Issue 33 A Word From Executive Director of AmCham Credits Dear members, Welcome to another edition of IMPACT Azerbaijan magazine! AmCham Executive Director: Since, the next Formula 1 Azerbaijan Grand Prix and UEFA Natavan Mammadova Europa League Final are approaching, we all already feel the atmosphere of tourism; thus, decided to dedicate this edition for achievements and further development of tourism Editor: in Azerbaijan. Aykhan Nasibli Definitely, tourism industry has its valuable part in macroeconomic indicators and can be considered a Articles contributed by: driving factor of the economy. Herein, concerted efforts of Fidan Sadikhli the Government and businesses are needed to address Farid Isayev changing dynamics of this industry. Within AmCham Travel, Tourism and Hospitality (THT) Committee, the members made a huge contribution to the 2018 edition of Ashraf Hajiyev AmCham White Paper. We hope that the addressed issues will find its gate for Gumru Eyvazova further development of tourism sector in Azerbaijan. Gunel Sadiyeva I am happy to witness successful and sustainable process of implementing the Ilaha Amirbayova Strategic Road Map for development of specialized tourism industry in Azerbaijan, Chimnaz Gasimova encompassing supply of high quality and competitive tourism services, shaping Nazrin Guluzade tourism practices in line with national values, attracting new investment projects, etc. It should be mentioned that we keep on enjoying fruitful cooperation with the Seymur Niftaliyev State Tourism Agency and are happy to contribute further. Herein, Azerbaijan's tourism industry is transforming into a dynamically developing Advertisers: area with investment – attractive business climate, a place where many important BP international projects are implemented. We wish best of luck to Baku in hosting Azerfon Formula 1 Azerbaijan Grand Prix and UEFA Europa League Final. Turkish Airlines P&G Best regards, Natavan Mammadova Iteca Caspian
Publisher: Editor’s Comment American Chamber of Commerce Dear friends, dear members, in Azerbaijan Welcome to the next edition of IMPACT Azerbaijan magazine! Tourism is an exciting area, which we can observe and enjoy. Tel: (+994 12) 497 13 33 The last 3 years have been quite remarkable in tourism Fax: (+994 12) 497 10 91 dynamism of Azerbaijan. Tourism friendly legislation and www.amcham.az newly established tourist destinations played a key role in this journey. Business community, as well as the government www.impact.az received fruits from inflow of tourists. The recent massive wave also created lessons learned on providing better Advertising opportunities: services, tour management, strengthening institutions of Please contact the Editor at local tourist companies, diversification of tourist sources, etc. [email protected] Within this edition, you will be able to read interesting interviews and articles from the experts. Also, using this opportunity I would like to thank for our advertisers - Azerfon, Turkish Airlines, BP, Procter & Gamble. The articles in IMPACT Azerbaijan Enjoy reading! express the opinions of the authors and do not necessarily reflect the position of Sincerely, the American Chamber of Commerce in Aykhan Nasibli Azerbaijan contents IN FOCUS 4 19 More Foreign Tourists Through Public-Private Partnership - an Expansion of Public-Private Alternative Investment Mechanism Business Cooperation
Special interview with Gunel Sadiyeva, Ilaha Amirbayova Mr. Fuad Naghiyev PwC Azerbaijan Chairman, State Tourism Agency 23 7 Human Capital is Paramount Everyone has to be Conscious with to Building and Developing a Importance of Developing Tourism Successful Tourism Industry
Chimnaz Gasimova Special interview with Dr. Aytan Aliyeva Head of People Advisory Services, EY Azerbaijan Co-founder, Alliance for Advancement of Tourism and National Cuisine, MEMBER CONTRIBUTION Owner Representative, HAZZ Hotel, Baku 25 The Laffer Curve: 10 the Case of Azerbaijan Sustainable Tourism: Call for Public-Private Partnerships Nazrin Guluzade 27 Fidan Sadikhli, Senior consultant at Cleantech and Public Private Partnership: Alternative Sustaianbility services, EY Azerbaijan Way of Attracting Private Sector to 14 Infrastructure Projects in Azerbaijan New Lease of Life For Azerbaijan’s Tourism Seymur Niftaliyev Law Practice Manager, KPMG Azerbaijan
Farid Isayev AMCHAM AZERBAIJAN 30 Head of Tax & Legal, KPMG in Azerbaijan About Us 16 Inbound and Outbound Tourism Practices and Preferences 32 Business Events CORPORATE TRAVELLERS CAN Ashraf Hajiyev, Research Director and Partner, SIAR Research and Consulting Group MODIFY THEIR BOOKINGS 18 Historical and Modern Aspects of 34 Tourism in Azerbaijan Amcham Members’ Luncheon AT NO EXTRA COST
Gumru Eyvazova Turkish Airlines Corporate Club rates allow 36 Committee Highlights members to reebok or reroute their tickets to suit their Legal and External Affairs Executive, ever-changing business schedules and allow them to save British American Tobacco 39 AmCham Legal Update a great deal of money. To become a member and start receiving benefits of 2 Turkish Airlines Corporate Club Issue 33 please visit: corporateclub.turkishairlines.com CORPORATE TRAVELLERS CAN MODIFY THEIR BOOKINGS AT NO EXTRA COST
Turkish Airlines Corporate Club rates allow members to reebok or reroute their tickets to suit their ever-changing business schedules and allow them to save a great deal of money. To become a member and start receiving benefits of Turkish Airlines Corporate Club please visit: corporateclub.turkishairlines.com in focus
More Foreign Tourists Through Expansion of Public-Private Business Cooperation
Special interview with Mr. Fuad Naghiyev
Chairman, State Tourism Agency
the tourism sector was the establishment of the State Tourism Agency, pursuant to the Decree on Some Measures Aimed at the Improvement of the State Management in Culture and Tourism of the President of the Republic of Azerbaijan, dated April 20, 2018. In the near future, the Agency will work to develop a new tourism policy, involve all members of the tourism industry into the process, improve research and statistics for longer-term development, train staff, effectively make an effective use of up-to-date advocacy tools, and make a maximum use of innovations and modern technologies in tourism. Our goal is to attract more foreign tourists to the country through expansion of public-private business cooperation, preparation and implementation of new development plans for infrastructure projects and, most importantly, by increasing the tourist satisfaction rate. Of course, there are constraints and issues that need to be tackled. The activities are already underway in this regard. We try to solve all the problems optimally by getting all stakeholders engaged into the process. Tourism should contribute to the income of the country and population. Based on our forecasts, tourism share in GDP will make up about 10% in the next decade. First of all, it Mr. Naghiyev, let’s speak about tourism development in is necessary to review and systematize the work done in the country - in previous years, now and in the upcoming previous years, and to work efficiently on interaction between five years. What progress do you observe and what your state bodies, businesses and public institutions. expectation is? All of our activities are aimed at achieving the goals and In the past couple of years, the state pays great attention to objectives set out in the Strategic Road Map on Development development of tourism. Multifaceted activities have been of Specialized Tourism Industry in the Republic of Azerbaijan, carried out to ensure growth in tourism and substantial steps approved by the head of the state at the end of 2016. The have been taken to increase the share of tourism-generated most important task for the near future is to increase the revenues in the country’s economy and GDP. As known, number of tourist influx to the country by two times by 2023 licensing in this field was cancelled in 2015 to support and introduce Azerbaijan as a popular regional and global development of private business. Subsequently, the incoming tourism destination. tourism in Azerbaijan began to grow and today, more than An example of the measures taken in this regard are the 2,000 individual entrepreneurs and legal entities are engaged reorganization of the tourism brand of Azerbaijan, preparation in the tourism sector. of the “Take another look” slogan and presentation of the new It is needless to say that one of the latest essential events in brand at the World Travel Market exhibition in London.
4 Issue 33 in focus
Increasing the level of the service rendered to tourists, making tourists happy with our country once leaving should be in the interest of everyone working in the field of tourism. Anyone who works in this area should realize his/her role in the tourism growth and the responsibilities he/she holds.
One of the main attractions for tourists are the reserves. What steps are taken in this regard? Currently, there are 7 reserves under the State Tourism Agency: “Yanardag” State Historical-Cultural and Natural Reserve, “Ateshgah Temple” State Historical-Architectural Reserve, “Basgal” State Historical-Culture Reserve, “Khinalig” State Historical-Architectural and Ethnography Reserve, “Lahij” State Historical-Cultural Reserve, “Yukhari Bash” State Historical- Architectural and “Kish” State Historical- Architectural Reserve. In July 2018, Presidential Reserve Fund allocated funds for the reconstruction of the “Yanardag” Reserve. The purpose is to bring the “Yanardag” State Historical-Cultural and Natural The number of foreigners visiting the country increases year Reserve in line with international standards and to create a by year. Thus, more foreigners are coming to Azerbaijan modern tourism infrastructure in the reserve. Activities have and the number of tourists in 2018 has grown by 5.7% as already been launched and their completion is scheduled for compared to the year 2017. May 2019. It is well known that in the last few years the country saw In addition, early in October, Mr. President issued an order to an inflow of tourists from the Middle East, which is good, the State Tourism Agency to prepare and submit proposals on nevertheless, we are in search of new markets. For this a draft concept paper and action plan with a detailed inquiry purpose, tourism resident missions have been established in into the current situation of “Basgal” State Historical-Culture a number of regions and countries. Since the end of 2018, Reserve, as well as regarding the long term preservation, we have tourism resident mission offices in Moscow, Russia; conservation and restoration of the reserve. Dubai, UAE; Riyadh, Saudi Arabia’ Mumbai, India; Beijing, The reconstruction works will be carried out next for the China and Frankfurt, Germany. In near future we plan to open “Yukhari Bash” State Historical-Architectural Reserve. Stock- tourism resident mission offices in Great Britain, France, Iran taking of historical and cultural monuments located in the and South Korea. territory of the Reserve will be ensured, a single database drafted, a draft concept for long-term conservation, restoration Historical buildings, state of the art constructions, and purposeful use of these monuments will be prepared. infrastructure… What else needs to be done to transform Our experts are now getting familiar with the current situation Azerbaijan into a tourism country? in the other four reserves, where large-scale works are Indeed, there are broad opportunities to turn Azerbaijan into being carried out. Among the main goals, is protection of the a tourism country. The combination of history and modernity, historical and cultural heritage of these territories to make the rich culture, developed tourism infrastructure, traditions, area more attractive for tourists, as well as for ourselves. delicious cuisine, beautiful nature, and other similar factors Establishment of Centre for Reserve Management under the include Azerbaijan into the list of countries attractive for the tourists to visit. However, just attracting tourists to the country is not enough. You need to produce a good impression, and make them wish visiting over and over. In line with the concept of our new tourism brand, our goal is to make the tourists visiting the country come back and visit again and again. At present, one of the key issues of the State Tourism Agency is to raise awareness of the tourism potential of our country. Large-scale marketing activities and advocacy to achieve this goal have been launched. Nevertheless, along with all the work done, the most important goal is to improve the service quality. Travel agencies, hotel industry representatives, restaurant staff, guides, taxi drivers – everyone within direct or indirect contact with tourists should demonstrate a high standard of service.
5 in focus
In this area, we stand for a healthy competition environment. This is crucial in raising the efficiency of interaction among all structures, optimal pricing policies and improving service quality. We support public initiatives and believe that public control and co-operation are very important for the market. An example of this is Azerbaijan Hotel Association established last year. The Association operates with support of the State Tourism Agency and Azerbaijan Tourism Board, which aim to develop the hotel industry in the country. It is expected that this organization will become a member of Hotrec - Hospitality Europe and will have access to study of international experience in the future. Moreover, the activity of the Azerbaijan Guides Association, which is to be established soon, is particularly relevant. We State Tourism Agency, pursuant to the Presidential Decree, is will assist the Association in training and certification of an indicator of the complex approach to these issues. guides. The need for delivery of more professional information There is a need to improve the management system in this about Azerbaijan, about the history and culture of our country area and implement a unified management system in order to tourists further increases the necessity of finding a joint to ensure conservation and preservation of cultural heritage, solution to this issue. Establishment of this Association will efficient use of tourism potential, as well as to promote public- help to give a legal status to the tourist guide profession. private partnerships, reduce the dependence of reserves on the state budget and achieve sustainable development. State reserves under the State Tourism Agency of the Republic of Azerbaijan are one of the rare examples of Azerbaijan’s historical and cultural heritage. It assumes great importance to protect and safeguard this legacy and to pass it on intact to future generations.
Service and staff training in tourism. Is it satisfying? What has been done on staff preparation and what is planned? As I mentioned above, qualified, self-employed workforce is the most important participants of the tourism industry. These people are the ones who promote the development of this industry. We are aware of the deficiencies in this area. Necessary efforts are being taken to eliminate these constraints. It goes without saying, that educational institutions play a crucial role in this. Herein, activities of Azerbaijan Tourism and Management Biography of our guest University, Baku Tourism Vocational School and Mingachevir Mr. Fuad Naghiyev is the Chairman of the State Tourism Tourism College under the State Tourism Agency are of Agency. He was promoted to this post in 2018 from his particular importance. The development of tourism education position of a director of the National Tourism Promotion directly impacts development of local tourism workforce in the Bureau under the Ministry of Culture and Tourism that he held country, including preparation of staff for the hotel business since February, 2017. Before this appointment, he worked and enhancement of service quality. as an assistant minister at the same Ministry and had the At present these educational institutions are able to meet only “1st degree of Public Servant” in 2014-2017. In 2010- 2014, a part of the market’s requirements. Reforms are planned to he worked as a senior consultant of the Ministry the Legal increase efficiency in the tourism education and bring them Department and was awarded “2nd degree of Public Servant”; to international educational standards. We suppose that His previous experience was in the private sector: from 2007 business circles are also interested in this process and we to 2009 he was employed as an executive director in Baku will cooperate with the business sector in this area. But first, Demir-Beton-8 Company, from 2006 to 2009 as a director of we need to improve our existing potential. Pasha Inshaat, from 2004 to 2006 he was a branch director at the Airport Gate Business Aviation Company. What is your stance on cooperation with business Mr. Naghiyev studied at the School of Law of Baku State associations? University and continued his education as a post-degree The State Tourism Agency is interested in developing fruitful student at the Institute of Philosophy and Law of the Azerbaijan relations with business associations, based on public and National Academy of Science in 1997-2000. He holds a PhD private business cooperation. degree in Law.
6 Issue 33 in focus
Everyone has to be Conscious with Importance of Developing Tourism Special interview with Dr. Aytan Aliyeva Co-founder, Alliance for Advancement of Tourism and National Cuisine, Owner Representative, HAZZ Hotel, Baku
hour before a take-off, we were told that Ben Gurion Airport administration refused to accept planes arriving on behalf of “Transaero” to Israel (for the reasons not related to our work). Long story short, we managed to solve the problem and fly via Sofia next day. The trip went extremely well, everyone was very happy and satisfied. It was a nice success story as a name of my first travel company: Success Tour. Later I moved to Baku and joined the Ministry of Foreign Affairs of Azerbaijan. I worked also at UNESCO and UNICEF. My return to tourism was purely accidental. In 2007 my friend who had a hotel asked me for a help. Within one month, despite the seasonal challenges, we improved hotel’s performance. Since then I am in a tourism industry.
Tell us about your trips to the USA Traveling has always been my passion! I visited US twice and by twist of fate, both trips turned out to be business ones in tourism. In 2010, after a competitive selection, I won the right to join SABIT (Special American Business Internship Training) program launched in 1990 by the International Trade Association of the US Department of Commerce. The program’s goal is to promote economic restructuring of the Good morning. Please tell us about yourself and your CIS countries. first experience in the field of tourism. Within 3 weeks, we studied the hospitality industry in the USA, I was born in Moscow and graduated from Moscow State visited different public and non-governmental organizations, University with Ph.D. I am a philosopher not only by education, associations and educational institutions, exhibition centers, but also deep in my heart. I tried myself in different sectors. I started my own business – a travel company back in 1995 in Moscow. With my class girlfriend. The first ever tour we organized turned out to be quite interesting. I knew little about this business, but this was not a barrier for us to dive in. Soon we got a request from a group of well-established men to arrange a tour to Israel. So, just imagine, we got 160 tourists who turned out to be employees of Moscow Duma, Russian Foreign Ministry, members of the State Duma, the State orchestra. We needed to organize a pilgrimage, a separate one for each denomination. Thus, we had to find separate buses, routes and entertainment programs. Despite the serious challenges with flight tickets availability at Transaero, 160 hotel rooms for 3 separate pilgrimage trips and concerts, we managed to succeed. I have always been blessed with good friends. On the day of departure, just an
7 in focus
owned training courses developed by their own team. Local owners of small and medium-sized hotels were not interested in developing their staff due to high turnover. As an employee resigned the owners looked at it as a financial loss. That said, I never give up and keep talking about AHLEI trainings as they are a truly unique product, updated annually. The organization itself is one of the most prestigious and respected in this field in the United States. My dream is to conduct a series of trainings throughout the country, to upgrade the level of hotel employees, especially in the regions. This definitely requires financing. A successful example is a cascade of the AHLEI trainings in Egypt: with the government and international organizations’ support within 8 years more than 200,000 persons have been trained in the industry. Our service industry is rather poor; it has to be substantially developed, if we, as a country, aspire to attract different niches of tourism segments, enhance variety and diversification within the industry. The American school of hospitality is exemplary, both in high level of service, the use of the latest technology and innovative marketing solutions. Today more and more people in Azerbaijan gradually understand the need for capacity convention centers, museums, etc. Overall, we visited 5 building and self-development. states and more than 60 hand-picked hotels and lodging In the US I witnessed the very high level of professionalism, facilities of different styles, levels and specializations, service quality, cooperation and communication between including the legendary Waldrof Astoria and The Hay-Adams, the companies. Every state has an Association of American as well as entertainment parks, Disneyland! We also met Hotels. I was pleasantly surprised of the strength and effective with the representatives of Congress and the US Department support extended to hotels by the Association. The Institute of State, as well as hospitality and tourism marketing experts. of Tourism in US has an interesting experience – the one we We studied and discussed wide range of operational and definitely need to adapt. I would very much like Azerbaijan to commercial business problems and issues, best practices adapt the experience of Metrix to have daily statistics on the and case studies. General Managers, marketing & sales hotels, by city and region. The use of similar practice will help representatives, restaurateurs, food & beverage experts, us raise the level of our tourism to a higher one. suppliers, event organizers, lawyers, financiers, coaches, My second trip to the United States was last year under the consultants, and new IT products developers shared their International Visitor Leadership Program (IVLP). This trip valuable experiences with us with great pleasure. was about Sustainable Tourism (sustainable tourism is the Upon my return, on my initiative, in 2011, with a huge help tourism that satisfies all existing needs, but at the same time of Ed Kastli, VP International Sales, AHLA (American Hotel it develops in a way to provide future generations with similar & Lodging Association), a memorandum of cooperation was opportunities). This is fundamentally a different program signed between AHLEI (a century long American Hotel & by its content and objectives. While SABIT was aimed at Lodging Educational Institute) and AZTA (Azerbaijan Tourism developing business knowledge to improve the operational Association supported by the Ministry of Culture and Tourism). and commercial efficiency in the hotel industry, IVLP was I was then the Executive Director of AZTA. We organized about discussing issues related to the development of a a number of training sessions for certified hospital trainers global approach, strategic thinking at the national level, the (CHT) for future trainings in Baku. There were lots of people search for new opportunities and ways to develop sustainable willing to receive this prestigious international certificate, tourism as an important sector in the development of the but only 5 turned out to pass the exam. We also conducted economy of any country, in general, on the ways to improve trainings for teachers of the Tourism University. cooperation between government organizations responsible Then for several years, we have been actively promoting for the development of tourism and market players, etc. trainings in our market, distributing information, offering an excellent academic course, developed by US experts and What are the main challenges for tourists in Azerbaijan scientists at the Tourism University. But, unfortunately, we and how can we tackle them? could not advance much further as the market was not ready Our country started taking steps in the field of tourism more for these products. The market is not yet interested. Sadly, than 20 years ago. All this happened gradually and step- business owners, managers, seemed to be not ready to by-step. New hotels were built, the existing tourism zones develop the staff, invest in vocational education. Brand hotels were reshaped. We have to understand that first of all we were not interested in AHLEI our products as each of them need to change the mindset of people who hosts the guests.
8 Issue 33 in focus
I believe that recently established Azerbaijan Tourism Agency will face these challenges. They are promoting our country abroad. Gastronomy is also gaining momentum. Moreover, promoting this type of tourism will not solely attract tourists, but advertise our products abroad. After all, we have very tasty products, and most importantly - organic ones, which is becoming more and more difficult to find all over the world!
Lessons learned from other countries. There are so many successful examples. We need to develop vocational education to have more competent staff and experts, there is a serious lack of talent market at all levels of management. This is a key question. Based on my US experience I believe it worth opening Ranger and Guide schools for children in Azerbaijan. This will help to develop ecotourism and sustainability. It will open new opportunities for locals in the regions where the school operates. It will encourage them to study more and know better their land. In the USA, children are taken to hotels to generate interest in the industry, as well as to project on their potential careers if they are to choose tourism. We should create a centralized tourism information system which will include hotels, travel agencies, and transport companies. They will be able to file their applications, and generate income through mutual interaction and cooperation.
Tell us about your organization... I am a co-founder of a NGO to advance gastro-tourism and As a result, attitude will change. This is the most important national cuisine. The organization was founded in 2016 with aspect, I would say, extremely important. Yes, we are warm, a goal of promotion of the national cuisine. Last year we held welcoming and hospitable nation, but this is not a magic the first Congress of Chefs of Azerbaijan with more than three pill. Our country has a huge potential for the development hundred chefs. These days we are working on launching of tourism, but for this we need to develop different another big event in May - a Chef’s Cup Championship with specializations: hospitality industry standards and service an international jury at the World Food Azerbaijan 2019 quality, taxi service, gastronomy and cooking, art, cultural Expo. We will have 27 international judges and plan to build 8 program, festivals, fairs, theater, museums, recreation sites, kitchen stations. The project promises to be quite interesting. beaches, pilgrimage sites, hunting, medical tourism, climbing, We are supported by the Azerbaijan Tourism Agency. camping, hiking, trekking, agro-tourism, etc. We made a serious progress, no doubt about it, of course, but we need to Biography of our guest move forward without losing pace. I would like to see Baku as Dr. Ayten Aliyeva carries wide and rich experience in an interesting destination for a tourist with different interests tourism industry. Currently, she is co-founder of Alliance for and hobbies: it is vitally important to diversify the “landscape” Advancement of Tourism and National Cuisine, co-founder of our tourism attractiveness, so that the tourists from all of «DASSEL» Kids Educational Center for Development walks can enjoy the trip and wish to return. It is extremely of Emotional Intelligence, as well as Owner Representative important to encourage visitors to return. It also contributes of HAZZ Hotel, Baku. Ayten had an opportunity to visit US to sustainability as we will not depend only on a certain turism programs twice - Specia American Business Internship type of tourist with all their pros and cons. We need creative Training in 2010 and international Visitor Leadership Program programs, innovative approaches, tailored inspiring projects. in 2019. Previously, Mrs. Aliyeva was Executive Director of Azerbaijan Tourism Association (2014-2016), General How can we promote our tourism internationally? Manager of Sea Breeze Hotel (2012-2013) and various other We need to take a sober look at our strengths and weaknesses. position with a public and private sectors. Ayten Aliyeva Systematically work on improvement and more intelligent, received PhD and Master degrees on Philosophy Faculty, subtle approaches. It is necessary to focus on what and how Moscow State University named after M.Lomonosov. She we promote. It is clear that you cannot sell everything at once. carried professional membership with International Women Therefore, we must define our global concept of tourism Community (IWC) of Azerbaijan, Member of Skal International development, our focus areas, nuances, and marketing, find Baku Office (International Association of Travel and Tourism our niche audience, new directions/markets. Professionals).
9 in focus
Sustainable Tourism: Call for Public-Private Partnerships
Fidan Sadikhli Fig.1: % Share of Total GDP in the World and Azerbaijan Senior consultant at Cleantech and Sustaianbility services, EY Azerbaijan
Over the last decade, the travel and tourism sector in Azerbaijan has witnessed significant growth, stemming from the need to diversify the country’s economy. Consequently, it has brought about the transformation of tourism into one of the major drivers of social and economic development in the country. Fidan Sadikhli, Senior Consultant at the Cleantech and Sustainability Services department of EY in Azerbaijan, takes a look at evident pros and possible cons of expanding the tourism sector and the need for public-private partnerships to enhance sustainable development of tourism. Overview These days, tourism is considered as one of the primary sectors in international trade. It is also becoming an increasingly important source for economic growth in developing countries. Expansion of the tourism sector brings employment opportunities, gender equality, protection and the promotion of natural and cultural heritage. In 2017, the travel and tourism sector accounted for almost 10.4% of global GDP, while it provided 9.9% of total employment – more than 313 million jobs globally. The data for 2018 is still being ascertained, but these figures were expected to grow and reach 11.7% of global GDP and 11.6% of total employment, respectively. In the last few years, Azerbaijan has been attracting an increasing number of foreign travelers from around the world. The country boasts stunning landscapes and natural beauty, a historic and cultural heritage, a dynamic culture and exceptional culinary traditions – it has plenty to offer to a wide range of international visitors. The Travel & Tourism Council says that in 2017 the tourism sector’s overall contribution to the country’s GDP amounted to $ 5,601.0 million, accounting Flipside of the coin for 14.6% of the total. It has also led to the creation of 611,000 The economic benefits of these latest developments are jobs – just over 13% of the total employment figure. These evident. But there may be a downside to this success story. impressive indicators suggest that tourism has become one Rapid expansion of tourism and an influx of visitors – both of the leading non-energy sectors in the country’s economy regional and international – can cause undesirable social and has made a noticeable positive impact on social and and environmental effects. These may potentially include economic development. ecological challenges, such as an increase in waste products and subsequent damage to wildlife, as well as a disruption
10 Issue 33 in focus
to the cultural setup of a region. Therefore, all the possible transport, but also by the functioning of tourism facilities, risks ought to be foreseen and taken into account. Moreover, such as hotels. proper safeguards and investments should be in place in 2. Private sector participants are responsible for inefficient order to expand the tourism market without putting pressure consumption of both renewable and non-renewable on biodiversity and those ecosystems that are vital for the resources. For example, the generation of excessive food livelihood of the local communities. waste is one of the major inefficiencies that hotels are responsible for. The contamination of land, air and water Fig.2: Performance KPIs of the Private Sector resources, including the irresponsible solid and liquid waste disposal practices by tourism-related business and tourists themselves, causes the deterioration of national resources. Uncontrolled consumption and poor behavior affect the environment negatively, but also account for economic losses. According to the United Nations Food and Agriculture Organization (FAO), nearly 1.3 billion tons of food production is effectively lost and disposed of per year – this staggering figure equals more than 100 billion dollars wasted by hotels around the globe. 3. Uncontrolled tourism can have negative impacts on the fabric of local society, through restricting access to land and resources, as well as leading to an increase in crime, sexual exploitation and threats to social and cultural traditions and values. Impacts associated with the private sector The accommodation industry includes both the traditional commercial sector (hotels, resorts, hostels and holiday homes), as well as an ever-increasing private accommodation sector (new platforms, such as Airbnb, various house- sharing platforms and services). Overall, this vast network is responsible for 1% of global GHG emissions and represents 20% of tourism’s entire carbon emissions, mainly through heating, air-conditioning and other trade-related operations. It is now clear that standard practical impact mitigation strategies, such as the re-use of bathroom towels or mass installation of energy-saving light bulbs, are simply not sufficient, and therefore much more needs to be done. For instance, there is a growing need for sustainable building design practices (architecture) and improved air conditioning systems (eco-friendly maintenance). Some countries are studying options to localize renewable energy production. Case studies from around the world conclude unequivocally: Many hotel chains have started taking more radical steps effective management of the tourism sector is only possible to reduce their footprint and operate more responsibly. For through close interaction and collaboration between both instance, in 2013, Nailcote Hall Hotel in Warwickshire in private and public sectors. This is the only viable way to Great Britain made a sizeable investment in what are known ensure that social and economic benefits of the expansion as green utilities and became one of the most eco-friendly of tourism are enhanced, while negative ramifications are hotels in the UK. What the Nailcote did was quite brilliant: it thoroughly assessed and managed at all levels. installed ACM’s Bio2Fuel system that transforms the hotel’s So, what can possibly go wrong and why do we need to fret food waste into bio-fuel by burning the waste in a biomass about any undesirable effects? To understand these potential boiler that produces energy to heat the water in the hotel’s challenges and ramifications, we only need to cite just a few swimming pool. This system saves the hotel around £ 5,000 kinds of negative impact that can threaten local communities: per year in electricity bills. Just as importantly, the process 1. Tourism is a significant contributor to climate change, reduces actual volumes of disposable waste by 75%. This accounting for approximately 5% of global CO2 emissions effectively means far less waste being thrown away, which, in in 2017. These are generated mainly by various types of turn, decreases greenhouse gas emission.
11 in focus
Sustainable Tourism and Azerbaijan The importance of tourism and its huge potential contribution has in the last decade led to its inclusion in various national development strategies and, also, in the global development agenda. It has been recognized by the United Nations (UN) as one of the ten sectors to drive the change towards a Green Economy and was included in the Rio+20 Outcome Document as one of the sectors capable of making a significant contribution to the three dimensions of sustainable development. As I have pointed out, given its nature and impact, tourism is tied up with other industries and impacts overall economic and social development. In order to manage the growth of the tourism sector effectively, the most progressive policymakers focus on the achievement ratifying the Paris Agreement and establishing the National of Sustainable Development Goals (SDGs) – the blueprint Coordination Council on Sustainable Development in 2016. prepared by the UN to achieve a better and more sustainable Given the growing importance of the tourism industry for the future for all. It calls for integration of the basic principles of country’s development, as well as the government’s pledge sustainable tourism into legislative, regulatory and institutional to diversify its economy away from a dependence on oil and systems. Sustainable tourism is not an idealistic concept. In gas, sustainable tourism should become an interesting field other words, it is a set of conditions that the tourism sector for involved parties and stakeholders to explore. ought to meet as a whole. The United Nations World Tourism Azerbaijan’s Ministry of Culture and Tourism has already Organization defines this term as “a tourism that takes full begun putting into practice its tourism development strategy account of its current and future economic, social and for years 2016-2025. This includes four main directions: an environmental impacts, addressing the needs of visitors, the improvement of the institutional basis, the advancement industry, the environment and host communities”. According of infrastructural development, diversification of tourism to the UNDP analysis compiled on the basis of 64 Voluntary experience, and the enhancement of professional standards National Reports (VNR), tourism is most often linked with the in marketing and communication. This strategy also provides following Sustainable Development Goals: recommendations on what needs to be done in order for SDG8 (Decent Work and Economic Growth) – Tourism, the country to achieve these goals. Moreover, in 2018 a as a service industry, is one of the top four export earners specialized government body – the State Tourism Agency globally, currently providing one in ten jobs worldwide. – was established to oversee the implementation of policy Decent work opportunities in tourism, particularly for youth recommendations and ensure effective management of the and women, and policies that favor better diversification industry. Azerbaijan has also partnered with UNDP to pursue through tourism value chains, can enhance tourism’s positive various joint projects to assist its industry-related educational social and economic impacts. For instance, France in its VNR establishments, such as the Azerbaijan Tourism University, said that sustainable tourism, together with the creation of and also ran a pilot project aimed at graduates at one of the business and a circular economy, is one of the priority drivers tourism-related vocational schools. of growth in the country. SDG10 (Responsible Consumption and Production) – There is a growing need for the tourism sector to adopt Public-Private Partnerships (PPP) sustainable consumption and production (SCP) approaches, However, it’s not just government agencies and international accelerating the shift towards sustainability. Tools to monitor bodies that need to be active in this field. The private sector sustainable development impacts for tourism, including for should be educated about its pivotal role in ensuring the three energy, water, waste, biodiversity and job creation, will result main pillars of social and economic growth: a well-functioning in enhanced economic, social and environmental outcomes. society, a healthy environment and a stable economy. SDG 17 (Partnership for Goals) – Due to its cross-sectoral Businesses should also be made aware of their responsibility nature, tourism has the ability to strengthen public-private to sustain and protect eco-systems in which they operate, partnerships and engage multiple stakeholders – international, and not just generate profit. national, regional and local – to work together to achieve the Historically, private companies have been reluctant to engage SDGs and other common goals. Public policy and innovative in public policy development and implementation due to costs financing are key to achieving the 2030 Agenda. Slovenia, that may imply a lack of awareness. However, PPP stimulates for instance, supports environmental infrastructure projects in the share of knowledge, expertise and capital between partner countries, especially in the Western Balkans, helping two important players, as well as stimulating institutional, to build and improve tourism infrastructure in the mountain regulatory and legislative development. It is widely recognized regions. around the world that PPP will bring about positive changes In the meantime, the government of Azerbaijan clearly to private companies, tourists, local communities and industry indicated its commitment to sustainable development by as a whole.
12 Issue 33 in focus
The roles of public and private organizations in PPP are committed to the SDGs. briefly summarized in Table 1. This can serve as general Development of tourism can influence a country on many guidelines for local organizations and help all involved parties different levels – the environment, ecosystem, economy, with implementing SDGs in a more effective manner. society and culture can all be affected, and not always in a positive manner. If managed well, tourism will boost economic Table 1: UNWTO Tourism Highlights 2018 growth. Otherwise, it might undermine economic and social development, and – in the worst-case scenario – have a Stakeholder Type Role in Delivering Sustainable devastating impact on the nation’s natural resources. Tourism
National Government • Implementing regulations References Tourism Ministry and strategies to support the 1. World Travel and Tourism Council, Economic Impact Other ministries development of sustainable 2018, Azerbaijan Tourism agencies tourism – development 2. World Travel and Tourism Council, Economic Impact Other government delivery management, environmental 2018, World agencies protection and heritage Resource management conservation 3. Tourism4SDGS Platform: http://tourism4sdgs.org/ bodie • Developing the infrastructure tourism-for-sdgs/tourism-and-sdgs/ in a more sustainable manner – 4. Sustainable Tourism for Development Guidebook, World ports, roads, waste management Tourism Organization and the potable water supply 5. Azerbaijan Economic Reforms Review, July 2017, Center • Investing in marketing and promoting tourism destinations of Analysis of Economic Reforms and Communication • Establishing tourism 6. Public/ Private Partnerships for Sustainable Tourism, development agencies, protected Asia Pacific Economic Cooperation areas and institutions to manage 7. Save Food: Global Initiative on Food Loss and Waste them, as well as taxation benefits Reduction, Food and Agriculture Organization of the to encourage environmental best United Nations, http://www.fao.org/save-food/resources/ practice keyfindings/en/ Private sector businesses • Adopting environmentally sound Tourism trade associations technologies National and local tourism • Implementing polluter pays service providers. e.g. principles hotel businesses • Financing protected areas Tour operators – interna- • Encouraging destinations to tional and domestic support environmental protection Suppliers to the sector, e.g. and measures food producers • Promoting projects which are Investors – international and compatible with and support local domestic cultures • Facilitating local small and medium-sized enterprises, which encourages local entrepreneurship • Supporting industry awards for best sustainability performance • Encouraging innovation in processes and management through adopting new technology Food for thought Although many reforms have been introduced for the tourism sector in our country, their effective implementation and achievement of the desired results are only possible if Author’s biography all parties involved – government agencies, policymakers, Ms. Fidan Sadikhli is a senior consultant at Cleantech NGOs, and, most importantly, private companies – work and Sustainability services in EY Azerbaijan. She holds a together and support each other’s efforts to bring about bachelor’s degree with distinction in Business Administration sustainable development. Private individuals and companies from Azerbaijan State Oil and Industry University, and an MSc should understand their role and responsibilities and interact in Management for Business Excellence from the University both with each other and government agencies to ensure of Warwick, UK. Fidan has expert knowledge in sustainability they all work for the same goals and objectives through PPP. strategic advisory, environmental and social impact assessment, Such partnerships are the most viable way to stay true and sustainability reporting assurance and advisory.
13 in focus
New Lease of Life For Azerbaijan’s Tourism Farid Isayev the approved roadmaps, one envisioned the development Head of Tax & Legal, of specialized tourism industry in Azerbaijan. The roadmap KPMG in Azerbaijan for tourism targeted 3 timeline milestones in prioritizing the implementation of goals: strategy and action plan until 2020, strategic vision until 2025 and aspirational vision for post 2025. The goals were identified as the following: • realization of Baku’s full tourism potential by attracting more international visitors; Historic overview • creation of favorable environment for the development Azerbaijan is a country located at the crossroads between tourism across the country; East and West with its capital Baku having modern • development of regional tourism sub-sectors for domestic infrastructure and ancient rich historical sites and with regions and regional tourists encompassing fascinating nature and national parks. Despite • creation of national tourism quality system to increase seemingly advantageous geographical location, rich historical tourists’ satisfaction. heritage (with some sites proudly forming part of UNESCO’s World Heritage List) and favorable climate conditions, New identity Azerbaijan’s tourism industry has arguably underachieved State policy and regulation over Azerbaijan’s tourism industry over the years. While oil & gas industry firmly remaining has been implemented through various types of executive the locomotive of country’s economy for decades, the other bodies over the years, yet all shared the common feature- industries have witnessed mixed success. tourism has never been the sole focus of such bodies. At The implementation of the State Program “On the development different times tourism regulation was within the competence of tourism in the Republic of Azerbaijan in 2002 – 2005”, of Ministry of Youth, Sport and Tourism of the Republic of approved by the Decree of the President of the Republic of Azerbaijan, later Ministry of Culture and Tourism. Yet with the Azerbaijan No. 1029, dated 27 August, 2002, was aimed at increased state support to the tourism sector and following creating favorable conditions for the development of tourism the approval of Strategic Roadmap, administrative autonomy and lay foundation for the country’s integration into global and a new cluster of tourism oriented resources was rapidly tourism market. While the results of the said State Program becoming a necessity not a luxury. are open for interpretation, it was evident that measures for Azerbaijan State Tourism Agency was established on the the promotion and stimulation of tourism required continuous basis of former Ministry of Culture and Tourism in April 2018 and consistent state support. Hence, as a continuation of this by the relevant executive order of the President of Azerbaijan. policy, State Program “On the development of tourism in the It was the start of maiden voyage of Azerbaijan’s tourism Republic of Azerbaijan in 2010 – 2014” was approved by the regulator under its own distinct identity. State Tourism Agency Decree of the President of the Republic of Azerbaijan No. 838, was promptly equipped with a number of sub-divisions, dated 6 April 2010. Decree No. 838 was promptly followed by entities and assets (such as national parks) to support its the announcement of 2011 as “The year of Tourism”.1 It was extended mandate. Among those, one can highlight the projected that by marking the year as one devoted to tourism, Azerbaijan Tourism Board. this shall facilitate the promotion of natural sites, as well as Azerbaijan Tourism Board (ATB) is a statutory board operating cultural-historical heritage of the country, while also ensuring by the State Tourism Agency. It was tasked to increase the efficient use of tourism resources. Strategic Roadmap The decline in oil prices on global markets starting from 2014, warranted complex preventive measures to ensure the stability of national economy, and equally important- supply of hard currencies into it. To embark on this mission, a Strategic Roadmap covering the perspectives of national economy and comprising strategic roadmaps on 11 economic sectors, consisting of 12 documents was approved by the President of the Republic of Azerbaijan on December 06, 2016. Amongst
1. Decree of the President of the Republic of Azerbaijan No. 1320, dated 15 February 2011
14 Issue 33 in focus
Based on current trends, economic prospects and the UNWTO Confidence Index, UNWTO forecasts a growth of 3% to 4% in international tourist arrivals worldwide in 2019, more in line with the historical growth trends. A large majority of countries have dedicated tourism polices, strategies and plans for the medium to long-term. There is much similarity between countries in their tourism policy priorities, which focus on improving competitiveness, sustainability and inclusiveness, addressing seasonality of demand, and enhancing the quality and appeal of the tourism offer. The last two years have seen a growing recognition of the importance of the development, management and promotion of local destinations, supported by regional or local structures and funding, and the preparation and execution of awareness about Azerbaijan as a tourism destination and destination management plans. with strengthening the country’s competitiveness in the global The challenges and opportunities presented by recent tourism tourism market by developing and maintaining a powerful trends provide the context for the preparation, review and brand both domestically and internationally. delivery of tourism policies and the strategic development Launched as an independent, public-private partnership of the sector. In turn, this requires effective governance ATB undertakes marketing, promotion and positioning of structures that enable the planning and coordination of Azerbaijan in hope to make tourism the leading economic actions by key players and the availability of sufficient funding sector of Azerbaijan. for their implementation. Governments have continued to In November 2018, at the World Travel Market the Azerbaijan engage positively in this process, recognizing the importance Tourism Board launched its ‘Take another look’ marketing of the sector and its relevance to a wide economic, social and campaign as part of a new strategy to rebrand the country environmental agenda. and to increase inbound tourism by 2023. The birth of a Global tourism has experienced steady growth for over six distinct tourism brand peculiar to Azerbaijan was another decades, culminating in an estimated 1.2 billion arrivals cornerstone in the new identity of country’s tourism. in 2016; a figure which is forecast to rise to 1.8 billion by These days, high-profile sporting events such as Formula 1 2030, with international tourist arrivals in emerging economy Azerbaijan Grand Prix and UEFA Europe League Final in 2019 destinations projected to grow at double the rate of that in raise the brand’s influence worldwide. Recent successful advanced tourism economies.3 The International Air Transport negotiations with Formula One Management Group ensured Association (IATA) predicts that passenger demand over that Formula 1 Azerbaijan Grand Prix will remain on the F1 the next 20 years will be impacted by the emerging middle calendar until at least 2023. By adding football matches that class in developing countries, diverging demographic Baku was awarded to host at UEFA Euro 2020 championship, outlooks, increasing liberalization of aviation markets, and Azerbaijan ensured recognized international sporting events climate change.4 With an ageing global population, seamless with loyal fan base that will provide continuous influx of transport to and within destinations (including the challenge tourists for years to come. presented by the “first” and “last” mile – that travel from a person’s home to an airport, port or train station, and then Global trends on from their point of arrival to their destination) is a strategic According to the World Tourism Organization (UNWTO), issue that will increasingly need to be addressed. international tourist arrivals (overnight visitors) worldwide increased 6% in 2018 to 1.4 billion, based on data reported by 3. OECD Tourism Trends and Policies Report 2018 4. OECD Tourism Trends and Policies Report 2018 destinations around the world.2 Middle East (+10%) and Africa (+7%) led growth, while arrivals to Asia and the Pacific and Author’s biography Europe (both +6%) increased in line with the world average. Mr. Farid Isayev is director at KPMG in Azerbaijan and head The Americas saw growth of 3%. Overall results were driven of Tax & Legal practice. His previous work experience includes by a favorable economic environment and strong outbound – commodity trader-Glencore Xtrata (London), banking and demand from major source markets. insurance sector in Azerbaijan and another Big Four firm prior Among the world’s top ten spenders, the Russian Federation to joining KPMG. Farid’s specialization areas include financial (+16%), France (+10%) and Australia (+9%) reported the sector, M&As, PPPs, state privatizations, corporate governance strongest increase in outbound expenditure in the first nine and international contracts. to eleven months of 2018. The United States (+7%) and Farid is also acting vice-president at German-Azerbaijani the Republic of Korea (+6%) also recorded solid spending Foreign Chamber of Commerce and head of AmCham’s Travel, figures, all of them fueling inbound growth in their respective Hospitality and Tourism Committee. regions and beyond. Mr. Isayev holds an LLB with honors in International Law from 2. UNWTO World Tourism Barometer and Statistical Annex, January 2019 Kingston University London and Western University in Baku.
15 in focus
Inbound and Outbound Tourism Practices and Preferences
Ashraf Hajiyev nature, 24% like visiting historical monuments, 23% like Research Director and Partner, going to the beach; SIAR Research and Consulting Group • 87% of respondents organize their trips on their own and 13% prefer doing it through travel agencies;
This is interesting and worth paying attention to the local travel agencies and other stakeholders. However, an article about tourism would only be partial When I got a notification that next edition of IMPACT magazine without information about foreign tourists. And, thus, we is devoted to “Achievements and Further Development of continued our analysis by adding desk research part. Tourism Sector in Azerbaijan”, the idea to write an article The desk research has shown that in January-September and contribute to the magazine immediately appeared on 2018, 2,208,600 foreigners/ stateless persons visited my mind, as the sector is especially interesting and rapidly Azerbaijan. Thus, the growth of number of arrived people developing. amounted to 6.4 percent compared to the same period of Being a research agency with a long experience in travel/ 2017.It should be noted that while 31% percent of those, who tourism surveys both in Azerbaijan and abroad, we ran a arrived in Azerbaijan, were citizens of Russia, 20% Georgia, survey among the population of Baku. In total we surveyed and 10 % Turkey. In total, more than 467 thousand people (or 386 respondents and the confidence interval amounted to 21%) arrived from the countries of the Persian Gulf. 5%, with the confidence level of 95%. And in December, 2018, The Azerbaijan Tourism Association (AzTA) announced that it is working to attract tourists from The findings of this survey were following: India and currently negotiating with various Indian companies • 83% of respondents said that they travel at least once a in this direction. Taking this into account we thought to take year, with 56% mentioning that they travel once a year; a look at differences between Arab and Indian people and • 77% prefer to travel in summer; touristic preferences: • 83% have an average travel of up to 14 days (63% in fact mentioned a period of up to 7 days); Arab Indian • 83% usually travel to regions of Azerbaijan and 17% Religion Mainly Islam Mainly Hinduism
travel abroad; Domi- Arabic Hindi • Most popular regions of Azerbaijan for traveling (among nant language those, who make local trips): 35% mentioned Guba, 31% Food Nuts, the herbs mint Herbs, spices, beans, millet, and vegetable oil Gabala, 13% Ismayilli, 13% Sheki; and thyme, rice, milk are frequently used. Vegetarianism is popular. • Most frequently mentioned countries (% is shown among products, such as yogurt, Beef is not consumed by overwhelming butter, and cream, lamb, majority. those, who travel to other countries): 52% mentioned chicken, olive oil, and Turkey, 28% Georgia, 19% Russia, 18% Iran, 7% grains are extensively used. Pork, blood and Ukraine, 4% mentioned Dubai and Germany; intoxicants are prohibited.
• Type of preferred way of resting: 67% prefer rest at Holidays The two major Islamic Many Indian people celebrate Hindu holidays holidays celebrated by which may occur during seven of the twelve many Arabs are Eid Al- months of the year. Fitr and Eid Al-Adha; but, Yet, the two major holidays are Holi and Di- there are several more, wali. Holi, the spring Festival of Colors, takes including the most known place in February and March (3-16 days), in the West, Ramadan. while Diwali takes place in September/ Octo- ber, and is known as the Festival of Lights.
What Most of Arab travelers According to Ahoy Matey Travel Blog, top they do prefer to make trips reasons for travelling are: Rejuvenate. abroad? with family and friends. Spend quality time with family 2-3 longer trips abroad Taking away from the city life. with family are not at all Top activities: unusual for them. City tours and shopping - #1 activity; According to IPK Inter- Adventure travelers – mainly prefer water national, travelers from sports and scuba diving. Arab countries tend to The same blog states that Indians are some of take long trips for medi- the most mindful and environmentally con- cal purposes. scious travelers out there
16 Issue 33 in focus
Spending According to VISA’s According to VISA’s Global Travel Intentions Global Travel Intentions Study, travelers from India logged an average Study Saudi Arabia, of 5.6 trips over the past two years, outpac- Kuwait and UAE are in ing the 4.7 trips taken by individuals from the the list of “top 5 spenders Asia-Pacific (APAC) region. Breaking down by country”: people from those headline numbers a bit, business travel Saudi Arabia spent USD marked 2.6 trips versus an average of 1.6 for 5,333 in their last inter- the region at large. national trip, while people In addition, Indian travelers spent significantly from Kuwait and UAE more than those from the APAC region, at spent USD 3,143 and USD 2,334, where the latter spent USD 1,677. USD 2,722 respectively. The future looks bright too, as Indian travelers are expected to spend 21 percent more over the next two years.
Tips As per Istizada agency, According to the aforementioned travel blog: in order to attract Arab Indians are price-conscious about tourists, it is worth: accommodation, but will spend on shopping Offering travel and city and food, so it is worth taking it into account tour packages with during preparation of tour packages; transport and lodging Add eco-friendly options to the package; for multiple people. Add options for both children and elder, since Relevantly, multiple room Indian like traveling with parents and children; reservation is important Make sure there are restaurants that serve for them. vegetarian and vegan food Including halal options in the menu; Promoting Eid Vacation offers; Staffing the team with Arabic-speaking Travel Coordinators and Wel- come Agents.
• Malaysia, according to The Weekend Leader, is planning to tie-up with Pay-TM – a digital wallet widely used in India – to facilitate smooth transaction for Indian tourists. Also they have easy licenses for Indian travel agents, who want to set up company in Malaysia; • UK, as per Hindustan Times, launched Experience England project, which is s pegged at creating and promoting a new England tourism experience, making it easy for customers from India, China and the GCC to visit the cities of London, Manchester and Birmingham and then go on to explore the English countryside and villages.
With hopes to see Azerbaijan among the most successful countries in the sphere of foreign tourist attraction.
The work on attraction of foreign tourists requires hard work, Author’s biography and here is the list of activities that some countries do in order Mr. Ashraf Hajiyev is Research Director and Partner at to increase the number of Indians visiting them: SIAR Research and Consulting Group. He is responsible for • Israel, according to Media India Group, conducts various research projects and development of SIAR activities roadshows in different cities of India. The roadshow was in Azerbaijan, Georgia, Central Asia, Moldova, Russia and conducted in a networking workshop format with two Ukraine. As Research Director, Ashraf is strongly focused on destination management companies from Israel and was quality of research and bringing international methodologies attended by over 100 travel agents in each city; and techniques. His experience includes retail audit, studies • Belgium, according to New Indian Express, uses covering FMCG, tourism and hospitality, services, finance, Bollywood (granting easy licenses for film-shooting), construction, durables, healthcare, automotive, social and beer (they even produced Indian beer) and charm of key healthcare research, and other sectors. Since 2015 Ashraf has cities (Brussels and Bruges); also been elected to be a country representative for ESOMAR • Ecuador initiated “Ecuador is Love” campaign in local (World Association of Research Professionals) in Azerbaijan. digital media in India aiming at tours that would include Mr. Hajiyev obtained BA on Economical Cybernetics from marriages, honeymoons, silver and gold weddings, Baku State University (2001) and MA in Economics from the anniversaries, birthdays, farewells, among others; Central European University (2003).
17 in focus
Historical and Modern Aspects of Tourism in Azerbaijan Gumru Eyvazova and sport events, such as European Games, Islamic Games, Legal and External Affairs Executive, Formula – 1; visa facilitation issuance procedures, such as British American Tobacco “Visa facilitation Agreement” which was signed between Azerbaijan and the European Union in November 2013 caused to double decrease of visa fee (from 70 € to 35 €) and all these steps introduce Azerbaijan to the world and promotes its tourism potential. Also, among these measures it is honourable to mention the national system on “ASAN Tourism is the cultural and economic phenomenon that VIZA” which was establish by the Decree of President Ilham brings both material and moral wealth depending on the role Aliyev in 2016. According to this system, the electronic visa one plays in this sector. Tourism industry is one of the main application procedure issued through the “ASAN VIZA” sources of income for destination countries and moral source system is realized by the State Agency for Public Service and for travelers who gain more spiritual satisfaction in exchange Social Innovation. The electronic visa issued within 3 working of the money they spend to travel. days through “ASAN VIZA” system determines the duration Azerbaijan is bordering the Caspian Sea to the east, Georgia of stay in the country up to 30 days and the state fee is 20 and Russia to the north, Iran to the south, and Armenia to the USD. So, visa issuance to foreigners and stateless persons southwest and the west played strategically important role in is carried out in the international airports of the Republic of development of trade between the East and the West, since it Azerbaijan through the “ASAN VIZA” System electronically is located on the Great Silk Road. Several cities of Azerbaijan since May 15, 2018. However, the list of the countries eligible were international trade Centers. Therefore, the first travels to get the electronic visa are determined by the same Decree. to Azerbaijan were for trade, religious and political purposes. Furthermore, the favorable geographical position of When Azerbaijan gained its independence a lot of steps Azerbaijan, its climate, rich and diverse flora and fauna, cultural were taken within the framework of international integration, and historical heritage, delicious cuisine, ancient traditions including building economic, cultural relationships with other and hospitality open great opportunities for development of countries. Although tourism industry was one of the main tourism in the country. According to the Tourism Statistics tools for integrating with the world during those period, by the Ministry of Culture and Tourism of the Republic of its development lagged behind other countries. However, Azerbaijan, 1.818.258 tourists arrived to Azerbaijan in 2017. it should be taken into account that tourism industry of According to the World Economic Forum (2017), 136 counties’ Azerbaijan is very young compared to the leading countries Travel and Tourism sector were evaluated under 4 categories in the tourism market. that consist of several sub-categories which are demonstrated According to the Development Concept “Azerbaijan 2020: in the table below. As a result of these evaluations, tourism Look into the Future”, approved by decree of the President sector of Azerbaijan is ranked in the 71st place, in comparison of the Republic of Azerbaijani H.E. Ilham Aliyev in 2012, with 2015 when Azerbaijan got 84th place. Above-mentioned importance of tourism sector one more time was emphasized, facts demonstrate gradual improvement of this industry in and tourism was stated as one of the main priorities of Azerbaijan. Azerbaijan with the purpose of increasing competitive power of economy and development of non-oil sector. Several Author’s biography important works were carried out to promote the country and Ms. Gumru Eyvazova is a Legal and External Affairs Executive attract tourist flow, including hosting grandiose international at British American Tobacco Exports B.V. Representative events, visa facilitation issuance for visitors and many others. Office in Azerbaijan. For many years she was experienced However, developing tourism sector does not solely depend within banking industry and worked in capacity of Head of Legal on attracting tourists. Making visitors leave the country Division. She attended training related to legal management and satisfied is guaranteed way of ensuring further development was a Legal Consultant for 2 worldwide airline companies in of the sector. Azerbaijan. She also serves as a Chair of the Board of Directors Azerbaijan is one of those countries that strives to achieve of local NGO, "Khazrim" Student-Youth Organizational Public sustainable tourism development, and continually tries to Association. find its place in international tourism market. Major steps are Ms. Eyvazova has graduated from the School of Public and being taken by the government towards the improvement of International Affairs of ADA University (LLM, 2018), School of tourism, including being host to several international cultural Law from Baku State University (LLM, 2007; BSc, 2004).
18 Issue 33 in focus
Public-Private Partnership - an Alternative Investment Mechanism Gunel Sadiyeva Ilaha Amirbayova Corporate Tax Manager, PwC Manager in Advisory Business Azerbaijan (Consulting & Deals), PwC Azerbaijan
Introduction A key motivation for governments considering public–private partnerships is the possibility of bringing in new sources of Public-private partnership (“PPP”) is a relationship between financing for funding public infrastructure. PPPs are a more the public and private sectors. On one side, the interests of common way of financing infrastructure projects worldwide, public and private sector are so different and even sometimes entailing fiscal obligations on the government. Fiscal conflict each other, so no partnership between them could be obligations could arise from contractual obligations, either imagined. However, in light of economy’ change, there are from making payments related to asset availability/ service many points of convergence, where the partnership between delivery (direct liabilities), and/ or, in the event of fiscal risks public and private sector has the right to exist. (contingent liabilities – implicit or explicit) materializing under Public private partnerships (PPPs) is a governance the PPP contracts. mechanism of short and long-term agreements between Contingent liabilities could be created through various forms the public and private sector for solving socially significant of guarantees or compensation clauses by the government tasks on mutually beneficial terms. PPP is a partnership to the concessionaire (private investor). Form of guarantees in the context of a public infrastructure, which is aimed to contains debt / revenue / exchange rates, etc. Such guarantees increase the contribution of the private sector in infrastructure could be applied in varied situations including early contract investment, to relieve the burden of public finance and to termination, renegotiation of contracts, unforeseen problems increase efficiency in the provision of public facilities and or uninsurable force majeure events. public services. The well-regulated partnership allocates the roles between the government and the private sector, so that each of the sector may contribute its own resources and own PPP models expertise in order to effectively provide public facilities or Typically, the PPP can be arranged in the following ways: services. • Service contracts There are also two other terms used for such type of activities, • Management contracts private sector participation and privatization. • Lease contracts • Build-operate-transfer / Build-operate-own / Design- What is the role of each sector in the build-operate or other similar models • Concessions PPP? • Joint-ventures By definition, there is always a public and a private component to a PPP. The form that this component takes depends on the Service and management contracts are most appropriate for project. the existing projects or for the facilities that are already built The role of private sector is contribution of investment capital, and are on the balance of the state of governed by the state. their technical expertise and their time and people resources Whereas the model that are used for discrete new projects or to govern the day-to-day operation of the project. planned infrastructures are BOT and similar models. The public sector’s participation can take the form of financial support, in-kind contribution, e.g. in a form of provision of land or equipment, or contingent support, such as guarantees or PPP in Azerbaijan Azerbaijani law has no comprehensive PPP law that would insurance, the level of tariffs permitted, etc. that can support establish guiding principles of PPP. Instead, Azerbaijan the country’s PPP program or encourage the financial markets has several legal acts and regulations that to certain extent to lend into projects.1 regulate separate types of public-private partnership.
1.https://ppp.worldbank.org/public-private-partnership/fnancing/government-support-subsidies - The BOT model was first introduced in 2016 through the Law Government support in Financing PPPs
19 in focus
on the implementation of special Financing for Investment Economy of the Republic of Azerbaijan. Projects in connection with Construction and Infrastructure The BOT model is applicable to construction, restoration, Facilities, adopted on 15 March 2016 (“BOT Law”). rebuild, repair, operation and transfer of bridges, tunnels, The BOT Law is a relatively new concept in Azerbaijan yet, water warehouses, water cleansing plants – constructions, certain projects are currently being implemented in Azerbaijan sewerage systems, and other publicly important infrastructure by using the BOT model. One of the current PPP project is objects in the fields of education, health, culture, tourism, etc. related to the construction of dormitories for the students and in accordance with BOT agreement. the Asian Development Bank provides transaction technical Pursuant to the BOT Law and BOT Order (together “BOT assistance (TA) and project preparatory assistance.2 legislation”), the process of cooperation between public and private sector within the BOT model is structured in the following steps: Existing experience with public-private Step 1: The sectoral authority (e.g. in a project with dormitory partnership projects in Azerbaijan construction – the Ministry of Education of the Republic of Besides the BOT model and before adopting the BOT Law, Azerbaijan) applies to the competent authority (the Ministry Azerbaijan has implemented several projects that by its of Economy of the Republic of Azerbaijan), with a proposal, nature are considered as PPP. covering technical background and general definition of One of the example is a project related to construction and infrastructure and services needs and analysis of institutional operation of waste-to-energy plant, which was executed by options of the particular project (“Project”). CNIM Group. The state-owned company Tamiz Shahar JSC, Step 2: The Ministry of Economy after initial review and which is responsible for utilization of the solid municipal waste approval of the Project, prepares the requirements for a of Baku city, awarded CNIM the design, construction and potential investor and announce the bidding process, which operation for 20 years of an energy recovery facility.3 is governed by the BOT Law. The provisions of the Law of One of the forms of the public-private partnership is a State Procurement are not applicable. management contract. As an example of this type of a PPP, is Step 3: Within the bidding process the potential investor management of the Central Clinic (Mərkəzi Klinik Xəstəxana) should provide a feasibility study and project estimation. within 10 years period by the Turkish company “AY-MED Step 4: After the completion of the bidding process and Medical Yatirim Danishmanlik Ticaret”.4 Actually, PPP is selection of the investor based on the submitted documents, often used worldwide in healthcare in three main directions: the selected Investor should establish a legal entity, which a) build or refurbish public healthcare infrastructure; b) to cannot be involved in any other activities besides governing add or expand service delivery capacity or c) to provide a the project (“Project Company”). Afterwards, the Ministry comprehensive package of infrastructure and service delivery. of Economy concludes an agreement with the selected One more example of PPP in the form of a management investor (“Investor”) on implementation of the Project (“BOT contract is a contract on management of Shahdag Ski Resort Agreement”). signed between PGI Management and Azerbaijan`s Shahdag Step 5: Maximum term of BOT agreements is 49 years. After Winter-Summer Tourism Complex, which is part of the State the contract period is over, the facilities (which were build Tourism Agency.5 and operated by the Investor / Project Company) should be returned to the government. Legal basis Additionally, to the BOT Law, a decree the President of Institutional conditions and managing the Azerbaijan, dated 7 December 2016 (“BOT Order”) the fiscal risks establishes the particularities with respect to conditions of the Based on the experience of some countries, the institutional investment, requirements to private investors, procedure of capacity is a key element to organize, manage and investor’s selection process, etc. implement a PPP process. At this time, the Government of Pursuant to the BOT Law, the BOT model is a specific form Azerbaijan does not have a centralized PPP unit, which will of project financing, according to which investors recoup be responsible for undertaking risk estimation, monitoring, their investments expenses with regard to projects on managing and reporting related activities for a PPP projects. infrastructure objects through procurement of goods/services The Ministry of Economy and Small and Medium-Sized to the customers or competent government bodies. Business Development Agency (“SMBDA”) are the The competent authority that is responsible for implementation competent state entities that are responsible for development of the BOT model in Azerbaijan and acts on behalf of the and implementation of PPP projects. The Ministry of Finance public sector in the PPP arrangements is the Ministry of (MoF) plays a decisive role in managing fiscal risks arising
2. https://ap3f.adb.org/our-activities/piloting-delivery-university-students-accommodation-and- from sovereign guarantees. services-baku-through-public As one of the ways to restrict the fiscal risks, the BOT Law 3. https://cnim.com/en/energy-recovery-azerbaijans-capital-comes-date 4. Order of the President of the Republic of Azerbaijan No 704 dated 24 April 2001 http://e-qanun.az/ prescribes the annual volume of sovereign guarantee for framework/2543 projects undertaken under BOT model at 10% of the project 5. https://pgimgmt.com/project/due-diligence-equipment-analysis-tender-process-and-providers- evaluation-for-shahdag-mountain-resort-azerbaidjan/ cost. In addition, the Ministry of Finance and the Ministry
20 Issue 33 in focus
of Economy estimates annual guarantee obligations for of State Property in the Republic of Azerbaijan, the State projects undertaken through the BOT model, based on which Property Issues Committee of the Republic of Azerbaijan is government commitment is incorporated in budget for the the body that acts on behalf of the State with respect to the respective year. property that is owned by the public bodies and state owned Before selection of the investor for implementation of an legal entities. Based on this, we may come to conclusion that infrastructure project, the Ministry of Economy coordinates the Ministry of Economy as a competent authority for the with the Ministry of Finance to conduct a techno-economic implementations of BOT projects is not eligible or authorized assessment (such as pre-feasibility study, financial viability to transfer any state property (facilities) to a private investor assessment and market assessment). Once the decision based on the BOT Contract. on implementing a project through BOT model is met, the The same situation is with respect to the land. The private Ministry of Economy coordinates with Ministry of Finance to Investor, investing in an infrastructure project, may want to prepare a draft BOT Agreement for the investment project, assure his rights on certain assets and land. For the duration and they prepare implementation milestones against which of the BOT Agreement, the State should remain the owner of success of the project are determined. the land, while the private Investor remains the owner of the In addition to the above measures, certain safeguard facilities, but has the rights and obligations of an usufructuary mechanisms are also in place to meet unforeseen with regard to the land on which the facilities are built. eventualities. The government has established a “safeguard Proposed regulations fund” within the state budget and the Ministry of Economy The goal of the public sector is to provide a clear title with is authorized to use the safeguard fund to manage fiscal respect to the land and other state-owned property and risks, e.g. in case the competent authority has provided the scope of rights that the Investor obtains for the period of BOT investor with the tariff or revenue guarantee, such guarantee Agreement. The legislation should provide a clear guidance to purchase goods or services or to pay the service charges as to who is considered as the owner of the facilities within the on behalf of the population. operation period - the Investor, State or the Project Company In spite of the above mentioned equally important is the need and if the State – which of the state authorities execute the to have a robust, comprehensively built oversight framework ownership rights on behalf of the State for BOT purposes. It for managing PPP related fiscal risks. Based on the global would be appropriate to authorize the competent authority – experience of costly PPP failures, management of fiscal Ministry of Economy or established PPP unit – to act on behalf risks associated with PPP projects require a strong, effective of the State with respect to the state-owned property for BOT financial oversight mechanism to be in place. Agreement purposes or to create simplified procedure for obtaining consent from the State Property Issues Committee. Risk allocation Pursuant to the BOT Legislation, the Investor – it can be Tax issues either a legal entity or an individual – is participating in the The BOT Law does not create a special tax regime that bidding process and is a party, investing funds into the project supersedes the Tax Code of the Republic of Azerbaijan, so and party of the BOT Contract. What is then the role of the the general rules of the statutory tax regime established by Project Company? As it is evident from the BOT legislation, the Tax Code should be applicable to the PPP law. the main purpose of establishment of a Project Company is to Balance sheet treatment enable the Ministry of Economy on behalf of the Government Besides the ownership issue, an open question relates to the to control and supervise the Project. right of allocating the facilities to its balance and calculate the Consequently, there are open questions, e.g. who is depreciation charges with respect to the facilities. Following responsible for the Project’s implementation and how the the logic of IFRS standard, assets should be reflected on the risks and liabilities are allocated among the parties. If the balance of that entity, which will receive the future economic project involves many significant risks, it is more efficient to benefits associated with the asset. It can be either the legal manage it collectively, i.e. by government embracing and owner or the lessee within the financial lease arrangement. sharing the risks with the designer, the constructor and/or IFRS itself, as well as the Tax Code of the Republic of the operator/maintainer, rather than by allocating them to a Azerbaijan provides the criteria of financial leasing and the particular party. facilities operated within BOT model will likely fall within the financial leasing, that will give the right to depreciate the Property issues assets. However, the existing “financial leasing” provisions In some cases, the Project may require the transfer of certain under the Tax Code can be construed to deny taxation facilities or land owned by the State to the private Investor for deductions to a tax payer. the repair purposes, rather than construction of the facilities What if the party of the BOT Agreement and the entity that from scratch. The BOT Legislation does not stipulate the invests in construction or renovation of any state-owned ownership issues. Based on the Azerbaijani legislation, i.e. facility is the Investor, whereas the entity that actually uses the the Order of the President of the Republic of Azerbaijan on assets/facilities in their entrepreneurship activities is a Project adoption of the State Program on Improving of Management Company. At the balance of which entity the mentioned
21 in focus
property in this situation should be reflected? • Build national PPP Unit; The correct answer should be at the balance of the Project • Address legal and tax issues, especially with respect to Company. In order to allocate the asset (facilities) to the the property; balance sheet of the Project Company the legal basis – • Work on the balance sheet treatment; legislation or contractual base – is required. Due to the lack • Allocate risk between the parties; of legislative basis, the Investor should transfer the facility to • Provide certain tax incentives in order to attract the the Project Company for operation and management based private sector to undertake a PPP on an agreement. Consequently, such transfer will be viewed • Develop mechanism of contingent support from the as taxable alienation, subject to profit tax and VAT. government and financing of the BOT projects. Transfer of assets During the lifecycle of the BOT Project, the transfer of assets (not only the repaired facility) from the State to the Investor, Authors’ biography from the Investor to the Project Company and vice versa will Ms. Gunel Sadiyeva is a Corporate Tax Manager in PwC occur many times. Treatment of such transfer as a taxable Azerbaijan. She boosts more than 9 years of experience in event will create additional tax and compliance burden for all tax and legal advisory, including Big4 experience where she participants of the BOT Project within each of the following has assisted clients with complex tax and commercial matters. transactions during the entire lifecycle of the BOT Project: Gunel’s main practice areas comprise advising on issues 1. Transfer of the facilities from the State to the Investor related to international and corporate taxation, merger and 2. Transfer of the facilities from the Investor to the Project acquisitions, as well as structuring of potential investments Company in Azerbaijan. She has a wide legal advisory experience in 3. Return of the facilities back to the Investor corporate, employment, and commercial law with companies 4. Return of the facilities back to the State in financial, construction, manufacturing and PSA sectors. She participated in advising and development of the project documentation and project structuring for PPP project on the Proposed regulations basis of BOT model, negotiation with the tax authorities the tax Transfer of any property between the participants of the BOT implications and advising on tax and legal structuring of the Project should not be treated as a taxable sale for profit tax project. as well for VAT purposes and can be viewed as a tax neutral Her qualifications include a Bachelor degree in Law and a Master transaction. degree in Civil and Economic Law from Baku State University in Dividend distribution Azerbaijan. In 2011, she has obtained her LL.M in Private and Set-up of the Project Company is a requirement of BOT Public Economic Law from the Friedrich-Schiller University in legislation. The Investor contributing funds to the Project is Jena, Germany. In 2016 she has achieved Advanced Diploma aiming to return its investment. In case of set-up of a Project in International Taxation - certification indicating a high level of Company, all profits generated by the Project Company competence in international taxation. Gunel is also an adjunct during operation can be distributed to the Investor only in form lecturer in International Tax Law at Baku State University. of dividends, subject to withholding tax at source. Proposed regulations Ms. Ilaha Amirbayova is a Manager in Advisory business The establishment of the Project Company is a compulsory (Consulting & Deals) in PwC Azerbaijan. With over 8 years, requirement of the legislation and we believe that in such case she has developed a particular expertise in helping clients in the Investor should not bear additional tax burden with respect public and private sector to define and implement changes to return of investment. In order to attract interest of private of their Enterprise Content Management (ECM) system to investors to the infrastructure investment, it is advisable to improve their efficiency and enable them to manage their exempt dividend distribution from a Project Company to the knowledge more effectively. She is also specialized in business Investor from the withholding tax. process optimization and re-engineering, bringing the efficiency of corporate functions of the clients’ business. As well as international knowledge, Ilaha has a strong knowledge in Conclusion legislation of the Republic of Azerbaijan of Clerical work and Some of the issues discussed within this article can be Archive and ECM. She is leading the stream of cooperation addressed through contractual terms, whereas some of with Public sector and International Financial Institutions in PwC them would need to be stipulated by law. A PPP-specific law, Azerbaijan. governing not only BOT model of PPP, but creating a legal Prior to joining PwC Ilaha has worked over 4 years for major framework could not only address the discussed issues, but mobile operator in telecommunication sector in Azerbaijan, also demonstrate political commitment to the PPP program. initiating and developing of methodology of document Although care is needed to avoid conflict with any other management system and build up storage and electronic existing relevant laws. archive system, taking a part on implementation of electronic Given the potential which PPPs have for the delivery of document and record management system, participated in essential public services we would like to make the following internal audit projects. Ilaha has also worked over 2 years for recommendations: government and non-government organizations.
22 Issue 33 in focus
Human Capital is Paramount to Building and Developing a Successful Tourism Industry
Chimnaz Gasimova is also imperative that member states and their local Head of People Advisory Services, communities fully benefit from the growth of the tourism EY Azerbaijan sector through meaningful, quality jobs with clear and visible career path opportunities in the sector.
Azerbaijan has made it one of its strategic goals to diversify its economy and, as part of this objective, develop its tourism industry. However commendable this intention is, it requires Tourism has been growing internationally for quite an integrated and multi-faceted approach. Therefore, the some time now, and is most likely to continue growing development of human capital should be pivotal in devising in the coming years. This of course presents a positive and implementing this strategy. The right people are important opportunity for countries and communities, because of for the long-term expansion of the tourism sector, but they are expected economic benefits. However, it also presents a also the key to the country’s overall economic development. challenge, says Chimnaz Gasimova, the Head of People In a certain sense, tourism is a unique industry, as it provides Advisory Services (PAS) at EY. employment to people of all ages and competence levels Many countries which were successful in establishing (skills). If the country or a private company wants to offer a themselves as popular tourist destinations made a conscious competitive tourism product that meets consumers’ changing choice to use the opportunity, invest, and create quality jobs needs, it needs to have the right human resources to do in the tourism sector. As their popularity as destinations grew, so. Needless to say, it’s easier said than done. There are a they also faced a challenge - in order to support the expected number of challenges that any country or company will have growth and maintain competitiveness the industry needed the to consider and prepare for. Here are some of them: right human capital that would be competent to meet market • Shortage of personnel, under-qualified employees and demands. Put simply, the quality of service in the tourism non-competitive wages compared to other sectors – all industry is mainly ensured by the quality and competence of of these combine to reduce the profit margin of tourism people involved in the service. businesses. While this may sound like a fact of life and a banal premise, • Irregular working conditions (such as variable hours) and the need for the right people has been recognized by the the seasonality of this industry make jobs in tourism a industry as a whole and various international organizations less attractive option for potential applicants. All of this as one of the most serious challenges facing international poses a challenge for employers, with repercussions not tourism. The United Nations World Tourism Organization even just for hiring but also for employee retention. summarized the issue by stating that its member states need the right tourism human capital base that meets current and future market demands and, ultimately, enhances the competitiveness and sustainability of tourism destinations. It goes on to describe this capital as follows: • Abundant: the right volume of human capital available at all skill levels and in all sub-sectors and job families of tourism. • Highly qualified: human capital with the right type and level of education, training and experience available at all skill levels and in all sub-sectors and job families of tourism. • Highly motivated and with the right attitude: in order to deliver exceptional experiences to visitors. • Able to gain economic benefits from tourism: it
23 in focus
teams, mid-level management and the general workforce should be adequately trained and retained. In the case of the tourism and hospitality industry, rank-and-file employees are most likely to be the front-line customer-service personnel. These are the people who ultimately determine how good the company’s products and services are. However, this is only a fraction of issues that may arise to haunt business owners and shareholders. We at EY People Advisory Services can help the industry to comprehend and face the issues and challenges with confidence. For us, these are not simply corporate slogans that we parrot over and over again. We do indeed strive for a better working world. For EY it means helping to solve big, complex industry issues and capitalizing on opportunities to help clients grow, optimize and protect their businesses. It is true in any industry, but even more so in the tourism and • The seasonal nature of tourism employment and its hospitality sector: it can be really hard to source, manage, reliance on part-time workers and irregular hours makes motivate and retain talent while controlling costs. We help our it more difficult to ensure the availability of the right clients harness their people agenda – the right people, with number of people at the right time. the right capabilities, in the right place, for the right cost, doing • As the industry expands internationally, tourism has the right things. been struggling with recruitment issues for several years, Looking at people as part of an integrated business strategy, and the sector’s expected growth in future will not make organizations are able to gain a competitive people advantage. this task any easier. We work globally and collaborate to address complex issues • Attracting, training, nurturing and retaining talent is a relating to organization transformation, end-to-end employee major challenge for managers in the industry. Investing lifecycles, effective talent deployment and mobility, gaining in training and keeping talented employees is a key value from evolving and virtual workforces, and the changing component of success for businesses and for the entire role of Human Resources as a business discipline. industry. These issues are somewhat intertwined and connected, but it only reinforces my earlier premise that human capital is paramount to building and developing a successful tourism industry in Azerbaijan. Therefore, a competent workforce is necessary because of customers’ demands, fierce competition between destinations (countries) and other dynamic market forces. As a seasoned human-resources professional, I have noted that in Azerbaijan business owners and shareholders are often conscious to recruit competent managerial staff, but the competence of the rank-and-file employees often receives less attention. This approach could be detrimental to the business and the industry in general. While no one disputes the mission and importance of senior managerial
Author’s biography Ms. Chimnaz Gasimova is a Head of People Advisory Services in EY Azerbaijan. She is a senior level HR professional with 18 years of extensive experience in various HR domains in multinational companies operating in Oil & Gas and Banking industries. During these years Chimnaz had long term international assignments in Kazakhstan and Singapore. She is a certified coach (ACC ICF) and business trainer. Chimnaz has expert knowledge in HR Strategy; Talent Acquisition; Talent Management; Performance Management; Rewards Management; HR Projects Management; Business Process Management; Service Quality Monitoring; Payroll; Lean Six Sigma; SAP.
24 Issue 33 member contribution
The Laffer Curve: the Case of Azerbaijan
Nazrin Guluzade
of entrepreneurship, stimulation of business, improvement of investment climate in Azerbaijan and on the whole, would probably spur economic growth. On the other hand, through the lens of the Laffer Curve, in long-term perspective decrease of tax rates would increase the amount of tax revenue flowing into the state budget.
The Laffer Curve1, which has been developed by economist Personal Income Tax Arthur Laffer, illustrates the correlation between tax rate and Now, individuals employed in the private non-oil and gas amount of tax revenue collected by government. Its main sector whose monthly income is up to AZN 8,000 are taxed at idea is that as tax rate increases, tax revenue collected 0%, while those with monthly income exceeding AZN 8,000 by government also increases, however, in short-run. are taxed at 14%: After tax rate reaches a certain point (t2 in below diagram) businesses would choose not to operate or conceal income, Monthly taxable income2 Tax rate as everything they earn would mostly go to the government and consequently, tax revenue would decrease. In other Up to AZN 8,000 (AZN≈$ 4,705) 0% 14% is applied to the part words, when tax rate becomes too high, tax revenues fall More than AZN 8,000 as businesses lack the motivation to operate. Governments exceeding AZN 8,000 should set tax rate at optimal point (t1 in below diagram) – at These tax rates are effective as of 1 January 2019 and shall initial stages this would decrease tax revenues, however in be applied during the following 7 years. However, no changes long term government would collect the maximum amount of affected taxation of individuals employed in state and oil and tax in such circumstances. gas sectors who shall continue to pay PIT based on previous On 1 January 2019 amendments to the Tax Code of Azerbaijan rates: came into effect. Changes affect taxation of individuals and companies to a great extent. The most positive change was Monthly taxable income Tax rate decrease of tax rates levied on employment of individuals. Up to AZN 2,500 (AZN ≈$ 14% Actually, there was a long-overdue need for such impressive 1,470) jump which, in its turn, would conduce step-by-step movement More than AZN 2,500 AZN 350 + 25% is applied to the of businesses out of “shadow economy”. Broadly speaking, part exceeding on the one hand, these tax reforms should lead to activation AZN 2,500
1. Arthur B.Lafer, “Te Lafer Curve: Past, Present, and Future” 2. PIT of individuals who are employed at 2 or more companies is calculated separately
25 member contribution
Assuredly, oil sector accounts for the lion’s share in the parties shall be recognized as dividend payments to economy of Azerbaijan, and probably for this reason economic shareholder for tax purposes and taxed at source of policy is aimed on gradual freeing of economy from oil sector- payment at 10%. dependency, elimination of disbalance in the economy and development of non-oil sector, which is implemented also Other significant changes through introducing tax incentives. Thus, probably, the • Direct and inderect payments made by permanent rationale behind provision of tax incentives to those employed establishments of residents and non-residents in in private non-oil sector is to boost the development of this Azerbaijan to entities incorporated in tax-advantegeous sector in further years. states, as well as to their branches and representative Speaking of individuals’ employment, financial sanctions for offices in other countries, and bank accounts in tax- engaging individuals for performance of any service (work) advantegeous states are treated as income from without concluding labour contract and having it in legal force Azerbaijan source and shall be taxed at 10%.3 considerably increased. Thus, financial sanction for such tax • Income of legal entities engaged in manufacturing of evasion shall be AZN 2,000 for the first time, AZN 4,000 for agricultural products is exempt from CPT until 1 January the second time, AZN 6,000 for the third and further times 2024. during calendar year. • PIT/CPT/simplified tax payable on sales made by private entrepreneurs (individuals/legal entities), carrying out Taxation of participatory interests/ trade and/or public catering in form of retail sale of goods, shall be decreased by 25%, in case performed through shares POS-terminals till 1 January 2022. It is noteworthy that the term “dividend” has been expanded • Income gained by individuals as a result of write-off of tax and in addition to net profit of the legal entity distributable debt to the state budget, is exempt from PIT. between its founders (participants) or shareholders, now also • VAT exemption on sales of agricultural products by includes distribution of assets generated from net profit during manufacturers produced by the latter has been prolonged liquidation of legal entity, as well as regaining shares at their till 1 January 2024. nominal value which increased at the expense of net profit. • Import of vehicles operating solely with electric engine • Moreover, the following changes have been introduced shall be VAT-exempt. regarding taxation of participatory interests/shares: • Consumers are entitled to get refund in the amount of • Dividend income of individuals and legal entities who are 15% of VAT paid by non-cash / 10% paid by cash method founders (participants) or shareholders of resident entities on trade and/or public catering goods. not registered for the purposes of VAT, keeping records • Exemption from payment of assets tax on assets used of income and revenue in accordance with requirements by individuals and legal entities for manufacturing of Tax Code, and whose turnover over consecutive 12 agricultural products has been prolonged till 1 January months’ period does not exceed AZN 200,000 is exempt 2024. from PIT, corporate profit tax (CPT) and simplified tax. • 50% of income gained from alienation of participatory interest or share which was in possession of individual Conclusion or legal entity for at least 3 years is exempt from PIT and In conclusion, as it has been mentioned earlier in this article, CPT. on initial stages tax cuts probably may result in shortfall of • The following are recognized as taxable profits of tax proceeds, however over the long haul, slashed tax rates individuals and legal entities: and introduced tax incentives would fairly sure incentivize 1. Difference between selling price and nominal value of businesses to grow, increase of number of jobs and finally participatory interests or shares in charter capital of legal would result in increased volume of tax receipts, which would entity (when participatory interests or shares are sold at compensate temporary shortfall caused by tax cuts. In terms a price which is higher than value of participatory interets of taxpayers, tax reforms would relieve tax burden of the or shares proportional to net assets of the legal entity) aforesaid, and in general, would have a positive impact on 2. Difference between nominal value of participatory economy of the country, in particular on its non-oil segment. interests or shares in charter capital of legal entity and Author’s biography value of participatory interests or shares proportional Ms. Nazrin Guluzade started her career as tax and legal to net assets of the legal entity as of the effective date consultant at Baker Tilly, then worked for one of Big Four of sale and purchase agreement (when participatory companies and currently is a lawyer at one of the biggest interest or shares are sold at a price lower than value holdings in Azerbaijan. Nazrin has experience in M&As, of participatory interests or shares proportional to net corporate reorganization, debt restructuring, tax, securities, assets of the legal entity). labour, contract and migration law. • Provision of assets, as well as financial means (except Nazrin holds LL.M with honors in Law (Commercial Law) for provision/repayment of loan to the shareholder) which and LL.B with honors in International Law from Baku State was obtained during activity of the entity, to shareholder for purposes other than for entrepreneurial activity, as University. well as repayment of shareholder’s debts to the other 3. Tis is not applicable to the principal amount of debt repaid abroad (excluding interests) and cor- respondent accounts held by Azerbaijani banks.
26 Issue 33 member contribution
Public Private Partnership: Alternative Way of Attracting Private Sector to Infrastructure Projects in Azerbaijan
Seymur Niftaliyev • Public-private partnerships (P3s) are contractual Law Practice Manager, agreements formed between a public agency and a KPMG Azerbaijan private sector entity that allow for greater private sector participation in the delivery and financing of transportation projects.1 • A form of structured cooperation between public and private partners in the planning/construction and/or exploitation of infrastructural facilities in which they share or reallocate risks, costs, benefits, resources, and Introduction responsibilities.2 Where governments face constrained budgets and lack of • Contractual arrangements in which certain risks are infrastructure, they tend to turn to public private partnerships transferred from public agencies to private firms – (PPP), which can help with bringing necessary financing as a way to fund these [funding] deficits, accelerate and improved quality. Generally, PPPs are alternatives to competition, improve operating efficiencies, and reduce public procurement, where the former uses private sector’s operating costs.3 financing and the latter public funds. As per World Bank’s definition, “PPPs are a mechanism for As a result of financial crises, fall of oil prices or other events government to procure and implement public infrastructure and processes that result in decreasing budgets, some and/or services using the resources and expertise of the economies had sought other means to finance infrastructure private sector”.4 In simple words, under PPP private sector or other projects, in order to ease the burden on their budgets. enters into a long term contract with the public sector, where In Azerbaijan, this became more relevant after the fall in oil the former undertakes to fund, build, operate (depends on prices in 2014, which resulted in decreased foreign currency the model of PPP, see below) the project (e.g. school, road, return in Azerbaijan. bridge, dormitory etc.), receive revenues from the project for In this article, we will discuss notion of PPP in general, cover defined period of time and transfer (depends on the model of some history of PPP development, explain main models of PPP) the project to the public sector. PPPs and their benefits. In addition, this article will provide Use of PPP can be beneficial for the parties, in case it is well- information on current legal framework on PPPs in Azerbaijan, structured, analyzed and right model is selected. The main covering main gaps and advantages that current legislation benefits of using PPPs are the following: offers. (a) Improving service delivery due to the merger of both public and private sectors; What is PPP? (b) Value for money – public-private enterprises are Although, the term PPP found wide usage in 1990s in managed effectively; the United Kingdom, participation of private sector in (c) Improving cost-effectiveness – due to vast experience infrastructure development dates back to 18th century. For and flexibility, public-private partnership delivers public example, private participation in road development turnpike services more cost effectively; in Pennsylvania, US. However, the role of private sectors (d) Increased investment in public infrastructure – participation diminished over time and was generally limited hospitals, schools, highways, reduce government capital to involvement through public procurement. Nevertheless, cost, helping embrace the gap between the need for participation of the private sector came to spotlight in 1980s infrastructure and financial capacity; in the United States, where the Virginia state began to explore (e) A higher level of service through innovation; the possibility of private sector participation in highway (f) Reduces public sector risk – public private development. There are also other examples of early PPP partnerships shift the risk from public to private, which in project in the UK, which is considered one of the pioneers of most cases is better managed by the private sector; development of such partnerships. (g) Deliver capital projects faster – private investors Generally, there is no single definition of PPP that is widely accepted. Below are several definitions of PPPs proposed by 1. Alexandru Roman, NIGP, Te Institute for Public Procurement, 2015 2. Koppenjan, 2005 various scholars: 3. Page, Ankner, Jones & Fetterman, 2008 4. www.worldbank.org
27 member contribution
available, including Design-Build-Finance, Design-Build- Operate-Maintain, Build-Own-Operate and others. PPP in Azerbaijan PPP was introduced in Azerbaijan recently. In 2016, the Law on the Implementation of Special Financing for Investment Projects in Connection with Construction and Infrastructure Facilities (“the Law”) was adopted. The PPP legislation in Azerbaijan, generally, provides mechanisms for the potential financing of the BOT model, without referring to other models. Having said that, the PPP legislation also includes Rules “On the implementation of the infrastructure projects by investors under the build-operate-transfer model, requirements to the investor, terms and conditions of the contracts and determination of the cost of goods and services produced under the investments” approved by the Presidential Decree, are more flexible in nature and have greater access to later in 2016. These Rules envisage more specific regulatory financial resources from financial institution; framework and requirements for implementation of BOT (i) Make better use of assets – private sectors maximize model in Azerbaijan, including the following:5 fully the potential and returns in investments. 1. conditions for implementation of investment projects; Indeed, use of PPP can be beneficial for public sector, private 2. requirements to the investors based on the type of sector and consumer/public itself. However, the parties shall construction and infrastructure facilities; analyze the possible structures of PPP and choose the right 3. terms and conditions of agreements concluded with model to proceed with. investors; 4. rules for the determination of costs of goods and services Types of PPP models produced as a result of investments. Over the years, a number of PPP models were developed:
Build–Operate-Transfer (BOT) Under BOT model, the private partner builds, operates and transfers the project to the public sector. Hence, the private sector is responsible for construction of the project, maintaining of the project during the term of the contract, therefore mobilization of massive investment from the private partner is required, which is to be repaid from the revenues collected from consumers/users of the infrastructure object (project). In addition, private partner is responsible for transfer of assets to the public entity (body) at the end of the operation period.
Design–Build (DB) This model is a combination of two operations in one contract. Under DB model, the contract is awarded to private partner for design and construction of the project. Generally, under Definition of BOT under the Law The Law defines BOT as repayment of investment costs public procurement, design and construction are awarded (including income earned) under the investment projects to different companies. Thus, under this PPP model the regarding construction and infrastructure facilities to the public sector saves time and cost compared to traditional investor by means of purchasing goods or services by the procurement. consumer.6 Investor is responsible for the design, financing, construction (including current and capital repair, renovation Design–Build–Finance-Maintain-Operate (DBFMO) and restoration), as well as operation of the BOT project.7 The Under DBFMO, the private sector designs, builds, finances, Law also envisages non-exhaustive list of construction and operates an asset, then leases it back to the government. infrastructure facilities, which may qualify for BOT financing, Generally, it is a long-term lease for 20-30 years. Public sector including, but not limited to the following: long-term risk is reduced and the regular payments make it an • bridges; attractive option to the private sector. This option can be used for prisons, schools, necessary transport stations etc. 5. Article 4 of the Law Apart from above models, there are variety of PPP structures 6. Article 2.0.2 of the Law 7. Article 5.1 of the Law
28 Issue 33 member contribution
sector under the BOT agreement; • The Law “On Public Procurement” does not apply to PPP projects.
Main gaps Considering that the PPP itself is new to Azerbaijan and that the PPP legislative framework has been recently adopted, there are some gaps that shall be addressed in order to make PPP more popular and preferable tool for investors to be involved in infrastructure and other massive projects in Azerbaijan. The gaps include following: • The PPP legislation only recognizes BOT model. This is one of the main issues that limits private sectors participation in the project under other PPP models. The legislation shall provide broader freedom; • tunnels; • Ownership over the project during the construction and • dormitories; operational period is not defined. Therefore, is it not clear, • educational, health, cultural and tourism facilities; whether public or private sector shall have ownership • industrial parks; over the project; • highways; • The role of other bodies to present public sector is defined, • underground stations; apart from Ministry of Economy. Hence, this can lead • other projects8 to procedural and bureaucratic hindrances. In addition, The Law also limits the term of BOT agreement to 49 years, other state bodies that in fact orders infrastructure facility which shall be executed between the investor and public to be constructed on the private sector funds through sector (Ministry of Economy of the Republic of Azerbaijan is PPP model have little impact over supervision during the authorized body to execute BOT agreements, supervise contract implementation term, which can result in lower PPP projects etc.).9 After expiration of the period set forth quality of the project and services. in the agreement, construction and infrastructure facilities will be transferred to the management under the Ministry of Conclusion Economy, free from all debts and obligations of any kind and As seen from the above, PPPs can help governments to suitable for the intended use.10 In accordance with the Law, proceed with infrastructure and other important projects with the facilities may be purchased from the investors prior to shared responsibilities and at a minimum cost. This is also the expiration of the term for state needs, provided that all beneficial for the private sector, considering the guarantees their costs and expected revenues from the project will be from the public sector and shared responsibilities between indemnified.11 the parties. Under Azerbaijani PPP legislation, BOT private partner The fact that Azerbaijan has introduced BOT model is a selection process is a separate procedure and regulated starting point to involve private sector in participation of under the Rules. In addition, provisions of the Law of the important infrastructure projects as a stakeholder and only Republic of Azerbaijan “On State Procurement” are not as a contractor. This will be also helpful to decrease budget applicable to the BOT projects.12 spending on projects that can be covered by private sector, In order to look into the PPP framework more specifically, given guarantees are in place. However, in order to attract we have identified main advantageous provisions of the investors, we will need to improve PPP legislative framework, legislation and main gaps that should be addressed. namely, address existing gaps, provide mechanisms for other PPP models, apart from BOT and constantly inform the Main advantages private sector, whether local or international, on work being The main advantages of PPP legislation include the following: done in relation to improvement of PPP framework. • Public sector may provide additional guarantees to the Author’s biography investor (such as, covering the budgeted payments that Mr. Seymur Niftaliyev is a Manager within Law Practice at consumers should have paid during the operation of the KPMG Azerbaijan. He is currently involved in advising clients BOT facility); with legal assistance on corporate, M&A, banking, agricultural, • The private sector is exempt from payment of state FATCA/CRS, PPP, migration, contract and other areas. Seymur duties; was also involved in development of various internal policies for • The state provides guarantees for the liabilities of public leading companies, including conflict of interests, procurement
8. Article 3.1 of the Law and other policies. 9. Article 6.2 of the Law Mr. Niftaliyev holds LL.M. in International Commercial Law from 10. Article 8 of the Law 11. Article 9 of the Law City University London and Bachelor degree in International 12. Article 13.1 of the Law Public Law from Baku State University.
29 AmCham Azerbaijan About Us The American Chamber of Commerce in Azerbaijan is a private, non-profit business association supporting and promoting the interests of business in Azerbaijan.
Established in 1996, AmCham is composed of over 250 members and associates active in every sector of the Azerbaijani 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 corporations. This includes leading companies in Energy, Banking, ICT, Legislative/ Financial Consulting, Professional Ser vices, Education, Real Estate Development, 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. To apply Membership
Why join? To apply for affiliation with AmCham, There are two types of affiliation with a candidate must submit a written AmCham: Member and Associate. Key member benefit – application in the form adopted by Member status includes voting best networking opportunities in the Board of Directors. Membership privileges and eligibility for Board and Azerbaijan! applications are available at the committee chairmanships in addition AmCham office or on our website at to the privileges granted to Associates. As a member of AmCham, your www.amcham.az The application For affiliation as a Member, a candidate company has access to a vast network form should be completed and sent to must be a legal entity, registered and of business information and contacts in our office with the company registration doing business in Azerbaijan and be Azerbaijan and in the US government, certificate issued by the Ministry of in good standing in the community, as as well as valuable information on US Justice of Azerbaijan. determined by the Board of Directors. businesses across Europe through A candidate meeting the objective and A legal entity, branch or representative ECACC (European Council of American subjective requirements for affiliation office of a legal entity is eligible to Chambers of Commerce) and US with AmCham is accepted as either a be affiliated with AmCham as an Chamber of Commerce. Member or Associate upon receiving Associate, subject to the Board of an affirmative majority vote of the Directors’ determination of good Additional Member Benefits include: Board of Directors and paying the first standing in the community. year’s fee for the candidate’s category Associates are eligible to participate in • Annual Employee Salary Survey of affiliation. various activities; receive our regular • Quarterly Inflation Survey To maintain affiliation with AmCham, publications, including the Membership • AmCham Membership Directory Members and Associates must Directory, Annual National Employee • AmCham Resource Library continue to meet our eligibility Salary Survey and Quarterly Inflation requirements, be in good standing in Survey. Associates, however, are not For more detailed information please the community, and be current with all entitled to vote or serve on our Board visit our website www.amcham.az financial obligations to AmCham. of Directors.
30 Issue 33 AmCham Azerbaijan
Annual General Meeting (AGM) 2019
The election season approached AmCham Azerbaijan! Voting for the vacant seats at the Board of Directors took place at the Annual General Meeting (AGM) of the Chamber on February 22, 2019. We had a slate of 13 candidates running for 6 vacant positions on the Board (out of 10). Through the anonymous voting process, in which authorized representatives of AmCham Member Companies in good standing took part, the following Board members were elected for a 2-year term: 1. Bakhtiyar Akhundov – Vice President and Country Manager, Chevron Khazar Ltd 2. Rufat Hajialibayov – General Manager, SAP Company in Azerbaijan 3. Teymur Mahmudov – Deputy Head of Investments Division of SOCAR, Board Director of SOCAR- PETROFAC JV 4. Ilgar Mehti – Managing Partner, Ekvita 5. Nargiz Nasrullayeva-Muduroglu – Director of Business Operations, Landmark Business Center (re-elected) 2. Fariz Ismailzade – Vice Rector, ADA University 6. Ilgar Veliyev – Country Managing Partner, Ernst & Young 3. Nuran Kerimov – Managing Partner, Deloitte Azerbaijan in Azerbaijan (re-elected) 4. Movlan Pashayev – Managing Partner, PwC Azerbaijan
The current Board members who will remain on the Board for In addition, this year AmCham Azerbaijan AGM highlighted a second year are: the elections of the President of the Chamber. The currently 1. Teyba Gouliyeva – Head of Central Asia and Caucasus serving President, Mr. Nuran Kerimov, Managing Partner Region, Societe Generale Banking Group of Deloitte Azerbaijan, was re-elected the President of the Chamber for another 2-year term.
31 AmCham Azerbaijan
Business Events 2nd AmCham Conference on “Ethics and the role of consistent compliance with laws, regulations, professional standards and ethical business behavior for Compliance in Azerbaijan” strengthening the business environment in the country. The floor was passed then to Mr. Elnur Humbatov, Prosecutor of Anti-Corruption General Directorate under the Prosecutor General’s Office. He focused his address on implementation progress of anti-corruption measures undertaken by the government, the role of ASAN service for ensuring transparency, as well as general ethics and compliance related matters. The Conference highlighted two panel discussions. The first one was dedicated to the role of compliance function in strengthening corporate values beyond corruption, as well
The 2nd AmCham Conference on “Ethics and Compliance in Azerbaijan” organized by the American Chamber of Commerce in Azerbaijan (AmCham Azerbaijan) took place on January 30, 2019. The event was held with the support of BP as a Gold Sponsor as well as Equinor Azerbaijan as a Bronze Sponsor.
as issues related to beyond-conventional bribery (conflict of interest, workplace harassment, respecting business partners and so forth). The second panel discussion was focused on effective third-party risk management on compliance (including risk based assessment, conducting supplier due diligence and monitoring and assurance). Conducted in an interactive discussion form, the Conference was followed by an active Q&A session.
Delivering the opening speeches, Mrs. Natavan Mammadova, AmCham Executive Director, Mr. Nuran Kerimov, AmCham President, as well as Mr. Bakhtiyar Aslanbayli, Communications, External Affairs, Strategy & Region Vice President of BP AGT Region (concurrently as a Member of AmCham Board of Directors), emphasized the significance of raising awareness among the business community about
32 Issue 33 AmCham Azerbaijan
“Meet Your Candidate” Cocktail Reception 2019
On February 15, as a good annual tradition, AmCham “Meet Your Candidate” Cocktail Reception took place. It is an important time of the business year when AmCham 7. Viladi Maniyev – Chairman of the Board of Directors, community comes together to meet our candidates running AzInsurance OJSC for the vacant seats at AmCham Board of Directors. This 8. Ilgar Mehti – Managing Partner, Ekvita year, six (6) out of ten (10) Board positions are vacant. 9. Nargiz Nasrullayeva-Muduroglu – Director of Business The candidates running for the elections to AmCham Board Operations, Landmark Business Center of Directors delivered their platform speeches: 10. Savas Uzan – Board Member, Azersun Holding 1. Bakhtiyar Akhundov – Vice President and Country 11. Ilgar Veliyev – Country Managing Partner, Ernst & Young Manager, Chevron Khazar Ltd in Azerbaijan 2. Altug Bilgic – General Manager Russia & Central Asia, The elections themselves will take place at the Annual Weir Oil & Gas General Meeting to be held on Friday, February 22, 2019. 3. Adrian Cernautan – Caucasus Region Manager, The Coca-Cola Company 4. Rufat Hajialibayov – General Manager, SAP Company in Azerbaijan 5. Murat Karakas – Managing Partner, KPMG in Azerbaijan 6. Teymur Mahmudov – Deputy Head of Investments Division of SOCAR, Board Director of SOCAR- PETROFAC JV
33 AmCham Azerbaijan
Amcham Members’ Luncheon the profession of law” adopted by the President of the Republic of Azerbaijan dated February 22, 2018. He particularly stressed upon its importance for supporting the profession of law in Azerbaijan, as well as advance and transformation of the judicial system in the country as a whole. He referred to the best world practices demonstrating that strong bar associations play an important role for advocating the access of citizens to high-quality legal aid, effective protection of human rights and freedoms and improving the effectiveness of the national justice system. In this respect, Mr. Baghirov touched upon the adoption of other related Azerbaijani laws and regulations in this field. Speaking on the major directions of the Azerbaijani Bar Association’s activities, he mentioned recent signing of a Memorandum on the establishment of new law-enforcement agencies associated with the establishment of ASAN service centers. He also spoke on the close cooperation between the Association and bar associations in different countries and international organizations, and at the same time expansion of the Association’s activities throughout the country with the
January 25 On January 25, AmCham Azerbaijan organized its monthly members’ luncheon. Its Guest Speaker – Mr. Anar Baghirov, Chairman of the Bar Association of the Republic of Azerbaijan – delivered a speech on the priorities of the Bar Association’s activities and its importance for maintaining the honor of the profession of law, as well as the administration of justice in the country. In addition, the Luncheon featured several member presentations. Around 100 AmCham members and partners attended the event, including representatives of diplomatic corps. Mr. Baghirov started his speech with the overview of the Decree “On additional measures aimed at the development of
visits to various regions and providing pro bono legal aid to the population. Mr. Baghirov reiterated his confidence that the measures undertaken in the field of supporting the profession of law in Azerbaijan will continue at a steady pace. At the end of his speech, Mr. Baghirov expressed his gratitude for the opportunity to have a face-to-face dialogue with the business community. He specifically thanked Mr. Nuran Kerimov and Mrs. Natavan Mammadova – President and Executive Director of AmCham – for invitation and hosting the event.
34 Issue 33 AmCham Azerbaijan
December 20 importance of looking into best practices when implementing On December 20, with the generous support of TuranBank, the strategic agenda on development and sustainability of AmCham Azerbaijan organized its monthly members’ SMEs in Azerbaijan, Mr. Mammadov called upon an effective luncheon. The Guest Speaker – Mr. Orkhan Mammadov, dialogue between the Agency and AmCham business Chairman of the Management Board to the Small and Medium community. Business Development Agency of the Republic of Azerbaijan On its part, Mrs. Konul Pasha, Head of Woman Banking – delivered a speech on the Government’s policy towards at TuranBank, delivered a presentation on the bank’s ensuring sustainable economic growth, the role of small and corporate profile, as well as ongoing and upcoming projects. medium-sized businesses in Azerbaijan’s economic future, In addition, Mr. Nuran Kerimov, President of AmCham as well as the priority areas of the Agency’s activities aimed Azerbaijan, presented the 2018 edition of AmCham White at supporting the SME entrepreneurship in the country. Paper – the key policy document of the Chamber. In doing Mr. Mammadov noted that, established at the initiative of the so, he acknowledged with special awards those members of President, H.E. Ilham Aliyev, the Agency has inaugurated AmCham community who has made the most outstanding a new stage in development of small and medium-sized contribution to its preparation process. businesses in Azerbaijan. He pointed out that the Agency’s mission covers the protection of the interests of micro, small and medium-sized entrepreneurs, coordinating the services provided to entrepreneurs and ensuring that they are delivered in a professional and efficient manner. Touching upon the
35 AmCham Azerbaijan
Committee Highlights Tax & Customs Committee Meeting In addition, Mr. Matin Asgar, AmCham Legal & Compliance Committee Deputy Chair, delivered a presentation covering On January 29, AmCham Tax & Customs Committee hosted issues about legislative and institutional reforms supporting its first meeting for 2019. At the meeting members had an small and medium businesses, as well as recent amendments to Tax Code bringing tax incentives to new SME categories in Azerbaijan. Health Care & Medical Insurance Committee Meeting
opportunity to discuss the criteria for determination of activities in oil and gas sector and public sector for personal income tax and social contribution purposes, as well as to debate on the expected issues and problems which companies can face.
Legal & Compliance Committee Meeting On January 16, AmCham HMI Committee hosted its first On January 8, AmCham Legal & Compliance Committee meeting for 2019. The HMI Committee Chair, Ms. Lala hosted its first regular meeting for 2019. This time meeting Bilandarli opened the meeting by welcoming the Committee featured an interactive discussion run by its guest speaker, members. Ms. Patricia H. Lee, Professor of Law at Saint Louis University. Then Ms. Bilandarli passed the floor to Ms. Nargiz Kazimova, Prof. Lee kindly shared her insight on Saint Louis-based and Lawyer from Dentons. She informed about protection all over-U.S. entrepreneurship laws and strategies, IP, access of personal data in Azerbaijan, as well as legislation, to capital and crowdfunding, experience on supporting SMEs transboundary transmissions preservation and destruction of and the role of entrepreneurship programs and strategies in personal data, etc. Also, explained key points of the general this regard. legislation and Constitution of the Republic of Azerbaijan (Article 32: Right to Private Immunity), as well as updated the meeting participants on responsibility for breach of the personal information law. Joint ICT & BFI Committees’ Meeting On December 19, AmCham ICT & BFI Committees hosted a joint meeting. Ms. Kamilla Shahbazov, Chairperson of the Committee, opened the meeting by welcoming participants and announced the agenda. She invited the meeting’s guest speaker, Mr. Valery Tsepkalo, Founder of Belarus Hi-Tech Park, to deliver a presentation. He talked about Belarus Hi-Tech Park which was established in 2005 with an ambitious goal to increase exports to $300 million in 10 years. As a result, according to researches and
36 Issue 33 AmCham Azerbaijan
Center talked about “Developing of E-tendering Platform for Public Procurement”. Afterwards, Mr. Pavel Borodai, CEO, Procuriosity (Ukraine) made brief introduction “Digital Transformation of Public Procurement” and informed about challenges in implementation/ using of E-Platform solution for both type of Procurement (Public and Private). Later, Mr. Alexandr Golovko, SME Banking Director, PASHA Bank was invited to present “Supply Chain Finance” and explained cash conversion cycle concept, SCF solution, “Win-Win” for Buyers and Suppliers and etc.
On December 17, the very first meeting of AmCham Procurement Working Group was held. AmCham Procurement Working Group led by Mr. Kanan Tabasaransky, Founder of the Smart Solutions Group, was established to develop a set many experts, HTP headed by Valery Tsepkalo managed to propel Belarus’ IT industry to the level of world’s leaders. EPAM, IBA, Exadel, Itransition, and other Belarusian companies are now among the world’s leading IT services providers, while products developed in Belarus, such as Viber, World of Tanks, and MSQRD changed the country’s image on the global market rapidly and enabled HTP to prove its status as one of the largest IT clusters in Central and Eastern Europe. His discussion was dedicated to how to develop start-ups, how to find investments, how to become successful & how cryptocurrency, ICOs and underlying blockchain platform can leverage your horizon and create new business opportunities. Procurement Working Group meetings On February 25, AmCham Procurement Working Group meeting was held. Mr. Kanan Tabasaransky, Founder of the Smart Solutions Group, opened the meeting to thank all participants, guests and highlighted main points of the role/mission of Procurement Working Group. Then, Mr. Mirdamat Karimov, Deputy Head of sustainable procurement, supply chain and development of Public Procurement Department, State Service for State goals among the Member Companies and to deliver right Antimonopoly Policy and Consumer Rights Protection understanding of procurement and supply chain processes, as delivered a speech on “Overview on the newly updated Public well as to provide new vision of transparency in procurement Procurement Law”. and supply chain. After this, Mr. Fariz Jafarov, Director, E-Gov Development Mrs. Natavan Mammadova, Executive Director of AmCham Azerbaijan, opened the meeting to thank all participants, guests and passed the floor to Mr. Kanan Tabasaransky, who highlighted the purpose of the meeting and opened discussions. Panel speakers Mr. Goshgar Hasanov, CPO, Azerconnect, Mr. Tural Vazirov, CPO, PMD Projects, Ms. Parvana Piriyeva, Acting CPO, Azercell and Ms. Sabina Irzayeva, Head of Procurement, SOCAR Midstream shared market development, transparency in construction procurement, 10 practices in procurement operation to be the “best in class” organization, TCO implementation method, etc. The attendees highly praised the importance of the meeting in discussion of main challenges, problems and gaps in this sector. It was noted that this meeting can be a good platform to share and discuss problems between companies.
37 AmCham Azerbaijan
Human Resources Committee Meetings Banking, Finance & Insurance On February 14, AmCham HR Committee’s hosted its 1st meeting in 2019. The HR Committee Chair Ms. Elnara Committee Meeting On November 28, 2018 AmCham BFI Committee meeting Mammadova introduced HR Committee program and plans took place. AmCham BFI Committee Deputy Chairman, Mr. for the 2019. Then, Ms. Chimnaz Gasimova, Head of People Advisory Services, EY Azerbaijan delivered a presentation on the “Growing employee expectations and engagement”. She made brief introduction about EY Azerbaijan and informed about key trends impacting the people, future jobs that demand a completely new skill set, etc. After this, Ms. Shole Ekberova, HR & Admin Director, International Bank of Azerbaijan made a presentation on “Employee retention tools”. She talked about 5 reasons why employees leave the company, factors that make employees happy at work, etc.
Teymur Akhundov opened the meeting and welcomed the participants. He introduced the Meeting guest speaker – Mr. Elkin Nurmammadov, Dean of the School of Business at ADA University. Mr. Nurmammadov thanked AmCham, as well as Mr. Akhundov for the invitation and delivered a presentation on “Global economic trends and their impact on financial markets”. He outlined four major issues that have to be On December 14, AmCham HR Committee hosted its last clarified: how is the global economy doing now; what are meeting for 2018. The HR Committee Chair, Mrs. Elnara recent developments in major economic centers of the world; Mammadova, opened the meeting and outlined the context what major risks to global economic outlook are; what are the of Agenda. She thanked all members who were actively policy priorities to move the global economy forward. He also participating in HR focus group. highlighted 4 engines of global economy and gave possible Then, she invited Mrs. Asiya Hagverdiyeva, Head of explanations. Mr. Nurmammadov also talked about changes HR Department, Bank VTB (Azerbaijan), to deliver a in oil prices and how Azerbaijan could be affected. presentation on the “HRs role is budget setting”. She made Further, AmCham BFI Committee Deputy Chairman Mr. a brief introduction about VTB Group and informed about Teymur Akhundov raised a number of issues for discussion the structure of HR department, budgeting process, cycle, and participants asked their questions on this topic. preparation, approval, evaluation, etc. After this, Mrs. Mammadova invited Mrs. Ayten Babayeva, Chartered MCIPD, and HR Professional, to make a FMCG Working Group Meeting presentation on “Global Mobility”. She talked about why global On January 29, AmCham FMCG Working Group hosted its mobility important and shared common challenges and risks. meeting for the members. They discussed key points of 2018 Later, Mrs. Mammadova passed the floor to Mr. Ruslan and issues for 2019. Topics as tax reforms updates track & Agayev and Mrs. Sabina Zeynalova to present the latest trace, policy updates, competition law, recycling regulation – updates on “AmCham National Employee Salary Survey”. extended producer responsibility, etc. would be highlighted Mr. Aghayev briefed information about the improvements and during the upcoming meetings. Members had a chance to explained stages of survey, statistics, and job family model. share their opinion, ideas and get information on expected He also mentioned that due to high interest, the survey will be changes in legislation and its impact on relevant private provided in a pdf format in a short time. sector players and end consumers.
38 Issue 33 AmCham Azerbaijan
AmCham Legal Update
TAX, CUSTOMS, ACCOUNTING AND FINANCE • The rule on carrying forward of VAT amount required “Rules of conducting accounting in accordance with from the budget to the following 3 months have been International Standards for Public Sector Accounting” abolished and the claimed tax amounts considered to have been approved be paid no later than 4 months from the date of filing According to the decision of the Collegium of the Ministry e-application; of Finance of the Republic of Azerbaijan dated December • Instruction on separate accounting of employees involved 25, 2018 “Rules of conducting accounting in accordance in oil and gas and non-oil and gas sector, where different with International Standards for Public Sector Accounting” tax rates are applied, has been removed from the new have been approved. The Rules regulate the accounting, wording. The criteria for oil and gas sector and non- organization and preparation of financial statements by the government sector shall be determined by the Cabinet following institutional structures: of Ministers; • Budgetary organizations; • If taxpayers providing financial lease services submit • Municipalities; information on financial lease agreement concluded with • Other non-profit organizations that prepare annual individuals until 01 January 2019 to the their registered financial statements based on International Public Sector tax authority, Article 140.1 of the Tax Code valid till 01 Accounting Standards; January 2019 shall be applied to the transaction under • Public legal entities. such agreements; • Taxpayers who are engaged in trade activities and Approval of the Amendments to the Tax Code exercise the right to pay 6% simplified tax until 01 January Amendments to the Tax Code on the implementation of Law 2019, shall submit information to the tax authorities with No. 1356-VQD dated 30 November 2018 (“the Law”) have regard to the goods in their possession within 15 (fifteen) been approved by the Decree of the President of the Republic days from that date. In case submitting information with of Azerbaijan dated 20 December 2018. regard to the goods in the possession of the taxpayers The most notable changes are the following: VAT amount shall be charged against the difference • The maximum headcount specified for the persons between the purchase and sale price of the goods until engaged in production activity and eligible to pay 01 April 2019. simplified tax was determined 10 persons instead of 5; • Newly-added financial sanctions come into force on 01
39 AmCham Azerbaijan
January 2020, with respect to agricultural producers. Decree on “Further simplification of access to utility Other provisions of the Law became effective from 01 services for micro, small and medium enterprises” was January 2019. signed The President of the Republic of Azerbaijan on 25.12.2018 Approval of the criteria for the indication of micro, small, has signed Decree “On further simplification of access to medium and large entrepreneurship subjects utility services for micro, small and medium entrepreneurship According to the amendments to the Tax Code approved subjects”. The main purpose of the decree is to improve by the Law No. 1356-VQD dated 30 November 2018 micro the procedures for joining electric power and gas supply and small entrepreneurship subjects will be able to benefit networks, water supply and wastewater disposal systems from a number of exemptions and incentives. The Cabinet in the Republic of Azerbaijan, optimize the required time, of Ministers approved the “Criteria for the indication of financial costs and to provide entrepreneurs with high micro, small, medium and large entrepreneurship subjects” quality, comfort and satisfactory services. The Article 1.1.1 by Decision No 556 dated 21 December 2018. According to of the Decree states that applications for the preparation and this decision, entrepreneurship subjects are divided into 4 issuance of technical specifications and layout documents categories by the number of employees and annual income. related to the connection of entrepreneurs to the gas supply The mentioned criteria and their quantification are indicated in networks, water supply and wastewater discharges, as well the table № 1. If the business entity falls under one category as the receipt of applications for the physical construction according to the number of employees, and another category will be provided in small and medium business houses and by annual income, the business entity is defined as a micro, “ASAN Utility” (ASAN Service Centers in the regions where small, medium or large entrepreneur/enterprise according to ASAN Utility centers are not established). the criterion with highest indicator. The Customs Code of the Republic of Azerbaijan has According to the provisions of the Tax Code effective from 01 been amended January 2019, the following tax incentives will be applied to According to the amendment, Article 113.1 indicates that, the micro entrepreneurs/enterprises: except for the cases when goods are not intended for • Exemption from income tax of 75 percent of individual commercial purposes, an electronic version of short import entrepreneur’s income. declaration shall be issued to the customs authorities before • Exemption from corporate income tax of 75 percent of the goods are delivered to the customs territory. Failure profit derived from the entrepreneurial activities of the to submit electronic version of a short import declaration legal entities; will cause the declarant’s administrative responsibility, but • Micro business entrepreneurs/enterprises are eligible will not hinder customs clearance and release of goods. In to calculate the tax deductible depreciation charges by connection with this, the Code of Administrative Offences applying “2” coefficient to the depreciation rates set out was added to Article 485.2 according to the Law of 1432-VQD in the Tax Code. dated 28.12.2018 of the National Assembly of Azerbaijan • Exemption from payment of property tax Republic is shown below: “485.2. In the cases specified by the Customs Code of the Republic of Azerbaijan, not filing Entrepreneurship Number of Annual income of the electronic version of a short import declaration before subjects categories employees (persons) (AI) bringing the goods to the customs territory - in the amount of per size one thousand manat for officials, and in the amount of one AI 200 000 (up thousand five hundred manats for legal entities will be fined”. Micro entrepreneur/ 1-10 to two hundred enterprise thousand AZN) Amendments related to short import declaration On 28 December 2018, the Law “On Amendments to the Customs Code” (hereinafter in this section - the 200 000 (from Small entrepreneur/ 11-50 two hundred “Amendments”) was published. enterprise thousand AZN) According to the Amendments, an importer is required to electronically submit a short import declaration to the customs authorities prior to arrival of goods to the customs territory. This requirement does not apply to imports of goods that are Medium 3 000 000 (from not intended for commercial purposes. entrepreneur/ 51-250 three millon enterprise AZN) Short import declaration had to be submitted only in the following cases: • placement of goods under a special customs procedure 30 000 000 of temporary storage; Large entrepreneur/ (from thirty 251 and above • electronically filing information about the goods and enterprise million AZN and means of transportation to the customs authority prior to above) AI arrival to the customs territory to be able to utilize green,
40 Issue 33 AmCham Azerbaijan
blue, yellow and red corridor clearance systems. tax inspections, financial market inspections, customs audit, Under the Amendments, failure to submit a short import compliance with the quality of the medicines, safety rules and declaration will trigger administrative liability, but will not control over food safety by the relevant executive authority prevent customs clearance or release of goods. as well as control over compliance with the requirements of Further to the above mentioned Amendments, on 28 the Law of the Republic of Azerbaijan “On the prevention of December 2018, the Law “On Amendments to the Code of the legalization of criminally obtained funds or other property Administrative Offences” was published. and the financing of terrorism” and the control over the life According to the said Amendments, failure to submit a short and health of people and other cases which pose danger to import declaration in an electronic form prior to bringing the security and economic interests of the state those listed by goods to the customs territory is subject to an administrative the Executive Authorities. fine in the amount of AZN 1,000 for officials, and in the amount of AZN 1,500 for legal entities. Amendments have been made to the “Excise rates of Both Amendments related to short import declaration entered excise taxable goods imported to the territory of the into force on 1 February 2019. Republic of Azerbaijan” According to the Decision of the Cabinet of Ministers of the Rules on Green Corridor Republic of Azerbaijan dated January 10, 2019, amendments On 21 December 2018, the Decree of the President of have been made to the “excise rates of excise taxable goods the Republic of Azerbaijan “On approval of the Rules on imported to the territory of the Republic of Azerbaijan”, obtainment, suspension, annulment and restoration of rights approved by Decree 20 of the Cabinet of Ministers of the of foreign trade participants on permanent use of the “Green Republic of Azerbaijan dated 19 January 2001. Main changes Corridor” Release System (hereinafter in this section - the and additions on excise rates are shown below: “Rules”) was signed. The Rules are mainly intended to create more favorable According with the Tax Code Excise conditions for foreign trade participants who comply with the of Republic of Goods names rates legislation and establish a culture of voluntary compliance. Azerbaija,codes The Rules prescribe eligibility requirements for permanent of excise goods use of the “Green Corridor” Release System (the “System”). non-alcoholic energy drinks 2202 To obtain the right of permanent use of the System for import containing sugar additives 3.0 manat 10 000 and export operations, low risk group individual entrepreneurs or other sweetening or per 1 liter 9 and legal entities should meet the below requirements: tastearomatic substances • have import experience within the previous year; fruit and vegetable juice 2202 • be capable of using electronic services provided by the based non-alcoholic energy 99 190 3.0 manat drinksfruit and vegetable customs authority or have a contract with the authorized 2 per 1 liter person ensuring use of those services; juice based nonalcoholic • using means of transport that meet international energy drinks standards; • use warehouses that meet requirements set by the 2208 alcoholic energy drinks with 2.0 manat 90 690 a capacity of less than 2 Cabinet of Ministers; per 1 liter • have no criminal (smuggling) record, absence of 1 liters instances of failure to pay customs fees and release or removal of conviction. 2208 alcoholic energy drinks with 2,0 manat The Rules also set forth certain privileges for permanent 90 780 a capacity of more than 2 for 1 liter users of the System. As such, provided that the prescribed 1 liters conditions are met, the permanent users will be allowed to follow import / export procedures with minimum formalities. 2402 containing tobacco, including 1.0 manat 10 000 The Rules also describe the procedure of suspension, cigars cut the ends per 1 piece annulment and restoration of the right of permanent use. 2 The Rules entered into force on 1 February 2019. 2402 20,0 manat 10 000 cigars containing tobacco for 1,000 The Law has been approved on amendments to the 9 pieces Law of the Republic of Azerbaijan “On suspension of 28,0 manat inspections of entrepreneurial activities” 2402 cigarettes containing tobacco for 1,000 The addendum dated February 12, 2019, points out that the 20 pieces “audits conducted in the field financial markets” was added to the list of possible inspections referred to in Article 2.1 of 2402 cigars containing tobacco 1.0 manat 90 000 the Law. The current Law stipulates implementation of the substitutes per 1 piece following inspections according to the list of executive power: 2
41
AmCham Azerbaijan
payments under the same rule as life endowment. 2402 20,0 manat cigarillos of tobacco Based on the Decree on application of the Amendments, the 90 000 for 1,000 substitutes Cabinet of Ministers is assigned to determine criteria of oil and 3 pieces gas activities and non-public sector based on consultations with the Ministry of Taxes and Ministry of Labor and Social 2402 28,0 manat cigarettes containing tobacco Protection of Population within 3 months. 90 000 for 1000 substitutes 9 pieces The Amendments will enter into force on 1 January 2019, except for provision envisaging state social insurance contribution rate for individual entrepreneurs which will enter 2403 20,0 into force on 1 January 2020. 99 900 liquid for electronic cigarettes manats for 1 1 liter Amendments to the Law “On Unemployment Insurance” Respective provisions of the Tax Code will apply not only LABOUR to matters related to state social insurance but also to Amendments to the Law “On state social insurance” unemployment insurance. On 21 December the President On 21 December the President approved the amendments approved corresponding amendments to the Law “On to the Law “On State Social Insurance” (the “Amendments”). unemployment insurance”. The Law went into effect on 1 January 2019. The Ministry of Taxes will be authorized to administer calculation and payment of unemployment insurance First of all, the Amendments envisage application of the contributions. Tax Code to state social insurance. To be more precise, the Amendments to the Law “On unemployment insurance” following matters will be governed by the rules stipulated in entered into force on 1 January 2019. the Tax Code: • Supervision over calculation and payment of state social MISCELLANEOUS insurance contributions; Amendments to the Laws “On Regulation of inspections • Late submission of state social insurance reports; in the area of entrepreneurship and protection of interests • Financial sanctions for understatement of social of entrepreneurs” and “On suspension of inspections in insurance contributions and evasion from payment of the area of entrepreneurship” have been adopted state social insurance contributions; In accordance with the Amendments to the Laws of the • Collection of social security insurance debts; - Calculation Republic of Azerbaijan “On Regulation of inspections in of interest for late payment of state social insurance the area of entrepreneurship and protection of interests of contributions; entrepreneurs” and “On suspension of inspections in the • Refund of overpaid state social insurance contributions. area of entrepreneurship” adopted on 12 February 2019, The Article envisaging application of financial sanctions for inspections in the area of financial markets have been added violation of state social insurance rules has been excluded to the list of inspections which are not suspended and can be from the Law “On state social insurance”. As such, the carried out by appropriate state authorities. Ministry of Taxes will be Legislative alert | December 2018 In accordance with the changes made to the above mentioned 3 authorized to administer calculation and payment of state Laws on 28 December 2018, customs inspections have also social insurance contributions. been added to the list of inspections which are not suspended Apart from the abovementioned, the Amendments also revise and can be carried out by appropriate state authorities. provisions governing registration of participants of state social insurance and state social insurance contributions rates. Law “On State Registration and State Registry of Legal As such, new state social insurance rates discussed in Entities” has been amended previous issue of our Business Brief have been approved in Amendments to the Law “On State Registration and State respect of employees. Meanwhile, state social insurance rate Register of Legal Entities” In December the Law “On State for individual entrepreneurs not engaged in construction and Registration and State Registry of Legal Entities” (the “Law”) trade will be 25% of minimum living wage (previously 20%). was amended. The most notable amendments to the Law With regard to payments that are disregarded while calculating concern the stage of application filing and its submission the amount of state social insurance contribution the following for legal entity’s state registration: - It is envisaged that an is envisaged: application for registration legal entity is now required to be • Only up to 50% of life endowment insurance is exempted signed not only by founder(s), as it was previously, but also from state social insurance; by legal representative (i.e. director) of a legal entity to be • Payments made in connection with liquidation of registered. However, signing applications by a person duly enterprise and payments made to third parties in authorized by founders or legal representative is still possible; connection with provision of meals to employees are now - Commercial and public legal entities are no longer required exempted; to present evidence of their legal address to the Ministry of • Pension insurance is added to the list of exempted Taxes. However, legal address itself is required to be indicated
43 AmCham Azerbaijan
on the application for registration of a legal entity. Apart from cases where the electronic information system is applied the above, new provisions concerning electronic registration (particularly, submission and receiving of notice of claim, of limited liability companies have been also introduced. complaint letter or other documents, delivery of court documents to the court and participants) shall be carried Approval of the criteria for oil and gas and government out through the electronic court information system; sector • “Minor disputes” defined as civil cases with value of less The Cabinet of Ministers approved the criteria on oil and gas than AZN 2,000 and commercial disputes with value activities, and nongovernment sector by decision No 56 dated of less than AZN 10,000 might be subject to simplified 18 February 2019. Pursuant to the last amendments to the Tax court proceedings wherein court decision can be issued Code and the Law on State Social Insurance of the Republic without court hearing within 30 days from submission of of Azerbaijan, the monthly income of the employees involved claim; in non-oil and gas and non-government sector will be subject • Certain timeframes with regard to court process are to the beneficial taxation for 7 years period beginning from 1 introduced. As such, as a general rule, preliminary January 2019. The employee employed by the enterprises hearing should be appointed not later 15 (fifteen) days involved in the oil and gas activities and government sector after submission of notice of claim and court hearing not will not be able to benefit from the mentioned incentives. The later than 30 (thirty) days after preliminary hearing. Cabinet Ministers’ decision provides the following criteria for classification: Amendments to the Law “On state procurement” 1. Oil and gas companies: On 30 December 2018, the Law “On amendments to the 1.1. The State Oil Company of Azerbaijan Republic and the Law on state procurement” (hereinafter in this section - the enterprises being part of SOCAR’s structure; “Amendments”) was published. According to the amendments 1.2. Contractor parties and operating companies under Following provisions established by the Amendments: Production Sharing Agreements, host government agreement with respect to main pipelines and other similar agreements; Unified State Procurement Internet Portal 1.3. Foreign and local subcontractors providing services to The Amendments introduce Unified State Procurement the entities listed in paragraphs 1.1 and 1.2, if the proportion Internet Portal (the “Portal”), which is an internet-resource of their gross revenue generated from supply of goods, containing the following: services and works to those entities is more than 50% of the • procurement announcements and their results; total revenue of the previous year. • registry of procurement agreements and unreliable 1.4. Subcontractors to be established (newly registered vendors; entities) during the current year may implement reduced • legislation on state procurement. tax rates for employment income from the beginning of the The Portal will facilitate electronic implementation of year up to the month, in which the proportion of their year- procurement procedures. to-date revenue from the contracts with the entities listed in paragraphs 1.1 and 1.2 is more than 50%. Starting from the Electronic procurement first date of next month, they lose right to use reduced tax Another newly introduced concept is electronic procurement. rates (notwithstanding the proportion of the revenue in the It is a procedure, followed by the procuring entities, which upcoming month) until the end of calendar year. Starting from enables automatic evaluation of proposals submitted by the next year, these entities became existing subcontractors contractors through the Portal. and should follow the provisions of paragraph 1.3. The Amendments also establish provisions on registration 2. Government sector companies: of participants of electronic purchasing, terms of electronic 2.1. public legal entities established on behalf of the procurement and other relevant requirements. government; 2.2. budgetary organizations; Participation of micro, small and medium entrepreneurial 2.3. other entities and organizations financed by the state businesses in state procurement budgets; Purchases of goods (works or services) with estimated 2.4. legal entities, 51 percent and more shares/participating acquisition price equal to or less than the equivalent of USD interest of which is directly or indirectly owned by the 3.0 million will now be undertaken electronically via open government. tender method only with the participation of micro, small and The decree is effective as of January 1, 2019. medium entrepreneurial businesses. The Amendments also envisage certain cases when meeting the said requirements Amendments to the Civil Procedural Code is impossible. The Law on Amendments to the Civil Procedural Code (hereinafter in this section - the “Amendments”) was published State procurement planning on 30 December 2018. The most notable changes are the The Amendments introduce the notion of procurement following: plan and several provisions that govern state procurement • Court proceedings on (i) commercial disputes and (ii) civil planning.
44 Issue 33 AmCham Azerbaijan
Under the Amendments, procurement plan is defined as a Amendments to the Criminal Code plan prepared by procuring entity that: (i) contains information On 6 December the amendments to the Criminal Code were on the goods (works or services) to be purchased by procuring published. In order to be released from criminal liability for entity within the budget year (such as composition, volume, engaging employees without valid employment agreement an quantity and size), (ii) reflects the sequence and breakdown employer is also required to pay outstanding unemployment of purchases within the calendar year, and (iii) is uploaded insurance contributions in addition to other requirements for into the Portal. release from criminal liability. Procuring entity is required to approve and upload into the Portal its procurement plan. Amendments to corporate legislation Under the Amendments, procuring entity can make Recently a number of amendments were made to the Civil adjustments to the procurement plan not more than once a Code. The most notable amendments applicable to legal month. entities are following: The above-mentioned planning requirements do not apply to • Liability of authorized persons of a legal entity procurements for national defense and security needs. • From now on shareholders (participants) of a legal entity Notwithstanding the above, if there is an urgent need to having at least 10% of shares (participation interests) purchase goods (works or services) not included in the are entitled to request information/documents related to procurement plan, the procuring entity should obtain approval specific cases envisaging liability of authorized persons of the State Agency for Antimonopoly and Control of the of a legal entity. As background information, previously Consumer Market of the Republic of Azerbaijan to undertake this threshold was set at 5%. procurement of said goods. • Significant transactions of Limited Liability Companies The Amendments establish the concept of “significant Estimated price transaction” for Limited Liability Companies (the “LLC”). Under Procuring entity should calculate and approve the estimated the Amendments, “significant transaction” is a transaction of price of goods (works or services) prior to commencement of more than 50% of the net assets of an LLC. The decision to procurement procedures. execute this kind of transaction is an exclusive competence of Purchasing procedures cannot be commenced without the the General Meeting of Participants (the “General Meeting”). internal approval of the estimated price, except if single • Requirements for quorum at the General Meeting of source procurement method is applied. Participants of an LLC The methods of calculation of the estimated price of goods Under the Amendments, the General Meeting is competent (works or services) are yet to be approved by the Cabinet of if participants holding cumulatively more than 50% of Ministers. participation interests are present at the General Meeting. If the fee quotation of a proposal is higher than the estimated Special rules for convening the General Meeting for cases price of the goods (works or services), procuring entity should when quorum is not met are also envisaged. Previously no remove that proposal from procurement procedures. general requirements for quorum were set by the Civil Code If a procuring entity determines that a contractor offers 20 and this issue was governed by the Charter of an LLC. percent or less of the estimated price for the procurement • Requirements for purchase of participation interests of contract, it may reject the offer if the ability of the contractor to an LLC execute the contract seems suspicious. The person intending to purchase 50 or more percent of shares in an LLC is required to officially provide all participants of an LLC with a respective offer. New to AmCham Regular Associates
45 AmCham Azerbaijan
Members’ News and Events P&G Europe President visits Baku and Confirms the Growth Potential of Azerbaijan and Central Asian Republics
better understand and serve consumers in Azerbaijan. I also visited P&G’s Baku office and reviewed the promising business results. Additionally, I had the opportunity to visit several stores, and to connect with our retail partners. I was proud to see our everyday global brands, such as Pampers, Always, Ariel, Fairy, Pantene touching and improving the lives of consumers in Azerbaijan.
One of the goals of your meetings is supposed to study the investment opportunities in Azerbaijan. Did you make any review? As far as I know, Azerbaijan is a republic with great traditions of statehood. Let me congratulate the Azerbaijan Government and people of Azerbaijan to the 100th anniversary of the Azerbaijan Democratic Republic on behalf of P&G. Azerbaijan takes continuous steps forward to become a regional hub for business, growth, and investment. As P&G Azerbaijan, we fully support Azerbaijan’s principal development concept of ‘Azerbaijan 2020: A look into the Future’ strategy; positioning Azerbaijan to become a developed and economically competitive country by 2020. This vision shows its positive impacts on the business environment. We appreciate the recent progress Azerbaijan has shown in the last few years and its progress in World Doing Business Index 2019. Since Procter & Gamble continues to celebrate its 20th year in 2018, it moved from 57th to 25th. This is a great progress. Azerbaijan with its Europe Management Board visiting Recent reforms make Baku and Azerbaijan an even more P&G Baku office. Loic Tassel, P&G Europe President, interesting place to do business. As P&G, within the light of visited Azerbaijan for the first time to meet with consumers, these advancements, we are looking forward to enjoying an government officials, distributors and several business even more sustainable business environment in Azerbaijan. leaders to understand the Azerbaijani business environment and opportunities. Mr. Loic Tassel also gave the interview to Compared to wider Europe, what do you think about our magazine to answer a number of questions, in particular consumers in Azerbaijan compared to other European with regard to the accessibility in Azerbaijan. countries? Azerbaijan has a very young and connected population. Mr. Tassel, you have met with the President of the You can see that this is a country that has an appetite for Republic of Azerbaijan in Davos in January, this year. development that is rapidly modernizing its trade and One month later the meeting, the visit of such a large business environment. The society is interested in branded delegation – the President of Procter & Gamble Europe consumer goods, good quality, and innovation. We are here and Board members seems very interesting. What does to serve these needs, and we want to learn more about what the trip promise? the consumers of Azerbaijan like and want, so to further This is my first trip to Baku as President of P&G Europe and I improve our offerings in the future. am very excited and happy to be here. I very much appreciate the warm welcome by the people of Azerbaijan, and Baku Can you please tell us about P&G operations in Baku? seems to be a very nice city. I hope I will be able to spare a bit How important is Azerbaijan for your business? of time to see a bit more of it. P&G entered the consumer products market of Azerbaijan in During the last two days, I met with several leaders including 1998 and is currently one of the leaders of the FMCG sector the CEOs of several multinational companies and government with 15 brands in portfolio, serving the women and men of officials. We had a very good exchange of ideas on how to Azerbaijan and will keep doing so. Today, over 5,000,000
46 Issue 33 AmCham Azerbaijan
What do you think about your employees and young talents in Azerbaijan? We also pride ourselves in recruiting the best talent, investing in and developing them and seeing them grow into leaders in their markets and around the world. We create 700 direct and indirect jobs in the country, including our office, distributor office, and warehouse. In addition, we have been a proud sponsor of Azerbaijan Business Case Competition (ABCC) for 5 years and keep investing in the future of Azerbaijan’s young talents.
You have one of the biggest TV media budgets. How do you use it for good? Being the largest TV media investor of the country, P&G contributes to the development of media reaching everybody. At the same time, P&G turns its consumers into partners of the regional projects and innovations that it brings to the market. We try to bring citizenship projects and impact of non-profit organizations to the media as well and make sure that their voices are heard. For example, in May-June, we communicated about our donation campaign with SOS Children’s Village and let people know that they can support more than 200 children. “Always” became a partner of Woman Empowerment Platform and spread their news, so that the community could see their impact. “H&S” became the partner of Association of Football Federations of Azerbaijan and we made a TVC with Women’s National Football Team bringing the message of strong women to the society.
Is there a special place you liked in Baku? Unfortunately, we did not have a chance to sightsee the city because of a very busy schedule. However, I am happy that I could see the old Baku - Icherisheher. As a manager of a company that always strives for innovation, I have to highlight people in Azerbaijan use at least one Procter & Gamble brand modern buildings. I know that Azerbaijan has a wonderful at home. nature, and the people of the region are very friendly and P&G has an office in Baku which provides over 700 direct kind. I would gladly visit the regions. and indirect jobs in Azerbaijan. P&G Azerbaijan always tries to contribute to the social life of the country, besides being a About Procter & Gamble major economic player in the FMCG sector of the country. P&G serves about 5 billion consumers around the world with Even though our brands are well-known all over the world, we one of the strongest portfolios of trusted, quality, leadership are investing in the biggest investor TV media in Azerbaijan brands, including Pampers®, Tide®, Ariel®, Head & Shoulders®, as well. Always®, Pantene®, Fairy®, Blend-a-med®, Oral-B®, Gillette® Azerbaijan is important for P&G. I am very happy to share and Safeguard®. The P&G community includes operations in the good news that as of July 2019, we are expanding the approximately 70 countries worldwide. For more information, scope of P&G Baku office to coordinate a broader region of please visit www.pg.com Central Asian Republics; including Uzbekistan, Turkmenistan, Tajikistan, and Mongolia. After 20 years of sustained growth, this advancement of making P&G Baku a hub shows the importance that we give to Azerbaijan and our commitment of continuous investment.
What will the Baku office gain from this division? Of course, first of all, new job opportunities. On the other hand, we will open new horizons for our successful colleagues and offer new places to realize themselves. This means gaining international experience. Certainly, the investments will have benefits for Azerbaijan as well.
47 AmCham Azerbaijan
Marriott International Announces Marriott BonvoyTM – The New Brand Name Of Its Loyalty Program
13th of February Marriott International unveiled Marriott BonvoyTM, the new loyalty brand replacing the current loyalty brands – Marriott Rewards®, The Ritz-Carlton Rewards® and Starwood Preferred Guest® (SPG) – and reflecting the unmatched benefits, single loyalty portfolio and experiences around the world. Comprised of a portfolio of extraordinary brands where you can earn and redeem, as well as offering approximately 120,000 destination tours and adventures on Marriott Bonvoy Moments, the travel program enables members to explore the world in pursuit of their passions. Under Marriott Bonvoy’s five Elite tiers, status is more achievable than ever. With a single currency, earning and redeeming points is faster and simpler, and members can accelerate the points they earn with co-branded credit cards from Chase and American Express. When members book direct on Marriott. com they receive all the perks that come with Elite status, including, free and enhanced Wi-Fi and exclusive member- only rates, and on the Marriott app they enjoy mobile check-in and checkout, Mobile Requests and, wherever available, Mobile Key. In addition to featuring a powerful travel program, Marriott.com also offers 30 extraordinary brands to book, endless experiences and the best available rates. Marriott International is represented with 6 distinctive hotels in Azerbaijan. JW Marriott Absheron Baku, Boulevard Hotel Baku Autograph Collection, Intourist Hotel Baku Autograph Collection, Sheraton Baku Airport, Park Chalet Autograph Collection and Pik Palace Autograph Collection.
48 Issue 33 AmCham Azerbaijan
AITF Tourism Exhibition: More Than Just a Trade Show
AITF is taking place between the 4th-6th of April, at the Baku This year, national and regional representatives, travel Expo Center. It is the leading exhibition in the Caucasus agencies, airlines, hotel chains and health resorts will display region for the incentive travel, meetings and event sectors. their services at the exhibition. As in previous exhibitions, countries such as Belarus, Bulgaria, the Dominican Republic, Morocco, Slovenia, Thailand and the Czech Republic will be participating with their national stands. It is noteworthy that Belarus and Thailand have already booked a larger exhibition space than they did last year.
Development of tourism sector is a topical issue in the course of economic development of our country. Interest in the exhibition by the President of the Republic of Azerbaijan, H.E. Ilham Aliyev, once again underlines the importance of developing the tourism sector. The President’s annual visit to the exhibition provides additional impetus to the expansion of The exhibition will also feature the stand of Azerbaijan, which business relations in the area of tourism and development of will demonstrate the entire tourism potential of our country for this sector, as a whole. both foreign visitors and local tourism. Interesting offers will The stats from 2002 event are very impressive and illustrate be presented for vacations both in the city and the regions, why AITF is worth attending. Last year there were 5714 and for those who love nature and outdoor activities. participants, including exhibitors. There were 277 exhibiting The AITF 2019 exhibition will highlight a number of sectors, companies from more than 27 countries. The number of pre- such as Educational Tourism, Sports Tourism, IT in Tourism, scheduled appointments illustrates importance of networking Hunting and Fishing, and others. A special sector of the AITF event. There were 13 national and regional expositions and exhibition, Medical and Health Tourism, which has already more than 90 destinations. Organizers are confident that this become a tradition, will also be widely represented by health year’s show will surpass the success of last year’s show. resorts, wellness and SPA centers from various countries For the first time this year, a permanent participant of the worldwide. exhibition, the Ministry of Tourism of the Dominican Republic, will act as the sponsor in order to more vividly present its destinations to AITF visitors.
AITF is known for its additional events and there are 10 business and cultural events happening within three days. The educational aspect of AITF is really important and it is broken down into 5 segments which are outlined below.
49 AmCham Azerbaijan
B2B meetings: The organizers have created a business of the most ancient art forms – the dance. The Festival of platform for B2B meetings, where representatives of local Nations will be held in the hall of Baku Expo Center. travel agencies and foreign exhibitors will have the opportunity to meet for discussing new avenues of cooperation and Feel the spirit of poetry: According to the decree by partnership. During the exhibition over 40 meetings will be the President H.E. Ilham Aliyev, the year 2019 has been organized. declared the Year of Nasimi. This event will be reflected in the framework of AITF. The organizers have decided to Hot-topic table: There are moderated round table celebrate the event by organizing "Journey to the history and discussions between Hoteliers and Tourism Agencies where the work of Nasimi", thereby honoring the poet’s memory and attendees get to push them on the topics they spoke about. introducing exhibition visitors to another feature in the rich culture of Azerbaijan. Expert Talks: “Meet the traveller” -this is in-depth session with speakers – travel bloggers Farid Novruzi, Irada Gadirova AITF is not only the region’s largest exhibition in the tourism and Orkhan Aslanov will discuss topics relevant to travel sector, but also a celebration of culture, new experiences, experiences. Also, the photo exhibition by Farid Novruzi will opportunities, and friendship. Every year, professional be organized in lobby of Baku Expo Center. representatives of the industry look forward to this event, where they can not only establish new contacts, but also Live Entertainment Zone: An international dance festival is significantly expand the geography of sales, learn about planned as part of the exhibition’s entertainment program. The the industry’s latest innovations and trends, and find new main purpose of this vibrant event is to provide opportunities partners and customers. More than just a trade show, the for foreign participants to showcase their culture through one AITF exhibition offers brilliant speakers, fresh ideas and continuous inspiration at 10-plus educational and networking events over the 3 days. AITF will be held with the active support and participation of State Tourism Agency of the Republic of Azerbaijan and Azerbaijan Tourism Board. The exhibition is also supported by Azerbaijan Tourism Association, National Confederation of The Entrepreneurs (Employers) Organizations of the Republic of Azerbaijan (AEC), Azerbaijan Export and Investment Promotion Foundation, Small and Medium Business Development Agency of the Republic of Azerbaijan. International institutions such as the World Tourism Organization (UNWTO) and the Pacific Asia Travel Association (PATA) are also among the supporters of the exhibition. The exhibition is organized by Iteca Caspian. Conference on Benefits of Hosting Major Sports Events (BHMSE) 2019 On February 5, the Conference on Benefits of Hosting Major Sports Events (BHMSE) 2019 organized by the Baku City Circuit Operations Company (Promoter of the Formula 1 Grand Prix in Azerbaijan), in partnership with AmCham Azerbaijan. For the third consecutive year, BHMSE 2019 brought together businesses to drive learning and share experiences on how they can benefit from large-scale sports events taking place in Azerbaijan in a lively discussion format. AmCham members had a chance to enjoy stellar contributions from high-profile representatives including key figures from Azerbaijani government, as well as its business, technology and travel industries. AmCham Azerbaijan Executive Director, Mrs. Natavan Mammadova, spoke at the Conference with the opening Tourism Board, Florian Sengstschmid and Heineken remarks. The keynote speakers at the Conference also International’s Sponsorship Lead for Formula 1 & Formula included the CEO & Executive Chairman of the Formula E, Ben Pincus, etc. Together they formed a lively and highly 1 Group, Chase Carey, Formula 1’s Senior Manager of experienced panel discussing the beneficial impact of hosting Promoters and Business Relations, Emily Prazer, BCC’s major sporting events in new markets and the Formula 1’s Executive Director, Arif Rahimov, CEO of the Azerbaijan position as a global brand platform.
50 Issue 33 AmCham Azerbaijan
AmCham Calendar of Events December 1, 2018 - March 1, 2019
January 30 - 2nd AmCham Conference on “Ethics and Compliance in Azerbaijan” January 29 - Tax & Customs Committee Meeting January 29 - FMCG Working Group Meeting January 25 - Monthly Members Luncheon
February 25 - Procurement Working Group meeting February 22 - Annual General Meeting (AGM) February 15 - Meet Your Candidate Cocktail Reception 2019 February 14 - Human Resources Committee Meeting
January 8 - Legal & Compliance Committee Meeting December 20 - Monthly Members Luncheon December 19 - Joint ICT & BFI Committees’ Meeting December 17 - Procurement Working Group meeting December 14 - Human Resources Committee Meeting November 28 - Banking, Finance & Insurance Committee Meeting
51 We do believe our members appreciate an opportunityto benefit from AmCham M2M Discount Program exclusively designed for our Member Companies to obtain as well as for the Associates to provide discounts onawide range of products and services from thehotel stays to food and beverage outlets. This AmCham initiative is recognized asastrong promotional vehicle aimed to add more value to companies’ membership by helping to increase the volume of sales and to save costs. To become a discount provider you need to complete M2M Discount Program Agreement, print it out and return the signed copy to us. This program allows two people from each MemberC ompany to obtain discounts in below mentioned companies upon presentation of special M2M cards. Currently, our M2M Discount Program encompasses the following offers:
HOLIDAY INN BAKU 10% Discount on Food and Beverages at BOULEVARD HOTEL BAKU Holiday Inn Restaurant Marina 18 and 15% SPA Sagi Bar 10% Retail/rack price of room TRAVEL, HOSPITALITY AND LEISURE 15% Discount on Holiday SpaINN 15% Laundry annual subscription (fitness center and 15% Food and Beverage swimming pool) 10% Discount on “Your Special Day” events inclusive Weddings, Engagements, Henna Parties JW MARRIOTT ABSHERON BAKU 10% discount on all Food & Beverages – Discount is applicable maximum for 20 people per card. The card cannot be FOUR SEASONS HOTEL BAKU applied for meetings & events held in hotel 10% off for Zafferano Restaurant & 10% discount on all Spa Treatments – Bentley`s Bar The limit is 20 guests per card. Discount 10% off for JalehSPA (treatment, gym does not apply for spa products retail offer, retail products) 30% discount on Laundry & Cleaning – INTOURIST HOTEL BAKU Discount is applicable for minimum on 3 days service 15% SPA 10% Retail/rack price of room 15% Laundry
PRIVE STEAK GALLERY 15% discount on food and beverages * The discount does not apply to breakfast, business lunch,şarküteri and pakhlava.
THE LANDMARK HOTEL BAKU
15% discount on Food & Beverages at: Caspian Grill & Terrace (ala carte) Lunch & Dinner HYATT REGENCY BAKU Bangkok Noi (ala carte) lunch 15% discount on restaurant and bar Seto (ala carte) Lunch & Dinner PULLMAN BAKU 15% discount on laundry and dry Salo (ala carte) lunch cleaning Shin Shin (ala carte) Lunch & Dinner 10% discount on Food and Beverages, 20% discount on Spa treatments at Dolce Pausa (regular menu) Throughout Fitness andSPA services Armaiti Spa & Fitness the day 10% discount on rooms stays