Out-of-reform development

On December 6, 2016, President of Azerbaijan Ilham Aliyev signed a decree on approval of "Strategic roadmaps of national economy and main sectors of economy" made of 12 roadmaps on the development of various branches of national economy.

It ought to be noted that this 947-page document was presented as a strategy of country"s reforming. Later on, a word "reform" was frequently used by the Azerbaijani authorities as exorcism to persuade everybody that large-scale reforms are underway in the country.

President personally titled them as "large-scale reforms" or "a new stage of reforms".

It is characteristic that foreign rating organizations hastily entered Azerbaijan in the list of reform leaders. A World Bank"s "Doing Business"- 2018 report mentioned Azerbaijan among 10 most reformist states worldwide (the greatest number of economic and institutionalist transformations).

With 32 grades ahead in the report from 2017, Azerbaijan ranked 25 among 190 countries and took a leading position among CIS countries.

It should be added that "Index of global competitiveness" annually compiled by the World Economic Forum (WEF) by 140 states worldwide placed Azerbaijan 35 in 2017 but put it 69 in 2018. It is obvious that roadmaps mattered in the first case and underrating of results in the second due to high expectations.

A question arises: have we witnessed any radical changes in economy, social and legal spheres, policy, etc.?

A meaning of a word "reform" provides for radical alterations in object or subject, specifically a state or a specific area. A final end of reform is to renovate and strengthen a basis of the state.

Granting this, in the reviewed period we have not witnessed any radical transformations in particular area or country as a whole. The above has been grounded legally and politically: fundamental 12 roadmaps (RM) of strategy of economy transformation provide for no reforms but "development" of branches and spheres (as indicated in RM).

As a matter of fact, the point is about improvement or updating of the current system. In other words, we can speak not about change of ineffective system of management and fundamentals of the state but their improvement, i. e. consolidation of already existing principles.

Subsequently, a word "reform" followed programs and projects adding them reformist meaning, as was the case with a Presidential decree "On deepening of reforms in the judicial-legal system" dated April 3 this year.

It must be conceded that the decree provides for implementation of reforms aimed at ensuring fairness as a criterion of truth, humanization of criminal policy, raising of effectiveness of justice, introduction of electronic court, etc. Has something changed in the reviewed period? For instance, protests against celebrated judicial proceedings titled "Gyanja" and "Terter" cases are illustrative that all tasks directed to reforming the judicial-legal system are not complied with and no reforms implemented. In principle, the electronic court has been introduced a couple of years ago; however, there is neither broadcasting from a court-room nor virtual participation; video-, photo-filming and audio-recording are prohibited.

The same is true of the so-called large-scale reforms where we are witnessing some improvements and technical innovations (DOST) but no reforms.

It should be added that large-scale reforms start with political reforms - alteration of existing realities, not declared ones. For instance, elections which are fundamental basis of power legitimacy - legitimacy that implies delegating rights and obligations on implementing constitutional principles to a person or a group of persons. Also, the reviewed period saw a referendum, presidential elections in the country. Were these elections democratic to comply with domestic and international standards? No, far from being democratic. Granting this, if we fail to ensure implementation of radical reforms, no transformations in various spheres of the country as a whole are probable.

It should be added that the Aliyev administration has not officially titled the strategic roadmaps as a program of reforms. That"s why we can speak about modernization in Azerbaijan, successes or failures but not about reforms.

It must be acknowledged that a concept of modernization (improvement) is not new for Azerbaijan to have been declared simultaneously with modernization in Russia during Dmitry Medvedev"s presidency in Russia. Despite their pomposity in both cases they were not implemented. The reason was that they were based on norms and principles of democracy. In the end, the time was wasted due to the financial crisis of of 2008 where the two countries proved to be unprepared for a more serious crisis of 2014.

That was due to the lack of democracy in the past period to continue nowadays, for the improvement goes on inherently, i.e. activities of civil society in the person of opposition parties, non-governmental organizations and independent mass media. Underway is the process of expansion and legalization of top officials" business in the form of various economic subjects, i.e. hidden monopolization of country"s economy. We see no backbone of any successful state in the form of highly developed small- and medium-sized business in agrarian sector or economy. There is still monopoly on foreign trade transactions eve despite the fact that the situation at customs seems to be preferable for business in the form of legalization of duties and taxes.

However, the government did not cancel 18% VAT, and the customs administration is engaged in establishing prices for imported goods not in conformity with a contract between a supplier and a buyer but in line with its own overstated price-list which visibly raises import and thus restricts the number of participants of foreign economic activity. Testifying to the current monopoly on goods are taxes imposed on Internet-purchases of foreign goods and uniformity of imported goods at the local market. In so doing, the Azerbaijani government persists in avoiding country"s membership in the WTO.

Despite the so-called "development", the Azerbaijani economy cannot compensate for losses from sharp changes in exchange rate of manat in February and December 2015.

There is also increase in dependence upon oil and gas resources nearly in areas. Suffice it to say that an oil income share in the state budget revenues rose from 47,7% in 2017 to 59,5% in 2018, while a share of crude oil, petroleum products and natural gas in export rose from 88,62% in 2017 to 91,17% in 2018 and finally a share of oil and gas sector in GDP rose from 37,17% in 2017 to 42,56% in 2018.

As for the formation of this year"s budget, a share of earnings at the expense of transfers from the State Oil Fund (SOFAR) is expected to constitute approx. 50% while a volume of direct oil revenues at the expense of SOCAR and AIOC payoffs will make up about 13 bln 700 mln manats which is up 70% from 2017. In turn, it is understood that this year"s share of state budget revenues from the oil sector will exceed 60%.

A similar situation is typical for export as well. At the expense of rise in oil prices at the world market in the first 4 months 2019 a share of crude oil, petroleum products and natural gas in total gas volume made up 91,62% and a share of oil sector in GDP - 42,82%.

It has to be kept in mind that in January-April 2019 a GDP of Azerbaijan went beyond 2,1% as compared to the first 4 months of 2018. Note that a last year"s GDP of Azerbaijan made up $46 bln 939 mln which was down $28 bln 720 mln from 2014 ($75 bln 659 mln). In other words, given today"s growth rates, a GDP volume lost in comparison with that in 2014 might be restored within 23,5 years, i.e. later 2042.

It should be remembered that rates of the economic growth of Azerbaijan in 2018 made up 1,4% as compared to 0,1% in 2017.

Despite steps of the government aimed at diversifying the economy and its declarations on reduction of economy"s dependence upon oil and gas revenues, a GDP growth in non-oil sector made up 1,8% against 2,7% in 2017.

It is worth reminding that earlier 2019 Azerbaijan"s external debt reached approx. $9,7 bln (up 3,2% a year) due to the fact that country"s foreign payment commitments rose as well.
In other words, increased world oil prices in 2018 failed to help Azerbaijan with replenishing its monetary reserves.

It is important to note that higher economic growth is required to advance and restore the lost position. However, it is impossible to attain this goal under current management. Serious reforms ought to be carried out in the country to reach economic growth. For this to happen, it is essential to make radical changes in providing economic freedoms and decentralization, institutional and structural reforms in all spheres. Perfunctory alterations cannot reduce to essential transformations in the economic development as a whole and social conditions of the population in particular.

It should be borne in mind that implementation of the economic reforms out of touch with political ones, including a high degree of human rights and private property protection, freedom of speech and supremacy of law, cannot bring the country to the advanced position in ratings because they are interdependent.