Why the growth of Azerbaijani GDP is far behind its neighbors?

On December 9 was held a meeting of the Cabinet of Ministers of Azerbaijan. After listening to the ministers' reports, President Ilham Aliyev noted that 2018 was successful for the country, all the tasks set since the beginning of the year were successfully and timely carried out, Azerbaijan ensured dynamic development in 2018.

The development of the country's economy can be traced by the size of the gross domestic product (GDP) in the past two and a half years, and for greater clarity, compare the indicators of Azerbaijan with the GDP of neighboring countries. The data are taken from the report of the State Statistics Committee of the Republic of Azerbaijan and similar departments of neighboring states.

The State Statistical Committee of Azerbaijan published data for 3 quarters of 2018. GDP growth over the same period last year was + 0.8%.

https://www.stat.gov.az/news/macroeconomy.php?page=1

Since 2016, Azerbaijan"s GDP has grown from - 3.1% to + 0.8% - the worst indices among eight countries.

The dynamics of GDP is not the only and most demonstrative indicator of economic development. It should be noted that the GDP of Turkmenistan shows a steady growth (6.2%; 6.5%; 6.2%), but the citizens of this country acquire essential foodstuffs and currency in Baku.

An expert in macroeconomics, Kamal Soltanov, noted at FB a curious detail in terms of the Armenian economy. Yerevan does not publish data on GDP growth for the third quarter of 2018, but it triumphantly published data for all three quarters. The growth was solid: + 5.1%. "But the trick is that in the first quarter there was an explosive growth of 9.6%, in the second (partially accounted for Pashinyan's premiership) - by 7.2%, and then it is easy to calculate that in the third quarter, when only Pashinyan was prime minister "Armenia"s GDP dropped to 1.5%. I wonder what will happen in the fourth quarter ..." the expert sneered.

Turan appealed to Kamal Soltanov with a request to explain the development of the macroeconomic indicator of Azerbaijan, which was successful in absolute terms, but unsightly in relative terms.

"The reasons that the economy of Azerbaijan after the fall in oil prices in 2014-2015 is still in stagnation are pretty obvious," the expert answered. First of all, there are not enough comfortable conditions for the development of small and medium businesses. It is not only a matter of insufficiently elaborated legislative and other formal bases; in the opinion of business people with whom they had to talk, it"s not so bad. The well-known negative influence of the authorities, from tax to customs, is much worse. This is the reason that our businessmen do not invest money here, but in Russia, Turkey and Georgia, where business is much freer.

Another brake on the economy is monopolism in all areas. The whole economy is divided between several well-known people. A businessman from the side cannot do business without the permission of the head of the family.

Lack of a fair and independent judiciary. Businessmen cannot protect their rights, violated by the same monopolists, customs officers and tax authorities, in a judicial proceeding.

- Why then, with the same fundamental flaws that existed in previous years, there was growth in the economy, but now it is not?

Growth in the Azerbaijani economy was based on the huge revenues from oil and the following investments, both from foreign companies and from the state and local oligarchs-corrupt. After the fall in oil prices to $ 30 and below, the first, second and third naturally stopped investing in the economy of funds in the former large amounts. At that time, the country's gold and foreign exchange reserves declined over the year from more than $ 50 billion to $ 35 billion, and manat fell by more than twice. I think that the government decided after this, with rising prices to accumulate gold reserves, and not to invest them in the economy. These stocks saved us then from collapse. Therefore, now that prices have been rising for more than two years, GDP is almost not growing.

Of course, then stocks saved the financial system from collapse, but did not save the economy from further stagnation. Investments are absolutely necessary for the development of the economy, and if the incoming money is not introduced into the economy, but is reserved for the future with the thought of the next crisis, then there will be no GDP growth. On the website of the State Statistics Committee, it is clear that domestic investments are being reduced each year.

- The Ministry of Taxes announced a large-scale reform. From January 1, the tax rates will change dramatically. Will reform affect economic improvement?

- By itself, tax reform will do nothing, if the pressure on the business of corruption does not cease. This is obvious for a long time. The most important thing is that there are no conditions for the development of small and medium-sized businesses, whose investments can and should repeatedly overlap the mass of currency that the government has set aside for just in case.

On the other hand, there are investments and they are huge, invested by the state in regional projects, conceived back in obese years. Azerbaijan took over the financing of the TANAP and TAP project, and that is many billions of dollars. In addition, SOCAR is investing many billions, not domestically, but abroad. Turkey has recently opened a huge STAR refinery.

(SOCAR has invested $ 6.3 billion in the STAR refinery, which is the largest private sector investment in Turkey. In recent years, more than $ 13 billion have been invested in the Turkish economy in the coming years, this figure will reach $ 20 billion in the coming years, President I.Aliyev reported at the opening ceremony of TANAP in Turkey - KA).

But, even taking into account the similar attitude of the state to its own economy, the creation of conditions for business would solve all the problems. In Georgia, the state does not have billions to invest in the country's economy, but the conditions for business have been created and there is a steady growth of the economy. Of course, public investment only stimulates growth. That is, we have much more potential for economic success than Georgians or Armenians.

The last reason for our modest economic indicators is the work of banks. Without their effective participation, the economy will not develop. As long as banks do not finance the economy at a reasonable percentage, from which you can exit with a profit, it is difficult to expect economic growth. Why do our banks give loans at crazy interest rates? Because the entrepreneur still will not find another bank with a lower percentage. Here is also a monopoly, concluded the interview with Kamal Soltanov.

The circle around an Azerbaijani businessman who does not fit into the family of an oligarchic monopolist, has closed. The only thing he can do is to close his business in Azerbaijan and start a new business in Turkey, Georgia or Europe.