Azerbaijan: One Year Away from WTO Membership?
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A Word from the Executive Director of AmCham Dear Readers, Spring / Issue 5 The global economic downturn is gathering speed in Europe, Asia and the United States and while there is talk of a recovery in the second half of the year, it is far from a certainty, economists say. Being part of the world economy Azerbaijan Credits is not immune from the effects of the financial crisis and general economic slowdown. While AmCham congratulates Editor: the Government of Azerbaijan on the steps taken to date to Emma Triller minimise the impact on the country's economy we believe that far more needs to be done. We believe it is important Design & layout: that strategic measures be taken now to limit the damage to QuadroM Publishing House be suffered. In particular, AmCham believes that the problem requires a broad range of policy adjustments which go beyond Photographers: tinkering with fiscal and financial legislation. Dena Barmas In our recent ‘White Paper’ entitled ‘Observations and Huseyn Asim-zadeh Recommendations for Improving Azerbaijan’s Business Climate’, we pointed to a number of critical economic policy Journalist: reforms that the business community considers essential for Olga Pukhayeva the healthy development of the economy. The White Paper was drafted before the enormity of the financial crisis was clear but our observations remain true and it is even more Contributors: vital that they be implemented at the earliest opportunity. Natalia Corobco Jim Dillahunty This latest edition of the White Paper was prepared as a part Stanley Escudero of our constant dialogue with the Government of Azerbaijan. F.Youakim Farhat The first edition of the document was presented to the late President Heydar Aliyev in 2001. The second edition was Advertisers: presented to President Ilham Aliyev during the audience Austrian Air granted to AmCham in November 2005. This third edition Bakcell was presented to President Aliyev by Deputy Secretary of Excelsior Hotel Baku Commerce John Sullivan in October last year and submitted Holiday Inn Baku Airport to the country's key ministers. Notwithstanding the somewhat McDermott meagre response to this well crafted document, we continue McDonald’s our efforts to establish effective cooperation with government Mozaik agencies in the face of this economic crisis. PricewaterhouseCoopers R.I.S.K. Wishing you success and prosperity, Royal Bank Nargiz Nasrullayeva-Muduroglu Saipem Salans Shieldbearer Editor’s Comment Cover artwork: Dear Readers, © McCann Erickson Azerbaijan Having shelved the projected work permits and visas Printing: theme for lack of adequate and reliable information, we Nurlar decided to take a look at the state of Azerbaijan’s economy in the backlash of the global economic crisis. Various Publisher: perspectives have been presented for your consideration. American Chamber of Commerce The emerging picture seems to be that although in the short in Azerbaijan term, the economy has not been directly affected, the long Tel: (+994 12) 497 13 33 term prospect is attended by a measure of uncertainty. On Fax: (+994 12) 497 10 91 a brighter note, our interview with the Executive Director of www.amchamaz.org the State Oil Fund provides an insight into the canny and careful investment policies of this institution, and shows Advertising opportunities: clearly that Azerbaijan’s oil revenues are in good hands. Please contact the Editor As always, sincere thanks are extended to all contributing Emma Triller editors for their articles, and to all advertisers for their support. [email protected] We value our members’ input and feedback. Let us hear from Tel: (+994 12) 497 13 33 you. Please write in with your comments and suggestions to [email protected]. The articles in IMPACT AZERBAIJAN express the opinions of the authors and Happy reading! do not necessarily reflect the position of Emma Triller the American Chamber of Commerce in Azerbaijan. 1 contents IN FOCUS 4 Interview: 16 Customer Service: Shahmar Movsumov, Executive Director, Identifying and Valuing Customers. Part II SOFAZ The second in a series of three articles that discusses the topic of customer service from the viewpoint of a CEO, author, and researcher with 30 years of experience in Transforming the oil windfall into a permanent designing, implementing and monitoring endowment. programs of customer service. 8 Azerbaijan: A strong fiscal policy By Stanley T.Escudero MEMBERS 18 Member contribution: Azerbaijan: One Year Away from WTO Membership? As a player of growing significance in the international system, Azerbaijan cannot escape some impact from the collapse of the globally Azerbaijan’s ambition to conclude most of its leveraged credit and credit-derivative system WTO accession negotiations by the end of but how serious will that impact be? 2009 is very likely to be realized provided the current momentum is sustained. 12 Azerbaijan: Economic Outlook: By Natalia Corobco 22 Proposals for Creating Jobs in Azerbaijan The global crisis lays bare the fundamental in the Global Economic Crisis vulnerabilities that exist in the economy Azerbaijan should take even more aggressive of Azerbaijan. Key measures can help action than we have previously proposed to mitigate the negative impact of a global protect its economy, encourage business recession. growth and create new jobs. 2 Spring / Issue 5 contents AMCHAM AZERBAIJAN New Members 28 About us As a member of AmCham, your company has access to a vast network of business information and contacts. 29 AmCham structure 30 Members’ News and Events 32 Business Events SEACOR Environmental Services International Ltd. 34 Committee Highlights 38 Supported Events 39 AmCham Projects: Consumer Price Index Report for 2008 Legislative Update Meeting AmCham Membership Survey 43 M2M Discount Program 3 in focus Interview: Shahmar Movsumov, Executive Director, SOFAZ Please give us an overview of the current The State Oil Fund of Azerbaijan structure and status of the State Oil fund. The oil fund is a special government institute (SOFAZ) is a financial institution or entity, which was established in 1999 by Presidential Decree of the late President which accumulates and manages Heydar Aliyev with the purpose of accumulating and managing oil revenues. When it was oil revenues. Azerbaijan became established we were managing 270 million US dollars; currently we stand at around 10 billion. the first EITI Compliant country Two major objectives of the State Oil Fund are to accumulate and manage revenues at the 4th EITI International from the extracting industries with the purpose of providing intergenerational equality. We Conference in Doha, Qatar. strongly believe that wealth, that is, the oil in the ground, is not only for the current generation but for all generations living in this land. For that 4 Spring / Issue 5 in focus purpose, the objective of the Fund is to form the oil windfall into a permanent endowment. Our second objective is to spend some of the money for the needs of the current generation. The money from the oil fund is used for the creation of a modern infrastructure of economy, as well as for addressing social problems. For instance, we are financing the construction of the settlement for refugees and internally displaced people because of the conflict with Armenia. The Oil Fund is a financial institution. We are formed as an investment house. We have a front office, trading floor, middle office, risk management and back office operations. We are in a way not very much different from any other investment bank on Wall Street, although Wall Street is a bad name now. What is your contribution to the budget? What is the trend? We are contributing to the state budget by annual transfers. These annual transfers are approved in the budget of the State Oil Fund which is part of the consolidated budget of the whole government and is approved by the government. We started transfers in 2003 and last year the transfer to the budget was 3.8 billion manat, which is about 4.5 billion dollars. For this year the transfer to the budget is 4.9 billion manat, which is roughly about 6 billion dollars. So the contribution to the budget and the transfer to the budget are increasing, but in the meantime we are still saving about 60 percent of the revenues. If oil prices stay down, will the Government of Azerbaijan use the Oil Fund to cover any occurring budgetary shortfall? And if prices stay below $50, for how long can the Government continue to use the Fund, and for what purposes besides the budget? One of the functions of the Oil Fund is to protect the budget from the volatility of the oil prices. In good years, when the price of oil is high, the surplus of the budget is actually accumulated in the Oil Fund. In bad years, when the price of oil is down, then some of the fund is transferred to the budget. We are the natural stabilizer of the budget. As I have mentioned, we will asset classes which were not hit by the crisis, which allowed transfer to the budget 4 .9 billion manat. And as you can see, the State Oil Fund to finish 2008 with profit. We have had a rate it is an amount fixed in manats that does not account for any of return of around 4 percent, whereas many investment funds price of oil or foreign exchange rate, which means that in fact, and central banks were recording significant losses. The year whatever the price of oil is, they will get 4.9 billion manat from 2008 was an historically painful year. I believe that it will be in the the Oil Fund. In this way we protect the budget from volatility. text books in the future. We managed to go through that storm in quite good shape. But definitely we were very cautious, very What is your forecast for the oil prices? conservative.