Has Azerbaijan really made a great progress as stated in the "Doing business 2019" report?

Since 2004, the World Bank has carried out an annual worldwide project of business regulation reform, called Doing Business and from now on Azerbaijan has regularly been mentioned in these studies. Its purpose is to produce a quantitative measure of regulations that reflect regulatory reforms aimed at improving the ease of doing business. The survey measures the regulatory environment for domestic small and medium-sized businesses, based on a country's performance in ten indicators of business regulation.

Countries and regions are ranked accordingly, with the rankings on the ease of doing business an average of the ten indicators covered, weighted equally. A high ranking indicates that the regulatory environment is conducive to the operation of business. The rankings do not reflect other aspects of the business environment, including macroeconomic stability, the financial system or the skills of the workforce. The actual data are based on domestic laws and regulations, as well as administrative requirements.

The report "Doing business" lays an emphasis on a coefficient of global distance to frontier DTF. At the same time, the report explorations embrace the following 10 indicators: 1. starting a business 2. dealing with construction permits 3. employing workers 4. registering property 5. getting credit 6. protecting investors 7. paying taxes 8. trading across borders 9. enforcing contracts 10. closing a business.

From 2016 on, business environment assessment by the above-stated indicators has been supplemented, along with costs and procedures, by indicators attributed to quality control of construction, reliability of electricity supply, transparency of tariffs, quality of court proceedings and territorial management. When drafting the report, every indicator is assessed within the range of 0-100 points. The latter means the most progressive, advanced level. Country"s high position by any indicator is illustrative of its proximity to the most advanced experience.

To reach the essence of this report, I would like to focus primarily on the methodological aspects of the report and the achievements of Azerbaijan in the past five years.

Note that Azerbaijan has been ranked 80 among 189 countries by the "Doing Business 2015" report, and rose from 80 to 63 in the 2016 report. The report 2017 ranked Azerbaijan 65. Under this report, Azerbaijan was one of world"s 29 that carried out 3 and more reforms. The "Doing Business-2018" report ranked Azerbaijan 57, improvement was 8 grades.

Even better, Azerbaijan was put on the list of 10 countries that attained noticeable results by the number of reforms, according to the "Doing Business-2019" report distributed by the WB on October 31, 2018. Also, the report announced the country to lead by the number of reforms. As compared with 2017, Azerbaijan stepped up 32 grades to hold 25 place among 190 countries to leave many countries behind. In so doing, Azerbaijan ranked high among CIS countries concluded the list of 25 most developed countries, including neighboring Georgia.

The "Doing Business-2019" report states : "Azerbaijan as a part of the European and Central Asian region set up a record among 10 countries with their best indices by having carried out reforms in 8 areas in 2017-2018 and thus promoting the business activity".

However, debatable is the fact that Azerbaijan with its 78.64 points out of maximum 100 according to the "Doing Business-2019" report of the WB settled down in the group of 25 countries out of 190 countries worldwide.

The questions can be grouped on three main themes. The first group deals with reasons of Azerbaijan"s advancement in the rating scale. Thus, some experts are surprised that Azerbaijan has risen 32 grades within a year. The second group touches upon Azerbaijan"s insufficient integration into regional and global economic alliances and country"s execution of its international commitments. The third group views Azerbaijan"s current position in other international rating tables relating to business-climate and its regulation.

The present article tries to identify Azerbaijan"s success as set forth in the doing business rating. To answer questions arising from the first group, it"d be expedient to present an official stand on the issue. It should be noted that under a decree of July 13, 2016 № 2199 President of Azerbaijan approved a plan of actions "On improving business-climate in the Azerbaijani Republic and further improvement of country"s position in the international ratings".

An appropriate commission has been set up under the decree. The plan of actions consists of sections as follows: "Development of financial markets and accessibility of credits", "Effective management and macroeconomic indices", "Labor market", "Physical infrastructure", "Execution of contracts, settlement of disputes, closing and bankruptcy of enterprises", "Judicial system and rule of law, "Corporative management, investments, protection of interests of investors, business ethics and corporative social responsibility", "Foreign trade and trade tariffs", "Taxes and book-keeping", "Human capital", "Technologies and innovations", " Trading across borders", "Public health system", "Effectiveness of commodity and competition market", " Getting an electricity connection ", "Construction permits", "Corruption and transparency", "Property registration" and "Crime prevention costs". It is obvious that the government aims to get a major international rating over doing business in the country.

It is evident that in adopting documents cited above the governmental circles voiced their interest in improving their ratings in the mentioned reports. What is at issue are reports on global competitiveness, economic freedom, global innovations and global capabilities. However, in the countries like Azerbaijan with its serious problems in the rule of law and independence of judicial system it is not sufficient to express intentions only.

In other words, it is impossible to explain reasons of sharply jump in the "Doing Business" report as being due to the adoption of the plan of measures only. That considered, it"d be appropriate to look at the WB stand on the issue. Below-cited are tables indicating differences as referred to the previous report on indicators.

Table 1. Comparison of indices on position of Azerbaijan in the "Doing Business-2019" report with last year"s indices.

As the Table shows, the report for 2019 is illustrative that Azerbaijan, as compared with the previous year, rose by 100 grades by each of the following indicators " Dealing with construction permits " and "Getting credit "; by indicator " Protecting investors " - ranked second in the world; by indicator " Starting a business " - ranked 9.

Under the report, Azerbaijan made a considerable progress by 8 indicators out of 10. Let"s look at these indicators and the progress made.

In the first turn, it"d be expedient to draw attention on indicators " Dealing with construction permits " and " Getting credit " that attained the greatest progress. Under the "Doing Business-2017" rating, Azerbaijan was ranked 127 in dealing with construction permits which provided the execution of 21 procedures and 203 days. In so doing, an emphasis was laid on the lack of general layout or detailed plans of territories, construction permits for a great number of separate structures, lack of the system of electronic address, non-use of single window, other factors.

Following appropriate amendments in the legislation in March 2018, the number of procedures for dealing with construction permits drooped from 21 to 10, and time for issuing - up to 30 days. Acceptance into service dropped from 30 to 20 days. An obligation to issue technical conditions in line with single window principle has been placed on "ASAN (easy)" service. Also, a portal of electronic services on issuing construction permits has been created. However, appeals to "ASAN" service or portal of electronic services are not very frequent.

One of the main reasons of the situation lies in the fact that companies go on acting in keeping with traditional methods. The reason is that no corruption has so far been removed. Another problem is linked with property registration which is typical both for individuals and business subjects. Thus, problems of multifamily housing acceptance/commissioning and issue of property acts remain unsolved so far. As for the general layout of Baku development, the company "The Boston Consulting" Group has been drawn in the process. However, the work is still underway.

Beyond any doubt, there is some progress in dealing with construction permits; however, it is hardly probable that the position of Azerbaijan in the sphere has improved by 100 units. The reason is that it is impossible to address problems within a few months; years are required to attain the goal.

As for essential progress by ""Getting credit " indicator (see Table 1), it is officially explained as being due to the following: creation of the first private bureau; along with banking and non-banking credit organizations, it acts as providers of mobile and communal services, introduction of scoring and other systems, as well as the start of the Collateral Registry under Financial Market Supervision Authority.

However, all the efforts notwithstanding, no visible progress in entrepreneurs" access to financial resources and expansion of consumers of credit organizations has been reached. Thus, according to the State Statistical Committee, as of September 1, 2018 the volume of credit investment in January-September 2018 was down 0,6% from first 9 months of 2017 and down 26,5% from the same period in 2016. So, essential changes by "Getting credit" indicator seem not convincing.

It has to be kept in mind that indicator " Getting an electricity connection " is ranked third in the report for 2019. Main issues of the indicator were the creation of electric energy distribution map, introduction of geo-information system, setting of energy curtailment limits, definition of fines and compensations for curtailment of energy.

Despite massive curtailment of electric energy in Azerbaijan over the past 10 years caused by explosion at the 6 power-generating unit on the night 2 to 3 June 2018 and subsequent power setbacks, no emoluments had been granted to individual and business consumers. In this connection, state companies had not been fined. However, Azerbaijan"s index has been improved by 28 items.

Official statements refer to main reasons as follows: simplification of procedures related to energy supply and construction of business facilities; abridgement of grid connection time, from 69 to 24 days and reduction of single window procedures, from 3 to 7.

Another group of "Doing business 2019" report-related questions is due to Azerbaijan"s gap within the international integration. Thus, despite talks in 1997, Azerbaijan is not a member of the World Trade Organization (WTO); moreover, despite the participation in the Program of Eastern Partnership since 2009, the country has not yet signed "Deep and comprehensive agreement on free trade" (DCFTA) with the European Union. At the same time, Azerbaijan withdrew from the extracting industry transparency initiative (EITI) in 2017 and did not change its status of inactive member in the open government partnership (OGP), and even closed a local branch of the Transparency International organization in 2017. In considering that Azerbaijan as a member of global initiatives in the sphere of transparency and struggle against corruption fails to comply with minimum requirements, country"s spasmodic development in the "Doing Business" index seems ungrounded.

And finally, the last group of questions going back to Azerbaijan"s position in other international ratings. Thus, it has been ranked 122 among 180 countries by the latest Corruption Perceptions Index; ranked 82 among 128 countries by the Global Innovations Index; ranked 67 among 180 countries by the level of economic freedom (prepared by the Heritage Foundation and "The Wall Street Journal"); ranked 106 among 162 by the Index of economic freedom (drawn up by the Canada-based Fraser Institute and Society of Economic Freedom of Ukraine) - 106 place among 162 countries. Besides, Azerbaijan is within countries facing high level political, economic and financial risks and their own position CRT- 4 due to the risks in the Global Capabilities Index. All of this cast aspersions on Azerbaijan"s "successes" as shown in the "Doing Business 2019" report.

To conclude, it"d be appropriate to note that despite Azerbaijan"s advancement in the index "Doing Business-2019", essential changes within a year seem not convincing. The country failing to complete transition to the market economy is faced problems as follows:

- business-climate and its regulation, bilateral investment agreements and tax contracts, transparency of business regulating system, independence of judicial bodies, protection of foreign investments;

- adoption of the Competition Code and other anti-monopoly laws, bankruptcy procedure application, property rights protection, particularly the intellectual one; labor and capital market, portfolio investments, monetary and banking system, ineffective exchange rate policy, corruption and non-transparency in government-owned companies.

No business climate improvement is possible without resolution to all issues mentioned.

"Doıng busıness 2019" - Training for Reform", World Bank Group, page 13. https://openknowledge.worldbank.org/bitstream/handle/10986/30438/9781464813269.pdf?sequence=2&isAllowed=y

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http://www3.ambest.com/ratings/cr/reports/azerbaijan.pdf