Expert: Inefficient Construction Will Cost Billions

The draft budget of Azerbaijan for the next 2019, presented by the Ministry of Finance, caused a lot of judgments. It is understandable. The amount of expenses increased almost in every category of the budget, including such important industries for the country as defense, science, medicine and education.

In parallel with them, next year, expenses will also increase in industry, as well as construction costs. In general, they will be 6,844.7 million manat. This year, spending on this area was less and amounted to 5,104.4 million. For comparison, the cost of the country's defense is provided at the level of AZN 3,037.6 million. This means one thing - next year it is envisaged to develop the industry and increase the already large-scale construction of the capital and regions. And if the development of industry in Azerbaijan has long and irrevocably focused only on oil and all related industries (other industries do not develop due to widespread state control and the lack of private capital), then it is worth discussing expanding construction along and across.

Baku has obviously long turned into one big construction site. Everywhere there are scurrying excavators and multi-ton concrete mixers, digging pits and pouring concrete. The capital is covered with building dust and sand, which in the "city of winds" turn into a nightmare and carry many diseases for the citizens. Construction and rebuilding of Baku is carried out randomly. If you look at the capital from a bird's-eye view, it looks, to put it mildly, unpleasant, the new buildings resemble porcupine quills, located on its back in chunks, while the old buildings resemble bald spots. Everyone builds wherever he wants, trying to grab convenient and expensive places. It is understandable - the General Plan of Baku has not yet been approved.

On June 27 of this year, President Ilham Aliyev signed a decree on measures to develop a master plan for Baku. According to the order, in order to attract an influential international consulting company to organize the development of the General Plan of Baku from the reserve fund of the President of Azerbaijan, envisaged in the state budget for 2018, the State Committee on Urban Planning and Architecture allocated four million manat. Half a year has passed, there is no news about the General Plan, and the construction of Baku is ongoing without complying with the elementary norms of construction. Not a single word of experts is being taken seriously, and they have once again stated that while maintaining such a pace, Baku may go underground, or face frequent landslides.

However, in September, the President signed a decree on additional measures to improve urban planning, according to which local executive authorities only give permission for construction if there is a conclusion from the State Committee for Urban Planning and Architecture. How the order will be executed, time will tell, but let"s go back to the budget. The sum allocated to the construction area, to put it mildly, is puzzling.

According to the economist Natig Jafarli, Azerbaijan"s budget is replenished every year mainly due to funds received from oil operations: "Statements made by officials 5-6 years ago during a period of high oil prices that oil capital should be transferred to human capital and for future generations in the Oil Fund, remained just words. Then the costs exceeded the annual income of the Fund. That is, the costs began to exceed the profit. In the budget for the next year, the same line emerges. The bulk of the income of the Oil Fund will again be spent. 50% of budget funds will be received from the Fund, 15% - also received directly from oil, as these are taxes from oil companies, and only 35% of budget funds will be received from the non-oil sector, but indirectly also associated with oil. For example, the initial capital of construction and repair works is in most cases taken from oil money. The problem is that the country's economy"s dependence on oil is very high and is gradually growing."

The economist noted that next year again a lot of money was provided for the construction and reconstruction of houses and other objects: "I can"t say that this is bad, but it is inefficient. In 2015-2016, after a sharp drop in oil prices, a serious decline began in the economy of the country: GDP fell and economic activity decreased. After that, the first statements were made about the revitalization of the non-oil sector. Thus, the authorities tried to revive the economy. From 2017, oil prices began to grow and the authorities decided to return to the old model - to revive economic activity through oil revenues and the construction-repair model. Since the same year, expenditures on construction and repair work increased, in 2018 expenditures amounted to approximately 5 billion manat, and next year this figure will increase to 7 billion. Thus, the authorities are trying to revive the economy. Since the construction sector is associated with the production and transportation of building materials and logistics.

World practice shows that the construction sector is an area that creates the largest number of jobs, albeit with a small salary. Therefore, in this way, the authorities are trying to reduce social tensions, open new jobs and create a new wave of economic development. Unfortunately, in this way, we return to the old model of 2003-2008 and 2009-2014. At that time, the acceleration of GDP growth and budget expenditures was connected precisely with repair and construction and investment projects. The only change is that earlier the authorities allocated more funds for mega projects, and now the funds go to small but numerous projects."

According to Jafarli, the effect of all these efforts will be zero: "This is a temporary phenomenon that does not bring additional benefits. The main duty of the economy is to create additional benefits, due to which the well-being of citizens is increased, as well as the production and export potential of the country. However, unfortunately, repair and construction work and investment projects create only temporary jobs. They bring economic benefits only at the time of their implementation, but then in economic terms there is no benefit from them. If in the future there is a problem with the formation of the budget, we will again witness a decline in economic activity. Another fall in oil prices will bring with it the next economic crises in Azerbaijan. "--0--