AZERBAIJAN LEAPS FORWARD IN MAKING ITS ECONOMY ATTRACTIVE TO BUSINESS

As presidential elections approach in Azerbaijan, President Ilham Aliyev scored a major winning point in domestic politics. It was announced by the World Bank that Azerbaijan has set a world record in reforming its economic and business regulations. In the annual “Doing Business 2009” report, Azerbaijan jumped from 97th place out of 181 countries to 33rd place in the world. Such a massive improvement (64 places in one year) has never been achieved by any country before (“Doing Business 2009,” World Bank Group, www.doingbusiness.org).

Success in this field came as a result of a number of reforms undertaken by the government in the past two years. Azerbaijan started using the “one-stop” system for registering new businesses. This has cut down on time and expenses during the registration process and eliminated unnecessary procedures that the new businesses previously had to follow. Now all businesses are registered in one unit and it is possible to formalize all necessary paper work in one place—the Ministry of Taxes.

Experts believe that the time needed to register new businesses has decreased by half. Official statistics show that just in the first half of 2008, the number of the newly registered businesses in the country increased by 40 percent. While it takes an average of 22.6 days to register a new business in the East European countries, it takes only 3 days in Azerbaijan. Other reforms included the start of an online tax payment system and elimination of the minimum loan requirement of $1,100; and as a result, the number of businesses taking out loans has doubled.

Overall, Azerbaijan improved in 7 out of 10 indicators used by the World Bank to develop its annual ranking. In some of these indicators Azerbaijan made an even more significant jump than in its overall ranking. The country improved its position by 92 places in the field of “Protection of Investment,” for example, jumping from 110th to 18th place. Other major improvements were recorded in the areas “registering a business” (+53), “employing workers” (+52), “registering property” (+54), and “paying taxes” (+41).

While skeptics continue to debate the objectivity of the report and the international rankings in general, one thing is clear—the Azerbaijani government has successfully moved along the path of economic reforms and liberalization, and this strategy has long-term implications. “This is indeed a major achievement for Azerbaijan, reflecting the political will of the president to improve the business climate in the country,” said Minister of Economic Development Heydar Babayev (www.day.az, September 10). Babayev also noted that the government had further plans to improve the business climate in the country, especially in those indicators where Azerbaijan did not make much progress, such as “dealing with construction permits” and “closing a business.”

Economic reforms for Azerbaijan are not a seasonal pre-election tactic. The country has registered the biggest GDP growth in the world for the past 3 to 4 years (30 percent in 2007, 34 percent in 2006, and 26 percent in 2005). The construction of the Baku-Tbilisi-Ceyhan oil exporting pipeline in 2003 and the subsequent increase in oil exports have increased the GDP to unseen levels. The national budget has reached $12 billion, a jump from $1.2 billion in 2003. But the government officials understand the danger and temporary nature of making the economy dependent on oil and gas exports and are striving to create a platform for a future economy not based on oil development. Azerbaijan aims, in fact, to become the regional hub for many trade and investment areas, such as information technology and computer science as well as the transport of agricultural and energy products from Central Asia to Europe. It is not a coincidence that under Aliyev’s instructions, Azerbaijan has intensified its dialogue with Central Asian countries in an effort both to serve as a role model for political and economic development and to make Azerbaijan the “door to Central Asia.” New railroads, warehouses, ports, and other facilities are being built to fulfill that vision.