Economic results 2014 and the first months of 2015

Azerbaijan has entered year 2015 in the conditions of economic turbulence around the country. The oil prices keep on declining and one should not expect that they will go back up soon. What chances to recover the economy did the authorities miss? Is there something they still can do today?

The idea to create a calm economic oasis out of Azerbaijan has failed, though there is less tension here, than in Russia. Our economy has access to the western capital markets, there is no significant outflow of capital from the country, though only the government could have a clear picture of that. But this does not mean that we are beyond the crisis zone. The experts claim that the pace of growth of the world trade is below the pace of growth of world GDP in the past several years. This also indirectly showed that the resources of globalization, which supported this growth of the world economy (and oil prices) during the past couple of decades, are slowly running low.  This complex processes have inevitably led to lower oil prices. The expectations of a new technological breakthrough have been growing in parallel. The boom of shale hydrocarbons has become a partial reflection of these expectations. Many analysts are confident that the current low oil prices, which are not comfortable for the shale market, will led to a rapid reduction prices for the technology of production of shale hydrocarbons.

Big problems for our economy are inevitable. It was known since long ago that it is dangerous to stake only at oil, but we thought we will be able to race through this stage. Especially as for various reasons Azerbaijan managed to avoid consequences of the two last big crisis – 1998 and 2008. But development without crisis is also dangerous for the economy. We lack a real experience of overcoming the crisis when it comes. In this aspect Russia has certain advantages over us, though it has a real economic crisis. Russia has Federal Anti-Monopoly Service, Ombudsman for Business and Banks, developed stock markets and many other agencies institutionally supporting the economy. This gives hopes that the country will be able to overcome the crisis. The past decade Azerbaijani economy elite has spent enriching itself and it seemed that it will be always this way. “Political systems based on distribution of rent demoralize people. Political regimes based on free competition motivate people,” said Russian entrepreneur Mikhail Friedman. Frankly speaking, he did not say anything new, but the government was not interested in motivation of the society.

It seemed that transition to the gas strategy will move aside many problems of the post-oil development of the country. Therefore, the government paid more attention to the gas strategy, which required time and resources. But the government created illusions. The economy will have less and less money even with high gas prices, because they are tied up to the oil prices. Thus, the government should have been looking for other methods to raise economy. But is this possible when monopoly and corruption flourish?

This year will most likely be difficult. For the first time in our history we have started the new year with negative indexes both in the capital investments as well as export and import. This is an alarming sign for the authorities. There are no reasons to think now that situation could worsen this year. But there is a saying “bad time for the economy is the best time for good decisions.”

MAIN ECONOMIC INDEXES 

GROSS DOMESTIC PRODUCT. GDP growth up to 2.8% today is not the worst result in the world. But the poor monthly growth of economy shows. It was so unstable against the background of continuing decline of oil production, it was enough to have decline of growth of agrarian production in the middle of the year to undermine the economic growth. The pace of GDP growth did not reach the level forecasted by the government, though the average oil prices still remained high .

GDP GROWTH IN 2014, %

Moreover, in 2015 IMF announced reduction of pace of GDP growth not only in Russia, which certainly in recession, but also for many other post-Soviet republics .

It is evident that “golden time” when the GDP growth could exceed 35% is left far behind. In the current economic conditions (even with good oil prices) doubling GDP of the country by 2020 , which was announced in early 2010, seems like utopia. Increasing the share of the non-oil sector in GDP up to 72% does not look executable at all .

The pace of growth of non-oil GDP starts declining. International financial organizations (IFO) have repeatedly warned about that, offering acceleration of the reforms and diversification of economy. These recommendations have not been heard in time, though it was clear that the local investments do not guarantee growth. The financial injection into the economy without consistent reforms is unable to ensure growth.

GDP GROWTH IN GENERAL AND NON-OIL SECTOR FOR 2014 %

Decline of the industrial growth caused by reduction of oil production looks inevitable. Oil and gas will continue playing a significant role in the economy of the country. The share of the industrial sector keeps on declining lately in favor of the sector of services. A very hard task is ahead – the pace of growth of the non-oil industry must be accelerated to cover decline of oil incomes in export.

INVESTMENTS. Last year the pace of growth of investments into the economy was negative, though it was positive since 205.

This is connected not only with the government’s policy which started gradually reducing local investments into the economy. This is also caused by institutional weakness of the economy, which is unable to efficiently use a big amount of investments. For instance, in December 2014 investments into the Azerbaijani economy increased by 1.98 times against November and this happens almost every year. It is clear that such use of investments cannot be efficient. This is applied first of all to the budget investments, which during a year appeared to be below the level of corporate investments. They were in the lead in January 2014.

CAPITAL INVESTMENTS BY FUNDING SOURCES (mln.AZN)

According to the State Statistical Committee, in 2014 17,615,800,000 AZN has been invested into the Azerbaijani economy (almost $22,458,000,000 at the exchange rate of 1 USD = 0.7844 AZN), down 1.7% against 2013. 12,735,400,000 AZN has been invested into the economy from the local sources, which makes 27.7% of investments. Almost the entire volume of these investments falls to the oil production. The remaining sector remain under-invested. The government does not take significant effort to attract foreign capital into these fields. Although there is a real hunt for foreign investments in the world.

Meanwhile, the growth of economy was noticed in the fields of economy, which have received investments. This, however, does not prove efficiency of the investments. This mainly means that many fields are based on instantaneous money injections this year and do not accumulate their own capital base for development.

FOREIGN TRADE. The country’s foreign trade turnover for the first time has negative growth, This was expected, considering that 91.97% of export was ensured by the oil and gas industry and pace of growth of oil production kept on declining.

According to the State Customs Committee, in 2014 the volume of foreign trade turnover of Azerbaijan with 150 countries of the world totaled $31,016,300,000, down 10.58% against 2013. This is a result of slump of oil prices, though their sharp reduction fell to the end of the year. This affected not only incomes from oil export, but has also led to reduction of delivery of products of investment importance into the country. Import decreased by 14.22% to 9,187,700,000 AZN, while export by 9.95% to 21,828,600,000 AZN .

In order to imagine the scale of decline of foreign trade turnover, one should bear in mind that in 2012 import totaled 9,655,600,000 AZN, while export – $23,908,000,000, but in 2013 - $10,712,500,000 and $23,975,400,000, respectively.

European Union occupied the first place among the countries-partners – the EU member-states have formed 47.30% of foreign trade turnover of Azerbaijan or $14,671,162. In 2014 Azerbaijan’s export to the EU member-states constituted 52.99% of the entire export or $11,567,574, up 0.47% against last year. Import from the EU constituted 33.78% of the entire import or $3,103,587, which means decline by 17.48%. Only 9.42% of foreign trade fell to the CIS member-states (against 11.75% in 2013) or $2,921,243.

The situation with foreign trade has been deteriorating throughout the world. The analysts specify the fact that the pace of growth of world trade is below the pace of GDP growth the past several years. The growth of world incomes affects trade less, though previously 1% of growth of world income ensured growth of world trade by more than 2%. This means that foreign trade is going down. This is partly caused by political reasons – fierce geopolitical struggle for the markets is going on. The currency wars deteriorate the situation, when the countries deliberately reduce value of national currencies to ensure their economy advantages at the foreign markets. Everybody plays this game, but sometimes the game brings no results.

World Trade Organization (WTO) has failed as well. This is especially bad for the countries that have recently joined WTO and failed to use advantages of membership of this organization, though they have agreed to certain limitations when it comes to subsiding of agrarian sector. All possible sanction wars also turn out to be useless. The entrepreneurship involved into the foreign trade under the aegis of the states makes up millions of tricks to bypass the trade barriers. In this context globalization still works and it is getting more difficult to support the trade barriers, than before. For instance, Belarus has become a constant headache for Russia. Despite the sanctions many products come from this country from Europe – Belarus businessmen simply glue new labels saying that the products made outside of the European Union. Thanks to the sanctions against Russia we have found out that the norms of sanitary control in Russia are better, than in other countries. Even if the sanctions are lifted, these tough rules will stay. This is, probably, if Russia would not use sometimes their selective use.

INFLATION. Last year its low level showed reduction of activity in economy, though there have been attempts to connect this low index with achievements of the economic policy pursued by the authorities.

PRICE INDEX FOR ECONOMICS

During 2014 CPI increased by 1.4%, while consumer deflation accumulated during a year constituted 2.3%. This is a very low inflation rate and one can judge about that indirectly. The current policy of the European Central Bank is aimed at increasing the target inflation index to 2%. Europe is very well aware of all negative consequences of deflation. For two decades Japan has been trying to get rid of deflation and achieve growth and it has managed to do that only now.

This is rarely mentioned, but the consumer inflation is indirectly connected with reduction of index of prices in industry. The wholesale  prices in industry dropped by 19.6% in December 2014 and during 2014 by 5.1%.

Last year Central Bank of Azerbaijan (CBA) repeatedly said that the target is inflation. One can say for sure now that CBA did not take special effort for that. Influence of monetary factors on the inflation appeared to be minimal.

The incomes of population and wages grew slower, than in the past and the goal to sterilize the manat supply was not very urgent. This also explains why CBA and Finance Ministry were poorly present at the state securities market.

SECTORAL PROBLEMS OF ECONOMY. The stakes of the government outside of the oil and gas industry were the same as several years ago. This is mainly the so-called non-traded sector – construction, trade and services. Everything was in the strict “grammar” of the country affected by the Dutch syndrome this way or the other.  The government economists evaluated first of all the consumer market, which increased by 10.5% and totaled almost half of GDP of the country. In 2014 the volume of sales of non-food products grew 4.15 times faster, than food products trade. In 2014 food products trade (11,023,200 AZN) increased by 3.9% during a year, while retail sales of non-food products (10,978,500 AZN) by 16.2%. This could be interpreted as growth of welfare of the population, because once satisfied its need in food products it buys more consumer products. But it seems like this is connected with the new possibilities, which have opened in the past several years in the consumer crediting of population.

It is more than evident that stable growth of economy and first of all export could ensure only development of traditional sectors – industry and agriculture and of course to provide human capital developing..

Industry.  Industry constantly fails to  achieve growth and, as we have seen, decline of industrial production constituted 1.7% during a year and in the extractive industry – 2.7% The oil production continued declining, despite the fact that the Western Chirag field, operation of which fell to the early 2014, must have played the role of the buffer, which will mitigate the continuing reduction of oil production on the Azeri-Chirag-Guneshli (ACG).  It is becoming a problem number one for the oil and gas industry to maintain the oil and gas production .

As we can see, State Oil Company of Azerbaijan (SOCAR) has managed to cope with its symbolic task: every year it increases the level of its oil production. Every ton of oil is on the account. It is not accidental that the possibility of production on the shallow section of Absheron (agreement concluded with BP) was under discussion the entire year, wells were drilled on the west of the country and preparation to production of the residual oil on the onshore fields of Absheron was in progress.

The fact that SOCAR has increased the volume of production and export of oil products by the end of the year could be considered as SOCAR’s advantages. This is the matter of gasoline, lubricating oils and diesel fuel, which have seen a significant growth. All oil producing companies of the world do that when the oil prices go down.

RELEASE THE MAIN PRODUCTS OF THE OIL INDUSTRY

Huge efforts and money have been spent for development of the Shah Deniz Phase 2 and transportation of Azerbaijani gas. But here there could be problems related to the fact that Russia forces the South Stream project re-directing it to Turkey now. It has already started construction of the offshore section of the pipeline and determination of the points of gas way out on the Turkish territory. Construction of the pipeline on the Turkish section will be conducted by Gasprom jointly with Botas. At the first stage pumping of Russian gas will total 15-16 billion cub.m., which is a little bit less, than Turkey is going to buy for its own needs and then it will grow. Let’s pay attention to these volumes. They correspond to the volume of Azerbaijani gas transportation via TANAP and TAP, of which Turkey has committed itself to buy 6 billion cub.m. Based on the experience of the Shah Deniz Phase 1, one can say that this volume could be not purchased by Turkey, especially as observation of the principles “take and pay” is under a serious question. It is important that Russian gas could be delivered to Europe, earlier than Azeri one with all the advantages of this advance. Taner Yildiz said that “healthy competition” of the two projects will simply not work here. It is clear that Azerbaijan and Russia are not comparable players on scale at the gas market of Europe, despite a clear support of TANAP and TAP by Europe and ostracism that Russia is subjected today. One can only suppose that the European Commission could be opposed to this decision of Russia and Turkey and the negative reaction is already tangible. But the first gap is evident – this is Greece, where the left-centrist government has just come to power.

The rapid implementation of the project gives Turkey a very big chance both political and economic one. It is not accidental that during these months the Turkish government made a statement that it is not going to seek its membership in the European Union. The Russian project means new investments into the country’s economy and possibility for Turkey to become the biggest hub in the region. There is certain risk here, but the stakes are very high.

It is hard to suppose that President Ilham Aliyev has not been informed about such a development of events during his recent visit to Turkey. On the other hand, Azerbaijan itself is dependent on Turkey – Azerbaijani oil and gas is transported via this country and several big investment projects of Azerbaijan are implemented in this country. One does not even want to think that the idea to create the Eurasian Energy Union under the aegis of Azerbaijan and Turkey is just an attempt to sweeten the bitter pill. Just like Turkey’s new attempt to get Turkmenistan to join transportation of gas via TANAP: this issue was recently under discussion between the Foreign Ministers of Turkey, Azerbaijan and Turkmenistan in Ashgabad.

There are problem with the deal to buy Greek gas distribution company DESFA. The problems started last year, but in December  2014 the agreement to buy 65% share of this company was concluded anyway. At the end of last year the European Commission said that it must once again revise conditions of the agreement to see if they correspond to the EU Third Energy Package. The new left-wing government of Greece stated that it might refuse to sell this share at all.

Therefore, many problems arise both with long-term and short-term plans of Azerbaijan in the oil and gas industry. But during the period of oil price reduction SOCAR managed to diversify its activities. Purchase of Petkim, logistic objects in Turkey and Georgian Kulevi, petrol stations in some countries, gas distribution networks in Turkey, ship building plant in Azerbaijan and control over the local chemical manufacture will allow SOCAR overcoming difficult times. The company has a lot of nonspecialized assets, but it might be even beneficial in the current situation.  SOCAR Trading, which has enough experience of selling oil of the third countries, could help maintaining the company’s incomes. Thus, one can understand why SOCAR stays calm against the background of slump of oil prices.

During 2014 power generation totaled 23,111,300 KWh, up 6.7% against 2013. However, the commodity electric energy totaled only 21,926,400 KWh (+6.3%) or 94.87% of total volume of generation. The sources of generation of 5.13% more electric energy have not been determined and they also could be losses in the networks.

ELECTRICITY, GAS STEAM

Generation of power by the thermal electric stations totaled 20,684,900 KWh, up 7.4% against 2013 and generation of power by hydraulic power stations – 1,233,600 KWh. This is down 10% against 2013, which means that the crisis in this sector still continues. The share of hydraulic power, which reached 6.63% of entire power generation in 2013 and sometime in the past constituted even 10%, made only 5.34% last year. In 2013 generation of power by hydraulic power stations totaled 1,369,500 KWh, down 21.7% against 2012, which showed the crisis in this field of electric energy.

Reduction of power generation by hydraulic power station is especially surprising, because Azerenerji repeatedly announced in the past that by 2015 200 small hydraulic power stations will be built in the country. By mid last year the private sector generated more power at hydraulic power stations, than state sector. Thus, this could be just that less new investors are involved into construction of hydraulic power stations.

Electric energy is not a simple product for export. One should learn how to sell to other countries, which has been discussed for many years. But there are no changes here, though incomplete loading of power stations increases production costs per unit of power and reduces labor productivity in this sector. It is not ruled out that the field will ask the government to increase power prices.

2014 was named the Year of Industry. Several industrial enterprises built in 2013 started manufacturing products: textile factory in Sumgait city, methanol plant and new cement plants. The plants have failed to suspend reduction of pace of growth of the non-oil sector and their products is less noticeable in export. But in 2014 the attempt of re-industrialization have been continued: cardboard paper factory, butter factory and copper processing plant in Sumgait, the first part of the International Sea Port in Baku, Norm cement plant in Baku, still mill and rolled metal plant, ship building plant and paintwork plant in Ganja have been put into operation. However, as economists predicted, it is hard to reconstruct industry without a special state program. In the last days of 2014 President Ilham Aliyev signed the state program, of industry development for the period between 2015 and 2025.

Another attempt to revive industry was creation of the industrial towns, which started in 2013. Three industrial towns are planned to be built, but none of them have been opened yet. Preparation of the sites continued. The negotiations with the investors, which are willing to work in the free economic zones, have continued. It was decided to build SOCAR Polymer in the Sumgait industrial park, Azertekhonline plant has already started working there and the plant manufacturing glass products has been launched as well.

The new industry cannot be developed without an integrated approach to all problems of its development. Everything is included here – customs and fiscal policy, credits to new plants and development of engineering companies in the country. The latter could be local companies or joint ventures. As a rule, such companies do not need big staff , but they have a special role to support activity in the free economic zones. It is still unclear if it is planned to create branches of the banks or open IT companies in the free economic zones, which would help new companies with software. One can say that the High Technologies Park will have everything. But it will have different task – to integrate with the world IT technologies and start export.

But if one look who acts as the main beneficiary of the project, these are still big economic organizations, which control the entire economy. This is weakness of the entire construction of re-industrialization. Small and medium business has been almost removed from these processes, though medium-size business has become the basis of many economic of the world and even breaks into the competitive markets.

There are many other questions to the industrial policy. Will the idea of industrial clusters, which optimize the efforts to restore the industry, will be developed? The “comparative advantage” of new plants in export is being evaluated. How does the government try to encourage export-oriented manufacture – though the direct support of their competitiveness or through the strict funding to purchase equipment for the plants, which are going to break into the foreign market. Is it ready to support the plants of a long investment cycle, which make the basis of the industry? The list of the questions could be continued. But for Azerbaijan with its technological and scientific capital the optimal solution is joining the existing international manufacture chains. This is impossible without presence of foreign investors in the economy.

Agriculture. In 2014 the volume of agricultural products in Azerbaijan totaled 5,225,800,000 AZN in actual prices. In the comparable figures the volume decreased by 2.6%, while production in plant cultivation reduced by 8.3%, despite support of the state. The specialists connect this tendency not only with unfavorable weather conditions, but also with low profitability of farms. As a result of that last year gross product of plant cultivation was behind the cattle breeding (table).

ACTUAL PRICES OF CROPS AND LIVESTOCK PRODUCTS, %

Meat manufacture in live weight increased by 1.7%, milk (1,855,600 tons) – 3.3%, eggs (1,562,700,000 pieces) – 11.5%. Azerbaijan has even started exporting meat (table).

Manufacture of grain and leguminous cultures decrease by 12.7%, 444,000 tons less wheat was harvested than in 2013.

CROP PRODUCTION AND PRODUCTIVITY

There was decline of almost all products of plant growing. The decline in vegetable growing constituted 3.9%, while fruit growing – 0.5%. The potato production dropped from 992,800 tons in 2013 to 758,500 tons. The harvest of watermelons and melons increased (441,000 tons, or +2.6%). This partially explains why our farmers could not take advantage of the Russian market in the middle of the year and occupy their niche in it. But in any case it would have faced customs barriers on our side.

It is clear that situation in this very perspective sector should be changed. The main problem here is labor productivity. It is clear that our country is behind the European Union in this index about 40 times. 4.7% population of the EU is involved in the agrarian sector, while in Azerbaijan – 40% of able-bodied population. The reason is clear development of agriculture in our country has almost always been extensive and it is not easy to change. However, the problem is a low culture of farmers. Farmers are sandwiches between two millstones – executive authorities and big capital, which has come to the agrarian processing sector and started creating agrarian holdings.

Being aware of this situation, President announced 2015 Year of Agriculture. The government has adopted the third program of regional development till 2018. There are hopes that the program could stir up the sector.

As we can see, only upgrade of infrastructure of the village and most likely with involvement of foreign investments and technologies will help to change the situation. During so many years of development only the processing sectors have foreign capital and technologies, but even they have limitations. Hardly anybody could explain why the idea to create big farmer cooperatives has failed. Agroleasing has absolutely discredited itself last year, they have let entire problem drop. President himself complains about embezzlement of subsidies to the agrarian sector and unfair distribution of funds of the National Fund for Entrepreneurship Support. Municipalities or rural communities could become support of the state. Part of the initiatives in this sector must come from the bottom up.

The government, possibly, stakes at creation of big agrarian holdings and considers farms unsustainable. But then this should be announced. There is still no declared policy in this sector yet.

The number of problems accumulated in this sector is critical. The most urgent problem is salinity. But who can explain why the problem has not been solved till now with such a volume of irrigation works. Last year was interesting, because having lost part of its import, Russia has offered to create joint venture between Russian and Azerbaijani companies to ensure free import of Azerbaijani agrarian products to Russia. This was a chance for our farmers to break into a big market to occupy a niche there. But thing has happened, except growth of export of apples to Russia.

At the end of last year Azerbaijani President Ilham Aliyev signed a decree on the measures to improve management of the agrarian sector and accelerate the institutional reforms envisaging creation of agrarian parks in the country. The Ministry of Agriculture has offered to involve Netherlands into creation of the agrarian parks and has even conducted talks. But one cannot see Dutch farmers on the horizon. This has happened before: the idea is good, but there are no results. For decades the government has been discussing the necessity of the Agrobank, but where is it? The idea to insure agricultural credits for the farmer to get access to the funds has not been developed. The term movable property is introduced only now to expand the legislative basis for the credits.

In other words, the government must be actively involved in the work to restore agrarian sector  not letting go any serious problem. Possibly, all problems of this sector have started from a simple substitution: the term development of villages was substituted by the abstract term development of the agrarian sector.

Infrastructure. Last year President announced that 2014 will be the year of completion of majority of infrastructure projects. (Excluding the expensive works for preparation of the First European Games). But it is just enough to look at last year’s investments and it becomes obvious that the state still invests a lot into the infrastructure projects, mainly social ones, and sometimes even rehabilitation of the already implemented projects. This is the nature of infrastructure –first it has to be built and then it should be constantly maintained. Let’s put aside the corruption during implementation of many infrastructure projects. It has been almost forgotten that cost of 1 linear meter of our concrete-asphalt roads exceeded $10 million, which does not exist anywhere in the world. With such huge subsidies into this sector, we again have growth of losses in the power networks – both in generation and consumption. When huge state funds are invested into the companies, they continue operating on the verge of losses, as it is happening with Azersu company.

It seems that it is obvious that in the current conditions the scale of the infrastructure projects will be decreased and they will be more closely evaluated. The government has already refused of several expensive infrastructure projects, such as high-speed railway, highway through the Baku bay and construction of the road Shamakha-Guba. But the expenses keep on growing.

The key word for the infrastructure development today is efficiency or to tell the truth, tangible profit. If the project has not been implemented in time, then the government always loses profit. The talks with China to create Silkwind transport corridor, which envisages transit of cargoes via the Baku-Tbilisi-Kars railway, have been going on over a year. But BTK construction is delayed. However, China intensified economic cooperation with Russia, which envisages growth of transit to Russia, not mentioning opening of the North-South railway corridor – from Central Asia to Iran – for China. It will get more and more difficult to ensure growth of cargo flow through the South Caucasus.

This is applied to any delayed infrastructure project. In particular, the Samur-Absheron canal is subsidized by the Oil Fund every year. However, we have never heard from any official in the government that the works will be completed by any concrete time. But the Clearing House has threatened to take control over all projects in the country, which have turned into “long-term projects.”

Profit of the infrastructure projects could calculated by many ways, even at the project stage. The “cost-benefit analysis” method of the infrastructure projects allows evaluating any infrastructure project (water supply and sewage, electricity and roads) on the degree of its efficiency. The book written about that by our compatriot Ibragim Mammadzada and his American counterpart Jean Shvoller is based on the evaluation of Azerbaijani projects and could be useful for many post-Soviet republics. My specialists and international financial organizations believe that.

There are always questions about development of our infrastructure. Does Azerbaijan really need the second communication satellite in the current conditions? Leasing of frequencies of the first satellite did not bring significant incomes and recoupment of the project could take a long time. It is understandable that the satellites can have other tasks as well. But it could have been more correct to invest part of these funds into development of fiber optics and, in particular, the Eurasian fiber-optical corridor, which will connect Kazakhstan and Azerbaijan across the sea. Until now there was always impression that nobody ever calculates these investments – it is more important to invest.

The partnership between the state and private sector in a broad sense of this word should be taken into consideration in the infrastructure projects. We have never had that before. Nowhere in the world had the government tried to implement the projects by itself. Big national capital joins such projects unwillingly. The recoupment here takes a long time and there is no cash they are used to. The state is not willing to involve a wide circle of potential investors, because it has to develop municipalities, housing communities and other structures of self-government, which will take upon themselves part of the infrastructure problems of the country. President’s last decision to transfer educational institutions to the regime of partial self-government is among the positive decisions.

Let’s look at another example. During the past several years Azerbaijan has built two ski resorts. The state has invested half a billion AZN into infrastructure of only one of them. It will be hard to achieve recoupment of these projects in the near future and one also cannot call them social projects. At first, climatic conditions have not been estimated properly – one needs to create artificial snow almost all the time. Secondly, expensive hotels will hardly pay off and one has to build chalets. The infrastructure was handed over to the private companies, which manage these objects. Was it economically efficient for the state? The World Bank’s intention to allot credits to the Azerbaijan tourism sector to the amount of 50 million AZN is just in time. The project envisages development of medium- and small-size business around tourism to make it commercially effective. This is, definitely, an achievement of the state, which has maintained good partnership relationships with the international financial organizations. It takes a while for them to get ready for crediting, but they remember about commercial efficiency of the projects. WB’s water project worth $96 million in the 1990s is remembered as one of the most successful projects aimed at improvement of water supply of the city. (to be continued)

Beginning of the article:

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