Azerbaijan: The Crisis Will Have a Negligible Effect

November 11, 2014

Laura Tuck Region plus

An interview with Laura Tuck, World Bank Vice President for Europe and Central Asia, by Nurlana Quliyeva, Region plus, Baku.

Azerbaijan's cooperation with the World Bank began almost immediately after it gained its independence. The fruitfulness of this collaboration can be seen in major projects implemented jointly. Over the past 20 years, the country has been allocated loans for 54 projects totalling 3.9bn dollars. In addition, the World Bank readily advises the government of Azerbaijan on various economic issues and conducts various studies, identifying strengths and weaknesses in the economic development of the country and making recommendations for the further improvement of the situation.

It is no accident that Azerbaijan was selected as one of three pilot countries in Europe and Central Asia, where the World Bank will build its strategy in the new format - not as part of the Strategy, but as part of the Country Partnership Framework. Work on this document is being completed.

It is precisely the successful experience of cooperation and new directions reflected in the strategy that were discussed during the first visit to Baku by the World Bank Vice President for Europe and Central Asia Laura Tuck. In an interview with R+, Mrs Tuck revealed further details of the visit, as well as World Bank forecasts on the economic development of Azerbaijan.

Region plus: The World Bank recently revised its forecast for economic growth prospects for Europe and Central Asia in the context of the current situation in the region, including the Ukrainian crisis. How serious do you think concerns are about the impact of the situation in the region on Azerbaijan's economy in the short and medium term?

Laura Tuck: Forecasts for economic growth in Azerbaijan are largely formed under the influence of the global economic situation and internal conditions in the country. And to a lesser extent they are related to political events. As you know, the World Bank believes that the outlook for economic growth in Azerbaijan in 2014 will be 4.5 per cent (5.2 per cent previously forecast - editor), which is mainly due to the decline in oil production in the country. In this regard, forecasts for the non-oil sector of Azerbaijan are lowered, because the decline in revenues from the sale of oil affects the reduction of government spending, which in turn affects the expected results of the non-oil sector.

For the next year the economic growth forecast has been lowered insignificantly - to 4 per cent. The reason is the same - continued decline in oil production. At the same time, given the forecasts on relatively low economic growth in the world, we expect a slump in the overall demand for oil in the coming year as a whole, which also affects the price of this type of fuel, keeping it at a low level.

Regarding the impact of the Russian-Ukrainian crisis on economic processes in Azerbaijan and in the region, today it is difficult to outline the full picture. On the one hand, the decline in economic growth in Russia will lead to a decline in Azerbaijan's exports to this country. And on the other - 86 per cent of the revenues Azerbaijan receives from export operations is the sale of oil and gas, which are traded on the markets of different countries. Russia occupies an important position in the structure of the country's non-oil export, and the decline of the rouble and the cheapening of the Kazakh tenge may adversely affect the competitiveness of Azerbaijani goods.

Also, the situation with the Russian currency may affect the level of remittances to Azerbaijan, but there are little global concerns here because their volume is only 2 per cent of the GDP of your country. But at the same time, Azerbaijan can benefit from the ban on the import of certain products to Russia from the US and Europe and expand agricultural exports to this country. As we can see, there are several options for the impact of the political crisis on the economy of Azerbaijan, and today it is hard to say which of them will dominate in the long run. In any case, I think the impact will be negligible.

Region plus: The portfolio of the World Bank in Azerbaijan encompasses many areas - from infrastructure to education, from health care to real estate registration. What projects can be considered the most successful today?

Laura Tuck: The World Bank has been cooperating with Azerbaijan for more than 20 years, and over these years we have advised the government a lot on a variety of issues, conducted studies, carried out analytical work, provided technical assistance, etc. The current portfolio of the World Bank for the country now stands at 2.8bn dollars and covers 18 projects. This year, as you know, credit agreements have been signed for three projects totalling 300m dollars, and two more projects are expected to be approved in the next few months.

As for the project that pleases me the most, the World Bank, selecting projects, primarily pays attention to their cost-effectiveness and coverage of as many people in need of help and support as possible. And at the same time, they meet the government's plans within the framework of the development concept "Azerbaijan 2020: A Look into the Future".

For example, we supported the government in the preparation and implementation of the programme of targeted social assistance, which helped solve the problem of poverty for many families. While in Baku, I visited an area where a project on solid waste management is being implemented today, and I was a witness to how successfully this issue has been resolved. Earlier, waste accumulated in the open countryside, where it often spontaneously caught fire, which had an extremely negative effect on the environment and human health, and today in this area - there is a modern enterprise with high technology, waste recycling is under way and the area is being landscaped.

We also met with participants in the Azerbaijan Rural Investment Project (AzRIP), and they told us about the real help that was provided within the framework of the project, particularly in the construction of roads, water supply, creation of medical points, etc. That is to say the form of the project where rural communities chose necessary land plots for investment turned out to be very successful, which ultimately influenced the strengthening of communities. They became convinced that they could eliminate problems themselves and change their lives for the better.

During my visit, I also visited a very "smart" courthouse in Baku, where work is organized using modern technology, the process of court hearings has been enhanced and various training sessions are conducted for judges and key staff, which certainly has a positive effect on the reforms in the field of justice and respect for the legitimate rights of citizens. It was very pleasant to observe that the work is organized using the best international practices.

Region plus: As you know, the World Bank is preparing a new strategy of cooperation with Azerbaijan. Which direction will be the priority in it? Did you discuss any WB plans on the country during your visit to Baku, in particular at the meeting with President Ilham Aliyev?

Laura Tuck: At the meeting with President Ilham Aliyev, we agreed on the process of identifying areas of cooperation and the priorities of the new strategy. Of course, we intend to cooperate in the areas identified in the development concept "Azerbaijan 2020: A Look into the Future" and other priority programmes of the government. On the other hand, the World Bank is conducting studies to identify the measures and concrete steps that can facilitate the transition of part of the population from the category of low-income families to the middle class category. The results of this analytical work will be ready in December 2014, after which we will hold broad discussions on the strategy of cooperation with the government, representatives of civil society, business community and partner organizations. After coordination, the document will be approved.

I should note that President Ilham Aliyev and I discussed many new ideas that still need further elaboration and comprehension.

Region plus: The World Bank recently issued a new Doing Business report, according to which Azerbaijan joined the world's top ten countries by the number of reforms. How do you assess the achievements of Azerbaijan? Which problems still need to be addressed to improve the business climate in the country? Is the World Bank ready to help the government in this field?

Laura Tuck: I should note that we are also pleased to see Azerbaijan among advanced countries by the number of reforms this year. Your country has risen from 88th place in ranking to 80th among 189 nations. As for the assessment of the reforms, three main areas were considered here - the simplification of procedures for starting a business using electronic signatures for the registration of enterprises, the introduction of online services in the field of real estate registration and the simplification of the payment of social insurance fees. That is to say in indicators studied by the World Bank, Azerbaijan has conducted 21 reforms since 2005, including reducing the time to start a new business from 113 days to five, which corresponds to the situation in Canada, reducing the time for the payment of taxes from 756 hours to 195 hours per year, etc.

As for problems, of course, there are areas that still need work. For example, for starting construction work it is necessary to go through 21 administrative procedures, which is the highest indicator in Europe and Central Asia. Also, 164 days are required for connecting to the power grid, and this is one month longer than the same regional indicator. The World Bank holds consultations with the government and the business community to improve these procedures.

At the same time, I would like to note the establishment of the ASAN Service among successful government reforms. I visited one of its offices in Baku and I want to say that the success of this service really left a very positive impression. We would very much like to see it expand its activities both geographically and according to the list of services provided. If the government turns to us with relevant offers, we will gladly render the necessary support. However, as I have already noted, the World Bank is ready to support the government in other areas as well, specifically in the development of the financial and banking sector, on which we conducted extensive discussions with the chairman of the Central Bank, Elman Rustamov.

We can also advise on all other positions of the Doing Business report, on which Azerbaijan has relatively low results, and share the experience of countries with the best performance. In addition, we are ready to help fill the financial gap that took shape in the oil sector due to the decline in oil revenues by attracting private investment.

First published in Region plus on 11 November, 2014.

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