Key economic events of January, from the point of view of the agency Turan

05 – According to the Turkish Chamber of Commerce and Exchange, during 11 months, 2014 153  new companies with Azerbaijani capital have been registered.

09  - AXA Mbask insurance company plans to increase its authorized capital by 37.1% up to 9,231,030 AZN.

10 – session of the Cabinet of Ministers devoted to the socio-economic development in 2014 has taken place under chairmanship of Ilham Aliyev.

12 – Central Bank of Azerbaijan has announced its priorities (prevention of deflation and maintaining manat rate) in 2015

13 – Azerbaijan President Ilham Aliyev signed the decree “To approve a list of documents proving acquiring of right to purchased or created objects of immovable property till entrance of the law on state register of immovable property into force.”

14 – Extraordinary session of the Tariff Council has taken place by the instruction of Azerbaijani President

15 – delegation of the International Bank of Azerbaijan (IBA) has gone to Moscow to carry into life the idea to create the Islamic Development Bank of the CIS member-states.

  Synergy Group open-type JSC has gotten control over Kovser Bank

16 – results of the 4^th session of the high level Council of Strategic Cooperation between Turkey and Azerbaijan have been summarized in Ankara in presence of Turkish and Azerbaijani Presidents

19 – budget of State Oil Fund for 2015 has been approved by the presidential decree

  - State Statistical Committee reported that in 2014 import of cars into the country decreased by 39.3% to 63,368.

21 – SOCAR has signed the contract with Finnish Neste Jacobs company to provide consultations for management and inspection services for construction of carbamide plant in Sumgait.

    -International Bank of Azerbaijan and Russian Saving Bank have signed the memorandum of mutual understanding and cooperation during the World Economic Forum in Davos.

-on Wednesday German Chancellor Angela Merkel met with Azerbaijani President Ilham Aliyev in Berlin

22 – Azerbaijani President Ilham Aliyev has met with European Commission Energy Vice President Marosh Shefchovich in Davos

23  - Accord corporation has established a new construction company

27 – The government has started development of the budget of the country for next three years

  - closed session to adopt the third state program of regional development between 2015 and 2018 has taken place in presence of president.

28 – the trial train was launched in Gazakh region to evaluate the Azerbaijani and Georgian sections of Baku-Tbilisi-Kars (BTK) railway.

The nervousness of December caused by slump of oil prices and beginning of the economic crisis in Russia require more calm and reasonable discussion of the last economic year. Through the prism of the crisis and worsening of problems in the neighboring countries one can see all pluses and minuses of development of economy.

The end of year 2014 presented many challenges for the oil producing countries of our region, which were even worse, than the financial crisis of year 2008. Even though the previous crisis affected the economy in whole, it was localized within the borders of the financial system. It just slightly affected our country, oil incomes of the country grew rapidly. The low oil prices were just reflection of problems in the financial field and corresponding decline in economies. One can remember that for instance price decline was temporary and they went back up again. The current crisis of oil prices is different from the previous ones. Now political situation, economic demands of the countries, technological changes at the oil market, influence of the USD rate and investors’ behavior and mistakes of development of oil producing countries have intertwined into a one complex ball. Majority of the problems has focused on the oil prices this way or the other.

Let’s discuss all the problems step by step. It is getting harder to feel the price vector. There are many opinions on this issue. The border price, after which the oil price usually starts going up, is unknown now.  Vagit Alekperov, President of LUKoil company, believes that the oil prices could go down to $25.00 per barrel. Total company believes that oil price will drop to $40.00 per barrel and then the prices will go up. Analysts of the International Monetary Fund (IMF) believe that in 2015 oil prices will be in average $57.00 per barrel and then they gradually go up to $72.00 per barrel by 2019.

However, from time to time on can hear the statements that the oil price could go up to $200 per barrel. It is clear that it will not happen in the near future. But such statement are based on the fact that with the current prices investments into the oil industry could declineto 28%. It is getting more and more difficult to extract oil and with the suspension of the oil projects restoration of investments will demand even more investmets. This will lead to growth of oil prices. But this is the nearest perspective. Having analyzed dynamics of oil prices during the past half a century, some analysts claim that oil has 14-year cycles, when price grows and then the period of decline have the same length. But in any case, if one rules out all possible fluctuations, since 2000 the oil prices had a clear tendency towards growth. This tendency has ended at the end of 2014

Picture was the same during the previous cycles. The explanation is simple – during the period of high prices everybody is looking for the new alternative solutions to resist high prices. If this version is accepted, then what is the correlation between the price cycles and regular declines and rises in the world economy?

There are certainbly indisputable issues here: for instance, oil is overestimated. This explains why the world has been watching closely the indexes of the Chinese economy – this is a huge economy, which needs energy carriers and which to a great degree ensures demand at the world market. Especially now when the US becomes exporter of hydrocarbons. But the oil price is dictated by many other factors as well. In particular, there is a viewpoint that availability of a great amount of free money at the market and short-term rise in prices in 2008-2009 was caused by the fact that free money have led to rise in prices at the market.

Many analysts urge to get ready to a decade of low oil prices and do not have illusions that the period of low oil prices will end soon. One should also pay attention to the factors that have triggered this process. In early summer last year many people in Russia were sure that oil prices are deliberately reduced to punish Russia. There were certain political grounds  for that. It has become clear that we are witnessing change of the character of the oil market and Saudi Arabia and US were in a single combat. The struggle for share at the market has become so fierece that it has affected the pace of reduction of oil prices. Russia was just a secondary target here and many economists tried to remind that the Russian economy had the outlines of the crisis in 2013. The sanctions and reduction of oil prices as well as outflow of capital have affected the weakened “immune” system of the economy revealing its accumulated problems. The economists said long time ago that lack of reforms in the economy and especially institutional reforms, poor diversification and domination of the state sector will create problems without fail. This is exactly what has happened. If one takes a look at the anti-crisis program adopted by the Russian government, one can see that many offered decisions should have been made sevefral years ago without waiting for low prices and the economic crisis. Azerbaijan has a lot of lessons to learn here. (to be continued)