculture sector. In 2016 The National Fund for Entrepreneurship Support has allocated 190 million manat for 2500 entrepreneurs. As a result, more than 8100 new job places has been opened. Around 74% of the loans targeted the regional parts. This year it is planned to allocate 150 million manat thanks to received interest payments from the previous loans. Within the mentioned State Program, in the last 13 years 1.4 million job places has been opened, in which 1 million is a permanent job. In order to increase employement in the

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area, cultivation of hazelnut has increased substantially. Within the efficient land-climate zone in 13 thousand areas, new hazelnut orchards have been plated. This means increase of current orchards by 37% within a year. One of the plant-growing products, in 2016 cultivation of corn has increased to 37 thousand ha within the country. The previous year only in Zagatala region (composed of 6 thousand ha), 33 thousand ton product has been achieved. Herein, in comparison with the previous year, the cultivation of corn has increased substantially; thus, on average 55 sentener of granular corn per ha has been acquired. In exception of feed production, the corn is useful in cultivation and production of other products. For example: CPC LLC operating in Oguz region achieved for 5.6 tons of glucose and other products in 2016 by utilization of 9.5 ton corn. Currently, entrpreneurs and farmers are exploring new areas for cultivation of corn. Currently, in 24 regions of Azerbaijan, cotton growing is Only in 2016, individuals and entrepreneurs have cooperated successfully progressing. During the previous year over 90 and traded with partners globally – exported products to 116 thousand cotton was grown in 457 villages within 24 regions. countries and imported products from 177 countries. The 4300 cotton farmers received more than 40 million manat and trade turnover was 21650,8 million USD, including 13118,4 they will be receiving over 9 million subsidy. It is expected to million USD in export and 8532,4 million USD in import; have more than 250-500 thousand tons of cottong this year thus, achieved for trade surplus by 4586,0 million USD. The and the number is targeted even high for upcoming years. previous year, the amount of exported non-oil products were Only this year more than 70 thousand people were employed. 1237,1 million USD and in comparison with 2015, it is less by The next year it is expected to increase by more than twofold, 16.4% in real amounts. Herein, export of agriculture products which will enable 150 thousand people engaged to cotton deserves a special attention. In comparison with 2015, in 2016 growing. among top products, export of fresh fruits increased by 23.9%, 2016 was successful year in cultivation of cocoon. Within a fresh vegetables by 49.5%, potato by 4.1%, metal tubes – year 70 tons were produced and in order to provide good 5.3 times, cotton cord – 11%; import of sugar decreased foundation, around 1.5 million items of mulberry sapling were by 50.9%, vegetable oils – 56.3%, tea – 73.5%. Based on allocated to 37 regions for free. Shaki silk factory restored its calculations of FAO of UN, in order to cover demand of food production, hundreds of people got an access to jobs. In the by people, it is important to cultivate additional 120 million upcoming 2-3 years it is expected to produce 1000 tons of ha land by 2050. In these reports, in addition to new areas, cocoon. In the future it is expected to have wider coverage; it is also important to mention development of new irrigation thus, enable us to export ready products. For increasing systems and efficient utilization of pastures. efficiency of such works, the government has allocated 3.5 Thanks to allocation of resources from the reserve funds of million manats. Even more, the government provides subsidy the President of the Republic of Azerbaijan, in between of to fresh cocoon by 0.05 manat per kg for producers on the 2013 and 2016, 657 artesian wells were drilled within 524 basis of “State Program Support to Sericulture” decree signed settlements for providing access to water the cultivated lands by the President of Azerbaijan. It must be also mentioned that where 1.2 million inhabitants in 40 cities and regions of the according to the Presidential order, 5000 boxes of silkworm seed is expected to be imported and allocated for free among the relevant producers. Furthermore, tobacco growing will create new opportunities for our country. It is conducted in 14 regions. This year the production outcome doubled in comparison with the previos year, and in the near future it is expected to increase up to 10 thousand dry tobacco. Obviously, organization of subsidy from the government created additional stimulus for development of this sector. According to the Presidential Order of the Republic of Azerbaijan, in order to continue support to this area, governmental subsidy is allocated for tobbaco which are sold to processing plants; 0.05 manat for 1 kg of dry or 10 kg of wet tobocco. It should be also higlighted that currently cultivation of green leaves tea has increased by 75%, up to 1020 tons, based on result of governmental support. As the main export oriented

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until 2025. Obviously, this is not enough for the upcoming generations in providing access to job places and achieving targets. For this reason, during the cheap oil price period, with new foundation the economy should bring higher benefits. This is the main goal of “The Strategic Road Map for prospects of the national economy of the Republic of Azerbaijan”. This document which consists of 10 sections, 14 points and 11 parts, calculate short, medium and long-term goals. It covers not only development purposes, but also global trends in one direction, 360-degree diagnosis of economy and required investment performances. By implementing the objectives in Strategic Road Map, we will be able to achieve for short-term priorities, as well as lay down the foundations for medium and long-term economic development. The document provides opportunities for all factors causing economic development, as well as for communication and cooperation of local and international private sector representatives. In order to country live. achieve for indicated successes, special role of Azerbaijan Fortunately, currently Azerbaijani population can afford locally enterpreneurs should be noted. cultivated agriculture and industrial products. We sustain ourselves with all vegetables and fruits by 100%, even export Our contribution them. Furthermore, 97.9% for grapes, 90% for potatoes, Today, for development of non-oil sector, The National 92.4% for meat (98% for chicken) and 99.7% for eggs are Confederation of Entrepreneurs (Employers') Organizations composed of local products. When we touch to industrial of Republic of Azerbaijan is building its business based products, some products are even exported, including fruit on involvement of healthy forces among private sector and vegetable juices, goods produced by sugar and sugar representatives, expands the scope of services provided related components. Based on additional measures of to entrepreneurs, holds trainings, seminars, conferences Presential Order of the Republic of Azerbaijan in stimulation on modern day topics and regularly conducts the work on of export of non-oil products, it is expected to get back 3% protection of rights and obligations of entrepreneurs. of exported amount indicated on customs declarations to Taking into account the role of Azerbaijani enterpreneurs in entrepreneurs. development of national economy, 25th of April is marked as “Entrepreneurs Day” by the Order of the President of Republic Current works of Azerbaijan, H.E. Ilham Aliyev. Entrepreneurs demonstrating Development of industrial and agricultural parks are capturing loyalty to the President believe that under the leadership of attention within the country. Industrial parks and agroparks H.E. Ilham Aliyev, a new phase of success within Azerbaijani create an impact for development of agriculture, as well Model of Development will ensure protection of the country as production areas and implementation of state policies from global crisis and become a ground for sustainable on innovations. Agriculture carries substantial weight for development being outstanding with its achievements. implementation of priority tasks, including contribution to export, competitiveness of goods, access to job market, Our guest’s biography attracting investments and other technologies. It is expected Mr. Mammad Musayev is the President of the National that such agro parks will create a room for development of Confederation of Entrepreneurs (Employers’) Organization of small and medium entrepreneurship in the country, creation the Republic of Azerbaijan (ASK), as of 2009. In this position, of new production lines, further development of non-oil sector he is providing support for improving business conditions and and production of export oriented and competitive products. providing a platform of cooperation between the government Today, one of the debatable issues among the people, and the business sector for sustainable development of including entrepreneurs, is Strategic Road Map document the country, as well as, improving relationship of local of the national economy and major sectors of the economy, entrepreneurs with the global market players and business which is signed by the President, H.E. Ilham Aliyev, representatives. on December 6, 2016. This document is unique in its Mr. Musayev carries successful experience in banking sector importance and responding for upcoming requirements, as of Azerbaijan. He has started his banking career in 1976 and of political independence of Azerbaijan. During preparation hold diverse positions in the last four decades. In 1987, he of the Strategic Road Map, approximately 400 local and was awarded with “Bank Superior” badge by the USSR State international experts have participated, around 150 meetings Bank. Since 2001, he is the Chairman of the Management have been organized with 4000 people and more than 1000 Board of “Aqrarkredit” CJS non-banking credit organization. recommendations have been provided. International Monetary Mr. Mammad Musayev received “Candidacy for Economics Fund forecasted growth of Azerbaijani economy by 2-3% Science” degree.

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Active Engagement of FAO to Agricultural Development of Azerbaijan Melek Cakmak FAO Representative and Head of Partnership and Liaison Office in Azerbaijan What is the state of agriculture in the world and in Azerbaijan? Trends in world agriculture showed signs of change since the start of the 21st century. For example, price hikes in 2008 and 2010 fueled changes in productivity, prices and trade flows. Declining R&D expenditures in developed countries during the last two or three decades slowed down increases in agricultural productivity. The sector has become a major player in the provision of energy, and the share of agricultural trading in financial markets has increased dramatically. A long-lasting trend of low agricultural commodity prices ended in 2008. Although ©FAO/Alessandra Benedetti the prices have declined since 2010, price levels are expected Can you tell us about the FAO Azerbaijan Partnership? to remain higher than the pre-2008 long-term average. FAO appreciates the high-level relations established between Developing countries started to increase their share in world the Government of Azerbaijan and FAO, and the strong agricultural commodity exports. The food bill of food-importing support and contribution of the Ministry of Agriculture. This developing countries increased significantly as a result of is important for joint programming and implementation in all commodity price hikes. agricultural sectors: crops, livestock, fisheries, and forestry. Food security, sustainability and climate change adaptation We also have collaboration with the Ministry of Ecology are the main issues to be addressed in the next decades. and Natural Resources in the forestry sector, which we are Sustainability, increasing resilience to climate change effects interested in further strengthening. and adaptation measures require not only global efforts, but FAO has been partnering with the Azerbaijan Amelioration serious regional and country-specific efforts. and Water Management Joint Stock Company in the irrigation In Azerbaijan, the agricultural sector has retained its sector through investment planning and water management. importance to the national economy. Although the share of I would like refer to milestone in our collaboration which is the agricultural value added has declined to 6 percent in 2015, establishment of the FAO Partnership and Liaison Office in the sector still provides employment to more than one third of 2015 with a Partnership Agreement (2026-2020). the total workforce. The sector dominates the rural economy This is a new modality implemented in countries with both both in value added creation and provision of employment. agricultural and financial potentials, and Azerbaijan is among The dualistic structure of production has all the basic traits of the pioneer countries. Our Office is responsible for delivering a developing economy with a dominant share of production technical assistance in expanded partnerships. In this regard, concentrated in small holdings, co-existing with commercial FAO has a strategic partnership with the Heydar Aliyev producers. Foundation and with IDEA. We receive excellent support from The performance of the agricultural sector is encouraging. Ms. Leyla Aliyeva, who is an FAO Goodwill Ambassador, in According to USDA calculations, productivity in Azerbaijan’s communicating FAO’s messages and overall assistance. agricultural sector reached a 2.0% average annual growth rate during the last decade, following negative growth rates

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the seed sector, small ruminant production, and artificial insemination and others. There is no doubt that this partnership will strengthen Azerbaijan’s role as an emerging donor country in FAO and the world. I believe that Azerbaijan can offer development support to the region and the world where the country has accumulated expertise in partnering with FAO within the South-South Cooperation framework.

What are the priority issues for FAO in the world and in the Region? The overall priorities are set forth by the 2030 Agenda – the new internationally agreed set of sustainable development ©FAO goals. From ending poverty and hunger to responding to 24 May, 2015 Baku, Azerbaijan - FAO Director-General Jose Graziano da climate change and sustaining our natural resources, food Silva meeting President of the Republic of Azerbaijan Ilham Aliyev during his and agriculture lies at the heart of the 2030 Agenda. Official Visit to Azerbaijan. FAO will assist Azerbaijan in monitoring and reporting, prior to 2000. particularly on its achievements vis-a-vis FAO-related However, the sector still needs to be given priority to reach goals. We will also take part in advocacy of the Sustainable its production potential and increase its contribution to Development Goals, or SDGs. the national economy. I am happy to see that the recently As for the Europe and Central Asia region where Azerbaijan approved Road Map and Strategy position agriculture as one sits geographically, we will continue delivering FAO assistance of the priority sectors. in line with regional priorities identified with the member What is the state of food security and the priorities in countries – focusing in particular on three areas: empowering Azerbaijan? According to FAO’s 2016 State of Food and smallholders and family farms, improving agrifood trade, and Agriculture report, Azerbaijan has no food insecurity problem. climate change. FAO appreciates the Government’s success in achieving Millennium Development Goal target 1 on hunger. This came What do you have planned for Azerbaijan on down from 1.8 million people in 1990-92 to a figure that is environmental issues and climate change? statistically insignificant, less than 5 percent. Azerbaijan and the international community took responsibility FAO’s current Country Programming Framework (2016-20) for a sustainable future by adopting the 2030 Agenda and with Azerbaijan puts forward six priorities: 1) animal health and signing the Paris Agreement on climate change. plant protection, including transboundary animal and plant Hunger and poverty have to be eradicated by addressing disease control; 2) supporting investments in agriculture, food climate change. That requires a profound transformation of security and rural development; 3) capacity development, agricultural systems without jeopardizing the capacity of the including agricultural education, research and extension; agriculture sector to meet the world’s food needs. 4) strengthening the policy and institutional framework for Global food demand in 2050 is projected to increase by at agriculture and rural development; 5) improved crop, fisheries least 60 percent above 2006 levels, driven by population and livestock production; and 6) sustainable, equitable and efficient forestry, land and water resource management. FAO assistance should concentrate on these priorities.

What is the implementation status of the FAO-Azerbaijan Partnership Program? The major milestones in FAO-Azerbaijan collaboration came in 2015, with establishment of the FAO Partnership and Liaison Office and signing of the Partnership Programme for the 2016-2020 period. I am pleased to inform that we are proceeding with the implementation of the programme. We have great potentials and challenges before us. Transforming agriculture from subsistence to an export- oriented sector will require major changes, technical capacities, and appropriate policy and legal frameworks. Azerbaijan has been very successful in upgrading its ©FAO/Giulio Napolitano agricultural infrastructure. We will continue to focus on 07 June 2015, Rome, Italy – FAO Director-General Jose’ Graziano da Silva development of technical capacities, institutional structuring awarding Azerbaijan. Special Event: Award Ceremony - Completing the MDG and accompanying policies and regulatory frameworks in round – recognizing achievements in the fight against hunger. FAO Confer- ence, 39th session, FAO Headquarters (Plenary Hall).

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production via small investments in rural areas.

What is the role of FAO in implementation of the SDGs? How are you going to assist Azerbaijan? FAO is planning to support the Ministry of Agriculture, the Ministry of Ecology and Natural Resources, the Ministry of Economy as the Secretariat of the SDG Council as well as the State Statistics Committee on the identification of their needs related to 21 indicators for which FAO is custodian. FAO can provide technical assistance to strengthen the technical capacities related to monitoring and evaluation of SDG indicators within its mandate. In addition, FAO will act together with the UN Country Team to advocate for the SDGs locally. Ms. Leyla Aliyeva, FAO Goodwill Ambassador, has expressed interest in supporting FAO in the area of advocacy. @FAO/ Woman cooking (Sabina Rustamova) One FAO project in Azerbaijan works for equal access to rural services for Can you please tell us about Antimicrobial Resistance women, and helps sensitize agricultural extension personnel to gender issues. The initiative is a three-way collaboration among Azerbaijan, Turkey and FAO. (AMR) and what FAO is doing globally and for Azerbaijan? Increasing global Antimicrobial Resistance – or AMR – is a and income growth, as well as rapid urbanization. We know major threat to human and animal health. It endangers modern that diversification and better integration of food production human and veterinary medicine and undermines the safety of systems into complex ecological processes create synergies our food and environment. Antimicrobials play a critical role with the natural habitat instead of depleting natural resources. in the treatment of diseases of farm animals (aquatic and Agroecology and sustainable intensification are examples of terrestrial) and plants. Their use is essential to food security, approaches that improve yields and build resilience through to our well-being, and to animal welfare. However, the misuse practices such as green manuring, nitrogen-fixing cover of these drugs – associated with the emergence and spread crops and sustainable soil management, and integration with of antimicrobial- resistant micro-organisms – places everyone agroforestry and animal production. More resilient agriculture at great risk. sectors and intelligent investments in smallholder farms can The risk appears particularly high in countries where deliver transformative change, and enhance the prospects legislation, regulatory surveillance and monitoring systems and incomes of the world’s poorest while buffering them on the use of antimicrobials – and the prevention and control against the impacts of climate change. of antimicrobial resistance – are weak or inadequate. The Ministry of Agriculture and FAO are planning to work on This is where FAO plays a key role in supporting governments, “Climate-Smart Agriculture” in the near future. Currently, we producers, traders and others to move towards the responsible have a project proposal on forestry inventory with the Ministry use of antimicrobials in agriculture. The FAO Action Plan on of Ecology and Natural Resources. AMR is designed to help reduce antimicrobial resistance in In addition, our various projects take into consideration agricultural systems. of future water scarcity and drought risk. We will continue introduction of innovative technologies and techniques such as water-saving irrigation systems in our organic agriculture Our guest’s biography project, and further dissemination of conservation agriculture Melek Cakmak a Turkish national, was named FAO techniques in Azerbaijan. Representative and head of FAO’s new Partnership and Liaison Office in Azerbaijan in April 2016. What do you mean by social protection and food security Cakmak had served FAO’s Subregional Office for Central Asia linkage? as a field programme support and monitoring officer since Food security has four major dimensions: food availability, 2008. In addition to her duties in the field programme unit, she access, utilization and stability. In the past, economic growth worked as a focal point to integrate gender considerations in was the answer to all problems. Yet, we have been talking FAO programmes and projects. She began her career with about inclusive growth and poverty reduction for some time FAO as consultant to a project on community forestry. She now. Social protection systems have been critical in fostering played a major role in the establishment and development progress towards hunger and poverty targets in a number of the subregional office for Ankara while also serving as of developing countries. Social protection systems directly Assistant FAO Representative in Turkey during the period contribute to the reduction of poverty, hunger and malnutrition 2003-2008. by promoting income security and access to better nutrition, She holds a B.A degree in economics from the Middle East health care and education. By improving human capacities Technical University, Ankara, Turkey, and an M.A degree in and mitigating the impacts of shocks, social protection fosters agricultural economics from Stanford University, USA where the ability of the poor to participate in growth through better she also worked in both the sociology department and the access to employment. Social transfers can also contribute to registrar’s office.

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From Know-how Production Technologies to Higher Productivity Savash Uzan Azersun Holding, CEO

Recently, lots of steps have been taken towards exporting products under “Made in Azerbaijan” brand. How do you see the position of "Azersun Holding" as a leading company? I would like to note that Azerbaijan has already turned from the importing country to the exporting country. This has been reflected in various sectors of agriculture. In line with these processes, “Azersun Holding” carries high reputation internationally – with its high-quality exported products. The company has taken key decisions and steps. On top of all, we should say that all products are processed with a care and comply to international standards. For this reason, as a leading company, "Azersun Holding" makes significant contributions to the export potential of the country. In recent years, the company consolidated its share in local and foreign markets on the basis of new factories and plants which are put into operation, as well as, innovative approaches with wide range of new products mix.

Based on your solid experience, how local companies should contribute towards the promotion of “Made in Azerbaijan” brand? For increasing local production and export of products, President of the Republic of Azerbaijan, H.E. Ilham Aliyev, signed a decree – with an intention of promoting “Made in We would like to start with a general question. What is Azerbaijan” brand in foreign markets. This has been a turning the position of agriculture against the world economic point for stimulating entrepreneurship climate in the country. processes and situation of Azerbaijani companies However, there are lots of steps to bear in mind for the nowadays? businesses. First of all, Azerbaijani products must be high At present, during the global economic crisis, there is a quality in order to carry this name. This is the pre-requisite need for further expansion of non-oil sector of Azerbaijan. before the entire business process. Secondly, foreign markets Development of this sector (with large oil and gas capacity) and opportunities should be analysed and purposeful steps has become very important issue. This is obviously an should be taken in accordance with demand. Third, in relevant important issue for various reasons. Herein, the potential businesses areas, international certificates for manufactured of agriculture sector in overall GDP of Azerbaijan is quite products should be obtained. Local businesses might find promising. For supporting economic development and partner companies in host countries to manage the processes diversification, "Azersun Holding" carries out wide range of smoothly. Last, but not the least, national companies should reforms and activities in agricultural sector. Being Azerbaijani actively participate at exhibitions and festivals held in foreign company, "Azersun Holding" is actively involved for import countries. This will enable them to introduce and present and export dynamics within the country. products to international audience.

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How would you evaluate the potential of Azerbaijani Among your agricultural products, could you please climate advantages in production of agricultural tell which are flagman and which are lagging behind of products? competition among foreign brands? Favourable climatic conditions are one of the most important Obviously, it is not so easy to keep superior position in global factors in development of agriculture sector. Azerbaijan is market, with an existence of tough competition. However, located in a favourable geography. This plays a major role "Azersun Holding" gained consumers’ sympathy with its in development of agro businesses, especially in terms of honest toil and high-quality products. Certainly, a consumer achieving higher productivity. At the same time, it is possible is always looking for innovation and diversity. Herein, to grow products in different kinds and in huge ranges in consumer’s opinion and expectations are always important diverse zones of the country. As it is known, the factories and for us. We are always ready to compete. And the products plants of "Azersun Holding" continue to function successfully we manufacture are competitive which meets international in different regions of the country. Herein, location in an standards. effective climate zone(s) plays an important role. In this respect, I do not think we are lagging behind of competition. However, being a pioneer in this field does not Does “Azersun Holding” apply modern technologies soothe us. On the contrary, it denotes that our responsibility in agricultural production; if yes, then how do you find is even great. Therefore, "Azersun Holding" is aware of this relevant personnel? responsibility and will continue to offer new products and From the first day of operations, "Azersun Holding" showed innovations to its consumers. great importance for use of modern technologies. For this reason, factories and plants within the Group of companies are equipped with know-how production technologies and Biography of our guest techniques, as well as, constantly renewed. Mr. Savash Uzan is CEO of “Azersun Holding” in Azerbaijan "Azersun Holding” is also very sensitive to the choice of since 2013 and member of the Board of Directors since personnel. Therefore, we have started to cooperate closely 2008. Before joining to “Azersun Holding”, Mr. Uzan has with a number of vocational schools for preparing and training been working for Wellington Marketing FZE Dubai as General personnel in agriculture. Recruitment department within Manager from 2002 till 2013 in commodities business. In the Human Resources department carefully analyses job between of 1994 and 1998 he was been working in different applications. Potential employees take an exam in relevant oversees positions with Intersun Group of Companies, work fields. However, there is always a need for the personnel including General Manager of Etsun in Moscow and GM of specialized in the field of agriculture. For this reason, we Intersun group in Dubai. He joined to Azersun Trade and have an ongoing and sustainable training program targeting Distribution Company in 1998 as General Manager and relevant personnel. worked until 2002. Mr. Savash Uzan is a graduate of Engineering faculty from Yildiz University, Istanbul.

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“The EU Market is Open to Azerbaijani Products…”, says Representative of EU Delegation to Azerbaijan

Dr. Olaf Heidelbach European Union Delegation to Azerbaijan

system of the country, as agricultural specialists at all levels are needed that have been trained based on modern curricula. We have been working on the improvement of the food safety control system, by proposing new legislation and institutional structures, as well as, building laboratory capacity. The new economic roadmap and a recent presidential decree on the reform of the system in line with EU standards and the planned establishment of a food safety agency are promising developments that can pave the way for more Azerbaijani food exports to the EU market and a better food safety for Azerbaijani consumers at the same time.

What are the main challenges Azerbaijani business people face during exporting to Europe? And what is the comparative advantage of Azerbaijani products in Europe? As you know, the EU is Azerbaijan’s most important trade partner, but the majority of Azerbaijani exports to the EU Your vision and current goals for development of consists of oil and gas. agriculture sector in Azerbaijan and which support The EU market is open to Azerbaijani products, but highly functions do you provide for development of local competitive.It is undisputed that some Azerbaijani agricultural businesses or diversification of economy in the regions? products have a competitive advantage. According to a study One of the main objectives of EU cooperation projects in commissioned by us that takes into account factors, such as Azerbaijan is to support the diversification of the economy. international import and export prices and transport costs, the Agricultural and rural development projects are the main most competitive Azerbaijani products are mainly fruits and instruments in supporting the rural economy and reducing the vegetables. development gap between Baku and the regions. However, in order to compete on the EU market, products, But we are not only working on classical rural development, and in particular agricultural products have to fulfil certain such as productivity improvements of certain crops and quality and safety standards. Azerbaijan’s main agricultural supporting value-chains, but also on improving the legal export in terms of monetary value are hazelnuts, but regularly and regulatory framework, as well as helping the Ministry of export batches are being rejected at EU borders because Education in improving the vocational education and training of food safety problems, in particular aflatoxins, a fungi

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remain unanswered and in particular it is not clear where the 27bn AZN investments that the reforms are estimated to cost will come from. The EU and other donors are ready to look into financing some of the actions as they are in line with the objectives of ongoing and future projects, but additional funding has to be attracted in order to implement the envisaged reforms. One important guiding principle that is missing in the roadmap is the rule of law, which is key for any future investor in the country, be it a multinational from Europe or a start-up from Azerbaijan. Another important step would be working towards WTO accession. This would be an important sign for foreign investors that the Government is ready to liberalize the economy and work towards international trade standards.

Which support functions do you provide for stimulation of export of Azerbaijani economy? Besides the different sector support projects some of which I have mentioned above, we are concretely supporting the Ministry of Economy in preparing for the WTO accession and AZPROMO in export promotion. We also support through our Twinning instrument Azerbaijan's approximation to a wide range of EU standards and best practices. As a permanent measure potential exporters can consult the EU Export Helpdesk in case of questions regarding export requirements and procedures. We have also regular high-level and working-level discussions with Azerbaijan in the framework of the EU-AZ Sub-Committee on Trade and Investment and are also organizing regularly EU-AZ business fora. Last year we that is developing on the nuts due to wrong storage and had about 500 participants and we are expecting the same transport conditions on the one hand and an inefficient food number in June when our third event of this kind will take safety control system on the other hand. Fortunately, there place. is a political will to address the second challenge. The first challenge can be partly solved by capacity building along Biography of our guest the value chain and better access to finance for farmers, Since September, 2012, Dr. Olaf Heidelbach is the responsible processors and logistical companies to enable them to invest program manager at the EU Delegation to Azerbaijan for the in better storage and transport infrastructure. The EU is ready sectors agriculture/rural development and budget support to provide its support to address both challenges. operations/public financial management and has acted as Head of Cooperation. What are the main challenges European businesses face Before coming to Azerbaijan, Dr. Heidelbach has been when investing in Azerbaijan? working at the EU Delegation to the Kyrgyz Republic and Foreign direct investments, particularly in the non-oil sector has managed numerous projects and sector policy support are of utmost importance for Azerbaijan in diversifying its programs in Central Asia on good governance, education, and rural development involving civil society and government economy. According to a 2016 survey among 300 European institutions in between of 2007 and 2012. At the same time, he Companies (100 responded) that are active in Azerbaijan, the has been an Associate Professor lecturing risk management top three priorities to be addressed by the government should and analysis in the MBA Program of the American University be: 1) eliminating corruption and ensuring transparency, 2) of Central Asia in 2008 and 2009. improving tax and custom procedures, and 3) mitigating the He studied Agricultural Economics and Development Studies skill mismatch on the labor market. at the University of Hohenheim (Germany) and the Norwegian With the Economic Roadmap that outlines the reforms until University of Life Sciences in As (Norway). In 2007 he 2025 and beyond, the Government has prepared a strategy defended his doctoral thesis on innovative risk management that could provide the basis for profound economic reforms instruments in Kazakhstan's agricultural sector at the Martin in the years to come. However, there are questions that Luther University in Halle (Saale), Germany.

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The Current Situation and Development Perspectives of Agriculture in Azerbaijan Suleyman Kalashov Chairman of the Board, Azerbaijan Micro-finance Association

export, tax incentives, low-interest loans, increase of demand by the government, creation of agro parks, import restrictions, and creation of cooperatives. Certain steps have been taken in each of these directions in Azerbaijan. Activities related to the Social-economic development of Regions of the Republic of Azerbaijan, and measures taken in this sector paved the way for development of agriculture in the country. Agricultural product producers are exempt from all types’ of taxes, with an exception of land tax. Farmers and entrepreneurs have access to concessional loans, seed, fertilizer, equipment and cattle breeding. At the same time, the government provides subsidies for fuel used in crop cultivation area. In particular, a number of adopted programs and orders in 2016, is of particular importance for development of agriculture. Subsidies are granted to producers of cotton, In Azerbaijan after the oil sector, the most important and tobacco, silk, nuts and livestock breeding with the orders of high priority one is agriculture. All countries are engaged to President Ilham Aliyev, on the basis of state support programs agriculture. Around the world, about 50% of economically for development of cotton-growing, tobacco-cultivation, active population works in agriculture sector. Development sericulture and nut-growing and improvement of the breed of of this sector is very important from the standpoint of food cattle. security, as well as social activism and having export-oriented One of the issues that attracted further attention to our economy product. 9 out of 11 climatic zones do exist in our country and due to 54% of arable land, 38% of economically active population works in agriculture. After gaining the independence, with replacement of a system, carrying out agrarian reform with relevant legislation formed new property relations. In this case while developing their activities, landowners faced with challenges which delayed agriculture development. The revival and development of agrarian sector was taken to the fore as a matter of priority by the government and some State Programs have been adopted. In modern period, intensification of production is the main direction of economic development. Intensive development of planting area is an existence practice globally, with various tools, such as providing subsidies in terms of production and

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regions, more attention should be given to development of profitable areas and establishment of processing enterprises in the regions, such as cotton-growing, tobacco-cultivation, wine-growing, fruit-growing and vegetable-growing. The other issue is the challenge of people in access to financial resources in rural areas. Of course, this leads to lower production and productivity. Mainly there is a need for microcredit loans in the regions. Microfinance institutions play a major role in this topic. In our country, microfinance is still young, and it helps to low-income families, refugees, internally displaced people, individuals affected by the war, as well as small entrepreneurs for about 16 years. Microfinance along with development program of our country have been great contributors to overcome economic backwardness in the regions. For today, non bank credit organizations (NBCOs) is establishment of agro parks. Agricultural parks play an are of special importance in development of microfinance. important role in intensive production of agricultural products, It is known that banks provide mainly large corporate loans, but transportation, and storage, as well as in organization of NBCOS are mostly available for landowners and vulnerable sales. Farmers are free from the concerns, such as Product population. They are conducive to the development of farms sales organization, storage, reproduction by the setting up by providing people and small enterprises’ (enterprises or agro parks. At the same time, farmers in agricultural parks will individuals) with access to financial resources in the regions. be provided with scientific and technical support which will While small farms are developing, their production capacities ultimately lead to an increase in productivity and earnings. expand; thus, regional economic development is accelerated, Thus, along with an abundance of products in the market, it new jobs in the country are created and food security of the will enable creation of a competitive environment, increase of population is improved. quality and artificial decline of prices. Also, opening of new For today, operation of 48 NBCOs, with 219 branches within jobs offer necessary facilities for reducing unemployment and the country, plays a special role in rural areas, especially in welfare of the people living in regions. Khachmaz (Yalama) microfinance sector and financing small businesses. It should agro park was opened up, Shamkir and Khizi agro parks are be noted that in 2003, only 2 NBCOs, with 18 branches, were expected to be launched soon. operating in the country and their total credit portfolio was If we refer to Azerbaijan Republic State Statistical Committee 35 million manat. However, as of 31 December, 2016 this reports, we can see that grain and potato crop production indicator increased to 473.4 mln. manat. increased by 2 times, fruit and berry increased by 1.9 times, Depending on climatic conditions, agriculture is a complex melons and wine-growing increased by 1.8 times, vegetables and very risky area, and development of this area makes increased by 1.6 times, cotton production decreased by 2 it necessary to carry out systematic and comprehensive times and tobacco plant decreased by 4.8 times in the last 15 measures. Despite of comprehensive development of years. In the production of livestock, meat and milk increased agricultural sector within the State Programs, shortcomings by 2 times, eggs increased by 3 times, wool production during the execution created obstacles to provide rapid increased by 1.5 times. progress. In this regard, contribution of relevant executive It is important to expand the profitable production in the bodies should be substantial. Only in this case our economy country. First of all, it is needed to increase planting area of crops (cotton, tobacco, etc.) and their productivity. This area is cost-effective, as well as, high labour-intensive area. The second area is nut-growing development that Azerbaijan ranks 4th place in production and export. This area is more profitable and export-oriented than other sectors. Despite of implementation of all measures undertaken in 2016, the share of agriculture in GDP was only 5.6%, and this is very low figure. Today, only 1.3% of all exports account for agriculture, and for the potential of the country it is very low. Only 2.7% of the total loan portfolio of the country is accounted for agriculture. 85% of loans is allocated and invested in Baku. Considering the cities like Gandja and Sumgait, this figure reaches to 90%. As you can see, there are problems in loan investments in diversification of sectors and regions. For majority of economically active population living in

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to increase their knowledge and skills, follow agro technical rules and information about agricultural diseases. Establishment of agricultural cooperatives and joint cooperation system create an opportunity to application of modern agricultural technique and technologies; thus, productivity and profitability of production areas will increase. This will eventually support to solve the problems of unemployment in rural areas, use resources efficiently, achieve competitiveness, provide food security and strengthen production-processing-sales value chain. As agriculture is risky area, development of insurance mechanisms means mitigation of risks in this sector. This will obviously enable increase of lending to agriculture. As a result, the share of agriculture will increase in portfolio of banks, as well as other private companies. can further develop, be competitive and dynamic. The following factors are impeding the development of agriculture in the country. 1. Lack of infrastructure (rural roads, drinking and economic value water system) in agriculture sector, especially in rural areas 2. Existence of unused land areas. Low soil fertility of unused lands for a long time and ineffective use of lands 3. Lack of enough financial resources and investment to agriculture 4. Lack of qualified and experienced specialists in agriculture 5. Low level of economic knowledge and skills of farmers. Violation of agro technical rules, unawareness about agricultural diseases and improper inspection against them 6. Growing poor seed varieties in the regions of the country, and for this reason exporting them with high price 7. Weak composition of livestock cattle breed and the measures for artificial insemination 8. Weak setting for produce-process-sale value chain in agriculture 9. Launching the establishment of cooperation in agriculture 10. Small number of agro parks 11. Inability to meet the modern day requirements of agricultural insurance mechanism 12. Other factors Solution of these problems will stimulate development of agriculture in Azerbaijan, implement a reliable supply of population with food products, as well as increase the Biography of our guest competition in the economy, and stimulate exports. Mr. Suleyman Kalashov is Chairman of the Board at Azerbaijan In rural areas, adequate level of social infrastructure (water, Micro-finance Association since 2010. At the same time, gas, electricity, communications, paved roads, etc.) is a key since 2002 he is Board member and Director of Strategic factor for people to work and live there. Expansion of irrigation Planning, Marketing and International Relations department in agriculture improves plant productivity and product quality. of “AgrarCredit”, non-bank credit organization. Mr. Kalashov Special attention should be paid to allocation and investments carries strong professional experience in banking and of funds for agricultural soil fertility improvement. agriculture sectors. In 1978-1995 he worked as economist There is a need to increase the number of professional staff at State Statistics Committee and head of its Agriculture and grow high reproductive seed varieties in agriculture. Statistics Department. Later on, he joined to Agro-Industrial Herein, enhancing capacity of universities involved to Bank (currently “AgrarCredit”) and worked in diverse leading agriculture should be the most important issue. Regular positions. Mr. Kalashov carries masters degree in finance and statistics from the Azerbaijan State Economic University. courses and seminars should be delivered for farmers in order

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The Perspectives of Remote Sensing Application Products for Increase of the Efficiency in Agriculture Elman Alaskarov providing services to the European Union, allows defining the Senior Remote Sensing Specialist seeding area and crop productivity of agricultural vegetation, Azercosmos starting from the country level and up to the individual farms. The results of the analysis are used for optimization of agricultural production management, as well as for control of production volume within the governmental programs supporting the agricultural manufactures. The similar system is applied by the Department of Agriculture of the USA. Agriculture is one of the important industries in economy Modern remote sensing images obtained with the imaging of Azerbaijan. Nowadays the main objectives of the agro- equipment installed on various space vehicles, have the industrial policy of the government are to make this sector technical characteristics, which allow solving the wide range highly efficient and profitable, as well as to focus on exporting of tasks in the agricultural production, from borders mapping local agricultural products. of the fields to the analysis of land usage level and the With privatization of lands, emergence of a large number of conditions of crop productivity on the large areas. This is landowners and availability of agricultural manufactures of possible due to the large coverage of satellite imageries, the different ownership forms, the management of the agricultural presence of spectral channel in the diapason relevant to the products’ production is getting more difficult. Since there are spectral characteristics of plant cover and allowing producing many cases, when land areas are misused or are not used the automated calculation of plant indexes, which reflects the at all, there is a need to take drastic measures. These will current conditions of agricultural areas. The usage of products contribute to solution of this problem, which is not possible of different times makes it possible to track the dynamics of without establishing the governmental management system of land resources, based on the usage of results of land monitoring. Land monitoring is a system that tracks the state of land foundation for detecting the early changes, their evaluation, forecast, prevention and elimination of the results of negative processes. In recent years, the wide range of governmental and commercial organizations demonstrated interest in the usage of remote sensing capabilities for acquiring information, which is necessary to make timely and reasonable decisions in the field of agriculture. The global experience for more than 25 years confirms that space imagery provides opportunities not only for improvement of the agricultural statistics collection, increase of the accuracy, uniformity, objectivity and the frequency of observations, but also helps to develop the methods of operational control of seeding conditions and crop yield forecasting significantly. Governmental, as well as information-marketing services use remote sensing of agricultural areas in many countries (Canada, USA, EU countries, India, Japan, China, etc.). For example, MARS Azersky satellite image of agricultural crops areas in Beylagan region, Azer- System (Monitoring of Agriculture with Remote Sensing) baijan

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changes in plant cover and agro technical works, to identify the areas affected by natural disasters, as well as to solve many other problems. It is obvious that, not only manufactures and leaseholders of agricultural areas, but also the regional administrative offices and governmental bodies are interested in the methods of monitoring of agricultural areas. Monitoring of agricultural areas includes the systematic observation of the condition and the usage of crop rotation areas, the parameters of soil fertility, the changes of plant cover in the plowed fields, fallow lands, hayfields, pastures, etc. The next stage is the introduction about the precision agriculture. We may give the following definition of precision agriculture without going into deep scientific terminology: it is the management of crops’ productivity, with consideration of the local features of each field. In other words, this is the optimal management of plant production on each square meter in order to get maximum profit by saving the economic and natural resources. Modern agricultural equipment controlled with an on-board computer, devices for precise NDVI image of the area point positioning, technical system detecting the landscapes’ heterogeneity, yield accounting automatic systems, precise on the ground quickly. However, the ground-based researches sensing controlled systems, and computer programs for still play an important role. Together with space monitoring, displaying and analyzing of data are required. they allow to correlate the methods of crop recognition on the agricultural fields and their heterogeneity. It is possible to understand agro-technical condition of fields by using information about the changes of spectral brightness of plants during the vegetation period and index NDVI (Normalized Difference Vegetation Index), while decoding. Precision agriculture is introduced with the help of gradual mastering of qualitatively new agro-technologies based on highly effective and environmentally safe technical and agrochemical means. Constant monitoring on plant conditions plays primary role in precision agriculture. Timely detection and localization of areas with spoiled vegetation in the fields, which can be caused by various factors, such as damage of plants by pests, preponderance of perennial weeds, etc., is an important component of precision agriculture. For Azerbaijan, having own space segment, with the imaging devices that meet the requirements listed above, provides opportunity to receive information promptly, excluding the dependence on foreign data providers with value added prices.

Equipment devised with special installation for precision agriculture Author’s biography Electronic maps of the fields are prepared based on the Mr. Elman Alaskarov is Senior Remote Sensing Specialist satellite images. The productivity of different areas is at Azercosmos OJSC. He has valuable experience in analyzed according to the results of harvest. The chemical remote sensing, GIS and photogrammetry. Mr. Alaskarov is composition of soil is studied by using special technologies. responsible for Azersky image processing and application. According to the results of these researches, the scientists Before joining Azercosmos, he was a leading engineer and make recommendations to farmers. It is important that they scientist in National Aero-cosmic Agency. He took part in give detailed recommendations to manufacturers on saving, implementation of various international projects as a local which they call as precise and optimal application of fertilizer expert. Mr. Alaskarov carries Master of Technology in Remote in terms of environmental safety. So, the differences between Sensing & GIS, Andhra University, Visakhapatnam (India) remote sensing and ground-based researches are following: and BA in Computer engineering from Azerbaijan Polytechnic speed, accuracy and the ability to analyze what is happening Institute

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Efficient Water Supply as the Mainstream for the Development of the Agricultural Sector

Seymur Niftaliyev consulting systems within the agricultural sector; Manager, Law Practice, KPMG • Ensuring easier access of agricultural products to markets; • Other strategic goals.

Agricultural Cooperation The other important step by the Azerbaijani government was adoption of the Law “On Agricultural Cooperation”.4 The The President of the Republic of Azerbaijan, by his Order named Law focuses on establishing agricultural cooperatives from 12 January 2015, announced 2015 the year of with the purpose of stimulation of development of agricultural 1 agriculture. The purpose was to stimulate and expedite sector in Azerbaijan as well as to create large-scale further development of agricultural sector in Azerbaijan. In his agricultural enterprises and to increase competitiveness of numerous speeches, the President has raised importance of agricultural products. The Law stipulates that cooperatives agricultural sector in Azerbaijan’s economy and in ensuring may be requested to produce and supply agricultural products food security in Azerbaijan. According to the economic for state (public) needs. It also states that municipalities indicators, agricultural sector amounts more than 5% of GDP shall adopt local and regional development programs for in Azerbaijan, which, according to World Bank data, is less cooperatives. Cooperatives shall also benefit from certain than in several developing countries such as Turkey (8%), stimulating measures, including low interest credit and leasing 2 Malaysia (8.9%), China (9.1%) and others. This indicates terms as well as from the creation of credit guarantee fund. possibility for further potential growth of this area’s proportion within Azerbaijan’s economy. Tax Incentives In this article, we will cover the main steps made by Azerbaijani Yet another important step in favor of the agricultural sector in government to ensure agricultural development, global trends Azerbaijan was introduction of numerous amendments to the in agricultural sector and analysis of water issues in Azerbaijan Tax Code of the Republic of Azerbaijan. and propositions on how these issues can be allocated. It is important to note that in Azerbaijan individuals are exempt from personal income tax on the earnings made from Accomplishments the sale of agricultural products.5 Enterprises are exempt from During the last several years, Azerbaijani government has profit tax from the earnings made on the sale of agricultural taken numerous steps in order to improve agricultural sector. produce until 1 January 2019.6 This includes various tax incentives, state subsidies for farmers, adopting various legislative acts for further regulation Previously there was a significant ambiguity in the tax of this sector and others.

Strategic Roadmap One of the main documents adopted is Strategic Roadmap on Production and Processing of Agricultural Products in the Republic of Azerbaijan (“Strategic Roadmap on Agriculture”).3 This Roadmap envisages main priorities/strategic goals for development of agricultural sector in Azerbaijan. These priorities include: • Strengthening institutional potential to ensure sustainability of food security; • Ensuring easier access to financing; • Development of science, educational and informational

1 Order of the President of the Republic of Azerbaijan, 12 January 2015 4 Approved by the Decree of the Republic of Azerbaijan, dated 18 July 2016 2 http://data.worldbank.org/indicator/NV.AGR.TOTL.ZS 5 Article 102.1.11 of the Tax Code 3 Approved by the Decree of the President of the Republic of Azerbaijan, dated 6 December 2016 6 Article 106.1.14 of the Tax Code

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treatment of the production and sale of the agricultural food is expected to grow to 3000 kcal from 2619 kcal per products as there were no clear-cut definitions for these in person per day. the Tax Code. The recent amendments introduced definition (3) Technological digitalization of agricultural production of a production of agricultural products which is defined as: It is expected that in the future, agricultural producers will • feeding and breeding of animals and birds (including in a use relevant data from satellites, drones, weather stations special farms, automated stall systems, etc.); and etc. Agricultural robots will take greater role in product • acquisition of products (in its original form, without processing and packaging processes. Product processing changing chemical composition and canning) from will probably use nanotechnologies and 3D food printing. livestock; (4) Biotechnology as growth factor • cultivation of plants. Development of new technologies that will allow using In the meantime, sale of agricultural products is defined as fewer resources to increase agricultural production the sale of livestock, products obtained from livestock (in its is one of the main trends in the present. In addition, original form, without changing its chemical composition), genetic improvements will be crucial in order to boost the plant products (without changing their natural form or production, without implying the creation of genetically composition, without canning). modified organisms – GMOs. Moreover, according to the recent amendments to the local (5) Limitation of land resources tax legislation VAT shall be calculated from trade mark-up Intensive use of land in the last 50 years has resulted during retail sale of agricultural products manufactured in in degradation of soil, water and biological resource. the Republic of Azerbaijan. To benefit from such privileges, Approximately 25% of global land used today is degraded. manufacturers should keep a separate record of the As a result, the price of land is increasing. agricultural products. (6) Growth of biofuel consumption The main driver for increase of consumption level of biofuel Other steps are the regulating measures taken by governments. Such Over the past few years, Azerbaijan has signed several regulations depend on the willingness of governments to agreements with other countries in the area of agriculture. reduce carbon dioxide emissions and create additional These include agreement with Israel on cooperation in the income for agricultural producers. It is estimated that area of agriculture and memorandum of understanding with demand for sugar cane and vegetable oil for bio fuel will Qatar in relation to cooperation in the area of agriculture.

Global trends In the era of globalization, trends in various sectors, including agriculture, may influence similar sectors in other countries. Azerbaijan is no exception. While improving separate areas of agricultural sector or amending the legal framework for this sector, global trends shall be taken into account and their deeper analysis will be helpful. Therefore, in order to better understand the potential future of agricultural sector, we need to get familiarized with global trends in this sector. According to the analysis of main drivers of global agriculture by KPMG, there are nine megatrends that will define the world’s agricultural landscape for future decades. These grow by 28% and 14% respectively. megatrends are:7 (7) Globalization (1) Growing demand for basic agricultural products In the period of globalization, the level of competition rises, The main factor for such growth is an increase of world’s which implies that the competitors have to be big enough population, which is estimated to rise up to 10 billion people to compete on the global stage. Therefore, it is expected by 2050. Based on estimations and calculations, which that such competition, including in agricultural sector, will includes income growth forecasts, dietary allowance and further force agricultural producers to merge. growth of population, the demand in food will grow by 60- (8) Climate change 70% by 2050. As a result of global warming, the number of extreme (2) Urbanization and growth of middle class climatic events grows. This will possible create risks It is expected that an average GDP per capita will grow agricultural business including return on investment risks. to USD 28,000 by 2040 from USD 14,000, according to (9) Restricted global trade OECD. Following such growth, population of developing Most governments actively support their agricultural countries will change its dietary patterns, which will include industry. In order to ensure the free trade, countries will a greater share of grain crops, sugar, vegetables, meat need to enter into bilateral agreements on free trade with and other. Therefore, total energy value of consumed other countries, as WTO agreements do not effectively liberalize the trade among countries. 7 https://assets.kpmg.com/content/dam/kpmg/ru/pdf/2016/12/ru-en-services-for-agri-companies.pdf

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Water issues establish irrigation associations (“IA”). In 2011, the new Irrigation Associations Law was enacted, which redefined Water resources are vital for sustainability and development the status of IAs from “local administration associations” to of agricultural industry. According to OECD, farming accounts “public legal entities”, subjecting them to an administrative for approximately 70% of water used today.8 Currently, and technical audit and opening the possibility of the relevant effective management of water resources remains a major state authority taking back the management of IAs and either challenge for most of countries. The major concerns in exercising management itself or outsourcing it to the private relation to water management are:9 sector by selling irrigation canals to private enterprises.13 • increasing competition for access to water; Therefore, Azerbaijani government shall look at water sector • decreasing water quality; (for agricultural purposes) as a separate industry, not as a • need to expand access to safe drinking water; supporting sub sector for other industries. • deteriorating groundwater supplies;

• threat from global warming. Considering the vital role the water resources play for Conclusion As seen from the above, the Government of Azerbaijan has agriculture industry, in order to achieve further development taken numerous steps in order to support and stimulate of agricultural sector in Azerbaijan, the closer look into water development of agricultural sector. Among others, one of the issues shall be ensured. As such, water issues were not main steps is approval of Strategic Roadmap on Agriculture. missed in the Strategic Roadmap on Agriculture. Improvement This Roadmap includes strategic goals and priority steps until of water supply and creation of mechanisms for sustainable 2025 and strategic view on the further period. Notwithstanding use of water resources were included as priorities within the to the undertaken steps, water issues need more attention and named roadmap. requires institutional changes. Therefore, further involvement Government’s support with regards to water issues has of private sector in this area accepting water issues as a intensified in the later years, as new artesian/sub artesian separate industry will be helpful for addressing water matters wells were ordered by the President to be built.10 in the agricultural area, as irrigation is a vital component of Water relations are regulated with number of legislative agricultural production in most developing countries, where acts, including the Water Code of the Republic of Azerbaijan use of technology is more limited than in developed countries. (“Water Code”). According to the Water Code, ownership over In the meantime, the global trends need to be carefully water objects can be state, municipal and private.11 Although, analyzed. Azerbaijan has an ambition of becoming one of the Water Code allows private ownership of water objects, the leading countries in agricultural area, therefore the main there are limitations with regards to such ownership. More trends within agriculture and related spheres need to be specifically, the Water Code states “Small water reservoirs, tracked. situated on the private land areas, not having hydraulic connection with the other water objects and flows, can be given in private ownership…”12, which limits participation of private businesses in the wider range of water relations, such as ownership of larger water objects. For the purposes of this article, one of the proposed ways to develop agricultural sector is to establish water industry as a business, which may be regulated by the government through OJSC Azerbaijan Melioration and Water Administration. It will determine relationship between businesses and consumers, ensure fair distribution of water to farmers and other industries. Involvement of private businesses to the broader water relationship, granting these businesses with more access to water objects will, probably, add competition to this sector and will enable easier access for farmers and small agriculture companies to water resources. In addition, private Author’s biography businesses will be interested in effective delivery of water to Mr. Seymur Niftaliyev is a Manager at the Law Practice of the end consumer with the minimum loss or leakage, as such KPMG in Azerbaijan. He is currently involved in advising leakages will result in financial losses for these businesses. clients with legal assistance on corporate, banking, Moreover, involvement of private sector will promote agricultural, FATCA, migration, contract and other areas. innovation and will result in use of new technologies within Seymur was also involved in development of various internal the water sector. Similar process is currently implemented policies for leading companies, including conflict of interests, in Turkey, where, similar to Azerbaijan, water consumers procurement and other policies. Mr. Niftaliyev holds LL.M. in International Commercial 8 http://www.oecd.org/environment/wateruseinagriculture.htm Law from City University London and Bachelor degree in 9 http://www.oecd.org/environment/resources/Council-Recommendation-on-water.pdf 10 http://president.az/articles/17174 International Public Law from Baku State University. 11 Article 15, the Water Code 12 Article 14, the Water Code 13 Law on Irrigation Association, Republic of Turkey

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Importance of Agriculture in Azerbaijan’s Economy

Javid Mammadov measures than ever in order to ensure the sustainable supply Tax Senior, Deloitte Azerbaijan of agricultural products to the world’s population. Local and global trends necessitate a well-designed strategic development plan for the agricultural sector, and taxation of this sector is an inseparable part of this plan, which must be effectively implemented in order to achieve positive outcomes in this conventional, yet extremely vital sector for humanity and the world economy. Araz Borchali Tax Consultant, Deloitte Azerbaijan Major agricultural tax reforms undertaken in Azerbaijan The decision of bringing the agricultural sector under the umbrella of tax exemptions dates back to 2001. According to the official studies done by the Ministry of Economy, as a result of the exemptions from 2001 until 2016 farmers Agriculture is commonly rated as the hardest to tax of all managed to save AZN 1.4 billion, hence the agricultural hard-to-tax sectors. The difficulty of taxing agriculture is sector has grown by 4.4 times5. By comparing the total value of relatively minor concern in developed countries, where of agricultural goods produced until 2001 with the indicators 1 agriculture accounts for a minor share of the GDP . However, of 2016, we can see that the value of agricultural products it does matter for countries like Azerbaijan where agriculture was just 1.3 billion until 2001; however, that figure equaled still preservers its importance for the domestic economy. AZN 5 billion in 20166. Until 2000 there was a decreasing The share of agricultural products in the GDP of Azerbaijan trend in the size of agricultural lands, after the year 2000 such decreased from 16.1 percent to 5.5 percent during the rise lands were expanded and in 2015 agricultural lands were 8.4 of the oil sector in 2000-2010. However, it increased from percent larger than in the 1990s. 5.5 percent to 6.2 percent between the years of 2010-20152. Moreover, between the years of 2005-2015 Azerbaijan experienced a significant increase in the importation of Current level of taxation of the agricul- agricultural products3. Currently, Azerbaijan has been experiencing a declining trend with regard to the importation tural sector in Azerbaijan of agricultural products after 2015. The Tax Code of the Republic of Azerbaijan envisages sev- What do all these figures and facts tell us? The significant rise eral agriculture-related provisions. Most of these provisions in the importation of agricultural products to Azerbaijan tells stipulate temporary and permanent exemptions covering us about the increasing consumer demand for agricultural a major proportion of the agricultural sector. As mentioned products. This shows that Azerbaijan has promising potential before, the exemptions related to the taxation of agriculture for the further development of its agricultural sector. However, started in 2001, however, the highlight of all changes is the factors supporting the importance of agriculture for Azerbaijan latest amendment made to the Tax Code on 23 December are not limited to statistical figures only. The geographical 2016 by the Azerbaijani Parliament. According to magnitude location and climate of Azerbaijan allows the country to and impact, those changes are the most substantial since the develop various sub-sectors of agriculture. The need for a adoption of the Tax Code in 2000. Before the recent changes, more intent approach regarding not only taxation, but also there were several provisions that were not clearly defined. all aspects of agriculture is prevalent all over the world. The most crucial one was the understanding of what consti- According to the Food and Agriculture Organization of the tutes “producers of agricultural goods”. The missing definition United Nations, the world population will increase up to 9.3 of such an important term under the Tax Code led to a num- billion by 2050, for which there will be a need to increase food ber disputed between taxpayers and the authorities. A clear production by 70 percent4. The increasing focus of the world definition of the “producers of agricultural goods” brought a community on food security urges us to take more effective lot of clarity as VAT exemptions are applied to the sale of ag- ricultural goods by the producers of such agricultural goods. 1 Where agriculture is negatively taxed on balance; the net subsidy to agriculture in the 30 countries of the OECD amounts to 3.9 percent of tax revenues (OECD Agricultural Outlook and Revenue The sale of agricultural goods is also explained with a clear Statistics). The share of tax revenue sourced from agriculture is not known, but is unlikely to exceed definition under the Tax Code. Individuals’ income from the 3.9 percent, implying negative net taxation of agriculture. 2 The Strategic Road Map for the manufacture and processing of agricultural products in Azerbaijan 3 The Strategic Road Map for the manufacture and processing of agricultural products in Azerbaijan 5 The Strategic Road Map for the manufacture and processing of agricultural products in Azerbaijan 4 Food and Agriculture Organisation of the United Nations 6 The Strategic Road Map for the manufacture and processing of agricultural products in Azerbaijan

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direct production of agricultural goods is also exempt from taxation. In addition, legal entities engaged in the production Analysis of current taxation of the agri- of agricultural goods are exempt from taxation of their income cultural sector in Azerbaijan from such activities until 2019. Currently, the VAT base during Undoubtedly, current exemptions have a positive effect on the the retail sale of agricultural goods is considered as a mark- development of agriculture and the share of this sector in the up amount. Previously, such base was the full price of the ag- country’s economy. However, there are several shortcomings ricultural goods, which used to lead to an extra burden on the of the provisions related to such tax exemptions and their ad- end consumers of those products. In order to achieve the de- ministration and regulation by the tax authorities. Below we sired level of improvement of the agricultural sector in Azer- highlight some of them: baijan, exemptions on domestic sale are not enough as the • Currently, the earlier discussed exemptions on the pro- usage of the latest technologies and other related materials is duction of agricultural goods are not applicable to the necessary to ensure the complex development of this sector. taxpayers processing the agricultural products. This in Importation and sale of the following are also exempt from turn creates a certain number of obstacles for the or- VAT: ganization of agriculture-related industry and its further • Various pedigree livestock development. Taxpayers engaged in the processing of • Seeds and seedlings agricultural goods are producing final goods from the • Mineral fertilizers and pesticides processed products and putting them on wholesale. • Equipment used for seed breeding, poultry farming and Hence, they become an important and inseparable part beekeeping, as well as laboratory equipment and equip- of the agricultural production chain and contribute to the ment for cleaning, sorting or calibration of seeds, grains country’s economy. It would be expedient to apply the and dry beans current tax exemptions (except VAT: please see below) to enterprises engaged in the processing and wholesale of agricultural products for a certain period. This would have a robust and positive effect on the development of the agricultural production. • As mentioned previously, the turnover of the sale of ag- ricultural goods directly produced by producers of agri- cultural products is exempt from VAT. This disables the producers to offset the VAT amount paid in relation to the raw materials and equipment purchased that is nec- essary for the production of goods. Consequently, the producers loose the VAT amount and this leads to a rise in product price. It would be more beneficial to apply VAT at zero percent to the turnover of the producers or pro- • Veterinary drugs for disease prevention, diagnosis and cessors of agricultural goods from the wholesale of such treatment of agricultural animals and birds products. This would allow taxpayers to offset the above- • Irrigation systems and other installations, machinery, mentioned VAT amount and would result in lower prices, equipment and technology for the direct use of agricul- a better competitive atmosphere, and higher consumer tural designation purchasing power parity. Currently, the Tax Code requires the retailers of agricultural • Registration and organisation of documentation by the goods produced in Azerbaijan to carry a separate record of producers of agricultural goods and especially by indi- such products. In case of non-compliance with this require- viduals are not at the desired level. Currently, the major- ment, the VAT amount will be calculated from the total turn- ity of subjects engaged in the production of agricultural over of the sale of such products instead of the mark-up products do not have proper registration in Azerbaijan. amount. Such a requirement intends to prevent the misuse of According to the State Statistical Committee and Min- preferential treatment for domestically produced agricultural istry of Agriculture, there are approximately 890k own- products to be applied to imported agricultural products. ers of agricultural lands. The number of applicants for Agricultural and fertile land and facilities are essential parts of state subsidies for fuel and engine oil is 370k. Moreover, a successful agricultural sector in any country. Encouraging only 1,300 legal entities and 1,500 private entrepreneurs the use of such lands and properties is another part of the are registered for agricultural purposes. This in turn cre- story. To ensure this, the Tax Code also envisages five years ates diffculties for processeors and sellers of agricultural of exemption from property tax starting from 2014 for legal en- products in conducting proper record keeping and leads tities and individuals engaged in the production of agricultural to tax incompliance We should not consider our mission goods for property used solely for such activities. The owners completed by granting tax exemptions to this sector. of agricultural lands are subject to this preferential treatment Proper documentation and record keeping are the areas under the Tax Code. that need more stringent supervision and control. Besides profit taxpayers, simplified taxpayers’ revenue from On top of all these issues, we need to assess the effective- the sale of agricultural products produced directly by them is ness of the undertaken measures for the agricultural sector not considered as a taxable base until 2019. This is a good in specifics and for the whole country’s economy in general. sign of the will to enlarge the coverage of exemption to as The previously mentioned exemptions are effective in the many taxpayers as possible that are engaged in the produc- short-term. However, in the long-term such exemptions may tion and sale of agricultural goods. lead to certain problems for the domestic economy and state

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financing. The favored treatment of agricultural production in order to take into account seasonal variations in cash flow contrast with non-agricultural production may contribute to and liquidity in agriculture. The current application of tax ex- sectoral and inter-sectoral distortions. The current level of the emptions and taxation of agricultural lands, depending on wide range of exemptions for the agricultural sector makes their proper use for agricultural purposes under the regular it attractive for potential investors. However, this might lead taxation system, is conceptually very similar to the “presump- to over-investment in the agricultural sector and divert a sig- tive taxation” mechanism. However, the application of a well- nificant proportion of domestic finance from other potentially designed presumptive taxation system can bring the following beneficial sectors for the Azerbaijani economy. benefits: Paradoxically, the current exemptions for the agricultural sec- • Unlike the regular system of taxation, the single agricul- tor may also reduce the incentives for owners of agricultural tural tax leads to simplification of taxation, bookkeeping, lands for higher profitability through the effective use of such and reporting; lands. That is to say, the absence of any tax burden on agricul- • The introduction of presumptive taxation may effectively tural landowners reduces their sense of responsibility to earn reduce the tax burden on agriculture as it coincides with more profit by ensuring better use of their lands. Because of a reduction in tax rates; this, agricultural lands are not used effectively enough. These • The introduction of presumptive taxation may initially in- are the issues that we could potentially face in the long-term. crease government tax revenues despite the associated In fact, the government encountered these potential scenar- reduction in the tax burden, because increased compli- UNIQUE ios and enacted the majority of such exemptions on a tem- ance will probably outweigh the reduction in tax rates. porary basis. Nevertheless, the agricultural sector is one of However, total tax revenues will likely decline in the long- MEDICAL the most challenging sectors of the economy in terms of the run, especially if resources shift from other sectors into difficulty of ensuring supervision over its taxation and regula- agriculture in order to take advantage of lower taxation TREATMENT tion at the desired level. It is most likely, after the end of the there; exemption periods or after the implementation of preferential • The primary goal of most governments that introduce taxation for this sector, that supervision and regulation of this presumptive taxation is to broaden the country’s tax (+994 222 352 3003 sector’s taxation will be very difficult and will require higher base. However, presumptive taxation may undermine administrative costs to be undertaken by the tax authorities. this goal if taxpayers remain in presumptive taxation re- WWW.NAFTALANHOTEL.AZ Furthermore, the costs to farmers and producers of agricultur- gimes indefinitely or regress from regular taxation to pre- al goods will significantly increase. In case of tax exemption sumptive taxation. Thus, this goal may be accomplished prolongation, the above-mentioned “over-investment”, “lack by imposing a time limit regarding presumptive taxation of incentives for more profit” and other negative issues may of agriculture. affect the economy. In the later stages of the development of a country’s econo- Considering all of these matters, it is possible to apply al- my, and depending on the level of readiness of agricultural ternative taxation mechanisms such as “presumptive taxa- goods’ producers, a gradual shift from presumptive taxation tion”, which is widely used in international practice. Presump- to regular taxation may be undertaken. tive taxation is employed primarily when specific groups of taxpayers are hard to tax and administrative resources are Author’s biography scarce. Presumptive taxation has traditionally been used as Javid Mammadov is a Senior Consultant at the Tax & Legal a way to obtain some tax revenue from taxpayers who might department of Deloitte Azerbaijan. He has been with Deloitte otherwise go completely untaxed. These systems calculate since April 2012 and have more than 5 years experience on a the tax base via easy-to-obtain indicators or other methods, variety of tax and appropriate business issues. instead of relying on taxpayer self-assessment. This method Javid is specializing in tax review and advisory services of taxation can accomplish two things: it can reduce the cost provided to both multinational and local companies. He has of compliance by the taxpayer as its tax base is easier to been in-charge of a large number of tax reviews covering calculate than that of the personal income tax or profit tax, corporate income tax, withholding taxes, payroll taxes, and once the system is determined it reduces the costs of tax income tax and social contributions. He has advised clients on administration. Presumptive taxation is often regarded as a international taxation, production sharing agreements, host stepping-stone to a regular tax system, such that a taxpayer government agreements and tax due diligence investigations. would be subject to this simplified regime for a limited period He holds a bachelor and master degree in Finance. Currently of time and then become part of a regular tax system. he is pursuing PhD degree on “Domestic Fiscal Policy and The usual approach of presumptive taxation in agriculture is Public Finance” at Azerbaijan State University of Economics. to base the tax on the area of land and its quality. An estimate Araz Borchali is a Tax Consultant at Deloitte Azerbaijan. is made of the normal income that can be earned, given the He joined Deloitte in 2015. Araz has experience in advising productivity of that type of land, average costs of production, local and multinational companies on different direct, indirect and the prices of agricultural products. The fixed single agri- and individual tax issues. He was involved in performing tax cultural tax replaced all taxes previously paid by agricultural reviews covering corporate income tax, withholding taxes, producers–profit tax, land tax, value added tax, contributions payroll taxes, income and social contributions. to the Social Protection Fund, contributions to the Pension Araz graduated with a Bachelor of Arts in International Fund, and any other taxes. The presumptive tax rates should Relations from Azerbaijan University of Languages. He be comparable to those under the regular regime of taxation. received his first Master degree from ADA University in Incomparability will create distortions between and within dif- Diplomacy and International Affairs and MSc in International ferent sectors of the economy. The tax can be paid monthly/ Political Economy from London School of Economics and HOME AWAY quarterly, but the payment rates vary on a quarterly basis in Political Science. FROM HOME (+994 122 310 1101 32 Issue 25 WWW.SAMAXIPALACE.AZ UNIQUE MEDICAL TREATMENT (+994 222 352 3003 WWW.NAFTALANHOTEL.AZ

HOME AWAY FROM HOME (+994 122 310 1101 WWW.SAMAXIPALACE.AZ in focus

Value-added Agricultural Products: Run Away From Laziness

Ashraf Hajiyev • Rent of animals: here the models are quite different, Research Director and Partner, for instance, one can rent a cow (instead of buying SIAR Research and Consulting Group and keeping it) and sell its milk. And a very interesting alternative to it was offered by Swiss farmers: for a fee of 385 USD (level of 2010) for 4-months-season subscribers get special rates for produced cheese, access to farm, certificate of sponsorship, photo with rented cow, etc. Similar approach is offered by Rent Mother Nature (www. After a long month full of meetings, I thought to have rentmothernature.com) from Vermont, which at a lease some short 3-days break in one of the mountainous, but price of 59.95 USD offers a guaranteed minimum yield of economically quite active villages of Azerbaijan. Being a three 8 oz. wheels of Cheddar cheese. passionate researcher, during such trips I usually spend a • Private club approach: a farm in Pennsylvania called lot of time talking to people and asking questions about their “Miller’s Organic Farm” (http://www.millersorganicfarm. lifestyle, businesses, etc. And this getaway of mine was not com/) offers long list of its own and its partners’ organic exclusion: ethnography mode was turned on. products at special prices to members of its Club. Only So on the first day I coupled my morning workout with a talk members are allowed to buy them and avail themselves with one family and one local grocery store manager. And of various delivery options: weekly, bi-weekly, monthly, besides other things, I learned that the family was selling etc. bulk milk without preparing any value-added product out of • Agricultural tourism: a potentially great direction for laziness, and they told me that almost all (except maybe 5-10 Azerbaijan in terms of agricultural development. For families) are not involved into production of cheese, butter, instance, in Spain they offer such agritourism activities etc. Likewise the store manager was expectedly not selling as learning how to feed animals, milk the cows, collect any local dairy product: even yoghurt was a packed one chicken eggs, look after the horses, water the plants, brought from one of the plants located in Baku. grow organic products, make wine, cheese, honey, One could say that such a behavior of households may yoghurt, natural decorations and aromatic oils (see http:// have some economic grounds and pure laziness is only an www.agroturismonavarra.org/en/). additional driving factor. Taking this into account I am bringing Each and every idea may appear to be great. Just research it. some figures on gate prices: bulk milk is sold to collectors at And certainly there are a number of useful research methods 0.5 manats per liter, yoghurt is priced approximately 2 manats that may be of help: desk research, concept tests, pricing per liter, cheese and sour cream are offered at 6 and 10 optimization, market potential understanding, export potential manats per kilo, respectively, and finally retail price of butter understanding, segmentation, positioning, advertisement is a minimum of 10 manats per kilo as well. I understand that and promotion research, brand switching, loyalty-based there are other inputs too (like electricity, water, own time, segmentation, package tests, and many others. and others), but nevertheless I do tend to think that for local households production and sales of processed products is Author’s biography more an attractive business model as opposed to bulk milk Mr. Ashraf Hajiyev is Research Director and Partner at trading. SIAR Research and Consulting Group. He is responsible for So then I thought: “What other business models could also be various research projects and development of SIAR activities applied in villages of Azerbaijan? What are the success cases in Azerbaijan, Georgia, Central Asia, Moldova, Russia and in other countries that could be used as a benchmark?”And Ukraine. As Research Director, Ashraf is strongly focused on below you may see some of the discovered ideas: quality of research and bringing international methodologies • Bee-friendly goods: check www.thehivebox.com, which offers a monthly subscription for a box, containing honey, and techniques. His experience includes retail audit, studies beeswax candles, handmade soap and beauty products, covering FMCG, tourism and hospitality, services, finance, artisan candy and bee-themed paper or decor. construction, durables, healthcare, automotive, social and • Healthy nutrition: a chain of stores offering healthy healthcare research, and other sectors. Since 2015 Ashraf has nutrition delivered in a fast manner directly from region. also been elected to be a country representative for ESOMAR Idea is especially grounded by rather low prices for (World Association of Research Professionals) in Azerbaijan. village households’ products (as compared with imported Mr. Hajiyev obtained BA on Economical Cybernetics from ones and some factory-produced local ones), as well as Baku State University (2001) and MA in Economics from the witnessed increase of importance of health and sports. Central European University (2003).

34 Issue 25 in focus

Sustainable Agriculture as a Solution to Climate Change

Nargiz Karimova Orkhan Rajabov Gunel Farajova Partner, Assurance Manager, Senior consultant, services, Ernst & Ernst & Young Ernst & Young Young Azerbaijan Azerbaijan Azerbaijan

Climate change (also called global warming) is not a new should be addressed without compromising food security concept in the Earth’s history. There is a climate cycle that for the earth population. Therefore, Sustainable Agriculture occurred 7 times during the last 650,000 years, which lead has been put forward within the frame of Sustainable to the ice age that is afterwards succeeded by the recovery Development concept to help policy makers, businesses to warming. These changes in the climate occur due to the ensure permanent food supply and preserve the environment alterations in the amount of the received solar energy by the at the same time. Earth, and actually one of these cycles 7,000 years ago lead to the creation of human civilization (NASA, 2017). Agriculture and Climate Change However, global warming that we have been witnessing since According to World Resources Institute, agriculture is the last century is getting intense 10 times faster than the average world’s second-largest emitter after the energy sector, recovery warming processes, because of the increased generating 6 billion tonnes of GHGs each year (Russell, amount of anthropogenic greenhouse gases (GHGs) in the 2014). In 2014, the third-largest contributor to climate change atmosphere, namely carbon dioxide, methane and nitrous after fuel combustion was agriculture that was responsible oxide. for 9.9% of GHG emissions in the EU (Eurostat, 2016). The picture below demonstrates different sources of emissions in the farming, the amount of which depends on the type of products, methods of farming and the environment.

Source: NASA, 2017 A tremendous increase in the level of carbon dioxide can be seen in the above graph, which lead to the rise of sea level, shrinking of the ice sheets, ocean acidification and extreme weather events, such as tsunami, intense rainfalls and so on. Unfortunately, the issue with the rising level of emissions is not Source: NASA, 2017 the only problem the humanity faces today. The population of the world will increase from 7 billion to 9 billion by 2050. Paris Agreement This means, food demand of the earth will increase as well As climate change is not the problem of one country only, but leading to more demand for dairy, meat, fruit and vegetables. of the whole world, it was necessary to include all nations in Though, the world’s leading international organizations have the process to improve the current situation. For this purpose, been trying to find the solution for the indicated problems since the Paris Agreement was adopted in 2015 at the 21st last century, hence not much success have been acquired in Conference of the Parties of the United Nations Framework this direction on a global scale. At the same time, protecting Convention on Climate Change, which is going to deal with the environment is crucial and issues like global warming, GHGs mitigation. Each party is required to prepare Nationally resource scarcity, soil degradation and loss of biodiversity Determined Contributions (NDCs) and regularly report on the

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amount of generated emissions in the country and undertaken currently, 795 million people in the world are malnourished. actions to reduce them (UNFCC, 2017). According to the The first target of SDG #2 is to ensure access to food by all submitted NDCs, 118 countries included agriculture as one of people by 2030, which can only be achieved through sustain- the sectors where they are planning to reduce the amount of able agriculture (UN, 2015). produced emissions (CCAFS, 2016). Azerbaijan also ratified the Paris Agreement on January 9, 2017 and according to NDC our target is to reduce the level The term ‘food security’ means that ev- of GHG emissions by 35% by 2030, 1990 being a base year. Mitigation activities are going to take place in various sectors, ery person is able to have enough food including waste, transport, energy, oil and gas sectors and agricultural. to sustain healthy and active lifestyle. Agricultural sector was included in Azerbaijan’s NDC as well. The State Statistical Committee of the Republic of Azerbaijan reveals that since 2005, the second largest contributor after Sustainable Agriculture the energy sector to climate change has been agriculture According to the National Sustainable Agriculture Information sector. According to submitted NDCs, mitigation actions Service in the USA, “sustainable agriculture is one that pro- in this sector are going to be “collecting methane gas from duces abundant food without depleting the earth’s resources manure of livestock and poultry, use of alternative sources of or polluting its environment”. energy and modern technologies”. However, without considering environmental, social and eco- nomic dimensions at the same time, or focusing only on one of them, it is not possible to obtain the desired results. Sus- tainable agriculture tries to develop a self-sustaining system, which will not harm the environment, will be capable of pro- ducing more healthy food and will support rural communities. Industrialization that took place in agriculture in 20th century deteriorated soil and water, decreased biodiversity, which is essential for food security, and left considerable number of small farmers without a job. Therefore, environmentalists, ag- ricultural scientists and farmers have begun to find new ways of producing food that will give people an opportunity to have a healthy diet and will not leave future generations undernour- ished (Earles, 2005). Different programmes are developed by different international Source: The State Statistical Committee of the Republic of Azerbaijan, 2015 organizations to help countries to achieve sustainability in ag- riculture. Food and Agriculture Organization of the UN (FAO) has pub- lished several documents that are aimed to help countries on their way to sustainable agriculture. “Building a common vision for sustainable food and agriculture” is the set of prin- ciples and approaches for policy makers that are based on FAO’s long experience in developing sustainability concepts in this sphere. Another document, which is “Sustainability As- sessment for Food and Agriculture Systems Guidelines”, was published in 2014 and its aim is to introduce assessment pro- cesses of impact of food and agriculture operations on people and the environment (FAO, 2014). For instance, the UN Global Compact in partnership with Min- istry of Food, Agriculture and Husbandry, local Turkish uni- versities and some other associations introduced Sustainable Source: IPCC, 2014 Agriculture Programme for Turkey. The targets of this pro- gramme is to enhance the quality management and resource- Sustainable Development Goals – Goal#2 efficiency, sustainably enlarge supply area of locally grown Sustainable Development Goals (SDGs), which were adopt- products and support farmer families. ed in 2015 and officially came into force in 2016, also cover Sustainable farmers from all over the world have already be- the topic of agriculture. Goal #2 is “End hunger, achieve food gun to adopt agricultural practices that improve soil health, security and improved nutrition and promote sustainable ag- reduce water and energy use and decrease amount of pollut- riculture”. The problem that is associated with the agriculture ants generated by the farm. Some of them even went further is not only its adverse effects on climate change, but also the and established new sustainable trend like “Permaculture” fact that the current way of producing food is not capable of that turned out to be not only very promising self-sustaining providing nutrition for all 7.5 billion people on the earth and system, but also a lifestyle.

36 Issue 25 in focus

communities. Not to mention that abandonment of pesticides Permaculture and reduction in fuel usage will improve environmental condi- As was stated by the father of permaculture Bill Mollison, tions in the country and health of the population. “Permaculture is a philosophy of working with, rather than against nature; of protracted and thoughtful observation rath- er than protracted and thoughtless labor; of looking at plants Conclusion Coming from all above said, it is clear that, to be able to pro- and animals in all their functions, rather than treating any vide food security and preserve the planet for next genera- area as a single-product system”. Concept of permaculture tions, we must think about sustainable agriculture that em- was developed in 1978 and implies reproduction of models braces innovative technologies, as being one of the solutions and elements, which can be observed in the nature, in so- that can bring us to the solution of current socio-economic- cial, agricultural and even economic systems. By following environmental problems. As it was mentioned by Bill Mollison: the principles of permaculture, people are able to contribute “Though the problems of the world are increasingly complex, to the sustainable future of the planet and get more out of life the solutions remain embarrassingly simple”. (Permaculture, 2014). One of the most famous practitioners of permaculture is Geoff References Lawton, for whom permaculture is already a lifestyle and he Agriculture’s prominence in the INDCs: data and maps. (2016). CCAFS. constantly promotes this idea by educating other people and Climate change evidence: How do we know? (2017). NASA. Retrieved March 12, designing permaculture projects in different countries. He has 2017, from https://climate.nasa.gov/evidence/ established Permaculture Research Institute where everyone Earles, R. (2005). Sustainable Agriculture: an Introduction. The National Sustainable can find related courses, articles about innovations in perma- Agriculture Information culture and interact with other people around the world who Service. FAO. (2014). Building a Common Vision for Sustainable Food and Agriculture. are also interested in this subject. FAO. (2014). Sustainability Assessment for Food and Agriculture Systems Guide- lines. FAO. (2016). Country Programming Framework for Azerbaijan 2016-2020. “You can solve all the world’s problems Greenhouse gas emission statistics. (2016). Eurostat. Hunger and food security - United Nations Sustainable Development. (n.d.). UN. in a garden.” Geoff Lawton Information to the United Nations Framework Convention on Climate Change (UN- FCCC) on the Intended Nationally Determined Contribution (INDC) of the Republic of Azerbaijan. Kowitt, B. (2016). Big Agriculture Gets Its Sh*t Together. FORTUNE Knowledge Group. Potential of sustainable agriculture in Russell, S. (2014). Everything You Need to Know About Agricultural Emissions. World Resources Institute. Azerbaijan United Nations Framework Convention on Climate Change. (2017). Status of ratifica- Taking into account current economic situation in the country tion. Retrieved March 12, 2017, from http://unfccc.int/paris_agreement/items/9485.php and in the world, sustainable agriculture seems to be an aus- What is permaculture? (2014). Retrieved March 12, 2017, from picious solution to decrease dependency on oil sector, reduce https://www.permaculture.co.uk/what-is-permaculture expenses, as sustainable agriculture implies minimum use of fossil fuels, and increase exports of agricultural products. Author’s biography In 2016, FAO in cooperation with the government of the Re- Nargiz Karimova is an assurance partner at EY Baku office. public of Azerbaijan developed Country Programming Frame- She joined EY in 2002. Nargiz holds Bachelor and Master work (CPF) 2016-2020. The programme focuses on the na- degreein International Economic Relations from Azerbaijan tional development plans and strategies as well as supports State Economic University. She has more than thirteen years FAO’s regional priorities. It is planned to cooperate with the of work experience at EY Baku practice, with focus on IFRS, national stakeholders who are interested in promotion of sus- US GAAP and Azerbaijani statutory, and PSA audits. Nar- tainable agriculture and development of rural areas. The CPF giz is a member of the Association of Certified Chartered Ac- also includes recommendations on implementation, monitor- countants. ing and reporting stages and already conducted cost-benefit Orkhan Rajabov leads Cleantech and Sustainability Ser- analysis. Moreover, with the technical support from FAO, the vices in Azerbaijan and specializes in sustainability reporting Ministry of Environment and Natural Resources prepared assurance and advisory. Orkhan holds a Bachelor degree in “National Forestry Program 2015-2030” that is targeted on Accounting and Audit and an MBA in Finance from Azerbaijan the promotion of sustainable development of the country’s State Economic University as well as MSc in Finance from forests and introduction of the methods to coordinate the for- Durham University. Orkhan specializes in sustainability stra- est management policies and government policy instruments tegic advisory and sustainability reporting assurance and ad- (FAO, 2016). Growing producing products in a sustainable visory. He is taking an active part in forming the professional manner by applying innovative solutions in agriculture and sustainability community in Azerbaijan. raising awareness about it not only in Azerbaijan but in other Gunel Farajova is a senior consultant at Cleantech and Sus- countries as well, will increase market demand for agricultural tainability services in EY Azerbaijan. She holds Bachelor and products from Azerbaijan, as people all over the world are be- Master degree with distinction in European Studies from Azer- coming more concerned about the environmental impact gen- baijan University of Languages, and MBA from University erated by the products they consume. Moreover, supporting of Durham. Gunel specializes in waste management / Ex- sustainable agriculture will secure stable income of people tended Producer Responsibility and sustainability reporting who work in this sector, decrease internal migration, which assurance and advisory. results in degeneration of small towns, and strengthen rural

37 in focus

Modern Technology and Innovations are Applied in Agriculture Sector the improvement of value chain and modern technology Vugar Babayev application and innovations. This will eliminate dependence Chairman of Board of Directors of to the oil sector and ensure the expansion of the agricultural Ganja Agribusiness Association sector, where 40 percent of the population is employed. To identify SAF project goals and objectives, GABA conducted a situation and location analysis of the target region. USAID’s objectives and the goals outlined in Azerbaijani government’s programs were taken into consideration as well: • The Azerbaijan State Program on Regional Socio- Ganja Agribusiness Association (GABA) started economic Development for 2014-2018 advocates the implementation of the Smart Azerbaijani Farm (SAF) project reduction of regional disparities through investments in July 2016. Funded by the United States Agency for in agricultural processing units, as well as in new International Development (USAID), SAF target areas are the technologies; it further propagates export-oriented Western Economic Region (Ganja-Gazakh) administrative production along with dissemination of required districts. These districts are known for its agricultural international standards. production, their farming practices, and cultural traditions • The project is fully aligned to the non-oil sector development throughout the country. and food security component of the "Azerbaijan 2020: SAF’s overall goal is to achieve sustainable agricultural Vision to the Future" Development Concept that is to development of the Western Economic Region through ensure sustainable economic development and increase

38 Issue 25 in focus

income-generating opportunities for the poorest strata of and frames for beekeeping farms. the population. The products of the 12 model farms will be diverse due to soil • The adopted Law on Cooperatives will introduce and climatic condition, production experience and traditional cooperative elements into agriculture. The Law analysis of the target region: open field and greenhouse regulates the creation of cooperatives and associations vegetable growing farm models, apple and berry (raspberry) (for production, marketing, and credit) in order to farm models and beekeeping (honey and other beekeeping stimulate the agricultural sector and defines their legal, products) farm model. organizational, and economic status. Basic principles are In general, SAF project will work to achieve the following voluntary membership, as well as open, transparent, and results: democratic governance. • 12 Smart farm models will be developed through the • The implementation of the 2016-2020 Strategic Road application of modern technologies and innovations, and Map includes nine strategic objectives that are expected two of them will be managed by women; to be met for ensuring a favorable environment in terms • Sustainable agricultural productivity and high income of achieving the establishment of competitive agricultural will be provided by establishing 45 agricultural producer production and processing sector in the country. groups, including 3-5 women in each;g These strategic objectives strengthen sustainable food • Reliable and sustainable agricultural product marketing security, increase the capacity of agricultural value will be provided through the development of new sales chain production, market development in the agricultural channels; sector, and ensure easy access to resources and finance, • Support farmer access to input suppliers and service improve the quality of education in agriculture, develop providers through the development of a workable value a consulting and information services system, develop chain model. market infrastructure. This will ensure easy market Training will be conducted for the project participants in order access for producers, the establishment of mechanisms to achieve the above-mentioned project results. Farmers will for sustainable use of natural resources, improving the be provided with consulting services by project experts, and business environment in the agricultural sector and rural meetings will be held to exchange experiences. prosperity. Direct project beneficiaries include 2,500 active farmers, Herein, each of the 12 established model farms in the producers, processors, suppliers, and trade organizations. target economic region during 2017-2019 will be provided Activities include trainings, demonstration field days and with computer and internet access, an innovative portable rendered consulting services. It is also expected to have laboratory to conduct soil, plant and water analysis. Moreover, 22,500 community members as final beneficiaries of the farmers will be able to join GABA’s available SMS and HOT- project, including agricultural suppliers and retailers, group LINE Extension Service system. members, demonstration field day participants and family Meanwhile, SAF farms will be supplied with all the modern members. equipment, such as automatically controlled drip irrigation As a result of transfer innovation and ICT application in system, sprayer for plant protection, aeration system, the agricultural sector, producer groups will be developed shading system, thermometer, humidity indicator, trellis, in accordance with their production sphere. It will deepen heating and humidity regulation system, the automated pest sustainable relationships among suppliers, producers, traders, and disease control system, and honey extractor, special processing enterprises, and financial institutions. Therefore, protective clothing, smoker, winter temperature control cover we are sure that SAF project will make great contributions to the sustainable development of the agricultural sector in the western region of Azerbaijan, as well as that the experience of applying modern technologies and innovations in agriculture will be successfully utilized in other regions of the country.

Author’s biography Dr. Vugar Babayev is the Chairman of Ganja Agribusiness Association since 2011 and Head of Innovations department at Azerbaijan National Academy of Sciences as of 2014. At the same time, he carries over 10 years of experience as Board member at various magazines, including "Perm Agrarian Journal" (Russia), "Annals of Agrarian Science" (Georgia) and "Organic Farming" (Azerbaijan). Previously, Mr. Babayev worked in leading position at various non- bank credit organizations, various civil society organizations and cooperated with the World Bank. He carries a degree from Azerbaijan Agriculture Academy on Economy and Management, as well as PhD on agrarian sciences.

39 member contribution

Working Time Challenges in Oil & Gas Industry Bahar Kavuzova employees (Paraguay)2. Senior Legal Consultant, Azerbaijani laws do not provide any kind of temporary or PwC Azerbaijan permanent exemptions for extension of such limits, but admit the cumulative calculation, which is originally contemplated for employees who are not able to leave their work places due to long distance or continuity of operations. The metrics can be different depending on the calculation cycle –record period and average monthly working limits, adopted annually by the Azerbaijan, being one of the world’s oldest oil-producing relevant state authority3. countries and a crucial oil and gas supplier in the Caspian Sea region, makes wide-scale use of diverse workforce. Job Overtime work sites that used to be run by a single company nowadays often have dozens of smaller contractors with sometimes over 100 Seeking the most flexible legislation governing overtime workers each performing the work, which significantly adds issues, one can see that the metrics vary considerably across complexity. countries. The member states of the European Union, which Furthermore, a range of additional statutory restrictions adjusted their legal regulations on total working time (regular and applicable laws imposed specifically on the oil and and overtime) to EU directive limit them either by legislation gas industry, justified by its dangerous nature and difficult (i.e. Scandinavian and Southern European countries), or by living conditions on offshore sites make it more vulnerable collective bargaining (i.e. Germany and Denmark). In the to noncompliance incidents and related sanctions. The state United Kingdom, limits are determined at the company level; labour inspection continuously examines potential HSE, in Central Europe, mainly as a consequence of the socialist compensation, rest and working regime violations associated legacy, overtime is still regulated to a large extent by state with oil and gas operations and applies corresponding legislation. In contrast, the federal law in the United States enforcement actions all throughout the country. contains no legal restriction on the total amount of overtime Adding to that, international standards adopted by Azerbaijan work allowed. Norway defines that overtime may be up to 48 with the aim to ensure a safe and healthy working environment hours per week in average of 8 weeks, but only if there is an and to guarantee the employees’ adequate rest and leisure exceptional and time-limited need4. Legislation in Kazakhstan time complement the local laws and regulations. is much more rigid in this regard, stipulating that overtime The combination of these factors do not always ease the cannot be more than 2 hours per day, 12 hours per month companies’ business, but instead cause practical challenges and 120 hours per year5. for their operational performance, which in turn can adversely In Azerbaijan, the limits are governed by legislation, affect their financial bottom line. which mandates maximum 4 hours of overtime within two The following analysis provides a concise but comprehensive consecutive working days. overview of the restrictions and challenges faced by employers The procedural rules, which employers must undergo before in Azerbaijan, specifically in the oil and gas industry and making use of overtime, also vary from country to country. draws conclusions regarding the need of modernization of In Azerbaijan, employers do not need to get approval from labour legislation. the government authority, (which is the case in Norway) but are restricted to request overtime work only under exceptional Regular working hours circumstances i.e. urgent works resulting from unforeseen circumstances. Being a member of the International Labour Organization, It is noteworthy that local laws do not distinguish between Azerbaijan has mandated a maximum on regular hours (pre- overtime that the employee is obliged to perform and that 1 overtime), defining it in the amount of 40 hours per week . over which they can exercise a choice. At the national level, Several foreign countries have a proviso for allowing an extension of the 40 hours’ regular limit by: collective bargaining 2 Working time laws: A global perspective - Findings from the ILO’s Conditions of Work and Em- (Mozambique), upon employee’s request (Senegal), ployment Database, Deirdre McCann Chapter 1- Normal hours limit for specific industry (Cameroon), self-determination for 3 Article 96 of the Azerbaijani Labour Code managerial and supervisory employees (Japan), offshore 4 Working time laws: A global perspective - Findings from the ILO’s Conditions of Work and Em- ployment Database, Deirdre McCann Chapter 2 – Overtime Work 1 C047 - Forty-Hour Week Convention, 1935 (No. 47) 5 Article 78 of the Kazakhstani Labour Code

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during business trips that in our opinion should be mandated separately by application of specific rates. Thus, under the weekly limit of 40 hours and normal working conditions, the maximum duration of weekly working hours including overtime should not exceed 52 hours (5 working day per week) or 54 hours (6 working days per week) per week. Rest periods

International standards provide for a weekly rest day(s) to secure a substantial rest period during the working week and ensure employees’ work-life balance7. Local legislation requires the employer to provide employees with a meal break and uninterrupted rest with period of at least 12 consecutive hours per day. However, whilst comparing local and foreign labour laws, one can see that the Azerbaijani legislation lacks specifics in this regard such as: • maximum (Estonia – one hour, Russia – two hours, Guinea Bissau – three hours) and minimum (Kazakhstan, Norway – 30 minutes) duration of meal break; • minimum shift length for entitlement to rest breaks (Norway - 30 minutes’ break for every 5.5 hours); • longer breaks when daily hours are extended (Japan and all employees have a right to refuse to work overtime and Finland); their consent is required for each occurrence of overtime • extended breaks for exceptional industries (mining, work. In extreme examples, this could theoretically lead to drilling, retail) and potential industrial accidents, e.g. in case of pipe burst or • division of breaks by leaving their determination to the pump malfunction all the employees are free to leave the discretion of employer8. workplace if it is the end of working day, even if the employer The picture regarding weekly rest time in Azerbaijan is asks them to cooperate for prevention of industrial accident. relatively brighter, since the legislation allows its adjustment A more practical solution in this regard is implemented in to the chosen working regime e.g. one day per 6 days’ working Kazakhstan where the regulations state that overtime work week, two days per 5 days’ working week, and the number of is mandatory and non-rejectable in case of force majeure days stipulated by shift schedule. Herewith, the local laws do involving a danger or accident, but voluntary for production not define specific days to be chosen as working (as it is in or business needs6. Spain either Saturday, or Monday) or not to be chosen as There is also a specific release from overtime for employees working (i.e. Friday in UAE), leaving it open to the discretion working under extra difficult and hazardous conditions, of parties. Generally, these days are Saturday and Sunday. pregnant women, a parent taking care of a child younger than Many countries, including Azerbaijan, allow urgent work and 3 years of age, as well as employees below 18 years of age. continuous production (in certain industries, such as retail, Employees working under difficult and hazardous conditions catering, telecommunication, transportation and other service are also subject to a specific limitation, which is up to 2 hours providers) to be performed during the weekly rest days. In within two consecutive days. this case, the employer provides compensation in addition to Despite the international standards providing optional the ordinary salary for the work performed on a weekly rest compensation of overtime either by remuneration, or day. Such compensation can take the form of a pay premium, (and) equivalent rest period, the local laws strictly prohibit compensatory rest or both9. replacement of overtime with extra time off. Nevertheless, the remuneration rules stipulate only minimums, they do not Production Sharing Agreements restrict employer to define higher rates that may be negotiated upon conclusion of the employment contract. Production Sharing Agreement, being a regulator of the Although the Azerbaijani laws set the rates for calculation, legal and commercial relationship between the government they are silent about compensatory timing, which is in practice of Azerbaijan and international oil companies, reckons for usually made at the end of each month together with monthly implementation of regulatory framework based on the best salary. The local laws also lack provisions regulating overtime hours in other specific contexts, such as coinciding with night 7 C014 - Weekly Rest (Industry) Convention, 1921 (No. 14) 8 Working time laws: A global perspective - Findings from the ILO’s Conditions of Work and Em- shifts, performed on weekly rest days, public holidays and ployment Database, Deirdre McCann Chapter 4 – Rest periods 6 Article 77 of the Kazakhstani Labour Code 9 Article 164 of the Azerbaijani Labour Code

41 member contribution

COUNTRY REGULAR WORKING MINIMUM BREAK MAXIMUM OVERTIME REGIME applicable to HOURS oilfield

8 hours a day 40 hours a Cumulative calculation: 12 Azerbaijan10 week Not specified 4 hours within two days hours a day Duration of shift is not specified

2 hours a day Cumulative calculation: 12 Kazakhstan11 40 hours a week 30 minutes 12 hours a month hours a day 15 or 30 day’s 120 hours a year shift

Russia12 40 hours a week 30 minutes Cumulative calculation: 12 hours a day 30 day’s shift Normal working hours may 9 hours per day 40 hours be extended up to 12,5 hours 20 hours a week, 50 hours per day and 50 hours per per week within 4 weeks week as long as, on average Norway13 (a number of exemptions 30 minutes (a number of exemptions over a reference period of 52 applies) applies) weeks, they do not exceed nine hours per day and 40 hours per week

United Kingdom14 40 hours a week 20 minute breaks for each 8 hours per week Cumulative calculation: 12 6 hours hours a day 14 day’s shift

No US labour laws directly address the issue of 12- hour work shifts. There is USA15 40 hours a week 30 minutes No limitation no limit on work hours, but employees must receive overtime pay after 40 hours per week. experience and judgment of employers, which are familiar in order to catch up with the rapid rhythm of developments with international oil and gas operations. Therefore, it does related to oil and gas industry. The practical challenges not prescribe any specific clauses with regard to employment and lack of clarity sometimes induce employers to bypass issues and leaves the determination of such frames to the statutory requirements by underreporting hours, labeling discretion of employer. the employees as independent contractors, determining flat- Summarizing the above, one can conclude that the labour day-rate payments, exclusion “off the clock” hours etc. which laws of Azerbaijan by comparison is very protective of in fact do not deprive the employees of the right to recover employee’s rights on one hand and on the other hand, it does the owing compensation. Therefore, in our opinion, a reform provide employers with enough flexibility to adjust existing adding a separate chapter describing particularities of oilfield labour law requirements to the operational needs. Despite employment to the Labour Code should be conducted. this, there is an abundance of violations and penalties for Furthermore, it is crucial for employers to consider best employers turning up during the state labour inspections, practices in addition in order to prevent violations and of which a significant portion can be attributed to the lack penalties resulting from lack of clarity or misinterpretation. of clarity and misunderstanding rather than intentional Author’s biography wrongdoing. It proves that there is a number of ambiguous Bahar Kavuzova is leading employment and migration provisions to be clarified and gaps to be fixed by legislators practice in PwC Azerbaijan. She carries seven years’ 10 Labour Code of the Azerbaijan Republic experience in both public and private sectors two of which 11 Labour Code of the Kazakhstan Republic are associated with American Bar Association. Bahar holds 12 Labour Code of the Russian Federation 13 Act relating to working environment, working hours and employment protection, etc. (Norwegian a bachelor degree in Law from Baku State University and Working Environment Act) currently studying Business Law at Chicago Kent Colleague 14 Employment Rights Act and Regulation 4 of the Working Time Regulations 15 Fair Labour Standards Act of Law.

42 Issue 25 AmCham Azerbaijan

The American Chamber of Commerce in Azerbaijan is a About Us private, non-profit business association supporting and promoting the interests of business in Azerbaijan.

Established in 1996, AmCham is com- posed of over 250 members and asso­ ciates active in every sector of the Azer­ baijani economy. We represent 80% of all foreign investment, as well as a significant portion of local investment which allows us to promote American, Azerbaijani and multinational corpora- tions. This includes leading companies in Energy, Banking, ICT, Legislative/ Financial Consulting, Professional Ser­ vices, Education, Real Estate Develop- ment, Health, Transportation, Travel and Production fields.

An active and positive influence in Azerbaijan, we conduct our mission with integrity and respect for the country, observing all local laws and insisting on the highest ethical standards in all relationships and transactions. Membership To apply Why join? There are two types of affiliation with To apply for affiliation with AmCham, AmCham: Member and Associate. a candidate must submit a written Key member benefit – Member status includes voting application in the form adopted by best networking opportunities in privileges and eligibility for Board and the Board of Directors. Membership Azerbaijan! committee chairmanships in addition applications are available at the to the privileges granted to Associates. AmCham office or on our website at As a member of AmCham, your company For affiliation as a Member, a candidate www.amchamaz.org. The application has access to a vast network of business must be a legal entity, registered and form should be completed and sent to information and contacts in Azerbaijan and doing business in Azerbaijan and be our office with the company registration in the US government, as well as valuable in good standing in the community, as certificate issued by the Ministry of information on US businesses across determined by the Board of Directors. Justice of Azerbaijan. Europe through ECACC (European A legal entity, branch or representative A candidate meeting the objective and Council of American Chambers of office of a legal entity is eligible to subjective requirements for affiliation Commerce) and US Chamber of be affiliated with AmCham as an with AmCham is accepted as either a Commerce. Associate, subject to the Board of Member or Associate upon receiving Directors’ determination of good an affirmative majority vote of the Additional Member Benefits include: standing in the community. Board of Directors and paying the first Associates are eligible to participate in year’s fee for the candidate’s category • Annual Employee Salary Survey various activities; receive our regular of affiliation. • Quarterly Inflation Survey publications, including the Membership To maintain affiliation with AmCham, • AmCham Membership Directory Directory, Annual National Employee Members and Associates must • AmCham Resource Library Salary Survey and Quarterly Inflation continue to meet our eligibility Survey. Associates, however, are not requirements, be in good standing in For more detailed information please entitled to vote or serve on our Board the community, and be current with all visit our website www.amchamaz.org of Directors. financial obligations to AmCham.

43 AmCham Azerbaijan

Business Events

respective reforms. Fundamental changes have been Tax Conference on “Together introduced to the Tax Code in order to enhance the tax legislation. Speaking about on-going measures for systematic towards Transparency” development, he stated the prominence of tax system for growing the economy and fostering the might of national Tax Conference on “Together towards Transparency” jointly taxation. Academician Z. Samadzade also emphasized that organized by American Chamber of Commerce in Azerbaijan tax reforms will lead to growing scale of business activities (AmCham) and the Ministry of Taxes took on March 10, 2017. and improving tax collection rate in the non-oil sector. Mrs. Natavan Mammadova, Executive Director of American Mr. Fazil Mammadov, Minister of Taxes and 1st rank state Chamber of Commerce opened the event and expressed her tax councillor, welcomed the participants and extended satisfaction at constructive dialogue with state authorities of his gratitude for their contribution to economic growth in the Republic of Azerbaijan, and emphasized the conference Azerbaijan. He emphasized that the Ministry of Taxes places as an another stark example in this direction. She also stated a great emphasis on discussions with public associations that Chamber includes over 250 local and foreign companies of entrepreneurs for the purpose of developing the tax and represents 80% of investments in the country. Mrs. policy and tax administration, providing new services to Mammadova added that it was a pleasure to observe positive taxpayers, improving the business climate as a whole, changes at national level which will strengthen economic as well as considering views and proposals by local and sustainability to external shocks, provide more competitive foreign businesses while making changes to legislation. and transparent business environment and as a result, give Attracting the attention to traditional nature of tax conferences incessant support to the Government of Azerbaijan in terms conjunctly organized by AmCham and Minister of Taxes, he of reforms towards more powerful, diversified, and export- said that such events play an exceptional part in promoting oriented economy. the partnership between businesses and tax authorities and Chairman of the Standing Commission of the Milli raising the taxpayers’ compliance. Mejlis (Parliament) on Economic Policy, Industry, and According to Mr. Mammadov, relationship between the Entrepreneurship, Mr. Ziyad Samadzade, touched on the Ministry of Taxes and AmCham is build on principles of issues of flexible tax system set up in Azerbaijan and the effective partnership. AmCham member companies are

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entities exchanged their views at the panel discussions. Mr. Natig Shirinov, General Director of Department on Analysis and Control Over Tax Risks of the Ministry of Taxes (“tax service: Reforms and targets”), CEO of Azersun Holding Mr. Savash Uzan and Tax Director of Deloitte & Touche Mr. Emil Garayev (“Transparent taxation accounting”), Country Manager of Mastercard Mr. Alper Merich and Senior Tax Manager of EY Azerbaijan Mr. Zaur Gurbanov (“Cashless payments and their benefits”), BP’s Regional Tax and Customs Manager Mr. Jeyhun Mammadov and PwC’s Country Managing Partner Mr. Movlan Pashayev (“Advance tax ruling and Voluntary compliance”) made presentations on respective topics during the panel on “Role of tax service in reforms” moderated by Mr. Bakhtiyar Aslanbayli, Vice President of BP for Communications, External Affairs and Strategy for Azerbaijan-Georgia-Turkey region. At the next panel moderated by the Head of the Representative extensively represented in growing economic life of our Office at Societe Generale Banking Group in Azerbaijan and country and play an important role in this regard. Kazakhstan Ms. Teyba Guliyeva, Advisor to Minister of Taxes He also stressed that name of tax conference as “Towards – General Director of Taxpayers’ Service and Transparent the transparency” which symbolizes modern challenges and Tax Partnership Department Mr. Alakbar Mammadov (“Tax the position of the Ministry with its intention in maintaining services as locomotive in ongoing tax reforms”), CEO of transparent and cooperative relations with business entities Rabitabank Mr. Elchin Gadimov and Partner, Head of Tax for developing the national business climate and improving and Legal Department of KPMG in Azerbaijan Mr. Mushfig the tax legislation. Aliyev (“Implication of tax regulation on financial sector”), Speaking about the reforms for upgrading and transforming organizational structure of tax administration, Mr. Fazil Mammadov stated that current tax administration has been built on a modern vision resting upon two significant principles. The first and foremost is the principle of “individual approach”. The main task before the tax administration is to create relevant approaches with respect to taxpayers falling under each category. The basic approach is separating the working principles of small and medium-sized enterprises (SMEs) from those of large enterprises, as well as taxpayers with special regime, individually approaching to each business group, ensuring proper distribution of fiscal and administrative burden. Furthermore, “establishing and reinforcing partnership relations” with business entities is another important principle and he added that although the process has already been launched for several years, new approach focuses on strengthening these relations on specific basis, precise determination of taxpayers’ liabilities General Manager of Tax and Legal services of “Baker Tilly and delivery of modern and innovative taxpayer services. Azerbaijan” Mr. Azar Akbarov (“Transfer pricing”), Director Stating his satisfaction with the level of cooperation with the of Legal Services of “BDO Azerbaijan” Mr. Sabit Abdullayev Ministry of Taxes, President of AmCham Mr. Nuran Kerimov (“Prevention of tax evasion: practical challenges”) made underscored that development of tax legislation which will further tax-related presentations. contribute to growth of national business environment is in the At the conclusion of the conference, the Ministry of Taxes, best interest of AmCham. As a result of existing cooperation Chamber of Auditors of the Republic of Azerbaijan, “Deloitte with the Ministry of Taxes, for more than 6 years, the Chamber & Touche”, “EY Azerbaijan”, “PwC Azerbaijan”, and “KPMG has been conducting conferences on tax partnership, holding Azerbaijan” signed a Memorandum of Understanding. discussions on important taxation-related topics and putting The event was attended by AmCham members, forward specific proposals. Mr. Kerimov stated that the aim representatives of diplomatic corps, senior officials of the of today’s meeting is to discuss issues of reforms in national Ministry of Taxes, and representatives of the mass media. tax system, changes to the Tax Code, development of partnership relations between business structures and tax authorities and so forth. Later on, representatives of business

45 AmCham Azerbaijan

history of economic development in the country over the First ever AmCham Azerbaijan past 25 years. He highlighted the importance of economic diversification away from oil and gas and noted that Azerbaijan Trade Mission to the USA 2017 is the largest trade partner of the United States in the South Caucasus. According to Deputy Minister, the importance On March 1-2, 2017 the first ever AmCham Azerbaijan of the trade partnership is reflected in the number of trade Trade Mission to the USA 2017 successfully took place. It missions of American companies to Azerbaijan, organized on was organized by the American Chamber of Commerce in a regular basis. Azerbaijan (AmCham) in cooperation with the United States- Next keynote speaker Mary B. Warlick, Acting Special Envoy Azerbaijan Chamber of Commerce (USACC) in juncture with and Coordinator for International Energy Affairs at U.S. the Annual Conference on U.S.-Azerbaijan relations: Looking Department of State, called Azerbaijan a reliable partner Ahead: Diplomacy, Business, Trade & Investment held in and touched upon the third meeting of the Advisory Council Washington D.C. of the Southern Gas Corridor (SGC), recently held in Baku. She then delivered the message from U.S. Secretary of State Rex Tillerson that reinforced the full support of the United States for SGC, and highlighted the priority role of Azerbaijan in diversification of energy routes, bringing additional gas sources and volumes to Europe and progressing relations with Azerbaijan. Ambassador of the United States to Azerbaijan, Robert Cekuta, congratulated the conference participants on the occasion of 25th anniversary, touched upon the historic relationship between the two countries and potential for further strategic cooperation. Principal Deputy Assistant Secretary of Commerce Holly Vineyard also highlighted the importance of economic diversification and the role that American companies can play to support the country. Ms. Vineyard added that the The event brought together 38 distinguished speakers, over United States is ready to support the modernization and 250 participants representing American and Azerbaijani diversification of Azerbaijan’s economy. government agencies and companies, leading American Keynotes were followed by six sessions throughout the day. think-tanks, international organizations, America’s Fortune Regional Strategic Goals session with participation of former 500 companies, large investment banks and funds as well as special envoy of U.S. Department of State, Amos Hochstein, members of diplomatic corps. former Deputy Assistant Secretary of U.S. Department USACC Executive Director Susan Sadigova and Co- of Defense (Pentagon) and others discussed the role of Chairman Reza Vaziri opened the conference, welcomed the Azerbaijan in ensuring regional energy diversification, security guests and recalled the importance of 25 years of friendship and transit potential. and successful partnership between the United States and New Regional Energy Map session with the participation of Azerbaijan in various fields, including energy, trade and SOCAR VP, Vitaliy Baylarbayov, BP VP, Bakhtiyar Aslanbayli, business and USACC’s role in maintaining these relations Statoil VP, Al Cook, and others discussed the importance of over the past two decades. USACC Honorary Advisor, former SGC not only for energy diversification, but also its overall Governor of New Hampshire, former Chief of Staff of President role in political transformation of the region. George H.W. Bush and well-known American politician John The following sessions on Banking and Finance, Doing Sununu also delivered his congratulations on the occasion Business in Azerbaijan, Public-Private Partnerships and of 25th anniversary of bilateral relations, praised cooperation Investments Beyond Oil featured an exciting line-up of speakers with Azerbaijan, stressed the strategic importance to the representing PASHA Bank, ExIm Bank, BNY Mellon, Center United States and prospects of moving the bilateral relations for Analyses of Economic Reforms and Communications, forward. OPIC, Azersun Holding, Gilan Holding, SOFAZ, Cisco, the Ambassador of Azerbaijan to the United States, Elin EBRD, the World Bank, Azerbaijan Investment Company, Suleymanov, set the tone for the rest of the conference by U.S. Chamber of Commerce, Azerbaijan State Committee on commending the occasion of 25th anniversary of relations, Property Issues, Baker McKenzie, Dentons, Deloitte, PwC, outlining key issues that both countries face today and Maroon Capital Group and other leading companies and emphasized the importance of future strategic relations. entities. Ambassador then read the congratulatory letter to USACC Day 2 of the conference continued with closed roundtable members from His Excellency Ilham Aliyev, President of meetings with the participation of Azerbaijani delegation and Azerbaijan. American companies. Deputy Minister of Economy of Azerbaijan, Sahib Mammadov, delivered the next keynote remarks by touching upon the

46 Issue 25 AmCham Azerbaijan

On February 15, the Conference on Benefits of Hosting AmCham Annual General Major Sports Events took place, which was organized by the Baku City Circuit Operations Company in partnership with Assembly Meeting AmCham. The event become a platform where businesses united to On February 24, AmCham in Azerbaijan held its Annual learn about opportunities and challenges that major sports General Meeting for electing the President and new members events create and received valuable tips from the speakers to the Board of Directors. on potential benefits. Initially, all candidates presented their platforms. According The Conference was opened by Mrs. Nigar Arpadarai, Head to the current position of the Board, 6 seats out of 10 were of Marketing and Communications, Baku City Circuit. Then, within the Intro panel, “What opportunities and challenges do major sports events create for businesses?”, Mr. Azad Rahimov, Minister of Youth and Sports of the Republic of Azerbaijan, Mr. Nazim Samadov, Deputy Minister of Culture and Tourism of the Republic of Azerbaijan, Mr. Ilgar Veliyev, President of the American Chamber of Commerce in Azerbaijan, as well as Mr. Movlan Pashayev, Managing Partner of PricewaterhouseCoopers Azerbaijan delivered speeches. The second part of the event highlighted the Real-life Business Cases. The speakers were from Bahrain International Circuit, F1 Russian Grand Prix, PASHA Travel, Hilton Baku and Shah Palace Hotel who presented their experience and ideas on how to benefit from major sports events. The Conference was attended by over 150 people from a vacant. Mr. Gunduz Karimov, Managing Partner in Baker variety of business and government structures of Azerbaijan. McKenzie’s was guiding the elections procedure and announced six newly elected Board of Directors: Mr. Vugar Aliyev, Managing partner of KPMG Azerbaijan; Mr. Bakhtiyar Joint meeting of the members Aslanbayli, Vice President for communications, government of AZPROMO’s Exporters Club affairs and strategy of BP Azerbaijan, Georgia and Turkey; Mr. Taleh Kazimov, Chairman of the Executive Board and CEO of and AmCham Presentation of PASHA Bank; Mrs. Nargiz Nasrullayeva-Muduroglu, Director of business operations of Landmark Business Centre; Mr. “Made in Azerbaijan” Asad Shirinov, Caucasus Region Manager of the Coca-Cola Company and Mr. Ilgar Veliyev, Country Managing Partner of On February 14, AmCham in Azerbaijan, in cooperation with ERNST & YOUNG Azerbaijan. AZPROMO, organized a presentation of “Made in Azerbaijan”. Then, per result of the presidential elections, Mr. Nuran On October 5, 2016 President of the Republic of Azerbaijan Kerimov, Managing Partner of Deloitte Azerbaijan had been issued the decree on promotion of “Made in Azerbaijan” elected as the new President of the American Chamber of trade mark. AzPromo provide companies with the wide Commerce in Azerbaijan. range of services in order to help them produce worldwide competitive Azerbaijani products. The purpose of the project is organization of export missions, research of foreign Conference on Benefits of markets and promotion of “Made in Azerbaijan” as a brand in foreign markets, facilitation in getting certificates and patents Hosting Major Sports Events in foreign countries by local companies etc. Mr. Sahil Babayev, Deputy Minister of Economy, stated that the government has been continuously taking steps to improve the business environment. For example, the number of licenses for conducting business activity has decreased substantialy and reforms were carried out in the customs sphere. Among such steps, he also highlighted introduction of the investment promotion mechanism. This mechanism envisages various privileges for investors. Furthermore, the government managed to reduce export costs, reduced the time required to obtain a certificate of origin to one day. “Moreover, we are conducting analysis of target markets, which is also important for the exporters,” he added. Over

47 AmCham Azerbaijan

the last three months, almost 590,000 manats were returned 8) Vugar Aliyev, Managing partner of KPMG Azerbaijan to entrepreneurs as part of the export promotion mechanism, Candidate speeches were followed by networking in a friendly and a major part of this amount [80%] was obtained by wine ambiance. exporters. As a follow up, Mr. Ilgar Veliyev, President of AmCham, highlighted importance of “Made in Azerbaijan” brand, which Presentation Ceremony of Web will take a special place in the world market for developing Azerbaijan’s non-oil sector. Then, Mr. Rufat Mammadov made Portal Azexport.az the presentation of “Made in Azerbaijan”. Then, Mrs. Natavan Mammadova, Executive Director of AmCham, Ms. Narmina On December 20, 2016, the Center for Analysis of Economic Safarova, Executive Director of Azerbaijan-France Chamber Reforms and Communication in cooperation with AmCham of Commerce, Mr. Farhad Sattarov, Executive Director of Azerbaijan presented www.Azexport.az portal, created Azerbaijan-Russia Business council, Mr. Badraddin Hasratov, according to the order of the President of the Republic of Chairman of Azerbaijan Beekeepers association, Mr. Elchin Azerbaijan, H.E. Ilham Aliyev, signed on September 21, 2016 Madatov, Chairman of Azerbaijan Association of producers “On creation of the unified database of goods produced in the and exporters of wine and Mr. Ismayil Novruzov, Chairman of Republic of Azerbaijan”. Azerbaijan hazelnut association delivered information about their associations and latest achievements. The event was followed by presentation of export reimbursement certificates and active Q&A session. “Meet Your Candidate” Cocktail 2017

On February 6, AmCham hosted a remarkable cocktail dedicated to the upcoming elections to AmCham Board of Directors. During the event each candidate to the Board presented their election platforms with the audience. This year, six out of ten seats at the Board of Directors were vacant Mr. Vusal Gasimli, the Executive Director of the Center for and candidates were the following: Analysis of Economic Reforms and Communication informed 1) Bakhtiyar Aslanbayli, Vice President for communications, about goods produced in Azerbaijan and need of this platform government affairs and strategy of BP’s Azerbaijan, Georgia to sale in domestic markets: “Azexport.az integrated with the and Turkey region world’s most popular electronic sales networks, showcases 2) Farid Ismayilzada, Founder and CEO of GoldenPay Azerbaijani goods to the world. The leading transport and 3) Ilgar Veliyev, President of AmCham, Country Managing logistics companies and payment systems in Azerbaijan Partner of Ernst & Young Azerbaijan and in the world were integrated to Azexport.az in favorable 4) Jana Krimpe, Founder and CEO of B.EST SOLUTIONS conditions for selling Azerbaijani goods. “Made in Azerbaijan” 5) Nargiz Nasrullayeva-Muduroglu, Director of business brand is regularly updated, easy to use, accessible, safe, fast, operations of Landmark Business Centre convenient, everywhere and always approaches customers 6) Mahru Norton, Founder and Director of Ness Co via Azexport.az”. 7) Taleh Kazimov, Chairman of the Executive Board and CEO Then Mr. Zaur Gardashov, the Manager of Azexport.az portal, of PASHA Bank made a presentation about capability merits and functionality of the portal, the working principle of a single database of Azerbaijani manufactures, as well as additional opportunities offered by the portal to exporters. Mr. Gardashov informed about the national and international payment systems integrated into the portal, transportation and logistics services, real time translation service and the placement opportunities of Azerbaijani products provided on international trading platforms. Then, Mr. Ziyad Samadzade, Chairman of the Standing Commission of Milli Mejlis (Parliament) emphasizing that the development of entrepreneurship is one of the main objectives of the new economic policy. Herein, expansion of exports, promoting production of non-oil products under Azerbaijan brand and sale to foreign countries are key principles. “In accordance with the President’s instructions,

48 Issue 25 AmCham Azerbaijan

a range of measures are taken by government bodies to tourism industry in the Republic of Azerbaijan”. He noted that promote competitive and exportable local products in foreign the process of simplification of visa policy will be enhanced markets under the name of “Made in Azerbaijan” brand. In this due to the implementation of ASAN Visa system since respect, Azexport.az site will carry out a significant mission”. January 2017. As a follow up, Mr. Seyfeddin Talibov, Deputy Minister of Finally, the prospects for fruitful and effective cooperation Agriculture of the Republic of Azerbaijan said that Azexport. between the Ministry of Culture and Tourism of Azerbaijan az portal is an important tool to increase export potential of and AmCham in Azerbaijan for the development of tourism the country, especially in agriculture sector. sector in a country were discussed. Later, Mr. Ilgar Veliyev, the President of AmCham stated that “Now the owners will be able to lead their products more conveniently to foreign markets. The same portal will play an Monthly members luncheon invaluable role to promote “Made in Azerbaijan” “brand and strengthen country’s export position.” 31 January Mr. Abdollbari Goozal, Chairman of the Executive Board of "Azersun Holding" also highlighted importance of this portal, During this monthly luncheon, AmCham Azerbaijan organized which will promote sales in volume of local products and an event featuring participation of Mr. Sahil Babayev, Deputy contribute substantially to rise of export potential. Lastly, Minister of Economy. Special guest, Mr. Babayev spoke CEO of “Golden Pay”, Mr. Farid Ismayilzada revealed their about reforms and achievements in 2016. He also noted that interest not only by supporting the portal, but also share of for a long time oil and gas was the main sector in Azerbaijan. experience, technical and other facilities. However, during the past years, there is a necessity to Finally, video clip dedicated to web portal Azexport.az was diversify the economy with export of products. shown. According to the deputy minister, trade representatives, alongside with trading houses, are appointed to promote Azerbaijani products abroad. The President of the Republic Meeting between AmCham and of Azerbaijani, H.E. Ilham Aliyev signed a decree to appoint trade representatives in Embassies and Consulates. Deputy Minister of Culture and Trade representatives will carry out measures to increase Azerbaijan’s trade and economic relations with foreign Tourism of Azerbaijan countries and protect the republic’s economic interests. Mr. Sahil Babayev noted that diversification of export will be Azerbaijan’s main priority in the next few years. He reported about the changes of import procedures of certain goods to protect the domestic production. Moreover, Mrs. Natavan Mammadova, Executive Director of AmCham, updated guests about the past hard work in 2016 and upcoming events for 2017. Later on, Mrs. Mammadova passed the floor to member presentations by representatives of Baku City Circuit, McDermott Caspian and PMD Group, who delivered information on portfolio and the activity direction of their companies. The event was concluded by Mr. Ilgar Veliyev, the leaving President of AmCham. He extended thanks to all members, Board of AmCham and Amcham staff, who supported him all On December 16 2016, the representatives of AmCham had six years. a meeting with the Deputy Minister of Culture and Tourism, Mr. Nazim Samadov. During the meeting “The business climate observations and recommendations for improvement” known as AmCham “White Paper”, as well as tasks of mutual cooperation on suggestions submitted therein have been discussed. In particular, AmCham Executive Director Mrs. Natavan Mammadova mentioned the importance of visa procedures simplification for the development of tourism in the country and several other essential issues in the application of the principle of the open sky, as well as the proposals suggested by local companies regarding the tourism sector. Mr. Samadov stressed upon the work done for the comprehensive and sustainable development of the industry, as defined in “Strategic Road Map for the development of the

49 AmCham Azerbaijan

Committee Highlights Legal Working Group’s Meeting 3.The most discussed topic in the meeting was the challenges and gaps observed in labor legislation. Majority of attendees agreed that the Labor Code of the Republic of Preliminary meeting of legal professionals from member Azerbaijan (Labor Code) predominantly protects employees, companies of AmCham as well as non-member even in cases where employer must be given preference. representatives was held on March 2, 2017. Industry suffers from such provisions, specifically regulating Attendees included legal professionals and some industry termination of employment agreements due to redundancy, representatives within the membership of AmCham (banking in respect of protected employees and disciplinary actions. sector, insurance, oil and gas) as well as non-member Trade unions are not actively present, although broad range representatives. of their activities is stipulated in the Labor Code. Rashid Mammadov, Legal & Policy Officer of AmCham 4.Another important issue was the absence of certain civil opened the meeting, passing the floor on to Ilgar Mehti, contracts (for instance, subscription agreements) in Civil Managing Partner of EKVITA, who highlighted the purpose Code of the Republic of Azerbaijan. Sometimes it delivers of the meeting and opened discussions. It was noted that this difficulties in working with foreign persons or entities. Lack meeting will be a good platform to share and discuss problems of regulations on these contracts halts development of both of the legal profession and business. Input to AmCham White theoretical and practical approaches to certain legal relations. Paper was proposed as one of the main future activities of 5.Enforcement of arbitral awards is another significant issue the Committee. to be improved. Despite being a member state of Convention 1. Development of Code of Conduct on legal profession on Recognition and Enforcement of Foreign Arbitral Awards, and its potential place in client-lawyer relations. This Code Azerbaijan has certain implementation problems in this field. would allow for voluntary adherence and appear as a uniform Especially the Supreme Court and Ministry of Justice of the Republic of Azerbaijan need reforms in order to avoid such issues. At the end of the meeting attendees agreed on inviting several government officials to subsequent meetings for face to face discussions of pressing issues and developed a to do list presented below.

To-do list 1. To come up with the ideas about future works to be done by the meeting; 2. To find main challenges, problems and gaps in legislation and business practice and produce ideas on their solution during future meetings. THT Committee’s Meeting

On February 22, AmCham THT Committee has been gathered. Mr. Farid Isayev, the Deputy Chairman of the THT Committee opened the meeting and gave the floor to Ms. Nigar Arpadarai, Head of Marketing and Communications professional ethics guideline for all lawyers working in Department of Baku City Circuit who delivered presentation Azerbaijan. One of the main goals of such Code would be on “The outcomes of the conference on Benefits of Hosting clarification of clients’ confidentiality matters. Major Sports Events 2017 and Call For Action”. 2. Another pressing challenge of companies operating Mr. Isayev briefed members about the activities of THT in energy law sector is obtaining VAT and customs duty committee leadership during the past 1-2 months. It was exemption certificates for PSA subcontractors. This is not an noted that THT leadership, along with AmCham Executive issue with direct contractors, but when it comes to indirect Director, held meetings with the Ministry of Tourism officials. subcontractors, relevant state authorities tend to reject The subject was implementation of AmCham’s White Paper issuance of such certificates quite often. Raising this question recommendations. He also pointed out that The Roadmap before respective state authorities can bring potential solution “On Development of Tourism Industry in Azerbaijan” was to the problem. approved by Mr. President and currently the Ministry is

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documents for hire like children birth, marriage, refugees and disability certificates, as well as content of employment contract were talked. The second part of the presentation was dedicated to disciplinary process and types of disciplinary penalty. Specifically, its timelines (2 years from when the offense was committed where the offense was revealed as a result of an audit of the financial and economic activity) have been discussed. Next topic of discussion was grounds of termination, to be exact, mutual consent and mutual agreement of the parties was compared with details.

• On February 17, AmCham HR Committee hosted its regular meeting. HR Committee Chair, Ms. Leyla Novruzova, has opened the meeting and gave the floor to Ms. Ilfana Panahova from Saffron Restaurants and Absheron Hotel Group, who delivered presentation on “HR in Hospitality working on its implementation. Then, Mr. Isayev informed the industry”. The presenter talked about structure of hospitality. members about two newly created bodies which operate in The next presentation was by Mr. Taleh Gasimov from tourism industry: PSG Management Systems and it covered “Change & HR 1. Tourism Council: aimed to analyze the situation in Management”. He talked about statistics on success of Azerbaijan’s tourism sector and to take necessary measures change, complexity and dynamics of the change process, to address the problems in this sphere; using change equation and definition by Gleicher, Beckhard, 2. National Tourism Promotion Bureau. Harris and Kubler-Ross models. Later, Ms. Novruzova announced Ms. Laura Hamidova, HR Committee Meetings Director of FireWorks as new deputy chairman of HR Committee. • On March 13, 2017 AmCham HR Committee hosted its regular meeting. Ms. Zibeyda Haji opened the meeting • On January 27, AmCham HR Committee hosted its and gave the floor to Ms. Ophelia Abdullayeva, Of Counsel regular meeting. HR Committee Chair, Ms. Leyla Novruzova, in Dentons Baku office, who delivered presentation on has opened the meeting and gave the floor to Ms. Lala “Hiring, Disciplinary Process, and employment termination Abdurahmanova, Partnering Consultant in Fircroft, who procedures”. Throughout the discussions the issue of delivered presentation on “Communication and engagement management order and its compulsory enforcement, during change with combination of ‘cultural aspect’”. The problems with registration the employee hiring on exact date presenter talked about challenges of organizational change, have been raised. Besides, the need for work book, required shared different techniques and examples. Later, Ms. Novruzova presented “HR Committee Program 2017”. The next presentation was made by Vladas Stankevicius and Clare Farley with Ethics & Compliance in BP and it was about “Code of Conduct: processes and procedures to ensure the code is adhered to”. They talked about benefits of an E&C Program, Key Elements of BP’s Ethics & Compliance and Code of Conduct, Policies and Network and BP’s ABC Program.

• On December 16, HR Committee hosted its regular meeting. HR Committee Chair, Ms. Leyla Novruzova, has opened the meeting and highlighted key meetings and trainings which took place in 2016 within the Committee scope. Then, representatives from Ministry of Education, Ms. Mehriban Nazarova and Mr. Shahin Seyidzade, delivered presentation on “SABAH project”. Ms. Nazarova talked about advantages, aims and targets of SABAH, about students and lecturers, extracurricular opportunities and SABAH Career Academy. Later, Mr. Nuran Kerimov, Managing Partner

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of Deloitte & Touche LLC, made a presentation on “Global of Taxes on this issue. Ms. Narmin Aslanova clarified the Human Capital Trends 2016. The new organization: Different Ministry’s position. Then, Ms. Arzu Hajiyeva suggested by design”. The Committee meeting was concluded by Fidan concretizing transactions to the blacklisted countries with all Farzaliyeva, Employee/Industrial Relations and Emergency the details in the Tax Code. Response Manager of BP, who made presentation about “HR The third discussed issue was concerning the cashless Emergency Response Preparedness”. payments. Entrepreneurs do not have the precise mechanism of cashless limit, sanctions and payments. Mr. Zaur Gurbanov Tax&Customs Committee Meetings explained the articles of “Cashless Payments” law. It was agreed to raise this issue as well during the upcoming Tax • On February 18, AmCham T&C and BFI Committees Conference. hosted regular meeting. Chairman Mr. Bakhtiyar Aslanbayli Later, there were discussions regarding audit and gave information about the upcoming tax conference and e-commerce. Mr. Ali Verdiyev from JTI raised the issue of introduced moderators: Ms. Narmin Aslanova from Deloitte, having a theme on cashless sale of tobacco products in Mr. Zaur Gurbanov, Ms. Arzu Hajiyeva from EY and BFI Azerbaijan at the Tax Conference. Under the Presidential committee’s chairman Ms. Ayten Rustamova. Decree on Rules of circulation of excisable products in the Mr. Zaur Gurbanov provided an overview to the last changes Republic of Azerbaijan, this requirement was applied and in the Tax Code in two directions: banking and finance. cancelled three times in 2016. It was re-introduced in January Representative of Total underlined that Contractor Parties 2017 and is still in force. and Foreign Subcontractors operating under the PSAs in Azerbaijan are exempted from all taxes not specifically • On January 18, AmCham T&C Committee hosted its mentioned under the respective PSAs. However, IBAR regular meeting. Chairman Mr. Bakhtiyar Aslanbayli opened implements simplified tax of 1% on cashing out operations. the meeting and passed the floor to our guest speaker Ms. Arzu Hajiyeva suggested adding this issue to the agenda Mr. Zaur Gurbanov, Manager of Tax & Law in ERNST & of the upcoming tax conference. Mr. Bakhtiyar Aslanbayli YOUNG. Mr. Gurbanov welcomed everybody and delivered summarized this discussion by agreeing with the interpretation presentation on “Recent changes of practical aspects”. The that new simplified tax (1%) shall not be applicable to PSA main topics of presentation were: tax advantage, amortized Contractor Parties and Foreign Subcontractors, yet, he cost, non-cash taxes, online trade, online invoice, taxes on mentioned that legislation do not offer a clear mechanism payments to countries with preferential tax system, non-cash for banks how differentiate PSA and non-PSA activities of payment, transfer pricing. Foreign Subcontractors. The second issue was regarding the blacklisted offshore ICT Committee’s Meeting countries, prepared by the Ministry of Taxes, 10% fee on the transactions and ways of how banks should withhold it. On February 15, AmCham ICT Committee hosted its Mr. Zakir Nuriyev raised the issue of deposits and additional regular meeting. AmCham Executive Director Mrs. Natavan taxation of interests; thus, 10% withholding tax on interests, Mammadova and AmCham ICT Committee Chairman Mr. plus 10% fee create collision between two articles in the Tax Murad Seyidov welcomed the participants and introduced Code. He also noted that they sent the letter to the Ministry the Meeting guests- Prof. Reyhan Huseynova, Azerbaijan Future Studies Society, Eileen McGinnis, Human Interaction Technology Consultant and Brock Hinzmann, Technology Navigator. Prof. Reyhan Huseynova informed about Azerbaijan Future Studies Society, past and future works and projects, “Azerbaijan State of the Future Index 2011” report presented to the President of Azerbaijan, etc. Later on, committee guest speakers Ms. Eileen McGinnis and Mr. Brock Hinzmann delivered presentation on “Introduction to Silicon Valley”. They started their speech with the topic of Disruptions, which make scalable business. Also, Mr. Hinzmann talked about venture capitals requests in business plans, connections, crowdfunding and foreign companies in Silicon Valley. Furthermore, Mr. Seyidov raised a number of issues for discussion, such as, application of new technologies in education, agriculture and medicine; venture capital, investments and Silicon Valley experience; problems in business climate in Azerbaijan and possible ways to solve them;

52 Issue 25 AmCham Azerbaijan

Joint ICT and BFI Committees Meeting such as: recent changes in tax legislation which affected IT and banking sectors, Merchant Category Codes Classification problems, etc. The topics have been discussed with the On January 17, joint meeting of Information and participation of Deputy Executive Director of State Fund for Communication Technologies (ICT) and Banking, Finance Development of IT under the Ministry of Communications and and Insurance (BFI) Committees took place. AmCham High Technologies of the Republic of Azerbaijan, Mr. Azar Executive Director Mrs. Natavan Mammadova and AmCham Bayramov. ICT Committee Chairman Mr. Murad Seyidov welcomed the participants and introduced guest speaker – Mr. Christian Rupp, Special Plenipotentiary for Digitization of the Austrian ICT Committee’s Meeting Federal Economic Chamber Organization. Mr. Rupp started On December 23, AmCham Information and Communication Technologies (ICT) Committee meeting took place. The Committee Chairman Mr. Murad Seyidov welcomed everybody and reported about the productive meeting on December 19, with the Minister of Communications and High Technologies of the Republic of Azerbaijan, Mr. Ramin Guluzade. It was a very fruitful and open-minded discussion on different problems. During the meeting Mr. Quluzade expressed his positive attitude to AmCham ICT Committee, White Paper and proposed to setup such meetings on regular (monthly) basis. Then, Mr. Seyidov passed the floor to Prof. Muhammadou M.O. Kah, Vice Rector for Technology and Innovation, Founding Dean, School of IT and Engineering at ADA University. He delivered presentation about School of IT & Engineering and Undergraduate Programs. Healthcare & Medical Insurance (HMI) his speech with the topic of institution-building initiatives in service sector. He outlined four major issues that have to Committee Meetings be clarified while elaborating a particular e-strategy in any country: what is technologically possible; what is legally • On February 10, AmCham HMI Committee hosted allowed; whether there is a political will; and finally, what are its regular meeting for this month. The HMI Committee Chair expectations of a customer. Having analyzed the e-services, Ms. Lala Bilandarli has opened the meeting and invited and particularly e-commerce “environment” in Azerbaijan, Ms. Gulnar Agayeva, PhD, MD, president of Azerbaijan he found out several obstacles to its effective development. Gastroenterologists and Hematologists Association, who First, it’s the lack of common standards (for example, as far delivered a presentation on “Problems of viral hepatitis in as electronic signatures are concerned), which are crucial modern society”. She talked about statistic of hbv virus for e-business as a matter of trust. Second, it’s the issue in Azerbaijan. Also Ms. Agayeva gave information about of bilateral trust between entrepreneur and customer and conference “Unite for Victory”, which will be held in 2018 related to this e-payment solution. Third, there is a huge in Azerbaijan. The Committee meeting was concluded by problem with coding of services which requires joint efforts discussion of price regulation of drugs, meeting with Tariff of relevant ministries multilaterally from the one side and Council etc. businesses from the other side. Finally, Mr. Rupp advised to pay attention to introducing special e-trainings for developing • On January 23, AmCham HMI Committee hosted applicable e-skills, as well as, the necessity of surveys, its regular meeting. The HMI Committee Chair Mrs. Lala market researches in order to get acquainted with the Bilandarli invited Mr. Isa Aliyev, Head of Monitoring Analyses current needs in the field. Besides, Mr. Rupp mentioned that and IT development department from State Agency for joining e-signature is a mandatory prerequisite to start a new Mandatory Health Insurance under the Cabinet of Ministers business in Europe and it is necessary to have a political will of Azerbaijan, who delivered presentation on “Implementing to introduce this change. AmCham ICT Committee Chairman Mandatory Health Insurance in Azerbaijan”. He talked about Mr. Seyidov highlighted importance of business awareness the main goals of MHI in Azerbaijan (increase access to care, (awareness among C-level executives) to promote digital elevate quality of care, ensure sustainability of health financing signature as a main tool for data integrity, authentication and and improve transparency), also about core principles, non-repudiation. overview of Benchmark Countries and health financing Furthermore, AmCham BFI Committee Deputy Chairman Mr. system. The Committee meeting was concluded by Mr. Elnur Teymur Akhundov raised a number of issues for discussion, Guliyev, Head of Novartis Pharma Services AG. He gave brief

53 AmCham Azerbaijan

information from the last meeting with Tariff Council, where they discussed price regulation, parallel import and drug list. CSR Committee’s Meeting

On December 21, CSR Committee organized its regular meeting. The Committee Chairperson Ms. Aynura Piriyeva opened the meeting and passed the floor to Ms. Gunel Farajova, senior consultant within Cleantech and Sustainability Services at EY Baku, who delivered presentation on “Sustainability as a key driver for innovation and cost saving”. The presentation was about economic consequences of climate change for Azerbaijan, innovations of last 3 years, product design: packaging and the main barriers to innovation in Azerbaijan. Afterwards, special guest, Mr. Fariz Ismailzade, Vice Rector for External, Government and Student Affairs at ADA University, Curator of CSR Committee, suggested to change meetings format, to make more agitation and to suggested to invite students and volunteers to the meetings, work with three groups of stakeholders: Policy makers, Media and to prepare videos for promoting CSR. Then, Ms. Jamila organizations, as well as startupers and young businessman. Talibzadeh from BCP Caspian offered to create food bank, During the discussions Mr. Javid Zamanov from Bos Shelf which is popular in other counties. Projects The sample of representative goods and services for which AmCham Azerbaijan, Index of Prices prices are collected each period is held constant and the set of weights is fixed to reflect the importance in the typical th The new edition of Consumer Price Index (CPI) covers the 4 household budget of the particular good or service. It is quarter of 2016 (October – December, 2016). The Consumer possible that, following the trial period. First ‘basket’ was Price Index (CPI) is designed to measure the change in the represented by AmCham Azerbaijan in 2006. In 2012 the average level of prices paid for consumer goods and services weights were adjusted and ‘basket’ was reviewed. by private households. AmCham members will find it useful in The entire report is available on AmCham web-page. setting pay increases, product prices, etc. The CPI can also be used to determine the value of a sum of money from the past at today’s level. Over the last year (the base is 100 at 31 December 2015) the AAIP rose by 12.77 percent for Azerbaijani consumers and 13.24 for Expatriate consumers. In average Annual Indexes (over the last four quarters) rose by 19.98 percent for Azerbaijani consumers and 21.25 for Expatriate consumers. In the 4th quarter of 2016 the AAIP rose by 3.62 percent for Azerbaijani consumers and 4.11 for Expatriate consumers. The largest upward effect on the AAIP rate came from Fruits & Vegetables, where Index of Prices rose by 16.79 percent. The survey is conducted collecting the prices of a fixed representative group or ‘basket’ of goods and services every quarter. These prices are then compared to the prices of the same goods and services from the previous quarter and the price change calculated. The prices of these goods and services are then combined into a single index measuring the overall level of prices. Different ‘weights’ are attributed to the various goods and services to reflect the average expenditure by households.

54 Issue 25 AmCham Azerbaijan

AmCham Legal Update

TAX AND CUSTOMS jan; Writing down tax penalties 3. Deputy Ministers of Taxes of the Republic of Azerbaijan; Azerbaijani President has signed a decree on application of 4. General Director of Department on Tax Policy and Stra- the law “On regulation of taxpayers’ tax tegic Researches of the Ministry of Taxes of the Republic of debts as of January 1, 2017” (“Law”) effective as of January Azerbaijan; 1, 2017. The Law stipulates writing down 5. General Director of Department on Internal Security of the interest and financial sanctions accrued for late payment of Ministry of Taxes of Republic of Azerbaijan; tax liabilities as of January 1, 2017. 6. General Director of Legal Department of the Ministry of Cancellation of the financial sanctions will be carried out in Taxes of the Republic of Azerbaijan; the following way: 7. General Director of Tax Risks Analysis and Control Depart- • 70% of the outstanding financial sanctions will be can- ment of Ministry of Taxes of Republic of Azerbaijan; celed, if 30% of liability is paid by the taxpayer during 8. General Director of Work with Territorial Tax bodies Depart- January 2017; ment of Ministry of Taxes of Republic of Azerbaijan; • 50% of the financial sanctions will be canceled, if 50% 9. General Director of Services to taxpayers and transparent of such financial sanctions is paid by the taxpayer during tax partnership Department of Ministry of Taxes of Republic January-February 2017; of Azerbaijan; • 30% of the financial sanctions will be canceled, if 70% 10. General Director of International Cooperation and tax of such financial sanctions is paid by the taxpayer during monitoring in financial institutions Department of Ministry of January-March 2017. Taxes of Republic of Azerbaijan; This Law will still apply even if a court decision requiring the 11. General Director of Control on execution of tax liabilities payment of the above mentioned liabilities has already been Department of Ministry of Taxes of Republic of Azerbaijan; made, but the payment is pending as of 1 January 1, 2017. 12. General Director of Control on execution of Tax legislation Department of Ministry of Taxes of Republic of Azerbaijan; Changes to the list of state officials entitled to access 13. General Directors of departments and territorial tax de- commercial (tax) secret partments under the Ministry of Taxes of the Republic of Azer- The Presidential Decree signed on 1 February 2017, ap- baijan; proved the new list of state officials who are permitted to ob- 14. General Directors of territorial tax offices and regional tax tain commercial (tax) secret which include: departments; 1. Minister of Taxes of the Republic of Azerbaijan; 15. Head of the Section for Fight Against Organized Crimes 2. First Deputy Minister of Taxes of the Republic of Azerbai- in the Economic Sphere within the Primary Investigation

55 AmCham Azerbaijan

of Tax Crimes Department of the Ministry of Taxes of the Foreign currency transactions without opening a bank ac- Republic of Azerbaijan. count According to the Rules, only resident and non-resident individuals may conduct a foreign currency transfer within or EXPORT AND IMPORT OF PRODUCTS/GOODS outside of Azerbaijan without opening a bank account. Legal Amendments to the customs duties’ degree on export- entities are not allowed to transfer foreign currency without import operations opening a bank account. The customs duties for refined copper blanks used for wire The amount of the transfer of foreign currency without open- production, refined copper blanks used for rolling, other re- ing a bank account may not exceed the equivalent of USD fined copper, copper based ligatures, refined copper rods 1,000 per day and the equivalent of USD 10,000 per month and profiles, rods and profiles from other copper alloys export for both resident and non-resident individuals. goods have been established at the level of 10 (ten) percent, Foreign currency transactions conducted through bank ac- not being less than USD 300 per 1000 kg. The duties will counts Remittance of foreign currency (in cash or via transfer) remain effective for the period of 5 (five) years. to the foreign currency bank accounts of residents and non- Amendments to the Rules of export-import operations in residents may be conducted freely. The transfer of currency Azerbaijan According to the amendments, export of goods outside of Azerbaijan from bank accounts may be conducted (works, services) by legal entities and individuals by way of for the following transactions: consignation must be declared to the customs authority. Ex- 1. Transfer of payments for goods or services imported to the port of goods (works, services) by way of consignation must country by residents and nonresidents, including advance be paid in accordance with the contract signed with foreign payments. As per the newly established rules, if payment entities within a timeframe noted in the contract. Legal entities for the importation of goods or services is made in advance, and individuals should remit money to the bank account of supporting documents attesting the customs clearance of the foreign legal entity, opened with a bank in Azerbaijan, within goods and provision of services must be submitted to the 180 days from the declaration date of export by way of con- bank within 180 days. signation of goods (works, services). 2. The following transactions have not been significantly af- fected by the introduction of new rules: ECONOMICAL, FINANCIAL AND BANKING • Payments for re-export of goods and services; New Rules on Conducting Foreign Currency Operations • Advance payments of contracts that have not been ex- by Residents and Non-residents in Azerbaijan ecuted; On 28 November 2016 the Central Bank of Azerbaijan ap- • Transactions of resident legal entities with a branch or proved the new Rules on Conducting Foreign Currency representative offices abroad (by stating the purpose of Operations by Residents and Non-residents of Azerbaijan transfers); (hereinafter, the “Rules”). Rule No. 12 dated 27 May 2002, • Payments of debts obtained abroad; previously regulating the foreign currency transactions of resi- • Payments for courts, notaries, state fees, other mandato- dents and non-residents, was annulled with the adoption of ry payments, scholarships, pensions, aliments and other the new Rules. For the purposes of the Rules, “bank account” similar or related payments; is defined as any current, credit, deposit or other account • Payments of dividends to non-residents from residents. opened within a bank. The Rules further provide for the defi- 3. Additionally, according to the rules, the transfer of foreign nition of “imported services” as services and works provided currency for the following activities may be carried out upon by non-residents within the territory of Azerbaijan as well as submission of the relevant agreement, invoice or digital com- services and works provided for the benefit of residents out- mercial notification indicating the amount and purpose of the side of the country. The Rules provide guidelines on foreign transaction: currency transactions with and without opening a bank ac- • Payment of participation fees for international events, count as described below. conferences and exhibitions;

New to AmCham Regular Members

56 Issue 25 AmCham Azerbaijan

• Payments of subscription fees and fees for advertise- • Cash settlements to the seller’s bank account. ments to foreign publication products, libraries, data cen- According to the Law, cashless payments within settlements tres; between parties that are tax payers can be performed only • Payments for education and medical treatments; through bank transfers, including transfers via payment • Payments for the use of author rights, patent and fran- means or devices. chising fees. Settlements within a calendar month in excess of AZN 30,000 4. Transfers for personal purposes: performed by VAT registered taxpayers and taxpayers within • Transfer of resident physical persons to their close rela- the trade or public catering industry, whose taxable transac- tives not exceeding USD 10,000 a month; tions during one month (months) of any consecutive twelve • Transfer of money previously brought into the country month period exceed AZN 200,000, and settlements of any in cash or by bank transfer by providing the necessary other taxpayers within a calendar month in excess of AZN documents proving the aforementioned; 15,000 shall be performed only by cashless means. This • Any other transfer that does not exceed USD 1,000 a day requirement will come into force on 1 January 2017 for and USD 10,000 a month. VAT registered taxpayers and taxpayers within the trade or 5. Repatriation transfer of investments made by foreign com- public catering industry, whose taxable transactions during panies to the economy of Azerbaijan by non-residents. one month (months) of any consecutive twelve month period 6. Transfer of revenue from investment projects carried out in exceed AZN 200,000 and on 1 April 2017 for other taxpayers. Azerbaijan by non-residents, Regardless of the above, the following settlements must be including compensations and payments related to losses. performed by only cashless means: 7. Transfer of the salaries of foreign employees who have en- • Payment of taxes, customs duties and levies, administra- tered into employment agreements with residents and non- tive fines, financial sanctions and interests, repayment of residents. debt amounts under leasing transactions and issuance 8. Transfer of the following cash flows by resident and non- of credits; resident individuals and legal entities with the respective doc- • Payments defined under the laws of the Republic of umentation: Azerbaijan “On insurance activity” and “On compulsory • Transfer of foreign currency for contribution to the charter insurance”; capital of legal entities established outside of Azerbaijan; • Payment of service fees and other payments made to • Transfer of foreign currency to acquire securities; government agencies, state-owned legal entities or legal • Payments related to the fees for ownership rights of entities, in which the state owns control package, public properties as well as other rights related to properties. legal entities and budget enterprises; • Payment of salaries and other payments defined by the New Law “On Cashless Settlements” legislation and paid to employees by employers, except The Law “On Cashless Settlements” was approved on 16 De- those engaged in retail trade, public catering and the cember 2016 by the President of the Republic of Azerbaijan service industry, whose taxable transactions during one (hereinafter, the “Law”). The Law aims at ensuring the trans- month (months) of any consecutive twelve month period parency of transactions and settlements, protection of con- are up to AZN 200,000; sumer rights, replacement of cash settlements with cashless • Pensions, scholarships, financial aid, bonuses (including ones and the development of the banking system in Azerbai- one-time bonuses), compensation and benefits; jan. The Law defines the following settlements as cashless: • Payment of landline phone services and utility costs; • Settlements through bank transfers, including transfers • Payment and repayment of interest-free cash funds (ex- via payment means or devices (payment cards, payment cept where such funds are provided by non-taxpayers) orders, mobile phones, computers, etc.); and other money allocations; • Settlements through payment terminals; • Utilisation/expenditure of funds received under public

Associate Members

57 AmCham Azerbaijan

procurement contracts; the telecommunication market, ensure the development, con- • Payment of tuition fees; duct assessments for determination of • Payments made to tour agents. the number of participants demanded in the market, and reg- The following commodities can be sold and purchased by tax- ulate following matters: payers from individuals who are not • release of licenses; taxpayers by using cash: • transparent distribution of national frequency spectrum; • Obtaining agricultural products from the producers of ag- • allocation of numerical resources to market participants; ricultural products; • delivery of numbers among operators. • Obtaining non-ferrous and ferrous scrap metal; • Obtaining paper, glass and plastic products for recycling INDUSTRIAL, BUSINESS, SERVICES and other purposes; Amendment on regulations on trade, public catering, • Obtaining used tires for recycling purposes. household services and other type of services Amendment defines agricultural cooperative market as the New rules for foreign exchange auction market of agricultural products regulated by legal entity reg- Azerbaijan cancelled the 4 (four) percent margin for setting istered by the state as agricultural cooperative. The trading exchange rates for commercial banks. places to the agricultural cooperatives will be provided on the According to the new rules dollar will be sold to commercial basis of a contract signed between market owner and agricul- banks in the organised market on a “best offer” basis. Auc- tural cooperative. In order to sign such contract agricultural tions will be held on Mondays, Wednesdays and Fridays. cooperative has to submit its request to the market owner. The market owner will consider the request within ten (10) Presidential Decree on Strategic Roadmaps of National working days and make a decision (consent or substantiated Economy Strategic Roadmap for Logistics and Trade De- refusal). In order to obtain a plot of land for use or lease for velopment organization of sale networks (agrarian shops, green mar- The main aim this Strategic Roadmap follows is to make the kets, agricultural cooperative markets and wholesale centres) country the most attractive in the region from the logistics and agricultural cooperatives must apply to the local executive trade investments perspective by 2025 by improving the infra- bodies or municipal authority. Then, the local executive bod- structure and regulating incentives. In order to reach this aim ies or municipal authorities take into consideration the land three goals have been defined for the period of 2016-2025: use planning documents including engineering and commu- • creation of a favourable environment to increase trade nications support and infrastructure opportunities and adopt turnover going through Azerbaijan; a decision (consent or substantiated refusal) regarding the • introduction of a mechanism to implement goals in logis- request within a period of one (1) month. In order to obtain a tics and trade; building or a nonresidential area for use or lease agricultural • getting a higher added value from transit trade. cooperatives apply to the superintendent of state property – According to the document it is planned to increase Azerbai- State Committee on Property Issues or municipal authorities. jan’s share in the field of maritime cargo The State Committee on Property Issues will consider the re- transportation: quest within twenty (20) day period and adopt a resolution • via the Central Asia-Black Sea route to 40%; regarding this request. • via the Central Asia-Europe route to 25%; The municipal authority will consider the issue of use or lease • via the China-Europe route to 3%; of its own facilities within twenty (20) day period and provide • via the Russia-Iran route to 40%; official response. The agricultural cooperatives should deter- • via the Iran-Black Sea route to 25%. mine the working regime at the sale networks, the types and places of the products to be sold, provide the sellers with the Strategic Roadmap for Development of Telecommunica- trading places and measuring devices and render other ser- tion and Information Technologies vices in the area (area clean-up operations, veterinary and The main goal of Strategic Road Map is to ensure an efficient phytosanitary surveillance and disease control measures and activity of public sector, development and improvement of etc.). ICT infrastructure for digitalization of economy and increase of ICT sector’s Regulations on categorisation of lands and their transfer potential. In addition, the strategic goals cover the following: from one category to another • improvement of the structure and regulatory framework Categorisation of lands and their transfer from one category of ICT sector by improving the state regulation; to another implemented by the resolution of the Cabinet of • expansion of scope of broadband Internet services infra- Ministers. According to the new rules: structure for ICT implementation. • lands belonging to aquaculture category must be pre- Moreover , the document envisages creation of the indepen- served in their current category; dent regulatory body which will shape • sale, purchase, mortgaging and performing other trans-

58 Issue 25 AmCham Azerbaijan

actions that may lead to the expropriation of forestlands Presidential Decree on additional measures to enforce and of other lands of this category, which may result in the position as Digital Commerce Hub and foreign trade the use of these lands for other purposes, and may trans- transaction fer them to another category is not allowed; According to the decree, Digital Trade Hub of Azerbaijan sec- • areas used agriculturally are specifically protected and tion will be created on www.azexport.az portal within 4-month their transfer to another category for non-agricultural pur- period. This section will enable the preparation of documents poses is allowed only in exceptional cases. required to regulate relations between individual entrepre- Categorisation of lands and the basis for their transfer from neurs and their foreign partners, including preparation and one category to another consist of the following: signing of electronic form of contracts as well as provision • construction of ports, railways and motor roads; of transboundary electronic services in a real-time regime. • creation of borderland for reliable protection of the state The Ministry of Transport, Communications and High Tech- border; nologies, the Ministry of Taxes and the Ministry of Foreign • creation of industrial facilities, areas (quarters and parks); Affairs through the diplomatic missions and consulates of the • necessity to use the reserve fund lands; Republic of Azerbaijan will work to enable the creation of e- • involvement of surrounding territories to cultivation cycle signature and provide ASAN signature certificate via Digital for creation of agro parks, farms and agricultural enter- Commerce Hub section within 4-month period. prises using advanced technologies; • transfer of surrounding territories to the forest lands for MISCELLANEOUS creation of forest belts and green spaces; Amendments to Law on Medicines • provision of surrounding territories for specifically pro- According to the amendments medicines sold without a tected areas of nature (including national parks, state prescription, equipment authorised for use by the relevant reserves, preserves etc.) to preserve biodiversity; executive body, treatment, prevention, diagnosis and re- • construction of the main line engineering and communi- habilitation methods can now be advertised. Advertiser cation support systems, amelioration and water econo- of the medicines sold without a prescription, equipment my facilities and hydro technical devices; authorized for use by the relevant executive body, treat- • substitution of lands of residential settlements subject to ment, prevention, diagnosis and rehabilitation methods exogenous geologic processes; must present to a producer and distributor of an advertise- • allocation of surrounding territories in accordance with ment a certificate of compliance issued by the accredited by area planning documents for the building of new residen- the state body organization, instructions for the use of this tial quarters (settlements) or development (enlargement) medicines, the registration certificate of medicines, results of of existing residential settlements; medical researches (if they are mentioned in an advertise- • creation of historical and cultural, natural reserves and ment). If there are any side effects arising from the use of recreation areas, population recreation organization, advertised medicines sold without a prescription, equipment development of tourism, construction of sport and other authorized for use by the relevant executive body, treatment, social facilities; prevention, diagnosis and rehabilitation methods they must • requests of the owners related to more efficient econom- be acknowledged in advertisement, as well as the necessity ic use of lands in private ownership. of the consultation with doctor prior to usage of advertised medicine. Presidential Order on taking additional actions directed Medicines or medical equipment requiring training for use to acceleration of a tourist flow to Azerbaijan may only be advertised in the specialized publications and President instructed the State Customs Committee and the distributed to pharmacists, medical staff during the special State Border Service to create a relevant organization that events. Free distribution of medicines, sale, accompanied by will establish a fast track routes for foreigners and stateless provision of medical services (paid or unpaid) in advertising persons on the state borders with the Russian Federation, campaigns is prohibited. the Republic of Georgia, the Islamic Republic of Iran and the Republic of Turkey. The Order also instructs the State Agency Amendment to the Law on State Language on Public Service and Social Innovations under the President According to the amendment, foreign languages can be used of Azerbaijan Republic to establish ASAN Payment and ASAN in a text of an advertisement used in the advertisement instal- Visa terminals on all state border checkpoints, to enable for- lations with the request of an advertiser. In these cases, text eigners and stateless persons to obtain their electronic visas in foreign languages has to be put under the text in Azerbai- right on the border checkpoints. President also gave instruc- jani, must take less space than the text in Azerbaijani and tions to the State Sea Administration of Azerbaijan Republic, should not exceed the one-third of advisement’s total area. Azerbaijan Caspian Shipyard CJSC and Baku International Trademarks and geographical indicators used in a foreign Sea Trade Port CJSC to negotiate organization of Caspian language may be used in an advertisement in a form speci- Sea ship tours with Caspian Sea littoral countries. fied by the relevant executive body.

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AmCham Azerbaijan

Innovation to Asan Imza • 3 January, 29 May with respect to a six-day work week Imza Asan Imza (strengthened mobile e-signature service) is Pursuant to the Production Calendar, the annual norm of integrated to www.azexport.az portal. working hours for 2017 has been established as 1,922 hours This innovation gives broad opportunities to entrepreneurs, for a 40 hour work week and will be applicable with respect to who want to register their products and services on www. both fiveday and six-day work weeks. azexport.az internet resource. Asan Imza holders became able to use the internet resource without additional registra- Amendment to the “Law on Lotteries” tion. On 15th of February 2017, President of the Republic of Azer- baijan signed a Decree, amending the “Law on Lotteries”. Amendments to the Law On Electronic Signature and Amendments to the law are concerning advertisement of lot- Electronic Document teries. According to the amendments, it is allowed to place According to the Law, certificate (identification of Electronic advertisements on lottery tickets. Additionally, the name of signature holder) can now be also granted on the basis of winner of lottery cannot be announced in advertisements application request of relevant state authority for verification without his written consent. The followings are prohibited in of ID cards (previously, Electronic signature certificate could advertisement of lotteries: only be granted on the basis of a written contract). • To address to children; • Promotion of idea that participation in lottery is a way to Amendments to the Criminal Code gain reputation within society; Amendment introduces a more accurate description of crimi- • Guarantying earnings from lottery; nal activities in the field of financial securities. According to • Discredit people who do not participate in lotteries. the amendments, adoption of disinformation or misrepresen- Advertisements on lotteries can be placed in telecommuni- tation to prospectus of securities (Information Memorandum), cation and mass media devices, as well as transportations as well as statement of disinformation or misrepresentation to and advertisement banners in open spaces. Advertisements prospectus of securities (Information Memorandum), causing on lotteries cannot be displayed on advertisement carriers damage in the significant amount, shall lead to the criminal that are situated closer than 100 meters to establishments liability. for children and educational institutions. Additionally, terms of lottery, its time and duration, prize fund, place and time of Production Calendar for 2017 provision of prizes, terms of receiving thereof and information The Board of the Ministry of Labour and Social Protection of about organizer have to be indicated or sounded in the adver- Population of the Republic of Azerbaijan has approved the tisements on lotteries. Beverages containing more than 5% of “Norm of working time (“Production Calendar”) for 2017” by alcohol, tobacco and tobacco products cannot be offered as the Resolution No. 10 dated 15 December 2016. Based on a prize of lottery. the Labour Code of the Republic of Azerbaijan and Resolu- Conduction of a lottery with the purpose of promotion of sales tion of the Cabinet of Ministers of the Republic of Azerbaijan of beverages containing more than 5% alcohol, tobacco and No. 483 dated 25 November 2016 regarding the “Novruz, Ra- tobacco products is prohibited. Organization of lotteries that madan, and Gurban holidays in 2017” (“Resolution No. 483”), are not duly registered or are prohibited by law cannot be the following days have been defined as non-working days: advertised. • 1, 2 January (New Year holiday) • 20 January (Day of National Mourning) Regulations on “Licenses and permits” Portal • 8 March (International Women’s Day) On 21st of January 2017, President the President of the Re- • 20, 21, 22, 23, 24 March (Novruz holiday) public of Azerbaijan signed a new decree approving the Reg- • 9 May (Victory Day) ulations of “Licenses and permits” Portal (“Portal”). The Portal • 28 May (Republic Day) shall ensure the provision of the following e-services: • 15 June (National Salvation Day of Azerbaijan) • Submit, receive, process, address the applications on • 26 June (Armed Forces Day of Azerbaijan) provision, re-registration, termination, renewal and re- • 26, 27 June (Ramadan Holiday) vocation of the licenses and permits on entrepreneurial • 1, 2 September (Gurban Holiday) activities, as well as on provision of their duplicates and • 9 November (Day of the State Flag of Azerbaijan) addendums. • 31 December (Day of Solidarity of World Azerbaijanis) • Conduction of a single register of licenses and permits on • According to the Resolution No. 483, the following days entrepreneurial activities; will also be considered as non-working days due to cer- • Ensure free usage of the Portal, and access to the data tain holidays falling on weekends: from the integrated information systems. • 3, 4 January, 29 May, 28 June, 4 September with respect to a five-day work week

61 AmCham Azerbaijan

Members’ News and Events Book your calendar - CaspianAgro 2017, from 17th to 19th of May

A major regional forum of agricultural producers, the 11th Azerbaijan International Agriculture, CaspianAgro 2017 exhibition will take place from 17th to 19th of May in Baku. CaspianAgro has served as a platform for bringing together many foreign, as well as national visitors from more than 20 countries to interact with the leading international agriculture technology companies. Agriculture is a major point of interest to the Government of Azerbaijan. For several years in a row, the President of the Republic of Azerbaijan, H.E. Ilham Aliyev, has been attending the exhibition, and has become acquainted with new products offered by the manufacturers and distributors to the Azerbaijan market. At the conference, devoted to the success of the third year of implementation of the State Program on Regional Socio-Economic Development (2014-2018), it was noted that the agricultural sector has shown a successful pace of many successful years of participation by Dutch companies development, growing by 2.6% compared to the previous at the CaspianAgro exhibition. Registration sponsor of the year. It was further noted that significant measures would be CaspianAgro 2017 exhibition is the company Grand Motors undertaken to preserve this positive dynamic in the future. from Azerbaijan. Over the years, the Ministry of Agriculture of the Republic of In general, the exhibition will cover the most relevant fields Azerbaijan has not only provided invaluable active support of the agricultural sector and will provide an opportunity to to the CaspianAgro exhibition, but has also actively taken get acquainted with a number of innovations - equipment part in this event. The exhibition is also supported by the for poultry farms, greenhouse equipment and the turnkey Azerbaijan Export and Investments Promotion Foundation, construction of greenhouses, as well as kit for the livestock AZPROMO and the National Confederation of Entrepreneurs’ industry, substrates, foods for pets and fish, seeds, fertilisers, (Employers’) Organization of the Republic of Azerbaijan. The agricultural machinery, etc. The following sectors will be exhibition is organised by Caspian Event Organisers, CEO. extended to include irrigation systems and agricultural The CaspianAgro 2017 exhibition reflects the results of machinery for cotton which has recently enjoyed great agrarian reforms implemented in Azerbaijan that promotes growth in Azerbaijan. The Laboratory Equipment sector will the dynamic development of agriculture and the exhibition present microscopes, apparatus, laboratory instruments and will enjoy a 20% increase in interest compared to last year. equipment required to increase productivity and regularly The CaspianAgro 2017 exhibition will bring together both study the crops - from weight to determining the extent of any manufacturers and distributors of agricultural products and plant infestations by harmful substances through moisture equipment from Azerbaijan, Belarus, China, Italy, Turkey, content and more. Russia and Sri Lanka, as well as other countries. Georgia It is encouraging that companies from Azerbaijan will take will take part with National pavilion in the Exhibition. The part in these sectors on a par with foreign manufacturers. Netherlands has become a partner country as a result of In general, Azerbaijani companies will make up 40% of exhibitors. In addition, traditional infotours for entrepreneurs and farmers from Azerbaijani regions will be organised at the CaspianAgro exhibition to help them learn about the latest equipment and machinery. Thus, the CaspianAgro 2017 exhibition provides a unique platform to showcase products, services and technology from Pre Harvest to Post Harvest. It also offers networking opportunities between targeted groups and high ranking agriculture officials to identify and explore business, as well as investment opportunities in the Caspian Region. CaspianAgro is a neutral platform where farmers, companies, Government departments, researchers and all stakeholders from agriculture industry are equally beneficial.

62 Issue 25 AmCham Azerbaijan

New Appointments Kelli Allin, Audit Partner of Deloitte Azerbaijan

Kelly is a senior partner in Deloitte CIS Audit practice, recently appointed as Audit leader in the Baku office, and serves clients in Russia, Azerbaijan, Kazakhstan, and Ukraine. He is a Canadian Chartered Accountant and has more than twenty years professional experience predominantly in public accounting, complemented by several years as the Finance Director and acting CFO of a Canadian public company. As a senior financial executive, he had extensive involvement with Boards and Audit Committees, and worked with commercial banks and investment banks to raise both debt and equity. He has spent more than fifteen years in the CIS in various capacities. Further, Kelly is the Independence Leader for Deloitte CIS, where he plays a key role in ensuring Deloitte maintains their independence and objectivity to all of their audit clients, and therefore upholding the public trust. Kelly has had primary responsibility for the audit of many of the CIS firm’s largest Energy and Resource projects. In Azerbaijan, Kelly will soon take on the role of Audit Partner for BP, as part of the awarding of the Global BP Audit to Deloitte, beginning in 2018. Kelly is passionate about sports, and the importance of teams. He has run a hockey program for children in Moscow for the past eight years; was a commissioner of a youth football program; coaches his children’s baseball teams; is an active ice hockey player together with a mixed group of ex-professional players and businessmen; and represents the Deloitte partners as the pitcher on the Deloitte baseball team.

Petr Sergutin, Head of Valuation at Deloitte Azerbaijan

Petr is leading the Valuation Services practice of Deloitte both in Azerbaijan and in Georgia. He has been with Deloitte since 2010 and joined the Deloitte Azerbaijan team at the end of 2016. Petr has 6+ years of experience in Corporate Finance Advisory in Moscow, where he managed projects in the fields of valuation, financial modeling, feasibility study, economic advisory. Over the years in Deloitte Petr advised primarily to top-tier CIS-based companies in the sectors of power & utilities, oil & gas, transport, metals & mining, banking and others. Apart from that, Petr has been actively engaged in research, leading the macroeconomics projections unit of Deloitte and being a co-developer of a number of unique internal and industry-specific tools. Petr holds BSc Economics degrees from the Higher School of Economics in Moscow and the London School of Economics and Political Science. He is a Master of Applied Economic Sciences from the University of Antwerp.

63 AmCham Azerbaijan

AmCham Calendar of Events 15 December 2016 – 15 March 2017

27 January - HR Committee Meeting

31 January - Monthly Members’ Luncheon

6 February - “Meet Your Candidate” Cocktail 2017

10 February - Healthcare & Medical Insurance (HMI) Committee Meeting

14 February - Joint meeting of the members of AZPROMO’s Exporters Club and AmCham Presentation of “Made in Azerbaijan”

15 February - Conference on Benefits of Hosting Major Sports Events

16 December - HR Committee Meeting

16 December - Meeting between AmCham and Deputy Minister of Culture and Tourism of Azerbaijan

20 December - Presentation Ceremony of Web Portal Azexport.az

21 December - CSR Committee Meeting

15 February - ICT Committee Meeting

17 February - HR Committee Meeting

18 February - T&C Committee Meeting

22 February - THT Committee Meeting

24 February - AmCham Annual General Assembly Meeting

1-2 March - First ever AmCham Azerbaijan Trade Mission to the USA 2017 23 December - ICT Committee Meeting 2 March - Legal Working Group Meeting 17 January - Joint ICT and BFI Committees Meeting 10 March - Tax Conference on “Together towards 18 January - Tax & Customs Committee Meeting Transparency” 23 January - Healthcare & Medical Insurance (HMI) Committee Meeting 13 March - HR Committee Meeting

64 Issue 25