British Company Analyst: Azerbaijan to continue leading in region
Azerbaijan, Baku, April 3 / Trend A. Badalova /
Business Monitor International Emerging Europe Analyst Richard Grieveson spoke in an interview with Trend specially for New Azerbaijan newspaper.
Q: Azerbaijan is currently stepping up economic and political cooperation with many countries in the world. How can you estimate the current economic situation of the country in the region?
A: Azerbaijan's 9.3 percent real GDP for 2009 was impressive, and marks it out as a clear out-performer in the CIS. We expect the country to continue leading the region in headline real GDP growth going forward, as oil production increases and the oil price remains robust. Growth should rise back above 10 percent in 2010, before settling near 7 percent thereafter.
We see the potential for increased demand from Turkey in particular, given that we expect Turkey to rebound fairly quickly from the 2008-2009 downturn. However Azerbaijan's main export destinations are, and are likely to remain, predominantly countries outside of the region - in particular Italy, Germany and the United States. In terms of imports, the situation is slightly different, with an increasing percentage of imports coming from Turkey and Russia in recent years, something which we expect to continue.
Q: It's known that the importance of Azerbaijan in realization of some energy projects is considerable. But the country is rich in other natural resources and also has a potential in such areas as tourism, ICT. How attractive is non-oil sector in Azerbaijan for the foreign investors?
A: Oil will continue to be the main driver of growth over the medium term. However, gas is likely to become an increasingly important commodity as well. Until now, growth has outpaced the increase in consumption, with private consumption falling to around 35 percent of GDP from over 60 percent in 2002. However, we have long highlighted the beneficial spill-over effects that oil-led growth should have for the wider economy. We expect GDP per capita, which has already increased almost ten-fold in the past decade, to more than double by 2014, which should see households' spending power rise quite rapidly over the next few years. This will be supported by the banking sector, which has weathered the 2008-2009 financial crisis much better than in most other European countries and should keep credit growth to the wider economy relatively robust. As a result, the banking, real estate and retail sectors in particular should perform quite well in the next few years, though we see opportunities in most areas of the economy.
Q: The World Bank named Azerbaijan as the number one reforming economy worldwide. The country is also of great interest to foreign investors. How do you evaluate this factor in terms of participation of investors in larger projects of the country?
A: Azerbaijan was 38-th in the World Bank Doing Business 2009 report, which compares fairly well to other countries in the region, with the obvious exception of Georgia. On the 'protecting investors' component it ranked 20-th, and this, combined with its huge energy resources, should keep Azerbaijan firmly on investors' radar screens. However, two things will continue to weigh on Azerbaijan's risk profile. First is corruption, given that Azerbaijan ranks 143-rd in the world on Transparency International's Corruption Perceptions Index. Second is Nagorno-Karabakh. Until a firm breakthrough is made on the enclave's future status, we expect political risk factors to continue to deter some investors.
Q: Azerbaijan has successfully overcome the global financial crisis and maintained a high rate of economic development. In your opinion what are the main reasons for such positive results?
A: Three things have allowed Azerbaijan to weather the crisis so well. First is oil - the economy struggled through the first half of 2009, but once oil prices recovered, the economy really started to motor again. You can see the impact of oil from the breakdown of GDP - although headline growth was 9.3 percent, non-oil growth was only 3.2 percent. Second is the government's willingness to open up the oil sector to foreign investment, which has allowed for rapid production gains. Finally, the banking sector was very well positioned going into the crisis, which allowed it to keep supplying credit to the wider economy throughout the downturn, unlike in much of the rest of the region.