On the crest of the growth of the economy loses control

The election period always makes the government to prove that it has no alternative, at least in the economic area. The authorities also promise to raise pension by 15-20% as well as salary of employees of some budgetary organizations. Important foreign economic agreements started last month.

Economy started growing. From January to May 2013 GDP production in Azerbaijan totaled 22.1 billion AZN, up 4.5% against the same period in 2012. Specific weight of the non-oil sector, which during this period had growth of 11%, in the GDP structure constituted 52.5%.

Share of industry in Gross Domestic Product (GDP) exceeded 50%. Construction sector has significantly grown and its specific weight in the production of value added constituted 9.7%. This has led to growth of production of building materials, which constituted almost 25%. During five months agriculture ensured 2.8% of GDP, but there are still possibilities of new growth here. The pace of growth is the highest in the construction sector – 38.7% and hotel business and public catering – 20.3%. There are no doubts that such a pace of growth cannot last long. However, the government hopes to maintain growth till the end and exceed the limit of growth of 5%. International financial organizations are more skeptical about the forecasts of pace of GDP growth. The government hopes that oil production on Western Chirag will start soon and this will help to ensure a positive growth at least till 2016. In 2012 economic growth in Azerbaijan constituted 2.2%.

Decline in the oil production has gone down. BP and the government have been conducting discussions constantly. The oil giant is ready to invest capital into increase in production, but it would like to do that through partnership with the government. But the government has already joined several big expensive projects both inside and outside of Azerbaijan and does not intend to invest more capital into the Azeri-Chirag-Guneshli (ACG) fields.

During five months GDP per capita increased by 3.1% and totaled 2389 AZN ($3044.4). In other words, it will again exceed $7000 in the end of this year. This means that Azerbaijan has already left the Developing Country League and is transiting to the next League. Azerbaijan has recently paid all its debts to the World Bank as a part of the crediting program and is going to become the creditor for the developing countries.

During 5 months, 2012 3.9 billion AZN (+26.1%) has been invested into the non-oil sector of economy, of which 78.7% falls to the government and the state enterprises. Since early year 5,762.6 million AZN has been invested into development of the main capital in the country, up 27.4% against the same period in 2012. 2,772 million AZN or 48.1% of all investments has been allocated from the state budget and State Oil Fund of Azerbaijan (SOFAZ).

From January to May 2013 foreign trade turnover of Azerbaijan totaled $14,725.6 million, up 2.1% against last year. The growth has been achieved at the expense of increase in import of products by 18.6%. During this period export dropped by 3.4%. According to the State Statistical Committee, from January to May 2013 products to a total amount of $10,365,000 have been exported from Azerbaijan. 44% of export ($4,864,000) falls to the EU member-states. Specific weight of the state sector in the export portfolio is exremely high - 94.4% ($9,784,000). A lion share of export (92.6%) are energy resources (crude oil, oil products and natural gas). During this period products to a total amount of $4,360,000 have been delivered into the country. Import of products from the EU-member states totaled $1,468,000 or 33.6% of import. 32.5% of import falls to the state sector.But it is naпve to think that the other part of import operations are realized by free importers. Everybody knows that the majority of import of the country linked to the state officials.

Now when the government has launched majority of the projects, one realized that it is involved in almost all the sectors of economy. This could be called the state capitalism, but everybody knows that a small group of monopolies dictates rules of the game. What are the priorities of growth in these conditions? Stake on development of infrastructure has justified itself just partially. It, certainly, ensured employment, improved communication between the regions and ensured growth of transit. But one should not overstate its importance. In particular, in the past years cargo transportation through the country grew very slowly. During five months their growth constituted only 2.5% (up to 89.5 million tons) against the same period last year. The growth was mainly ensured by the auto transportation (growth by 6.9% or by 46.9 million tons of cargo). 96.2% of all passenger transportation in the country fell to the auto transportation. The cargo transportation by sea decreased by 5.3% and totaled 5.1 million tons. Passenger and cargo transportation by air also increased. The great hopes are pinned on creation of a new international port in Alyat district and opening of the Baku-Tbilisi-Kars (BTK) transportation corridor.

Diversification of economy already brings certain results. In the past the capital investments part in the State Statistical Committee’s monthly report mentioned mainly the restaurants, social and cultural objects and first of all construction and assembly works in the oil and gas industry, but now industrial enterprises are more often mentioned among the built objects. It is enough to mention the enterprises that have been already built, those currently under construction or ready to construction. This is methanol plant, which will start manufacturing first products this summer. Sumgait STP, including the plant manufacturing solar batteries. The Baku ship building plant, which is planned to be put into operation at the end of this year. The park for textile products manufacture has been built in Sumgait. Construction of carbamide plant will start soon and construction of a big oil refinery and petrochemical complex will begin in the Garadag region. The assortment of manufactured building materials is getting wider. Right after the betonite plant, they have built the enterprises for production of cellular concrete and fluorocement and several big cement plants will be put into operation in the near future. Construction of small enterprises is a positive aspect of economic policy, which will ensure replacement of import. We mean the salt producing plant in Masazyr and two new enterprises in Sumgait city – the plant manufacturing cardboard packages and construction of the paper plant, which has just started.

What strikes with even surface monitoring of new enterprises is that they have a market and they introduce their share into the export of the country. Their efficiency will become clear only as soon as local demand is satisfied and they will start exporting their products. Azerbaijani President openly urged big economic structures to enter other markets. Azerbaijani market is small and breaking into other markets is inevitable. There is another way – to open Azerbaijani market for big foreign companies and they will start developing the regional market. Among the newly built enterprises there are only few enterprises built by foreign investors or by joint ventures. Canub power station, which is equipped with the latest technology, has been recently launched. Its degree of efficiency is estimated at 52%, which is a good index for the electric energy sector. Where is the export market for the growing capacities in the electric energy?

One cannot content oneself with some positive moments in the started re-industrialization of economy. In this case we mean completion of construction of Azerbaijani methanol plant.

Azerbaijan Methanol Company (AzMeCo) was founded in 2007. Nizami Piriyev, chairman of AzMeCo Board, told journalists that it will manufacture 730,000 tons of methanol and its construction will cost $360 million. The term of the project recoupment is 6 years. The idea to build the enterprise, which will create the entire technological chain, was right. Azerbaijan does not have a big demand in methanol now, therefore 90% of products will be exported. It is expected that in the future demand in methanol inside the country will start growing with development of petrochemistry in Azerbaijan.

Among the advantages of the project is that the government started looking for the markets for the products in advance. In November 2012 the off take agreement for sale of Azerbaijani methanol was signed in London. BP obtained the off taker status for the entire products of the company. The enterprise was built on the basis of ICI technology, which is owned by Johnson Matthey company. The plant will operate in the auto pilot regime with use of IT technologies of the US Honeywell company. The automated plant will have only 80100employees. This is not a labor-intensive enterprise from the viewpoint of creation of permanent jobs. But employment here is guaranteed for a long time. The enterprise plans to grow. It occupies a rather big area and is going to expand at the expense of creation of new enterprises on this territory, which means building of a commercial chain. AzMeCo has been also negotiating with the Sumgait technological park for construction of the enterprises on its territory, which will use methanol as a raw material. There is a world tendency of growing popularity of methanol. Till 2020 China plans to build 220 methanol enterprises.

Methanol is not in great demand in Azerbaijan, because of excess of hydrocarbons in the republic. But methanol has advantages – it is ecologically clean production and even associated carbonic acid is again utilized. It will most likely be used at our oil refineries as a source of production of a special ether, which can be used as an additive to increase octane level of petrol. Methanol also can be used to produce dimethyl-ether, which is a substitute of diesel fuel. Dimethyl-ether can be used in urban transport to preserve ecology of the city. The prototype of cluster production could be found here.

The above-mentioned shows that the government has something to be proud of. In the public speeches the officials even exaggerated the republic’s successes. But it is naпve to think that the government is not aware of the future problems of economy. It tries to accelerate development of the fuel-energy sector, looks for the ways to diversify economy and tries to push development of the chemical industry. But weakness of our current economic policy is its inconsistency. The industry has not clear program of development. The law on private investment funds was adopted several months ago, but there are no signs that they will emerge. Although creation of such investment funds together with the open financial accountability of companies is one of the foundations of development of the stock market. Mass introduction of ATM machines and POS terminals is in progress in the last several years, but only the government started taking serious attempts to stimulate cashless payments. The conversation about free economic zones started for the first time over ten years ago and only now it is planned to build them in Baku, Sumgait, Ganja and Mingechavir. Nobody can explain why their creation has been delayed. The government has recently established the Azerbaijan metallurgic company to reanimate this sector. This activities of the new company are associated with the activities of Baku Steel Company (BSC). The scandals around the company started six months ago. Nobody could imagine that it could easily buy almost all shares of Azerboru at the privatization auction and become owner of the enterprise. Nobody can find out who is a real owner of BST and small metallurgic enterprises seized by it throughout the country.

Economy loses its manageability, because the government is not inclined to implement deep economic reforms and make economy really transparent. It does not want to deal with big economic groups and change character of the current sluggish privatization or conditions at the customs. It does not want to fully restore its arbitral functions in the disputes between big monopolists and small medium-size business. It is not inclined to increase the degree of economic revival in the country above a certain limit. The strengthening state control over economy also increases its uncontrollability. Considering that our government has the best intentions, which dictate it the economic steps, it is unknown when they will come to naught. We think that the problem of the authorities is not that they pursue a wrong economic policy, but that they are afraid to disturb the conservative structure of economy.