Trio of institutional development of Azerbaijani banking system
The main trend in the institutional development of the Azerbaijani banking system in the near future is functioning of the universal banks, offering an ever-expanding range of products and services.
Thus, the Central Bank of Azerbaijan (CBA) will focus on the institutional development of the banking sector in 2012, Director General of the CBA Rashad Orujov told journalists.
Orujov identified three main directions of institutional development for the next year - improving corporate governance, risk management, introducing information technologies in banks.
A characteristic feature of the 2006-2011 institutional development of the banking sector was the presence of a sustained trend to change in ownership structure: in the specified period the number of banks with foreign capital has increased from 20 to 22, including from 5 to 7 banks -with foreign capital of more than 50 percent. As a result, the Azerbaijani banking sector formed a competitive environment for banking business.
Foreign banks by opening its offices brought new technologies, new products, new ideas and new professionals needed in the Azerbaijani market.
There was privatized one of the two state banks in Azerbaijan - Capital Bank, the International Bank is the next, as a result of which Azerbaijan's banking market will be fully provided for the free movement of international capital.
The institutional development of the Azerbaijani banking sector was also characterized by optimization of the branch network of banks, closure of unprofitable branches and transition to modern management techniques. So, the number of branches of Azerbaijani banks increased from 420 to 650 units from 2006 to 2011. A structure of banks operating abroad increased from 4 to 8 units.
The banking services in retail and corporate segments of the banking market qualitatively improved, which is reflected in the wider range of banking services, improved quality and introduction of modern strategies on the banking services sales.
The application of information technology in the modern banking system is one of the main elements of the development strategy, determining the quality of bank services, level of management and reliability of the financial institutions.
Thus, a trio of institutional development of the Azerbaijani banking sector defined by the CBA - improving corporate governance, risk management, introduction of information technology in banks, strengthening the banks' role in Azerbaijan's socio-economic development, interplay of these major components, their correspondence with each other will determine the positive development trend and stability of banks.
South gas corridor: intrigue continues
Little time has left to the moment when the Azerbaijani government will authorize the launch of the second phase of the Shah-Deniz field development. Representatives of the projects designed to deliver Azerbaijani gas to Europe one after another visit Baku to negotiate with the country's leadership to mention the advantages of their suggestions before the final transportation route is chosen. Following the President of Austria who recently visited Baku and spoke in support of the Nabucco project, the Energy Minister of Greece George Papaconstantinou arrived in Baku.
Greek Minister of Environment, Energy and Climate Change George Papaconstantinou stated at a press conference that the ITGI system is the most profitable solution for the Shah-Deniz consortium, Azerbaijan, EU and Greece. "This is the best project from economic and technical points of view," he said, adding that the ITGI project is of strategic importance for Azerbaijan and Greece. The project promotes the strategic relations between the two countries. The project will make Greece the gateway for the Azerbaijani gas to Europe. He noted the importance of making a quick decision on the transportation route. "There are also other pipeline projects on the table which can become a reality in the medium-term," he said. "ITGI is the bankable project to start immediately," he said.
Regarding the fiscal difficulties that Greece is facing today, Papaconstantinou said they will not affect the realization of the ITGI project.
DEPA CEO Harry Sachinis said to press conference that Azerbaijan is very important for Europe, especially for the Southern Eastern Europe. "The country is very important for the diversification of gas supply to this region," Sachinis said.
Meanwhile, things happen that can change the configuration of positions before choosing the route and influence the decision of the Shah-Deniz consortium. Until now, the priority was owned by the Nabucco gas pipeline, supported by many European countries, particularly by the United States. Prime Minister of Ukraine Mykola Azarov's statement on the agreements between Kiev and Moscow, made a few days ago, and possible future developments can not only select this priority, but completely deny the urgency of the Nabucco project.
Last week Ukrainian Prime Minister Mykola Azarov said that Moscow is ready to allow Kiev to use Russian pipelines to transit Turkmen gas to Ukraine. He said the parties agreed for the first time that within six months of sanctioning an agreement on creating a free trade zone within the Commonwealth of Independent States (CIS), the agreement on the Turkmen gas transit term to Ukraine will be signed.
Ukraine is one of the largest gas consumers in Europe, using 52 to 57 billion cubic meters last year. Of this volume, the share of imports was 34-36 billion cubic meters. For Ukraine, the resumption of direct deliveries from Turkmenistan would be beneficial, since there is no doubt that the price of Turkmen gas will be lower than prices of Russian gas imported currently, even taking into account the transit fees.
Turkmenistan would not want to spoil relations with Moscow, who opposes the construction of the Trans-Caspian gas pipeline. If Ukraine imports Turkmen gas in the volumes in which it has been done before 2006, exactly 36 billion cubic meters annually, Turkmenistan may appear a cause to reject decision to deliver gas via the Caspian Sea to Europe. The capacity of Central Asia-Center pipeline enables to additionally pump that amount.
Turkmenistan, through its leader, has repeatedly stated that it is ready to supply its gas in any direction not at the expense of reducing gas supply in another direction, but due to "an adequate increase in production of fuels on already developed and new fields.
Turkmenistan also has not signed the agreement on free trade zone, providing mutual obligations of the parties. Therefore, the intrigue around the Turkmen gas is still present. It will become clear very soon whether Ashgabat remains committed to earlier reached agreements with the European Union.
The South Corridor is a priority EU energy project diversifying energy supply routes and sources and increasing EU energy security. The Southern Corridor includes the Nabucco gas pipeline, Trans Adriatic Pipeline (TAP), White Stream, and ITGI (Turkey-Greece-Italy pipeline). The South Corridor aims to directly link the European gas market with the largest gas fields in the world - the Caspian and Middle Eastern basin, with reserves estimated at 90.6 trillion cubic meters. The EU states that the strategic goal of South Corridor is to provide 10 to 20 percent of gas demand in the EU by 2020, equivalent to approximately 45-90 billion cubic meters of gas per year.
Time to address agricultural subsidies in Azerbaijan
Today, an increasing number of countries put food security issues at the core of their present day policy. This is not surprising, for at a time when manmade disasters increasingly jeopardise the planet by threatening it with serious environmental consequences, food security becomes an effective tool to providing a guaranteed development of society. In this regard a lot of attention is paid to the development of agriculture.
Since 2007, the Azerbaijani farmers have been granted subsidies for the purchase of motor oil and fuel, as well as the sowing of wheat and rice to the tune of 360.3 million manat.
In 2007-2010, the state budget allocated farmers subsidies for the development of seed to the sum off 15.1 million manats. Based on the Azerbaijani Agriculture Ministry's data, more than 49 million manat has been spent to ensure the sale of fertiliser to the population at a discount of between 50 and 70 per cent since 2007. During this period, 294,700 tons of fertiliser was sold.
The subsidies were aimed at stimulating the interest in peasants and farmers. As much as 500,000-600,000 hectares of land were taken up in the region and after receiving the subsidy, the figures increased by 50,000-100,000. People do not hold the land for nothing, sow alfalfa, for example, or other feed for livestock.
According to the State Statistics Committee in 2007, the sown area hit 652 hectares of land and the harvest of 2011 were sown on 967,300 hectares, including wheat planted areas of 654,200 hectares.
Subsidies in Azerbaijan are supporting agricultural producers very well. However, according to farmers, the addressed subsidies are not applied in Azerbaijan.
Lack of the addressed subsidies suggests that all farmers in Azerbaijan, regardless of sector and conditions, have been receiving grants by the same criteria. This leads to discrimination against farmers who operate in more difficult circumstances (for example, on a less fertile soil, or grow difficult products). This ultimately reduces the effectiveness of the subsidies.
In addition, the amount of subsidy in Azerbaijan is very small compared to European countries., Subsidy per producer was 139.17 manat (131.3 euros) in Azerbaijan in 2010, while in Europe (for all 27 countries) farmers received on the average 6.797 euros each as part of agricultural policy.
Analysis of statistical data, the study of foreign studies, expert opinions and views of farmers showed that Azerbaijan should take specific measures to increase transparency and effectiveness in the policy of agricultural subsidies.
In particular, to cut funding for compensation for the factors of production per hectare and increase funding for agricultural producers, as well as to diversify the channels of subsidy according to the conditions of activity.
Azerbaijan strengthens its position with above average income per capita Azerbaijan has been included in the number of the countries with above average income per capita since 2008 and according to the World Bank's methodology, this category includes the countries with income between $3,946 to $12,195 per capita.
The GDP growth rate per capita claims to be more accurate in assessing the country's economic development zones. It shows how much people's welfare increased as a whole. According to the official data, GDP volume, falling per capita in Azerbaijan amounted to $3.473.9 in 2007. This figure reached $5.403.9 in 2008. The income of every citizen fell to $5.018.2 in 2009 under the impact of the global financial crisis. It increased and reached $5.797.8 in 2010.
This year GDP per capita in Azerbaijan is expected to hit $5.932.3. The forecast for next year is $6.004.4 and according to the Azerbaijani government's forecasts, the figure is $7.548.3 for 2015.
This means the tendency of exceeding the real growth rate of the population's income above the level of consumer prices in the country (inflation) will be preserved. So, the real growth rate of the Azerbaijani population's income was 7.2 per cent in 2010, but the average annual inflation was 5.7 per cent.
This ratio is expected to hit 14.2 to 9.8 per cent. According to the government's forecasts, the Azerbaijani population's income will amount to $ 46 billion with the real growth at 6.8 per cent. The average annual inflation in the country is projected at 6 per cent.
Consequently the middle class will continue to increase yearly in Azerbaijan enjoying the higher paying jobs.
The middle class in any country is the foundation of economic development as they stimulate consumer demand. They are the major taxpayers and have a significant voice in resolving political and economic issues. They are also aware of their socio-economic interests and operate to realise them.
Azerbaijan's non-oil sector to reach its peak in 2015
The Azerbaijani government forecasts that an active policy of diversification of the economy, whose main is to develop the non-oil sector, will be continued in 2012 and the next three years.
Unlike 2009, when the growth of Azerbaijan's non-oil sector exceeded the oil sector growth by 4.1 percent, this difference will amount to 69.2 percent in 2012. Thus, the oil sector share in Azerbaijan's GDP is projected to reach 14.715.1 billion manat in 2012 and non-oil sector - 24.896.7 billion manat.
In 2015, the gap between the growth of Azerbaijan's oil and non-oil sectors increased by 2 times, in favor of the latter. Thus, the volume of non-oil sector in GDP will amount to 34.700.8 billion manat in 2015 and oil - 16.590.8 billion manat. The share of Azerbaijan's non-oil sector in the total GDP will amount to 61.2 percent in 2015. Whereas, the picture was quite the opposite in 2008, when the share of oil sector in GDP was 61.2 percent.
Azerbaijan aims to develop non-oil sector of the economy through the production of import-substituting products in the domestic market and exports to foreign markets.
The share of agriculture in GDP will be 6.8 percent in 2012 and keep the stable production at the same level until 2015. The share of non-oil industries in the country's GDP will grow from 4.9 percent projected for 2011 to 5.7 percent in 2015. The share of construction in GDP will also grow over the period from 10.7 percent to 12 percent.
Copper: Look at future
Anglo Asian Mining plc, the AIM listed gold producer, yesterday announced positive results from its 5,460m Phase 1 drilling campaign at its flagship Gedabek gold/copper mine ('Gedabek') in Azerbaijan. "These latest drilling results covering the existing pit continue to demonstrate consistent solid gold, silver and copper grades and continuity of mineralisation at Gedabek," Anglo Asian CEO Reza Vaziri said. "With a current resource base of 791,000oz of gold, 49,300t of copper and 7,597,000oz of silver for all categories, it is our intention to continue both infill and exploration drilling at Gedabek."
This project is focussed on expanding the existing resource outline in order to announce an increased and upgraded resource by Q1 2012 and in turn, a JORC compliant reserve estimate thereafter. "In addition, with gold and copper production continuing to perform solidly at Gedabek we remain confident of realising our production target of 58,000 to 60,000oz of gold and 525 tons of copper for FY 2011," he said.
The October newsletter of the International Copper Study Group (ICSG) presented recent data on supply, demand and prices for the period from January to July this year: the production of refined copper in the world increased by 2.2 percent compared to the same period of 2010, consumption excluding China, increased by 4 percent, the shortage of production amounted to 118,000 tons, the average price per ton on the London Metal Exchange reached 9.430 compared to $7.070 over the first seven months of 2010.
China is far ahead in the world imports of copper. Getting rid of existing dollar reserves, China buys raw materials, thus strengthening its resilience to possible new economic shocks in the ongoing competition. But there is another version. Copper production in China is increasing every year (seven months of this year grew by 15 percent), but the country does not diminish, but continues to increase import volumes larger than needed for commercial use - a fact strongly evident.
China has officially announced that it has four million tons of copper reserves valued at $1.3 billion, but unofficial sources describe the figure at least four times greater. According to experts of the Money Morning Investment Group, China is trying to make the raw materials a kind of new world currency instead of dollar, a new accounting tool for making international transactions, and the main role in this case will be played not by the gold, but copper, the practical application of which is far higher. This is a long-term goal, the implementation of which would help ensure world leadership.
Copper, as a perfect conductor of electric current, is a key product in the construction of electricity networks. According to forecasts of IEA, the global energy consumption in 2030 will increase by 2.5 percent annually, and power generation will make up additional 4800 hW. Covering the growing worldwide demand for electricity will require thousands of kilometers of copper cable. The second important factor in covering the future demand for copper is the automobile industry. Today, the ordinary middle-class car contains 22.5 kg of copper, but as for a car of "premium" class, copper wire is used in length of one and a half kilometers.
The volume of copper is more, up to forty kilograms in the new generation cars (with an electric motor or hybrid), of which production is increasing every year. In the high-speed trains of new generation, 2 to 4 tons of copper is used, whereas in the conventional electric locomotives - 1 to 2 tons.
The total volume of gold reserves in Azerbaijan stored in the Central Bank of the country has now reached 12.514.7 troy ounces (389.2 kg with a market value of $18.7 million).
Azerbaijan could also create a strategic reserve of copper from its own resources, given that six of the field are so far developed only by one. It is now exported.
Anglo Asian Mining PLC is the only company to develop gold fields in Azerbaijan, registered in the list of Alternative Investment Market of London Stock Exchange. Anglo Asian Mining Plc owns the rights to develop six fields in south-west Azerbaijan at Gedabey, Ordubad, Gosha Bulag, Gizil Bulag, Vejnali and Soyutlu. The concession is based on PSA agreements signed with the Azerbaijani government in August 1997. According to the contract, production plans aim to yield 400 tons of gold, 2,500 tons of silver, and 1.5 million tons of copper. Gold and silver were first discovered in Gedabek in May 2009.
Significant jump expected in foreign investment in Azerbaijan
A significant jump is expected in the inflow of foreign investments into Azerbaijan in 2012, the draft concept of socio-economic development in 2012 and the next three years reads. The document was submitted to the Azerbaijani Parliament for consideration.
Based on the document, the average annual growth of foreign investments will hit 41.5 percent in 2012, 30.4 percent in 2013, 15.4 percent in 2014 and 8.4 percent in 2015.
Azerbaijan continues to attract significant funds in various spheres of the economy. Funding for projects will increase in 2012 due to foreign credits.
The priority areas are concentrated in the oil sector. There were signed credit agreements on funding for the transport sector improvement, major construction projects and project on development of high technology, innovative types of production.
Azerbaijan is expected to receive foreign investments in the amount of 2.809.9 billion manat in 2011, 4.013.4 billion manat in 2012, 5.303.7 billion manat in 2013, 6.089.4 billion manat in 2014 and 6.606.9 billion manat in 2015 .
The volume of domestic investments directed to the different sectors of the economy in 2011-2015 will also grow, but the growth will be significantly lower compared to the growth of the foreign investment inflow.
As a result, the average annual growth of domestic investments is expected to decrease from 22 percent to 0.3 percent in 2012.
However, despite the decline in growth rates in nominal terms, the domestic investment exceeds the volume of foreign investment. In 2012, domestic investment would amount to 9.479.2 billion manat, in 2013 - 9.902.2 billion manat, in 2014 - 10.586.7 billion manat and in 2015 - 10.8722 billion manat.
Today, the state investments exceed private investment in the structure of domestic investment.
The dominance of investments in the non-oil sector will continue in 2012 and the next three years.
Moreover, investments in 2015 will grow at the same time in both sectors. Thus the oil sector is expected to receive investment of $ 3.1886 billion manat in 2011 and non-oil sector - 9.048 billion manat. In 2014, the oil sector is projected to receive 5.574.7-billion manat investment and non-oil - 11.101.4 billion manat. The investments in oil sector in 2015 is expected to decline by 9.3 percent to 5.0532 billion manat compared to 2014, while investment in non-oil sector will grow by 11.9 percent to 12.425.9 billion manat.
Over 20 years of independence, Azerbaijan has created a favorable investment and business climate, resulting in $100-billion investment in the economy. Azerbaijan will also retain the investment attractiveness in the future and 17.5 billion manat will be invested in the development of economic and social spheres of the republic from all financial sources in 2015.
External debt not burden for Azerbaijan
The presence of some external debts of each country is a very ordinary case of modern economic life, since the active participation of governments in the production and distribution requires attracting borrowed funds to finance its expenditures. Azerbaijan has begun to attract foreign loans since 1993, when experienced shortage of funds. Since then, the amount of external debts has increased by 76 times.
As of July 1, 2011, Azerbaijan's foreign debt reached $4.512.6 billion, making up 8.1 percent of GDP. As of Sept. 1, it had fallen to seven percent.
The International Monetary Fund (IMF) forecasts the reduction of Azerbaijan's external debt to 7.4 percent of GDP in 2012, according to the IMF Middle East and Central Asia Regional Economic Outlook, published on its website. The Fund projects that in 2011 this figure will be 7.8 percent of GDP.
Such an indicator of Azerbaijan's external debt shows that the level of its onerousness in the state budget and foreign exchange resources are within the limits defined by international standards (40-60 percent) as applicable. The higher the figure, the greater share of revenues from the sale of production GDP must be directed not for the purposes of internal development, but for fulfilling the debt obligations to external creditors.
Problems with external debt also arise when the annual amount of repayments on the external debt are greater than the amount of accumulated foreign exchange reserves. The critical value is the ratio of these indices at 100 percent, reflecting the equality of official reserves and the amount of urgent repayments on the foreign debt during the year. Smaller values of the index indicate the probability that the government and residents of the country will cease to repay the urgent duty because of the lack of available foreign exchange.
Azerbaijan is not threatened by such a situation of external debt. According to the Central Bank of Azerbaijan, the strategic foreign exchange reserves of Azerbaijan for the first nine months of 2011 amounted to $6.943.3 billion, which is 1.5 times more than the gross external debt of the country and indicates the absence of problems with solvency.
Maximum annual debt plank is laid in the budget package and is formed only from loans received under state guarantee. The limit on external borrowing in Azerbaijan's 2012 state budget was set at 2 billion manat.
Repayments on public external debt are projected for 2012 at $235.95 million manat, which is 9.7 million manat or 4.3 percent higher than 2011. At the same time, payments on interest rates will amount to 121.11 million manat, on basic debt - 114.84 million manat.
The problem of repayment on external debt is important both in terms of the prospects for achieving national economic growth and maintaining country's position in the world economic system. Failure to perform even part of its obligations to pay off external debt threatens the loss of sovereign credit ratings.
As known from the world economic practice and theory, the effects of a high level of external debt are more difficult for the country than internal debt. Under a high external debt, the nation has to give other countries valuable goods and services to pay off interest and repay the debt, which reduces the standard of living. Large external debt also reduces the country's international position and could complicate attracting new foreign loans.
Even in the most difficult years, when there was an urgent need for foreign funding, Azerbaijan pursued a cautious policy in the issue of external debt, created a system of effective management of public debst. In particular, there were no delays in paying off external debts and a fund was created to provide external borrowings attracted under state guarantee.
Azerbaijan expands gas export possibilities
Yesterday's statement by the President of SOCAR (State Oil Company of Azerbaijan) Rovnag Abdullayev has put new emphasis on the issue of delivery of Azerbaijani gas to Turkey and the European markets. Baku and Ankara intend to build a new pipeline on the territory of Turkey, given the prospects of growth in production on the Azerbaijani sector of the Caspian Sea, exactly by 50 billion cubic meters per year by 2025.
According to Abdullayev, to export large part of the volume, the sides intend to implement the plan. This is a new, expected approach in the gas policy of Azerbaijan, and the main thing in this new approach is the transformation of Azerbaijan from the middle into a major supplier of hydrocarbons. It is also necessary to underline the fact that the decision is based not only on mutual benefit, but also on the atmosphere and level of sincerity that exists between the two countries.
Over the past year, two fields with large reserves of natural gas - Umid and Absheron - were discovered in the Azerbaijani sector of the Caspian Sea. President of Azerbaijan recently stated that over the last year, proven gas reserves in Azerbaijan increased by about 600 billion cubic meters. In addition, there are a number of perspective structures: Shafag-Asiman, Nakhchivan, Babek, deep-laying gas from Azeri-Chirag-Guneshli. The new approach means that Azerbaijan, considering both its interests and the interests of project partners, relies primarily on the increasing the volume of its own hydrocarbons reserves.
This project will be implemented by two states, but the participation of foreign companies is possible, Abdullayev said. Participants of this project intend to complete solution of all issues on this pipeline in 2012, and without delay, start building in order to make it ready by the end of 2017, when the second stage of development of Azerbaijani Shah Deniz gas condensate field will launch.
So now the transit of gas via Turkey to Europe will be carried out not by a one artery (the Turkish gas transmission system BOTAS, the capacity of which amounts to 10 billion cubic meters per year), but via two ones. After 2017, the volume of at least the same with the prospective increasing by 2025 can be added.
Abdullayev said that signed on Oct. 25 in Izmir, the agreements constitute a complete package of documents for the transportation of Azerbaijani gas to Turkey's border with Greece and Bulgaria. In fact, all conditions have been created for realization of projects of the Southern Gas Corridor, which will connect the Caspian region to Europe. In late 2011 - early 2012, the partners on Shah Deniz will complete the selection of the pipeline project, which will enable to export Azerbaijani gas to Europe. These projects include ITGI, TAP, Nabucco, and the version proposed by BP, envisaging delivering gas via Turkey to the Balkan countries.
Thus, Azerbaijan has enough gas reserves for deliveries to Europe, there are reliable partners who are ready to jointly produce it, there are also a transit agreement and real customers. Construction of a new pipeline with high capacity means that over the next 10-12 years, Azerbaijan will raise the production level not only from the second phase of the Shah Deniz development to a level being able to fill out a new pipeline, and thus will be able to maximally export gas resources.
The South Corridor is a priority EU energy project diversifying energy supply routes and sources and increasing EU energy security. The Southern Corridor includes the Nabucco gas pipeline, Trans Adriatic Pipeline (TAP), White Stream, and ITGI (Turkey-Greece-Italy pipeline). The South Corridor aims to directly link the European gas market with the largest gas fields in the world - the Caspian and Middle Eastern basin, with reserves estimated at 90.6 trillion cubic meters. The EU states that the strategic goal of South Corridor is to provide 10 to 20 percent of gas demand in the EU by 2020, equivalent to approximately 45-90 billion cubic meters of gas per year.