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HOW MUCH IS AZERBAIJAN ATTRACTIVE FOR INVESTING?

Analysis Materials 11 October 2006 12:05 (UTC +04:00)

The Azerbaijani government has changed its policy in respect to investments in the country's economy in 2007 and states increase of the amount of capita investing. In 2007 the foreign investments have been indicated in the amount of 4.6bn manats of the total 8.8bn manats with a rise of 49.2% against 3.5bn manats of total 3.5bn manats in 2005.

The figures were included in the last version of macro-economic indices of government. Though earlier it was planned to decrease the share of foreign investments. Initially, 2.6bn manats has been put amid a total of 5.5bn manats. The forecasts were made on the base of cut in investing in the oil and gas projects, as they are already in process. The biggest project - the Baku-TbilisiCeyhan main export oil pipeline has been put into exploitation, while the first gas from the Shah-Deniz field has found its first consumers.

The National Bank of Azerbaijan (NBA), which carries out the statistics of the payment balance, announced on cut in the amount of investments in the country economy by 4.3%. In the first half-year of 2006, foreign investments put in the economy made up $2277m, which comprises 95.7% of investments put in the first half-year of 2005 ($2378.5m). 50%-cut was observed almost in all types of investments. Direct investments reduced 4.1% ($1893.4m against $1973.3m), credits and other investments 5.6% ($382.6m against $405.2m). Over $1m in oil revenues has been obtained in the first half-year, whereas a year they does not exist at all.

The intensification of economic processes in the country, increase of investment rating and plans on establishment of new production in the non-oil sector made the government to reconsider and forecast the foreign investing in the country in the amount of 52.3% of the total.

The Government hopes that in the next tear (2007) the country will gain the investment rating. On September 14, 2006, Azerbaijan gained a sovereign rating from the other international rating agency Moody`s Investor Services for the first time This rating was one level up than the level according to Fitch Ratings, and one step down than the investment level. According to Moody's, the country gained the rating at the level of Ba1.

The country will for the first time receive a sovereign rating from Moody's and it is notable that it is nearing to the investment rating. In this respect Azerbaijan has wide opportunities for entrance of private companies and other emitters in the international capital market. It is conditioned with economic policy conducted in the country, as well as results of implementation of the oil strategy, which should promote re-estimation of the country's rating by other rating agencies, Samir Sharifov, the Azerbaijani Finances Minister noted. Meanwhile, Heydar Babayev, the Azerbaijani Minister for Economic Development, the current growth pace in the country enable to guess to receive invetsmnt rating Moody's and Fitch in 2007.

With respect to the government's investment forecasts for 2007, it is necessary to note a rise in investments at the expense of internal sources along with foreign capital. For the first time since 1994 the investment put in the in the Azerbaijani economy will exceed the foreign investing. Such tendency was linked with the expansion of opportunities of internal sources, as well as completion of major investing on main international projects in the oil sector. Thus, under agreements it is expected to receive foreign investments worth $3bn from privileges and grants in the subsequent 4 years.

In this situation the Azerbaijani government regards the domestic capital investing as the major source of economic growth in the year to come, though the amount and structure of public investment expenses of 2007 public budget are still to be designed, they will be lower than the investments expenses for 2006 882.3m manats. it will comprise no less than $1,038m on average exchange rates.

The government will carry out its investment policy through the Azerbaijan Investment Company (AIC), established at the presidential decree dated 30 March 2006. The activity of the company will be intensified in two basic directions stimulation of the flow of investments in the country and investing in the project in the country.

The AIC was established with the statutory capital of 90m AZN (some $101.7m), shaped at the expense of the State Oil Fund of Azerbaijan.

Presently the statutory capital of the AIC has been formed on the level of 20m manats (($22.69m) and by the end of 2006 will be increased to 50m manats and in 2007 40m AZN. AIC will invest in the projects trough acquisition of 25.1%-stake. The AIC will leave the enterprise through sale of its stake as soon as it survives.

The key peculiarity of the national economy is the great deal of enterprises in need of upgrade. According to experts, hundred billion of dollars are required for the replacement of major capital with the consideration of the physical.

The majority of projects require funds that could be raised only by foreign investors. However, both internal and while making a decision on capital investing foreign investors take into consideration the rating of the regions and sector where the facility of investing is located. At present Baku is attractive for investing and the sector is oil industry.

The conference on Direct foreign investments and development held in Baku in March 2006 awarded Baku as City of Future Investments in 2006-2007 in East Europe. While selection they too into consideration the factors, such as the best economic potential (GDP of the city and mount of investing), rent prices of offices, industrial facilities, lands, cost of apartments in new buildings.

Direct foreign investments in the oil and gas sector put since 1994 have made up $20bn, whereas the capital raised for non-oil sector is less only 2% than this sum.

So, the key task of the government in 2007 will be increase of investment attractiveness of region, as well as the non-oil sector.

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