2017 July 08 ( Saturday ) 13:06:26
- SOME EVENTS OF JUNE
- PRELIMINARY RESULTS OF HALF-YEAR
- FINANCIAL SYSTEM
- FUEL AND ENERGY SECTOR
- POLITICAL BACKGROUND
01 - President of Azerbaijan Ilham Aliyev attended the ceremony of sending to the sea residential blocks and topsides of the technological support platform for the Shah-Deniz-2 platform.
06. - The Court of London granted the application of the International Bank of Azerbaijan (IBA) about bankruptcy to prevent claims in the UK from the creditors regarding the bank's assets.
07 - The Financial Markets Supervision Authority (FIMSA) required banks to publish audit reports by June 15.
13 - President of Azerbaijan Ilham Aliyev received in Baku co-rapporteurs of the monitoring committee of the Parliamentary Assembly of the Council of Europe (PACE).
14 - Negotiations on expansion of economic cooperation between the ministers of economy of Azerbaijan, Shahin Mustafayev, and Georgia, Georgi Gakhariya, were held in Baku.
- The Committee on Open Markets of the Federal Reserve System (FRS) of the United States raised the base interest rate to 1-1.25% from 0.75-1% per annum as a result of the June meeting.
19 - A delegation headed by Deputy Director General of Commerce Department of Ningxia-Hui Autonomous Region of China, Director of the Ningxia Cong Guoxhua Port Office, was met in the Azerbaijan Railways CJSC.
20- A preliminary agreement was reached with a number of IBA creditors on IBA debt restructuring.
- AZAL announced the acquisition of four Boeing 787-8 Dream Liners.
- Heads of railway departments of Azerbaijan, Georgia, Iran, Poland and Ukraine met in Baku.
- By the presidential decree, the State Agency for Advertising was created.
21 - President of Moldova Igor Dodon arrived in Baku on a visit.
- SOCAR, along with other companies signed a memorandum of understanding on the Eurasia project in the Pre-Caspian Depression.
- Azerbaijani President Ilham Aliyev held talks in Baku with the President of Villepin International, former Prime Minister of France Dominique de Villepin.
22- President Ilham Aliyev signed a decree on additional measures for the development and improvement of the Asan Visa system with amendments to the Regulations on the system.
23 - The Azerbaijani leader Ilham Aliyev, who was on tour around the country, opened a production of grenades for manual antitank grenade launchers in the city of Shirvan.
25 - President Ilham Aliyev received Andrei Kostin, head of VTB Bank, who was visiting Baku.
26 - President Aliyev started his two-day official visit to Poland.
28 - The 1st Azerbaijan-Kazakhstan tourist forum was held in Astana.
- The subsidiary of the State Oil Company of Azerbaijan - SOCAR Turkey Energy A.S. was appointed the head of the external relations department.
29 -The Executive Committee of the Open Government Partnership at its meeting in Washington on June 29 decided to leave the status of Azerbaijan inactive for another year due to poor conditions for the work of NGOs.
30- The Ministry of Finance said that Azerbaijan's external debt fell by $ 448.7 million or 6% in annual comparison, and as of April 1, 2017 it amounted to $ 7.0 billion.
PRELIMINARY RESULTS OF HALF-YEAR. It is possible to sum up the preliminary results of the first half of 2017. Serious shifts in the economy have not happened yet. Forecasts of IFIs, apparently, can be trusted. Most of them believe that Azerbaijan will not be able to overcome the economic recession this year and the GDP decline will be about 1%. For the first five months, it was 0.9%. A separate line should be called high inflation (13.8% in five months), which strengthens the economic stagflation. Once again, investments in the economy went down: a two-fold increase in foreign investment did not compensate for the overall drop in investment in the economy.
The oil sector shrank faster than the non-oil sector - oil production fell and world oil prices declined. The added value here was 10.4 billion (-6.5%). The specific weight of the non-oil sector in the GDP structure for 5 months was 58.9%, with a fixed growth of 2.3%. GDP per capita for the period amounted to 2 thousand 610.3 manat, 2% less than last year. In recent years, jobs in industry have been declining. While in 2014 the number of hired workers in industry was 197.2 thousand people, by the end of 2016 this figure was reduced to 192.7 thousand. Five thousand lost jobs is a lot for the industrial sector. In general, unemployment has become a reality of the economy.
The main efforts of the state were focused on the financial sphere. The rate of the manat to the dollar still stabilized, although force majeure is not ruled out yet. The CBA again began to increase foreign exchange reserves and brought them to almost $ 5 billion. The volumes of foreign exchange interventions of SOFAZ became less. For six months the Fund offered the market $ 1.687 billion of currency, which is 30.7% less than in the previous half-year. Work continued to reduce imports, important for maintaining a positive trade balance. The latter amounted to $ 1.63 billion in five months, against a deficit of $ 242 million in the same period last year. Imports that amounted to $ 3.33 billion decreased by 15%, and exports ($ 4.45 billion) grew almost by 45%. The results of the first quarter showed that the leakage of capital from the country was noticeably reduced. The stabilization of the rate can be judged also by the rates in the financial markets. At the end of the first half of the year, the yield on T-bills fell sharply, while CBA reduced the offer at manat money auctions. For business and banks, of course, it became easier to plan their activities. However, in June it became obvious that saving the banking system from the crisis is costly for the state. In parallel, the debts of the state began to grow faster, and the restructuring of debts with the transfer of the debt burden to the budget (count, the population) is likely to continue.
What trends were particularly noticeable in the first half of the year? The government was intensively looking for a place for Azerbaijani products in foreign markets. Foreign embassies in Azerbaijan continued to selectively introduce the position of the trade attaché.
June was marked by active work to strengthen economic ties in the triangle Azerbaijan-Georgia-Turkey. Minister of Economy of Azerbaijan Shahin Mustafayev met with Georgian Minister of Economy and Sustainable Development Georgy Gakharia. The ministers discussed interaction of the economies outside the oil and gas sector. Currently, about 280 companies with Georgian capital operate in Azerbaijan, and more than 200 Azerbaijani companies operate in Georgia. But the volume of investments in the countries is not comparable: according to Minister Mustafayev, the total Azerbaijani investments in the Georgian economy are estimated at $ 3.4 billion, and the Georgian investments in Azerbaijan are $ 72 million. The ministers in particular discussed the issue of organizing a joint presentation of the transit opportunities of Azerbaijan and Georgia in China, exporting products to third countries and using the capabilities of Azerbaijani satellites.
Azerbaijan is also one of the largest investors in the Turkish economy. In the first four months of 2017, the trade turnover between Azerbaijan and Turkey increased by 88 percent compared to the same period last year. In particular, exports increased four-fold, and imports - by 18 percent. Minister of Economy Mustafayev met with the Turkish delegation in June, and almost for the first time at the state level, the issue of Turkey"s export cooperation with the Nakhchivan Autonomy was discussed. In its turn, the Turkish side expressed support for the expansion of exports of Nakhchivan products to Turkey, noted systematic work with entrepreneurs and relevant authorities in this direction and informed about the interest of Turkish entrepreneurs in investing in Nakhchivan.
One of the most notable events of June was the EU-Azerbaijan business forum. In fact, it was part of the work on the preparation of the Strategic Partnership Agreement. Over the past 10 years, EU countries" investments accounted for 46% of total investments in Azerbaijan: only the non-oil sector was invested USD 3 billion, which means 35% of the total investment portfolio.
The financial problems of the country are forcing the government to constantly discard a number of obligations and most often on the shoulders of the society. It is not by chance that the circle of higher educational institutions, which become legal entities of public law is expanding, that is, they become self-supporting. The Ministry of Labor and Social Protection is very active in this regard. It easily achieved the decision to increase the retirement age in the country. And it was obvious to everyone that this was done to reduce the burden on the country"s budget. The Ministry did not even join public discussions about the real life expectancy in the country, and how the increase in the retirement age will affect the labor market.
And in June, in the first reading, the parliament adopted another bill, initiated by the Ministry of Labor - On Unemployment Insurance. It stipulates mandatory payments from the salary of employed and incomes of employers to the Insurance Fund for the issuance of compensations to the unemployed. In accordance with the new law, insurance premiums on the part of the insured are 0.5% of the salary, and insurance contributions from the employers are 0.5% of the calculated wage fund. With different insurance experience of the employee, the amount of the benefit will be different, and the limit will be 60% of the average monthly wage. Half of the premiums accumulated on unemployment insurance are promised to be spent on measures to ensure the self-employment of unemployed citizens.
It is planned that about 80-85 million manats will be received annually into the Fund. The insurance from this fund will be received only by dismissed workers who have labor contracts. And this means that insurance payments will be received not more than for six months by very few unemployed, as in Azerbaijan they are dismissed basically after the expiration of the employment contracts, and not by staff reduction.
The law will enter into force on January 1, 2018. A similar law is in force in Turkey. The insurance model of financing unemployment benefits has been chosen in Russia. In the Russian Ministry of Labor, calculations were made, according to which 1% of deductions from the wage fund are enough to provide protection for those who have lost their jobs. In several countries, deductions to the payroll account for 3-5%.
The next step to be expected from the Ministry of Labor is the increase in the share of workers in the payment of social insurance. The idea has already been launched and it has a good argument - it will reduce the tax burden on business and, therefore, help the economy grow. If this is the task of the ministry, then taking into account compulsory medical insurance, which will be introduced next year, the total amount of tax deductions of the employee may amount to about a quarter of the salary.
Another trend: the state is constantly "testing" industries that can provide the economy with fast cash. From what is in sight, it is tourism, transit of goods and agriculture. But we must understand where the limit of development of this or that branch is. People most talk about agriculture, but its potential is hardly worth exaggerating. At a recent conference, President of the Academy of Sciences Akif Alizadeh said Azerbaijan lacks land resources - per capita in the country there is 0.18 hectares of planted area. The average for CIS countries is 0.81 hectares. The size of the sown areas is only 20% of the territory of the republic, while in the same Ukraine it is 80% of the territory. Of course, you can enter new crop areas, but this is a huge expense.
In more general terms, the current economic activity of the government focuses on the oil and gas sector and the development of small and medium-sized businesses. Why is it so? Firstly, you can talk about the beginning of the post-oil era, but for the time being, oil brings the most tangible income to the economy. Secondly, SOCAR has perfectly mastered the system of diversification in the industry. That is why SOCAR is now ready to participate in the development of the largest Eurasia field in the Eastern Caspian (65 billion barrels of reserves) and is looking for oil in the center of the country (at the Yevlakh-Agjabedi depression), increasing the number of filling stations throughout the region and creating huge subsidiaries outside the country. This makes SOCAR an unsinkable company. The same "unsinkable" in Azerbaijan should become small and medium business, more than 60-70% forming the economy of many developed countries. In addition, this is a very flexible layer of business.
Director of the International Trade Center (ITC, Centre du Commerce International, CCI) Arancha Gonzalez, who visited Baku in early July, held talks at the Ministry of Economy to increase the export opportunities of small and medium-sized businesses. According to her, today 80% of companies in Azerbaijan belong to small and medium-sized enterprises (SMEs), but they form only 3% of GDP, and only less than 10% of SMEs are engaged in export. At the meeting, Gonzalez stated the need to increase the digital competitiveness of Azerbaijani small and medium-sized enterprises and provide them with direct access to international e-commerce platforms, for example, on eBay. Deputy Minister of Economy Sahil Babayev expressed at this meeting the idea that the output of SMEs to the foreign market should go through the study of potential target markets, increase of competitiveness, strengthening the capacity of organizations supporting small and medium-sized enterprises, improving access of this sector to finance, integration of Azerbaijani enterprises into global value chain and their access to international markets. By the way, it was during these days that the World Bank announced a review of its strategy, saying that it will now act as a broker for the private sector, that is, for the same SMEs.
Meanwhile, some representatives of the business community are convinced that today everything that is needed by SMEs is a systematic approach to stimulating the development of business activity in the country. They consider, for example, that it is impossible to promote the development of large manufacturing industries, without worrying about the development of a network of small and medium-sized enterprises supporting them, acting as suppliers of individual goods, services and raw materials. This interaction between big business and SMEs is mutually beneficial. However, in the conditions of a giant monopolization in the Azerbaijani economy, we can hardly expect that large capital will use the services of independent SMEs. On the contrary, often large capital estimates SMEs as potential competitors. Meanwhile, in the regime of manual management of the economy, which exists today in Azerbaijan, it is possible to compel large manufacturing enterprises to create small enterprises around themselves, having certain preferences from the government for this. But one cannot artificially create SMEs, aimed at export, without supporting domestic consumption in the country, which feeds the business. But due to the outflow of money from the country's economy, local business has lost "home:" consumers, without support of which it is impossible to break through to external consumers.
The interlocutor of the site, who wanted to remain anonymous, said that only stable funding of the domestic producer could encourage the maintenance of commodity production in the country, and hence of the same small and medium-sized businesses.
The final conclusion of this businessman is simple: in his opinion, the idea of increasing the effectiveness of public spending and limiting monetary circulation in modern conditions simply destroys the domestic consumer market of Azerbaijan.
Apparently, the economy has really come to the point when it is necessary to review the entire system of economic relations in the country. This will require openness and transparency, both in making economic decisions of the state, and in current economic practice. No matter whether the authoritarian power itself likes or dislikes it, any authority is doomed to act as an arbiter between different strata of society and between big capital and small entrepreneurs. Are there any political risks? Undoubtedly, there are.
They say that money likes silence. It was corruption that gave rise to a hypertrophied attitude towards commercial secrecy in the country, which closed the entire economy from an external control. Of course, commercial secret exists for certain transactions, as an element of the market game. But you cannot cover all with a veil of secrecy, especially state economic institutions existing with taxpayer money, particularly when the veil of secrecy leads to squandering of public funds. State procurement that is always veiled and funds that lend to the economy and should be absolutely open in their activities, but really are not, are the realities of the economy.
The Law on Trade Secrets of 2011 had negative consequences for the economy. It is based on a too broad interpretation of this notion (state institutions accountable to taxpayers, too, began to hide behind commercial secrets), on the poor development of institutions (the stock exchange is not developed, and therefore there is no need for transparency of activities that are mandatory for listing on the exchange). And recent bankruptcy procedures of banks have shown that the principle of bank secrecy is ready to apply even to those banks that have already been liquidated.
FINANCIAL SYSTEM. The banking system is trying to withdraw from its current suspended state. For the first time in decades, it has become a real burden on the budget. The budget for 2017 was recently revised, primarily because the state took over the debts of the external creditors of the IBA. The solution was in fact no alternative. Otherwise, big problems could arise: both with access to international capital markets, and with the cost of external lending. The struggle to restructure the bank's obligations on the terms of the Azerbaijani government is in full swing today. With some of the creditors they have already managed to find a compromise, the claims of others were rejected by the New York court at the end of June. But the final solution of the issue is yet to come.
The most acute problems were revealed during the bankruptcy procedure of Bank Standard. In a sense, the situation here turned out to be worse than the IBA story. The actual collapse of the IBA looked like a force majeure, and its salvation at any cost was fully explained by the fact that it is the largest state bank. The state again rushed to support the bank, as soon as it became clear that the IBA had inevitable problems with external creditors. A serious problem with depositors in this bank did not emerge - panic was avoided, and the bank kept its image before them.
The situation was not the same in Bank Standard, where, as it turned out, the funds of the bank's creditors were not protected by anyone and not at all. Only now, when the bank is in the liquidation phase, it becomes obvious what an absurdity it is. Depositors of the bank through the Deposit Insurance Fund were returned their savings (and the bank knew that it would be). But when it came to returning loans to investors, it turned out that they would not be able to return them practically. The chairman of the committee of creditors of this bank Akram Hasanov believes that, apparently, some officials took loans from this bank without any security and now do not want or cannot return them. Indirect confirmation of this (and not only in Bank Standard) may be the fact that the real estate market has sharply increased the supply of expensive mansions (5-6 million manats each). Realtors associate this fever with the debts of these nouveau riches to banks. Another option is not excluded, that the management of the bank intentionally issued unsecured loans to a familiar circle of persons. The level of bad loans in Bank Standard amounted to several hundred million manat, and deposits, again, were returned at the expense of the state.
The Creditors' Committee demanded from the Deposit Insurance Fund - ADIF (the bank's liquidator) the list of borrowers of Bank Standard with a detailed description of the state with their credit indebtedness. But the Fund refuses to provide this information, referring to bank secrecy. The creditors' committee reasonably objects that the bank is closed, and in these circumstances it is impossible to talk about the observance of bank secrecy.
One can confidently say that FIMSA is not happy that the creditors' committee of this bank is headed by such an insistent and consistent lawyer as Hasanov. The shame of the story rests in the fact that virtually everything - the Central Bank, the management of the bank, and FIMSA are really afraid that another fact will emerge that the bank has not conducted any checks. These same issues arose in the IBA story, but the same CBA then kept silent. It is also surprising that the audit of the bank in recent years has been conducted by a seemingly authoritative KPMG, which "did not notice" the sins of this bank.
In this story, criminal content is clearly visible. Nevertheless, FIMSA complained about Akram Hasanov to the Prosecutor General's Office that he allegedly spreads panic among the population about the state of affairs in Azerbaijani banks. Hasanov was summoned to the prosecutor's office, where he explained that he only defended the interests of creditors as a lawyer. Of course, he was released, but at the beginning of July the creditors of the bank appealed to the same General Prosecutor's Office with a request to check the presence of the fault of the Central Bank, FIMSA and the temporary bank administrators in the bankruptcy. The creditors" committee itself intends to apply to the court regarding the actions of the former management of the bank, and, defending its own rights, it is also ready to apply to the European Court of Human Rights.
Most likely, Bank Standard is no exception. If we talk about the quality of assets of such credit institutions, experts say that at a balance sheet cost of 100%, their real liquidation value is almost 12-15%. Almost all banks have identified financial transactions that have signs of criminally punishable acts that were carried out by former managers or owners of credit institutions. Knowing about the inevitable collapse of the bank, they simply removed the assets from it. The veil of silence around the bankruptcy of banks is understandable: for example, some high-ranking officials covering their companies that do not return loans may be interested in this.
What is the overall situation in the banking system? The current picture here was designated by the chairman of the Association of Banks of Azerbaijan (ABA) Zakir Nuriyev. He said that already 10 banks do not meet capital requirements based on international standards, but according to national standards the number of such banks is much lower. The process of bank consolidation seems inevitable to him, but it seems impossible for him to talk about any terms in which this should happen.
It is obvious that the crisis of the banking system is deeper than it seems. There are constant searches of how to restore normal vital activity of the banking system. The task is all the more difficult because the real sector is not in a position to support the financial system. The same Zakir Nuriyev believes that it is necessary to adopt two new laws - the law on guarantees of creditors' rights and the law on loan guarantees to borrowers. "The first law will clarify the rights of creditors and the procedure for exercising their right to pledge. This will reduce credit risk and the associated size of loan rates. The second law due to loan guarantees will allow borrowers to attract bank lending at even lower rates," Nuriyev explained.
A similar idea was expressed by Rufat Aslanli, Chairman of the Board of Directors of FIMSA, who believes that it is high time to create a Credit Guarantee Fund in the country. And the World Bank offered Azerbaijan to create a special platform for resolving disputes between creditors and borrowers with a view to the voluntary resolution of disputes between them. It has already informed ABA about this possibility and is ready to support the creation of this structure within the framework of its own financial system modernization project (FSMP II).
Banking statistics also speaks of the importance of seeking a compromise in the relations of creditors and borrowers. According to official figures, about 2.4 million people owe to banks and about 1.1 million guarantors have been fixed in Azerbaijan today. Since according to the law, the guarantor of the borrower is also responsible for repayment of the loan debt, it can be said that in the country 3.5 million people are on the list of bank debtors, and in fact are potential "credit prisoners".
Stupor in the banking system is obvious. With the current high loan rates, borrowers are not inclined to go to banks. ABA, protecting the banks, says that at high deposit rates (at least 12-15% on manats) banks simply cannot lend at rates below 24-25% due to clearance costs, risk assessments, including risky margins. And the banks themselves are afraid of new bad loans, even with a good margin. Today"s level of credit rates makes it difficult to attract loans not only to small and medium-sized enterprises, but also to large businesses.
Now everyone is waiting for August. There are persistent rumors that CBA will reduce the refinancing rate to 12%. But to expect that this will significantly affect the banks" lending rate is an illusion. Direct communication here is seen with deposit rates, the level of which cannot exceed the CBA rate. The money supply in the economy will also increase, although this may create inflationary pressure in the economy. In any case, at the end of June, CBA already significantly reduced the offer for manat deposit auctions.
On the last day of the month, the budget of 2017 was revised. The Ministry of Finance announced that the state budget revenues in 2017 are planned to increase by 511 million manats or 3.1% to 16,766 million manats (25.2% of the expected GDP), and expenditures will increase by 1,041 million manats (+ 6.2%) and will amount to 17,941 million manats. The Minister of Finance Samir Sharifov said at a meeting of the parliament that this step is connected with the transfer of the external debt of the state-run OJSC International Bank of Azerbaijan in the amount of $ 2 billion 383.4 million to the state. Besides that, the expenditures stipulate ADIF support and SOCAR subsidy of 250 million manats to maintain the live gas prices.
In parallel with this, a new upper limit of external borrowing was also approved, which in 2017 will not amount to 500 million manats, as it was approved at the end of last year, but 9 times more - 4.5 billion manats. As of the first quarter of this year, loan agreements for $ 11.1 billion were signed with IFIs. Azerbaijan"s external debt on these loans totaled $ 7 billion, which is 18.1% of GDP. The volume of external public debt per capita is $ 713.5. The volume of internal state debt amounted to 7 billion manats. In the first quarter of 2017, $ 83.2 million was spent on signed loan agreements. The external debt has somewhat decreased, although it is obvious that it will grow. The minister Sharifov assured the deputies that the current level of external debts will not affect the rating of the country. Indeed, big problems for the economy will begin if the external debt starts to exceed 40% of GDP. Still, it was quite shocking that the Azerbaijani State Railways addressed the restructuring of their external debts. This is one of the most credited and subsidized companies in the country. Other state agencies may be also attracted to state aid.
Summarizing, we can say that the results of the half-year have once again confirmed how important the transparency in the economy is, especially when there is little money in it. Financial problems will increase. Oil prices will not be established at a more or less stable level. Foreign investment in the economy, in addition to investment in the oil and gas sector, almost did not increase, and domestic budgetary investments significantly decreased, as well as the own funds of enterprises experiencing difficult times. The growth of bank investments in the economy, which for five months grew by 31.5% over the same period of last year, and its share in the structure of investments has risen to 12%, may seem somewhat surprising. But it would not be worth exaggerating the significance of this factor. Most likely, we are talking about large state projects, which are credited through several trustworthy banks.
The financial crisis exacerbated the interest in the work of the entire economic block of the government. The expert community and the media are increasingly asking impartial questions. While CBA in 2015-2016 engaged in the hunt for currency speculators and prohibited the issuance of currency in banks, huge amounts of currency were withdrawn from the country (the peak was in 2015). And, as it turns out, it was without much effort. In the law "On the foreign exchange market" there were many loopholes, and the law was tightened only in November 2016, when the capital flight significantly decreased. It is unclear what the financial monitoring service under CBA, which is obliged to counter money laundering, was doing at this critical moment. A lot of questions have accumulated on additional channels of lending to the economy: through the National Fund for Entrepreneurship Support (NFES), the Azerbaijan Mortgage Fund, the State Agency for Information Technologies and the State Service for Agricultural Loans. All of them provide concessional lending (5-7% per annum) through agent banks, with some of their loan portfolios very large (at NFES, for example, it amounts to 2 billion manats). Suggestions are made to cancel the effect of bank secrecy on these loans, to release data on borrowers on websites, and to explain the choice of a borrowing bank. As for the leakage of capital, the reluctance to pursue a capital amnesty and the lack of control over offshore capital further exacerbates the situation.
FUEL AND ENERGY SECTOR. With oil prices there is a complete commotion. It seemed that OPEC +, signing agreements on the further maintenance of the freezing of oil production, had calculated everything. But within a week after the conclusion of the agreement, many analysts realized that the expected effect would not take place. Head of Saxo Bank"s strategy department in the commodity market Ole Slot Hansen told Trend almost immediately that the market is pessimistic that this deal will reduce the level of the world supply. The reduction in supply in the market was offset by an increase in production in Libya, Nigeria and the United States. But production has not only grown in these countries. The Canadian Petroleum Manufacturers Association forecasts an increase in oil production by 270,000 barrels per day in 2017 and another 320,000 barrels in 2018. Growing in volume, Canadian oil is replenishing US commercial reserves, causing anxiety among traders. The investment bank Goldman Sachs lowered the three-month forecast for WTI from $ 55 to $ 47.5 per barrel. In the subsiding Brazilian economy, oil production reached a record production level of 1.5 million barrels a day this year, and the average export volume for the first four months of 2017 increased by 39% compared to the previous year. However, all the efforts of OPEC + can be leveled by the one expected growth in oil production in the US by 1.5 million barrels per day.
A loud political event was the announcement by President Trump of the US withdrawal from the Paris climate agreement. In June, the American President also spoke with the doctrine of American energy hegemony in the foreseen decades.
"We are creating a new program to develop oil and gas on the shelf," Trump said, speaking at the Energy Ministry. The essence of the program is that the reserves located on 94% of the US shelf areas will be unlocked. Trump stressed that under President Obama and earlier they were closed for development. It may seem that all this is done at the peak of President Obama"s policy, but the doctrine is already working: the US will sell coal to Ukraine, has agreed with Poland on LNG supplies and makes plots against Russia over gas pipelines to Europe.
You cannot ignore the new increase in refinancing rates of the Fed, which always pushes the price of oil down. And after this, the price starts to fall across the entire raw material series, and, first of all, in the market of industrial metals.
Several agencies forecast $ 42 per barrel as a potential target on the WTI oil chart. The American resource www.oil-price.net is more optimistic: the annual horizon of average prices for WTI oil will be $ 48 per barrel. And the cost of Azerbaijani oil fell to $ 46 in June: this is the level of November last year.
To support, as expected in 2017, the price range of $ 50-60 per barrel, according to many analysts, will be extremely difficult: financial resources go and flow from the oil market to more attractive assets for investment (virtual currencies, scarce physical gold, etc.).
Fluctuations in oil prices downward, of course, are a big trouble for the oil-producing countries. It is difficult to build plans, and it is increasingly difficult to increase oil revenues. It is also impossible to get away from oil development. The government"s attention is focused on the implementation of the Southern Gas Corridor Project. Most of the financial problems for this project have already been resolved. But it is interesting that the problems here arise along the way. The struggle of Russia for the gas market of Southern Europe is tough, and it is no accident that problems with the construction of the Italian site of the TAP are constantly associated with Russia. In June, the second person of Gazprom made a strange statement about the fact that the Russian gas giant is ready to help with filling out the TAP if Azerbaijan asks about it. The calculations in this regard were ironically received by local experts, but the Italian ENI also spoke on the possibility of pumping Russian gas through this corridor. In June, the Turkish Stream gas pipeline was docked in the deep and shallow parts. Putin even phoned Erdogan about this event. Of course, the Southern Gas Corridor is regarded by Russia as competing with the Turkish Stream. On the one hand, this puts a limit to Gazprom"s monopoly claims on the European market, and on the other hand, other countries (Iran, Iraq, Israel), indeed, can fully connect to this project, especially since the full capacity of TANAP and TAP is 31 billion m3. In addition, the European Union made a statement on June 19 that it is committed to the idea of extending the Southern Gas Corridor to Central Asia, and there are other projects for the supply of pipe gas to Europe (Greece, Cyprus, Israel), but so far the real net beneficiary of all these competing projects is Turkey, which has approached the implementation of the idea to make the country the largest gas hub in the region.
Azerbaijan in advance tries to increase the volumes of future gas production wherever possible. Shortly before his death, an experienced negotiator, Energy Minister Natig Aliyev, complained that, although there is agreement in principle on this issue, BP delays the conclusion of an agreement on deep-sea gas on ACG. The expected gas reserves here are estimated at 280 bcm, and annual gas production may amount to 3-5 bcm. The government expected that by the year 2025 the first gas will be received here. It announced the exploration at the Babek field in order to start operation already in 2026. Great expectations are associated with Asiman and Shafag, the exploitation of which is planned for 2030. The closest plans are the completion of tender procedures for the Absheron deposit.
Inside Azerbaijan, apparently, the gas deficit will increase, at least, before the start of operation of major gas projects. Gas production in Azerbaijan is falling, and although the development of commodity gas has stabilized, the reserves in the gas storage facilities have been nullified. In January-May 2017, gas production decreased by 5.9% (year on year). The production of commercial gas for the five months of 2017 amounted to 7.822 bcm (zero growth year on year). Nearly for the first time in many years as of June 1, 2017, the country"s gas reserves were also nullified. And gas will be needed more and more due to the development of gas processing. And on the first Sunday of July, the President of SOCAR flew to St. Petersburg, where he discussed the issue of Russian natural gas supplies to Azerbaijan with the head of Gazprom Alexei Miller. Many people are convinced that it was a question of gas supplies for the methanol plant, which became the property of SOCAR, although it may also be about gas supplies to other enterprises under construction.
To some extent, the development of alternative energy was the mirror of the Azerbaijani economy. There is a state agency for alternative energy, a separate economic structure for its development has been created, and hundreds of millions of manats have already been invested in the industry. The effectiveness of these steps is very small. The climate is changing, and according to the Azerbaijani Academy of Sciences, there are more sunny days on the territory of the country. Their number varies between 2,000 and 2,800 hours, and the average temperature in the country has increased by 0.5-1.4 degrees. It is still unclear why this advantage is not used for the development of solar energy. It is very significant here that no one remembers the factory for the production of solar panels in Sumgait, noisily touted at the time. In the country, apparently, they have become almost unnecessary.
Meanwhile, the production of alternative solar and wind energy invariably falls. In January-May 2017, it amounted to 24.8 million kW / h (in the five months of last year - 28.7 million kW / h), which is 0.259% of the total electricity production in the same period (9.59 billion kW / h) or 0.269% (9.196 billion kW / h) of the commodity electricity. At the same time, wind energy was produced in the amount of 7.4 million kW (-24 %%), and solar energy - in the amount of 17.4 million kW (-6.3%). This is very small, and Azerenergy"s complex relationship to alternative energy and reluctance to let private investors enter this market play not the least role in what is happening.
INFRASTRUCTURE. Intensive work to expand transport infrastructure for transit through the country continues. The Ministers of Railways of three countries - Georgia, Turkey and Azerbaijan - meet in a constant mode. There will be a lot of agreements that must ensure transit cargo flows in a new direction. Special expectations are associated with the Baku-Tbilisi-Kars railway project (BTK). Let's not forget that for a quarter of a century of independence of the South Caucasian countries this is the first time that a railway is being pulled from the South Caucasus, opening a transport route beyond the post-Soviet space. The ministers checked the state of the new road on several sections and it is already close to the opening.
During the June visit of President Aliyev to Poland, the head of the Polish state raised the issue of direct rail communication between Poland and Azerbaijan. How it will look technically has not been deciphered yet. But it is primarily about cargo transportation.
Prior to this visit, a meeting of the heads of railway agencies of Iran, Azerbaijan, Georgia, Ukraine and Poland was held in Baku on June 20. As a result of the discussions, it was decided to expand cooperation along the route South-West, which will serve to optimize transportations in the direction of India-Persian Gulf-Iran-Azerbaijan-Georgia-Ukraine-Europe. At the same time, the parties agreed on the need to explore the possibilities for joint use by railway departments of the member countries of preferential tariffs for goods that will be transported along this route.
The navy is also being developed. In recent years 300 million manats has been invested in the Caspian Shipping Company, and, according to the shipping company, almost all of these purchases are made at the expense of the state-owned company itself. In recent years, 17 ships worth 155 million manats have been put into operation here. In addition, four vessels have been ordered at the new shipyard. Cargo handling through the Baku commercial port rose by almost 45% for five months.
The only thing that is important to note is that, most likely, there is no need to build Napoleonic plans to redirect all cargo flows from China through the South Caucasus and BTK. First, the capacity of the corridor itself through the South Caucasus is limited. Secondly, the Chinese themselves made the necessary amendments, saying that they consider the new railway BTK as a way for the transit of Chinese goods to the countries of the South Caucasus, Turkey, the Middle East and, possibly, Eastern Europe. And the most correct policy here is to make the route so attractive that it becomes popular with logistics companies.
There is no doubt about the government's intentions to bring the economy out of the crisis. In this regard, Asan Khidmet's service provided a very interesting example of a social infrastructure or, if you like, a management infrastructure. The system is flexible, innovative, and able to work in different directions. Now this structure has a wide geography and is multifunctional. It is interesting to trace, for example, how it improves opportunities for tourism. At the beginning, the Asan Visa service was established, and the flow of tourists increased. And in June, all problems with obtaining visas were eliminated (the President signed a decree, according to which a visa can be obtained, if necessary, within three hours). And moreover, visas for trips abroad will be also issued by Asan Visa soon.
POLITICAL BACKGROUND. The event density of 2017 has become even more noticeable. To the old unresolved problems new ones are constantly added. The consequences of certain events, statements, radical economic steps in one way or another are dashed to Azerbaijan. Such multidirectional phenomena like the reduction of China's energy demand or the US announcement of its energy dominance in the coming decade certainly affected Azerbaijan, at least through oil prices. Nevertheless, the events of June did not add clarity to the issue of the movement of world politics towards a more stable world. It is of fundamental importance to succeed in at least some conflict, and in this sense, the negotiations on the Cyprus problem are encouraging.
And in the rest we see dead ends everywhere. For the first time since the revolution, Iran has been the victim of a bloody terrorist attack. ISIS encroached on the symbols of the statehood of Iran - the parliament and the mausoleum of Khomeini in Qom. The blockade of Qatar has revealed serious contradictions within the Arab countries. The velvet shift of the center of power in the royal Saud family was also quite unexpected. The Arab world is in motion and all this is a definite challenge for Azerbaijan, which has always sought to establish partnerships with the rich monarchies of the Gulf.
It would seem that ISIS is crushed and the last act of this political drama is taking place. The price of this is high - the probability of disintegration of Syria remains, and the contradictions between the countries involved in the conflict have become aggravated. And the defeat of ISIS is still in question, and the archaic that is carried by ISIS is too tenacious and made extremely ideological: it is still difficult to say whether this will lead to an increase in the terrorist attacks of ISIS around the world.
Such small countries as Azerbaijan are literally doomed to act to the touch, tactically, moreover, while the country has such a huge problem, as the territories occupied by the neighboring country. There is so much uncertainty around that and it is almost impossible to build long-term strategies. This is dooming Azerbaijan to a multi-vector foreign policy, although in the world of confrontation, this is also a rather difficult task. Here the government"s hesitations are quite understandable.
Political observers noted the fact that President Aliyev did not go to the Shanghai Cooperation Organization"s (SCO) summit, although he was invited to this meeting personally by Nazarbayev. Nobody, of course, asked why the President refused to participate in such an authoritative meeting. But the answer would be simple: the President is engaged in the issue of strategic partnership with the EU. Details of the future document were actively discussed in June, and its final signing should take place in November, during the Eastern Partnership Summit in Brussels. Politically, the authorities, of course, are irritated by the constant focusing on human rights themes by the EU and by other European claims. But do not forget the fact that Azerbaijan needs EU support in the construction of the Southern Gas Corridor, and the European market is one of the most solvent markets in the world.
Meanwhile, another stage of protracted negotiations on a new agreement between Azerbaijan and the European Union began in Baku. They discuss issues of politics, security, trade, investment and a bit of democracy. The negotiations are conducted on the basis of the Partnership and Cooperation Agreement of 22 April 1996, which has not been implemented. From Azerbaijan, the working negotiations with the European Union and the WTO are conducted by the Deputy Minister of Foreign Affairs Mahmud Mammadguliyev. He is pessimistic about the fact that the negotiations will be completed before the Brussels summit. The roots of this pessimism are not only in the technical difficulties of the negotiations: Azerbaijan constantly faces a choice - Eurasia and Russia or the European way of development. The choice is difficult, if not impossible. The accelerated movement towards Europe can undermine the very foundations of the authoritarian power. Azerbaijan quite often declares success in the creation of e-government. Meanwhile, the Steering Committee of the Open Government Partnership at its meeting in Washington decided to leave the status of Azerbaijan inactive for another year due to the poor conditions for the work of the NGO in the country. Earlier, the same incident took place in the case of Azerbaijan's withdrawal from EITI. It was not without another bitter pill: in one of the ratings of the assessment of corruption Azerbaijan was on the first place among 28 countries in terms of corruption.
One of the paradoxes of the global world is that authoritarian regimes that do not accept democratic values have learned to take advantage of the democratic arrangement of society and the free market outside their own country. The rich Arab countries have long scattered their assets in the countries of Western democracy and are assured of their inviolability: Saudi Arabia"s assets alone in these countries are estimated at 365 billion dollars. And offshore long remained a normal tax haven for companies, until there was not laundered shadow capital from developing countries.
Political and economic elites do not need to build relationships with Europe. For them, Europe is already open. They can go there when they want, buy property, place their capital, or open a business. As for ordinary citizens, it is important for them to know what it really means for them to draw closer to Europe. This, of course, was felt by the citizens of Georgia and Ukraine, who recently got a visa-free regime for visiting Europe. These countries have fulfilled the conditions of the European Union, while the reaction of Azerbaijan to them has always been unambiguous - do not teach us democracy!
For a whole month, the issue of abducting the Azerbaijani oppositionist and political activist Afgan Mukhtarly from Georgia has been discussed. The Azerbaijani authorities routinely drag out the case, brushing aside any questions on this topic. But Georgia is put in conditions when it has to prove that the abduction happened was not the fault of this country. That is why Mukhtarly"s wife was received by Georgian President Margvelashvili. Georgia, which has just made another step towards Europe, is simply obligated to protect its image of a democratic state.
Already when this issue was being prepared, the Armenian occupation forces again violated the ceasefire and shelled the Azerbaijani village of Alkhanly. An elderly woman and her two-year-old granddaughter were killed. It seems the Armenian military did not expect the public resonance this obvious war crime caused both in Azerbaijan itself and far beyond its borders. The threat of a new war in Karabakh has increased noticeably.
|Main macroeconomic indices||2017 January-Maymln. AZN||V- 2017 V- 2016 %||2016 January-Maymln. AZN||V -2017 V - 2016 %|
|Gross Domestic Product||25 338,7||99,1||21 512,8||95,8|
|Industrial Production||15 710,5||94,5||12 075,0||99,7|
|Agricultural Production||1 532,6||102,0||1 341,7||105,8|
|Money incomes per capita (in AZM)||1 917,5||106,2||1 822,9||107,0|
|Turnover of Goods by Transport, comm. (in mln Tons/km.)||87,9||102,1||85,6||97,0|
|Capital Investments||5 671,7||96,8||5 388,8||66,9|
|Trade turnover||12 918,3||101,9||10 999,2||101,9|
|Services||3 023,5||100,1||2 768,1||101,4|
|Export ($ mil.)||4 835,8||125,9||3 859,7||64,1|
|Import ($ mil )||2 165,0||83,5||2 594,2||76,2|
|Average monthly salary ( from the beginning of the year, (in AZN)||520,5||106,8||487,5||107,8|
|Index of Consumer Prices||X||113,8||X||110,4|
GROSS DOMESTIC PRODUCT IN OIL AND NON-OIL SECTOR
|January-Aprel||January-May 2017 compared to January- May 2016, the percentage|
|Gross domestic product||25338,7||21062,8||99,1|
|- oil sector||10420,2||7796,5||93,5|
|- non-oil sector||14918,5||13266,3||102,3|
* 2016 figures are determined based on final data
STRUCTURE OF GDP BY INDUSTRIES IN JANUARY-MAY 2017, %
PRICE AND TARIFF INDEXES
|In May 2017 compared with Aprel 2017||January-May 2017 compared to January-May 2016|
|Consumer price Index||100,2||113,8|
|Producer price index||98,1||157,7|
|The price index of agricultural producers||99,2||110,2|
|Transport, Postal tariffs||100,1||110,6|
KEY INDICATORS OF HOUSEHOLD INCOMES
|In January-May 2017||Compared to the previous year, in percent *)|
|Nominal income of the population, mln. AZN||18613,9||107,3|
|For each, Manat||1917,5||106,2|
|Disposable income, mln. Manat||17025,0||107,3|
|For each, Manat||1753,9||106,2|
*) In 2017, the indicators were defined on the new information.
STRUCTURE IMPORT AND EXPORT (V - 2016/IV - 2017)
CAPITAL INVESTMENTS BY FUNDING SOURCES (%)
|In January-May 2017, million manat||Compared with the last year (in comparable prices),%||Share of total, %|
|Including funds of enterprises and organizations||3 995,5||85,2||70,4|
|Funds of population||252,7||159,6||4,5|
|Other tools||25,5||7,6 d.||0,5|
DYNAMICS OF PRODUCTION IN THE MANUFACTURING INDUSTRY in 2016 and January-May 2017
|Compared with the previous period,%|
|Total in manufacturing||non-oil processing industry|
DYNAMICS OF PRODUCTION OF CONSTRUCTION MATERIALS
NUMBER OF EMPLOYEES IN INDUSTRY SECTOR
CRUDE OIL AND NATURAL GAS PRODUCTION
|Types of products||Produced in January-May 2017||A comparison last year,%||The presence of the finished product on 01.06.2017|
|Crude oil (including condensate), tons||15 934,0||90,8||432,5|
|the marketable||15 914,5||90,8||432,5|
|Natural gas, million cubic meters||11 710,2||94,1||-|
|the marketable||7 822,0||100,0||-|
RELEASE THE MAIN PRODUCTS OF THE OIL INDUSTRY
|Types of products||Produced in January-May 2017||A comparison with the last year,%||The presence of the finished product on 01.06.2017|
|Car benzinb th. Tons||524,1||111,3||52,7|
|Gasoline for use in oil and himicheskyo industry, thous. Tons||86,0||108,9||2,5|
|Kerosene, thousand thous. tons||254,4||92,4||12,4|
|Diesel fuel, thousand thous. tons||807,6||82,3||119,4|
|Fuel oil, thous. tons||241,2||64,4||7,8|
|Lubricating oil, thous. tons||9,1||182,0||7,1|
|Bitumen, thous. tons||60,3||126,4||4,8|
|Petroleum coke, thous. tons||84,4||121,8||12,0|
|Types of products||Produced in January-May 2017||In comparison with the previous year,%||Inventories of finished goods on 06/01/2017|
|Electricity million. Kilowatt-hours||9 591,1||103,0||-|
COUNTRIES WITH THE LARGEST SHADOW ECONOMY (% of GDP)
OLD AND UPDATED BUDGET OF 2017 (bln. AZN)
DYNAMICS OF THE GROWTH OF THE CURRENCY RESERVES OF CBA FROM THE BEGINNING OF THE YEAR (mln $)
RATE OF GROWTH POPULATION`S INCOME, AVERAGE SALARY AND INFLATION (mln. AZN)
CHANGE OF THE MONETARY BASE FROM THE BEGINNING OF THE YEAR (mln. AZN)
CREDIT INVESTMENTS IN THE ECONOMY (billion manat)
DEPOSITS OF THE POPULATION
|May 1, 2015 million mana||Compared with last year's period,%|
|Deposits of population - total||6873,2||89,4|
|Besides that:in national currency||1608,2||114,2|
|in foreign currency||5265,0||83,9|
REFUND OF INVESTMENTS OF THE OIL FUND - ROI (%)
TRADING VOLUME AT THE BSE (mln.AZN)
AZN RATES TO USD AND EUR
COMPARISON OF BARRELS OF CRUDE OIL BRENT AND AZERI LIGHT YEAR ($)