Rivalry between domestic and foreign investments

Politics Materials 18 October 2007 12:04 (UTC +04:00)

Azerbaijan is still attractive for investments. The data on increase of investments provided by the State Statistics Committee, enables to come to this idea. As of official data, in the first half-year of 2007 foreign investments in the Azerbaijani economy made up $2448.7mln, or 7.5% more as compared to the first 6 months of 2006. In this period direct foreign investments made up $1895.3mln (77.4% of total foreign investments), and 17.6% ($429.9mln) fell on foreign loans. Investments in the oil and gas sector rose 2.6%, and held 71% ($1738.8mln) of investments. In this period, $156.5mln in direct foreign invtesments was raised in the non-oil sector of economy.

So, oil and oil related fields remains to be popular for foreign investors. High oil prices, favorable forecasts in this respect and stable oil policy represent priority for businessmen of foreign countries interested in soon obtaining incomes from their capital invested in the Azerbaijani economy. For instance, the amount of direct investments in the oil and gas sector beginning from 1994 made up $20bln, whereas the share of non-oil sector is а bit moire than 2%.

In case when the foreign investors are more interested in oil sector the Azerbaijan Government takes every effort to encourage investment and boost the interests in the non-oil sector. The Government even defined a body which is responsible for implementation of state strategy on the development of non-oil sector. This is the Azerbaijan Investment Company (AIC), established at the Azerbaijani President's decree on Additional measures on encouraging investment activities, dated 30 March. The key mission of this resource is to invest in strategic and high-profitable projects such as transport corridors, pipelines, as well as encouraging investments in the development of the no-oil sector of economy.

AIC will establish its investment attractiveness on urgent investing in companies through acquisition of share, purchasing shares in the joint-stock companies and other commercial organizations, mostly involved in the non-oil sector. Investments will be of urgent character and given for the term of from 5 to 7 years. Financing definite projects, stipulating support to business, the Government intends to undertake part of risks (30%-40%), whereas the rest will be laid on strategic investors, the attraction of local and foreign investments will be insured. According to the Finance Minister, the investment company can attract funds more by 4-5 times compared to foreign investors, or $400-500mln.

On the basis of AIC's activities, plant for iodine salt production, garbage reproducing plant, diary factory, cement factory, oil terminal will be established in the non-oil sector of economy and petrochemical complex and ship-building company will beset up. By the end of 2007 the AIC intends to consider several investment projects in agriculture and refining industry in agriculture. The company is interested in the application of last technologies in the world to plant vegetables, fruits, and flowers, like the production and processing in agriculture. This is the diary production and juice production. At the same time investment attractiveness of cattle breeding and broiler economy.

As to other spheres, the AIC takes interest in projects in the sphere of construction materials. This is not only cement, but also facing materials. Meanwhile, the opportunities for investing in glass industry are also under consideration. The company is also interested in some spheres such as communications and logistics. Much work is done with investors and segments for investing are defined.

According to the Azerbaijani Ministry of Economic Development, this year for the first time since 1994 investments in Azerbaijani economy through internal sources will exceed the amount of foreign investments. It is linked with growth of country's opportunities, but not closeness of the economy for the world economy. In the opposite, Azerbaijan is a country profitable for investing. One of the stimulating factors in the tax legislation is the absence of differences in taxation of local and foreign businessmen. They have equal rights. On the other hand, the foreign investors are mostly interested in stable tax policy. Rates are cit every year, but not increased. For instance, there are 9 types of taxes in Azerbaijan, while by 2001 when Tax Code was adopted, they numbered 13. The profit tax rate in Azerbaijan is lower as compared European countries and it is a good factor and stimulates flow of foreign investments.

In accordance with local legislation, foreign investors are allowed to participate in local market through establishing joint ventures and local companies, daughter companies, belonging to foreign investors, representations and branches of foreign legal entities. Another factor is the possibility of repatriation of incomes, obtained in the country and abroad without any obstacles and no limitation is put in the tax legislation in this respect.

To develop definite spheres of economy and attract investments to Azerbaijan the state level, stimulating means are used and tax privileges are applied. In 2007-2008 it is also planned to establish zones with privileged tax regime, in particular, in Nakhchivan Autonomous Republic. In future special economic zones will be established to attract investments not related to oil production. Currently, a relevant project is being developed and following its adoption the interested investors will sign agreements for $250-$300mln.

Membership at the WTO will make Azerbaijan more attractive for foreign investments in non-raw industrial production. Big foreign companies will consider membership at the WTO as a guarantee for presence of major international business experience standards such as protection of patent and copyrights, in the country. Moreover, flow of investments will depend on other factors - inviolability, independence of legal system and transparency of tax system.