AZERBAIJANI INDUSTRY: HOW TO RETURN THE PAST FAME

The growth was possible at the expense of commencement of the bulk oil production from the Azeri-Chirag-Gunashli fields. The highest growth pace was fixed in the history of industrial development in the country. The oil production grew 51.9% and comprised 65% of the total industrial output. Rise in industrial production was observed in oil production by 51.7% and it comprised 17,217 million tons, whereas gas production was 3,848 billion cu m amid 25.1%-rise.

Value Added Price

In bn manats

Special weight, in %

Real rise, in %

GDP in total

8803,5

100,0

135,1

production of goods

6113,3

69,4

149,1

including

- industry

4891,9

55,6

165,8

- agriculture

451,5

5,1

100,3

- construction

769,9

8,7

107,0

Production of services

2047,5

23,3

110,2

Including:

- transport

462,4

5,3

114,8

- communications

197,3

2,2

124,7

- trade and repair

543,4

6,9

112,5

- hotels and restaurants

62,7

0,7

130,2

- social and different services

781,7

8,9

102,1

Net taxes on products

642,7

7,3

108,7

Defliator

101,0

Sources: State Statistics Committee, calculations by Trend

As to situation in manufacturing of industrial output in the non-oil sector, growth was fixed at 8.7%, including the chemical industry 30.5%, furniture production 38.7%, РІfood production - 4.6%, transport conveyances and equipment 24.8%, machines and equipment - 26%, metallurgy 8.8%, etc.

Nevertheless, such imbalance in the structure of industrial production does not hinder Azerbaijan to be on the top among CIS countries for industrial production. Thus, in accordance with the CIS Interstate Statistics Committee, industrial production in post-Soviet countries rose 5.3% in January to July 2006 as compared to 2005. The highest growth pace was observed in industry of Azerbaijan (41.4%) and Belorus (12.7%). For instance, production fell in Armenia 1%, Kyrgyzstan 8.9%, Moldova 6.7%.

However, rise in the growth pace of industrial production in Azerbaijan overshadowed by facts that it was achieved mainly at the expense of oil production, especially, oil production, while the industrial sector itself is stuck in numerous problems.

At present almost all former industrial enterprises of Azerbaijan, including the oil sector, are on the decline, which affect the total amount of goods production. Over 10 years there was neither initiative, nor investment, nor state funds, which resulted in obsolescence of equipment at enterprises. Respectively, the production, based on this equipment differs for quality and quantity of the output. In January to July domestic production failed to cover the rise in aggregate demand, and major part was covered at the expense of import. The foreign demand for local production of export sector remains to be high, whereas the export sector failed to catch it. The tendency actually affects on the countrys image, particularly, on the eve of entrance to the World Trade Organization, which put the quality of the product above all.

Investing, privileged credits, re-equipment in accordance with the international standards and advanced technologies can bring in order the situation in the industrial enterprises. The foreign, as well as the local investors at present are too much attracted to the oil sector, whereas only 2% of foreign investments falls on the non-oil sector. In this situation the Azerbaijani government regards its own capital as the major source of survival of the local industry. In this respect, there was established the State Investment Company which is intended to render financial assistance to industrial enterprises.

The government's plans also include activities in accordance with a new program on development of Azerbaijani industry, which unites two directions: division of the country into industrial and economic zones and the development of traditional types of industrial output.

Thus, in the first case it is planned to define more profitable spheres of industry for development in the regions on the base of crude and resources of these zones. Following the experience of Turkey, the Azerbaijani Ministry of Economic Development is going to announce a tender on services to the establishment of the first industrial town in the country. As of initial estimations, 2 phases of establishment of the Center are estimated to $30m. It is planned to attract up to 80 enterprises to the area covering 80h. It is planned to fully develop the town over 5 years.

As the second direction of the program it will concern the metallurgy, aluminum, chemical, petro-chemical, light industry sectors, that used to glorify Azerbaijan. At present the state chemical company outputs intermediate product and therefore, it will be more expedient to intensify the activities of secondary enterprises, that could manufacture the final value product on the base of the intermediate product on the base of high technologies. The government will undertake an initiative on establishment of such enterprises.

The Ministry of Industry and Energy has set up distribution of industrial enterprises on their production. Necessity for investing in these enterprises boosts day by day. At present there are 2,429 industrial enterprises in the country, including 758 state-owned and 1681 private enterprises. Now the majority of the state-run enterprises are inactive, while the existing small enterprises with small capacity use different outdated technologies. Such production rules out any rivalry, even if not to mention the future of the enterprises.

Manu foreign investors who visited industrial enterprises located in outskirts of Baku and Sumgayit note that it is more profitable to build new complexes rather reconstruct the old ones. Built during the Soviet period these plants were adapted to country's needs and are too big. Now they produce only several hundred types of products.

Along with sad production state of big industrial enterprises, the situation with the specialists leaves too much to desire. Cessation of prediction after the collapse of economic relationships with the former Soviet countries resulted in considerable cut in employees, while low wages promoted outflow of experienced personnel to profit fields. Nevertheless, in January to July 2006 the number of employees of the industrial enterprises exceeded 5,7% the similar period of 2005 and comprised 161,500 people, while average net salary of employees increased 27.6% and constituted 263 manats. The highest salary rate was fixed in mining industry, oil refinery plants, as well as enterprises manufacturing transport equipment, metallurgical, metal mineral substances and chemical industry.

The Government is considering an idea on the construction of a big petro-chemical complex. They do not rule out that t establish it at the expense of a participation stake of the Azerbaijani State Investment company. The approximate volume of investment amounts to $500m-$600m.

However, the Energy Minister said that it would not be right to establish the petro-chemical complexes, to relate them to country's long-term obligations, to lay terms on sale of gas or straight-run petrol by Azerbaijan at definite prices. Every project must be considered a concrete way.

Thus, at resent it is important for Azerbaijan to outline its priorities. There measures to take for the improvement of the situation in the country's industrial sector and some of them are even applied. However, still there is not a unified system which would enable to resolve this problem at the expense of constructive interaction of the authorities and business, taken case of the Azerbaijani companies.

Weekly actual topics in Azerbaijan (April 16-20)
Weekly actual topics in Azerbaijan (April 16-20)
Weekly tenders in the region (April 16-20)
Weekly tenders in the region (April 16-20)
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Last week’s laws, orders and decrees in Azerbaijan (April 16-20)
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