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Economic review
Economical Review 


2017 October 17 ( Tuesday )  18:09:21
Print version
Русский Azərbaycan

SOME EVENTS OF SEPTEMBER

05 - The International Bank of Azerbaijan completed the process of restructuring foreign debts.

06 - The website of the bank ombudsman opened at the Association of Banks of Azerbaijan

- Gasoline brand AI-98 Super went up from 1.2 to 1.3 manat per liter.

- The Foreign Ministers of Azerbaijan, Turkey and Georgia signed the Tripartite Cooperation Plan in 2017-2019, following the results of the 6th meeting in Baku.

07- The President of Azerbaijan Ilham Aliyev approved a decree on the Statute of the State Mandatory Health Insurance Agency.

08 - The Ministry of Energy of Azerbaijan and the European Bank for Reconstruction and Development signed a protocol on cooperation in the development of public infrastructure in the framework of the implementation of the strategic road map of Azerbaijan.

12 - The Minister of Taxes Fazil Mammadov approved the plan of measures to ensure budget forecasts by the end of this year.

14 - A contract was signed in Baku for the development of the Azeri-Chirag-Guneshli (ACG) field block in the Azerbaijani sector of the Caspian Sea until 2050.

- SOCAR President Rovnag Abdullayev received Lars Christian Baher, Executive Vice President for international development and production of Statoil, at the head office of the company.

15 - The President of the country established the Credit Guarantee Fund of Azerbaijan

18 - The CBA at its meeting kept the discount rate at the same level - 15%.

19 - Baku hosted an event dedicated to the 25th anniversary of the World Bank"s cooperation with Azerbaijan.

20 - The seminar Journalistic Support to Economic Reforms was organized by the Azerbaijan Foundation for the Promotion of Entrepreneurship and Market Economy and the US-based International Center for Private Entrepreneurship (CIPE).

25 - Interfax reported on the opening of Gazprom"s representation in Azerbaijan in the coming weeks.

26 - The special representative of the NATO Secretary General for the Caucasus and Central Asia James Appathurai was on a visit to Baku and was received by the President of the country.

29 - Discussions on draft new agreement between EU and Azerbaijan were held in Brussels.

30 - The regular general meeting of members of the organization of businessmen and industrialists of Azerbaijan and Turkey (TUIB) was held.

FOCUS OF MONTH.The economy, most likely, will not start growing until the end of the year, and this will be expected. For three quarters the decline seemed to have dropped to 0.6%, but IFIs continue to hold the forecast for the year at -1%. But in any case, there is no need to expect big economic growth in the next few years. To understand this, it's enough just to compare watches with Kazakhstan and Russia: the growth there has already gone, but it is moderate enough.

Peak GDP per capita accounted for 2014, when it was $ 8,050. According to the IMF's recent projections for the coming years, this figure will grow. But even in 2022 it will be only $ 5,849 per person. The peak of oil prices was left behind. As the Germans say, "Remembering the past, take off your hat, and looking into the future, roll up your sleeves," as if it meant Azerbaijan. To get out of the jerk and not stay among the countries - outsiders in the economy, it is necessary to work hard and even harder.

In January-August 2017 Azerbaijan produced GDP of 43,713.2 million manat. This is 1.1% less than in the same period last year. The non-oil sector accounted for 27,431.5 million manat or 62.75% of GDP, which exceeds the last year's figure by 2.4%. The share of industry in the GDP structure was 27,774.5 million manat or 56.68%. This is 6% less than last year. In January-August, the production of non-industrial products in the country increased by 4.3% and amounted to 5,953.9 million manat. This year"s stake was also at agriculture and tourism. There was no noticeable growth in the agrarian sector (2.6%), but experts doubted that the chosen path of extensive development would be a return to previous forms of management. Already heard are complaints that the already small pastures of the country are increasingly assigned to cotton growing. The Ministry of Agriculture wants to become one of the locomotives of economic growth. But incidentally, it may well become a new monopoly of the economy; especially with the broad economic powers presented to it and in conditions when unified farms have not been formed, which could balance the monopoly from below.

The economy is still strong enough. The President recently recalled that to date the country's strategic currency reserves amounted to $ 42 million. Part of these funds, of course, will be spent on the country's budget and on major projects of strategic importance. The intention of the government to preserve and multiply this currency pillow is obvious. This increases the investment image of the country, reduces interest in obtaining external borrowing and generally reduces the risks to the economy in especially difficult times. But there are so many large projects in the country that the departments are turning to SOFAZ almost continuously. It is significant that the President has recently revised the budget of SOFAZ for this year. The revenues of SOFAZ increased slightly, and immediately there was a need to support some sector of the economy: in this case it turned out that more investment was needed to complete the construction of the Star refinery in Turkey, which belongs to SOCAR.

Devaluation most likely will not take place until the end of the year. There are many indicators that encourage devaluation (the size of external debts, capital flight, capital flows to the economy, etc.), but the positive foreign trade balance is one of the serious guarantees that devaluation still can be avoided. The government has worked hard this year in this direction. For eight months, Azerbaijan exported goods worth $ 7 billion 223 million, which is 12.6% less than last year. For the same time, goods worth $ 5.3 billion (-4.2%) were imported. But the surplus in foreign trade operations has remained unchanged: it amounted to $ 1 billion 992 million. The state sector accounts for 13.1% of imports ($ 697.5 million). State organizations reduced imports of goods by $ 131 million. Meanwhile, exports of goods by state structures ($ 5 billion 690 million) increased by 24% for the period. Non-oil and gas products accounted for a modest $ 963.4 million, or 13.3% of the country's total exports. And the agrarian sector excelled here in terms of export volume. The boom in this sector still gives some results.

Since the beginning of this year, Azerbaijan has been guided by the development program, which is embedded in the Strategic Roadmap of Azerbaijan. The first results of the assessments are very indicative. The Governmental Center for Analysis and Communication of Economic Reforms of Azerbaijan has conducted monitoring of the implementation of various programs of this map. The highest indicator was achieved in the Road Map Perspectives - 62%, the lowest was in the production of goods by small and medium-sized entrepreneurs (only 3% in exports) and the development of telecommunications and information technologies - 27% each. SMEs are again out of favor, although it would seem they enjoy easy registration, a two-year moratorium on business checks, etc. But their eternal unpleasant companions are monopolists and chronic poverty.

There is an obligatory set of steps, without which the implementation of the strategic road map program is impossible. The same government center recommends continuing the implementation of business reforms, the adoption of a Code of Competitiveness, institutional reforms, the restructuring of volatile banks, accelerating the development of public-private partnerships, and increasing investment in the municipal sector by local and foreign investors.

We will highlight institutional measures in this series. When there is little money in the economy, institutional reforms return flexibility to the economy. If investments come hard to the country, you just need to disclose institutional gateways for them. The Ministry of Economy of Azerbaijan has prepared a draft Code of Competition. This follows from the report on the evaluation of the results of the implementation of the measures reflected in the Strategic Roadmap for the Production of Consumer Goods at the Level of Small and Medium Enterprises in Azerbaijan during the first half of 2017. Here it is difficult to resist the reminder that this Code was already adopted by the parliament five years ago, and then only the last editorial reading remained. Now the same work is being carried out within the framework of the Commission on improving business environment and Azerbaijan's positions in international ratings, the Ministry"s report says. Reservations are understandable, because it is about accurately informing an external investor about the rules of the game in the economy. But it is important that this project is not frowned once again. The same can be said for the establishment of an institute of independent industry regulators in the country. The movement has been outlined here.

Probably, it is the deepest mistake to believe that an investor who comes into the country follows only the country"s economic indicators. For him, the work of the judicial system and respect for property rights are no less important. Any private case of violation of property rights, seen by him, when he decides to come to the country, affects his decision more than dozens of positive numbers. And we have this enough. Moreover, it is becoming increasingly difficult to call an external investor. The State Committee for Property Issues almost caused everybody to laugh, when it began openly inviting 500 foreign companies to privatization in Azerbaijan, although the State Committee itself did not understand why, for example, it is not possible to sell such an object as the Dashkesan ore mining enterprise at privatization auctions. But it was already passed twice to foreign investors, and then taken back without paying compensation. In addition, the oil boom, when the arrival in the country meant fabulous profits for the investor, has been left behind.

The greatest problems have accumulated in the social sphere and in the current life of business. It is, above all, inflation. The deterioration of the socio-economic situation of the population is evident. In January-August, the incomes of the population in comparison with the same period of the last year (29,046 million) increased by 7.6% and reached 31,770.8 million manat. But in real terms, they fell, as they were swallowed up by inflation, which cannot be brought down (14%). The per capita income was 3,269 manat or 408.6 manat a month. During this period, 85.8% of revenues were spent on final consumption, 8.6% on taxes, social insurance and membership fees, 1.8% (approximately 572 million manat) on repayment of interest on loans, and 3.8% on savings.

The government announced that employment has increased by 236,000 since the beginning of the year. According to old economic laws, there is the close correlation between inflation and level of employment in the economy. But this doesn`t happens in stagflation, which the azerbaijany economy is going through today. By the way many independent economists seriously challenge these figures of the government, although it must be admitted that there have been more temporary works for the construction of new large enterprises or "constructive and destructive" works in the capital. For example, the same plant SOCAR Polymer is built by three thousand workers. But when it is finished, 350 workers will work at it.

The year is already over, and it's interesting to reflect on what the next year will be like. Prospects here seem to be quite good. A new contract has just been signed with the consortium for ACG, and work on the main field of Azerbaijan will last until 2050. As early as next summer, the TANAP gas pipeline will work, and Azerbaijani gas will be supplied to Turkey, and in 2020 - to Europe by TAP. In late October, the Baku-Tbilisi-Kars railway opens. This alone is enough to expect GDP growth. However, next year, a number of large enterprises will be put into operation, which will also add to growth. This is besides the industrial zones, industrial quarters and agro-industrial parks (there will be 38 of them). This infrastructure is created everywhere, and it is at the expense of the state. In 2018, large enterprises such as SOCAR Polymer and Carbamide plants will begin to produce products. And especially noteworthy is that the market for these products is already known.

But the process of economic development is contradictory. Oil remains the main driver of growth, but here the prospects remain unclear. Experts predict a new financial crisis in the fourth quarter of 2018 and the first quarter of 2019: as the reason they indicate the completion of monetary expansion in the US, Europe and the UK and the raising of interest rates. Such challenges can be prepared for by counting and betting not so much on growth as on the development of the economy.

FINANCIAL SYSTEM. In the beginning of September, the problem of restructuring IBA"s external debts to creditors found its final solution. This will have consequences. Firstly, it is a step to restore confidence in the Azerbaijani banking system, both from the side of the bank's depositors and from the creditors. On the other hand, this decision allows us, finally, to start the privatization of IBA. The Minister of Finance announced that it is possible to start preparatory work on the privatization of this bank as early as 2018. He also told the public that during a recent visit of the EBRD"s leadership to the country the possibility of its participation in the privatization of IBA was discussed. And the EBRD expressed its interest in this.

The state of affairs in the banking sector continues to be complicated. According to the FIMSA (Financial Markets Supervision Authority) survey, the assets of the banking sector of Azerbaijan in January-August amounted to AZN 29491.7 million. Last month, they amounted to AZN 29708.5 million AZN, and since the beginning of the year the index has decreased by more than AZN 2.5 billion AZN. Correspondent accounts with the Central Bank of Azerbaijan as of September 1 amounted to AZN 3553.4 million AZN, and deposit accounts of banks and other financial institutions - AZN 5034.2 million. Banks invested AZN 5034.1 million in securities during the reporting period, loans of banks and other financial institutions amounted to AZN 295.0 million, and loans granted to clients amounted to AZN 11,907.2 million. The FIMSA survey also says that banks' liabilities on deposit accounts amounted to AZN 16,535.1 million, including on deposits of individuals - AZN 6, 871.7 million, and on deposits of legal entities - AZN 9,663.4 million. The money savings of the population continued to decline. From 7,448.7 million manat at the beginning of the year they fell to 6,895.5 million manat on September 1, and in the annual cut they fell by more than 1 billion manat. But the total capital of banks increased significantly in July (AZN 2,836.5 million) and continued to grow in August - AZN 2,923.6 million.

Most government experts call for further restructuring of banks. But this process is difficult for a number of reasons. The restructuring has discovered the ugly facts of theft inside bankrupt banks. As we have already said, it turns out that the same Bank Standard was plundered long before the announcement of its liquidation - nearly 1 billion manat of assets disappeared and the bank"s management fled away. On the other hand, banks that are part of holdings, or tied to some other economic structures, also do not want to leave the market. By the way, in the history of IBA, there are a lot of unsaid things; one person could not steal AZN 15 billion from a bank (especially, a state-run bank). In any case, the banks became cautious, trying not to get into the "penalty lists". The capital of banks, as we noted above, began to grow. Their deductions to reserves have decreased, because many of them actually stopped lending. The aggregate debt of the banking sector also began to decrease. It fell for the first time to a three-year low, amounting to 7,901.7 million manat.

The banking system is far from recovering, but some movement in this direction still began. In recent months, the CBA began to slowly increase the money supply. This affects the monetary base of the banking system. It expanded from 7,850.5 million manat at the beginning of the year to 8,651.2 million manat at the beginning of September. Compared to the same period last year, it grew by 14.24%.

The head of the country's Central Bank said recently about the tasks facing the economy: ensuring macroeconomic stability, applying a new model of economic growth, diversifying the economy, developing human capital and completing the restructuring of the financial sector. But now all this sounds too general and familiar. It is much more important to seek expansion of lending and more flexible lending rates through specific institutional measures. In particular, the last month was marked by the creation of a credit guarantee fund in Azerbaijan by a presidential decree. For the banking system, this event was expected.

In financial policy, the government continues to count on the support of international financial institutions, since this is the most affordable way to support investment activity in the country. There are no other ways, except perhaps a small amount of direct investment that will come through the creation of a joint venture with foreign capital. Own resources for this are limited due to the state of the financial market in the country.

In September, 25 years of the World Bank"s work in the country were marked. During this time, the bank presented loans worth $ 3.6 billion to the country. Another $ 1.4 billion of loans are on the way. The EBRD has lent $3 billion to the Azerbaijani economy for the period of its work, and its activities in the economy are diverse. Recently, the EBRD has increased its focus on inclusiveness issues, trying to promote more active participation of small and medium-sized businesses in the economy. The Asian Development Bank presented its business operations plan in the Azerbaijani economy in 2018-20. For these three years, ADB will place $ 1.6 billion of loans in the economy. Of these, $ 700 million will be in 2018, and $ 450 million will be in 2019 and 2020 each. And large projects implemented in the economy require much larger investments.

While the exchange rate policy is being built extremely rigidly, such a policy has a significant impact on the growth of the economy. The exchange rate policy, like the CBA discount rate, should work more flexibly. We already noted in the last issue that the international rating agency Moody's in its report on Azerbaijan on September 8 stressed that a managed floating rate prevents the manat from finding its market rate.

Several analytical groups note that the growth of the US dollar rate depends on many factors. The first of them is still remaining expectations for a new round of falling oil prices since 2018. The balance of payments may again come to a deficit, and the CBA will have to make a new devaluation. The second reason is the expected drop in the value of the currencies of the countries - trade partners of Azerbaijan. Since the beginning of the year, the national currencies of China, Russia and Turkey have strengthened by 6-15%. Naturally, this leads to an increase in imports, and these countries from the beginning of next year can arrange a soft devaluation of their currencies. A decline in commodity prices in the partner countries will lead to an increase in the real effective rate of the manat and to another factor of pressure on the balance of payments. The most unpleasant thing is that the global financial markets will see an increase in interest rates along with a decrease in liquidity. Raw materials will fall in price, the dollar on the global market will strengthen, rates on the debt market will grow, and the stock markets will begin to decline. So, going back to the beginning, we again note that it will be more correct for us to prepare for the worst, so that we are not surprised by the changing world economic situation, and move faster and more flexibly.

FUEL AND ENERGY SECTOR. In the oil and gas sector, it is possible to maintain both the dynamics of development and investment activity. A new and serious step towards this was taken in September.

On September 14, Baku signed a contract for the development of the Azeri-Chirag-Guneshli (ACG) field block in the Azerbaijani sector of the Caspian Sea until 2050. This agreement will allow the further development of the ACG block, which currently produces 620,000 barrels of oil equivalent per day. It is expected that 40 billion dollars will be invested in the project in the next 32 years. SOCAR"s share in the project is doubled and brought to 25% (under the current contract - 11.65%). In addition, the company will receive about $ 3.6 billion in bonuses. The operator of the project continues to be British BP (30.37%), and the share participation of other project participants is the following: Chevron (9.56%), ExxonMobil (6.79%), Indian ONGC (2.31%), Japanese Inpex Corp. (9.31%) and Itochu Oil (3.65%), the Norwegian Statoil (7.27%) and the Turkish TPAO (5.73%). The share of profit oil will make 75%, and it is especially important that Azerbaijan will start to make profit immediately after the beginning of the contract. According to official data, during the 23 years of the development of the block, 436 million tons of oil was produced, and currently there is still about 550 million tons of oil left not extracted. It is assumed that for the entire contractual period, stable oil production of 23-25 ​​million tons per year will be ensured.

All external observers emphasize that the new contract is mutually beneficial. Azerbaijan receives guarantees for a long and stable production of oil, and foreign companies will continue their activities in the field, which they know well and which does not promise unpleasant surprises. In addition, now the consortium will be able to avoid the costly procedure of "historical expenses". The fact is that five years before the completion of the contract, they would have to invest in dismantling the drilling platforms so as not to damage the Caspian Sea"s ecology.

Presumably, now all the previous agreements on the bloc have become part of the new agreement. Thus, gas production from the deep-water part of ACG (deep gas), which was discussed for a long time as a separate agreement, will begin as early as 2019. Sources in SOCAR say that at the first stage it is planned to drill two wells. "This will be aimed at satisfying domestic demand in the country. In general, the possibility of drilling four wells from deep layers of ACG has been confirmed, and it will be carried out in two stages, with the remaining two drilled at the next stage. The application for preparation for drilling the first two wells has already been accepted," these sources say. It is also noted that the wells will be drilled from the Deepwater Guneshli platform, and this gas will be transferred to SOCAR for the population of the country. The new agreement also covers the previous agreements on the expansion of production at the ACG site.

The above agreements should also be considered in the context of the fact that in the next two years the South Gas Corridor will enter into operation and the export of Azerbaijani gas to Europe will begin. Therefore, additional volumes of gas condensate from Shah Deniz-2, which are a gas production satellite, should be added to the long-term oil production support project at ACG. According to the official statements of SOCAR, 90% of the works on the Shahdeniz-2 project were completed by September, the physical work on the 1,850 km Trans-Anatolian Pipeline project (TANAP) was completed by 82%, and the work on the TAP and the European part of the South Gas Corridor was completed by more than 50%. By the middle of next year, the TANAP site will be commissioned to Eskisehir and gas will be exported from Shah Deniz-2 to Turkey.

All these problems, of course, do not remove the current problems of the industry, and there are many of them. First, until the last moment, funds are being sought for financing TANAP and TAP. And this requires great efforts not only by SOCAR, but also by the leadership of the country. In addition, it is necessary to look for internal sources for urgent financing of other foreign projects of SOCAR. In particular, just a few days ago it became known that the revenue part of SOFAZ was increasing and some of the expenses of the Oil Fund would be also directed this year to the final stage of construction of the Star refinery in Turkey.

Secondly, at least in the next two years, Azerbaijan will experience a shortage of gas due to the growing demand for gas, especially against the background of the creation of a processing industry related to the oil and gas sector. Already last year the country had to import 1 billion cubic meters (bcm) of gas from Iran. The same figures are cited by the officials of SOCAR. This year, SOCAR predicts the export of 1.65 bcm to Georgia and the transfer of 4.55 bcm to Azerenergy OJSC. It is necessary to add volumes of gas for consumption of the population here, as well as to provide raw materials for new enterprises. From the Shah Deniz field in 2017, Azerbaijan will be transferred 3 bcm, Turkey - 5.96 bcm, and Georgia - 0.8 bcm of gas. These three bcm should be added to our own gas production, and SOCAR will receive 2.5 bcm free of charge within the framework of the ACG production (8.7 bcm of associated gas will be pumped into the reservoir to maintain pressure on the Central Azeri platform).

Today SOCAR is extremely interested in the new volumes of gas that can be received both domestically and through imports. In recent months, SOCAR has been conducting intensive negotiations with Gazprom and Rosneft on gas supplies to Azerbaijan. Negotiations have already reached a new level, and a meeting of the Ministers of Economic Development of Azerbaijan and Russia in Moscow is expected in this regard. The President of SOCAR Rovnag Abdullayev also held a meeting with the Executive Vice President for International Development and Production of the company Statoil Lars Christian Baher. According to press reports, after exchanging courtesies and assessing the current state of relations between the companies, the parties held discussions and heard proposals on joint development of the promising structures Dan Ulduzu and Ashrafi, as well as the Karabakh deposits. Notable expectations are associated with the Umid gas field. This is an absolute fact that SOCAR does not reduce activity in all areas.

Of course, problems related to world oil prices remain. Most analysts agree that the next few years, prices will vary in the range of 40-60 dollars per barrel. So thinks, for example, the expert of the authoritative Trafigura Group, Ben Luckock. In an FT statement, Vitol Christopher Bake, the head of the company, also said that in real market conditions, the sale of oil is projected to range between $ 40 and $ 60. Recall that the International Monetary Fund (IMF) predicted the price of oil in the next two years at $ 50-60.

In these conditions, it is of great importance to reduce the cost of oil - in the fields of SOCAR in 2016 it increased by 3.2% compared to the indicator of 2015 - up to 97.81 manat per ton, the report on SOCAR activities for 2016 says.

In the structure of the cost of one ton of oil, the share of wages was 15.5%, social security contributions - 3.2%, depreciation charges - 17.5%, materials costs - 3.3%, repair costs - 7.1 %, technical services expenses - 4.7%, subsoil tax - 9.9%, transportation costs - 17%, and etc.

Last month, oil prices kept at a level above $ 55 per barrel, and it is these additional revenues, apparently, that made it possible to apply to the Oil Fund for support of SOCAR"s foreign projects.

The electric power industry worked stably. Although electricity is a difficult commodity for exports, its exports in January-August increased significantly (4.2-fold) compared to the same period last year. This was mainly due to the so-called seasonal electricity flows, but the export of electricity was about 850 million kW/ h. The need to maintain infrastructure efforts within the framework of the Strategic Roadmap for Development of Azerbaijan is becoming more and more evident. The Energy Ministry reported this month that Deputy Energy Minister G. Javadov received the EBRD President S. Chakraborty. The meeting discussed the issue of establishing an institute of independent regulator in the energy sector in Azerbaijan. Such a regulator was created already in many new countries that have embarked on the path of a market economy and, to a certain extent, is a harbinger of privatization processes in the industry. Javadov stressed at the meeting that Azerbaijan should study the European experience in this direction, and assistance of the EBRD here would be invaluable. The EBRD President stated in response that the Bank is ready to provide all possible support in this matter and is interested in the establishment of such an institution in Azerbaijan. As a result of the meeting, the parties signed a protocol of intentions on cooperation in the development of public infrastructure as part of the implementation of the strategic road map of Azerbaijan.

In September SOCAR started talking about one more important topic - transparency of the industry. SOCAR Vice President Suleyman Gasimov stressed that the company will be guided in its activities by four principles - justice, transparency, accountability and responsibility. He also added that the principle of transparency implies broad public awareness of the company"s activities, as well as the introduction of the company"s financial statements on key indicators of its business activity so that this data reflect all aspects of the activity.

INFRASTRUCTURE. A notable part of President Ilham Aliyev"s speech at the 72nd session of the UN General Assembly was devoted to the new infrastructure of Azerbaijan. And this is understandable. Azerbaijan, located between Europe and Asia, wisely uses its geographic location to become one of the leading transport hubs in Eurasia, and the world should know about it.

"Azerbaijan has built six international airports and 11 thousand kilometers of modern highways and roads. Azerbaijan has the largest merchant fleet in the Caspian Sea with 270 ships. The modern shipbuilding plant of Azerbaijan is capable of building vessels of all types and sizes," the head of state said, as if urging interested countries to use Azerbaijan"s transit capabilities. He also stressed that Azerbaijan modernizes its railway infrastructure, and next year it will open an international sea trading port, which will become the largest in the Caspian region.

"Azerbaijan actively invests in the transport corridors East-West and North-South. Both routes crossing our country will be the shortest routes from East to West and from North to South," said Ilham Aliyev.

The construction of these strategic transport corridors is approaching the final phase. The Azerbaijani Foreign Minister Elmar Mammadyarov has already announced at a meeting with his Georgian counterpart in Tbilisi that the official opening of the Baku-Tbilisi-Kars (BTK) railway will be held on October 30. All sections of this road have been reportedly tested. The last was an inspection trip of the Transport Ministers of the participating countries of the project - Turkey, Georgia and Azerbaijan - along the Georgian section of the road.

Although the decision of the President established a commission on tariffs for freight transportation, the issue of tariffs still remains relevant. It was this circumstance that the Kazakhstanian side referred to when it withdrew from the ownership of the Batumi port and participation in the construction of a new port in the Georgian Anaklia: they believe that, taking advantage of its monopoly position, Azerbaijan has raised tariffs for cargo transportation. Of course, the extension of the Caspian Pipeline Consortium may be the reason for the refusal of the ports in Georgia, which makes it more profitable to drive oil out of Kazakhstan. Georgia itself is going to build a new port, and it will cost almost 600 million dollars. This does not remove the issue of a rational assessment of the tariff level. After all, in due time agreements on common tariffs were reached, at least between Georgia and Azerbaijan. Recall that in the late 90"s, the South Caucasus was actually knocked out of the competition for cargo flows from Asia for the simple reason that Russia and Iran sharply reduced freight tariffs and got these transit flows. Sometimes it is more advantageous to do dumping and compensate for losses due to the growth of turnover.

On the draft of the international transport corridor North-South we heard in September a new statement of the Iranian side that within its framework Azerbaijan will provide Iran with a loan of 500 million EUR to complete the construction of the Resht-Astara section of the railroad. The deputy chief of the planning and investment department of the Iranian Railways, Nurollah Beiranvand, told Trend News Agency. Although he announced the consent of the Azerbaijani government to open this credit line, the Azerbaijani government still has not commented on this issue.

Beiranvand also denied the recent rumors that Baku would fully finance the construction of the Resht-Astara railroad, and added that half of the required amount would be provided by Azerbaijan, and the second half - by Iran, that is, the project will cost about 1 billion EUR. He specified that the amount invested by Azerbaijan would be deducted from the project revenues.

Beiranvand also touched on the construction of the railway station in Iran"s Astara and said the Azerbaijani side agreed to invest in the construction of both the station itself and the cargo terminals. Azerbaijan has already allocated 60 million EUR for these purposes.

"Approximately half of this amount, according to forecasts, will be used to finance the construction of a 1.4-kilometer railway in Astara, as well as the station building," Beiranvand said.

According to Beiranvand, the remaining half will be spent on the construction of four terminals. (Recall that this project is implemented in part in cooperation with Russia).

Although cargo transit through the country is the government"s main stake, an obvious attempt is to develop the entire infrastructure. This can be seen both from the activity of AZAL and the development of tourism. And here it is extremely important that the institutional steps keep pace with the development of industries. In the same tourism, the state reduces its control over the industry today, and this is very important. It is to be hoped that the Code of Competition will finally be fully operational. About the first steps in such an important area as independent industry regulators we have already said above.

POLITICAL BACKGROUND.As of September, there were many events in world politics, which immediately became the main news: from the elections to the German Bundestag to the events in Catalonia, and from the referendum on the independence of Iraqi Kurdistan to the ever-escalating conflict between the regime of Kim Jong Un and the United States. The world of politics, in fact, has become not only denser, but also more aggressive, and in some ways even irrational than before.

It seems that no conflict in the world is moving towards a solution. And the desire to fragment the world is much stronger than the idea of ​​integration and effective global interaction. Judging by the way Syria was divided into zones of de-escalation, the restoration of the Syrian state in the former borders is not yet an issue, and perhaps even impossible. Rare positive expectations for long-standing conflicts (in particular, on the Cyprus issue) are not justified yet. The points of confrontation are growing, and there are about 50 separatist centers in the world.

Of course, spheres of influence of major powers have always existed. But it seems that all problems began with the fact that in their national security doctrines there appeared a clause stating that the country"s security guarantees can be far beyond the state itself, and the theory of controlled chaos began to occupy the minds of politicians and military men. Russia also contributed to this situation, introducing the term "hybrid war"" into the world (submitted by the General Staff of the Russian Armed Forces). Now the political menu has begun to include cyber wars and attempts to influence the results of elections in other countries. The evidence here is not important - much more important is that all these topics have appeared on the agenda.

The peak of these "innovations" was in 2014, when Russia began to unceremoniously designate its place in the world geopolitical space in the zone of its traditional influence - with the annexation of the Crimea and the unleashing of the conflict in the southeast of Ukraine (Abkhazia and South Ossetia had been almost forgotten by that time). And Russia brought the case to the war, which was followed by Western sanctions and the growing isolation of Russia. The counterarguments of Russia (Kosovo, the approach of NATO, etc.), was heard by no one, since there were all signs of territorial annexation. Through participation in the Syrian campaign and the fight against ISIS, Russia took the next step to be recognized as an independent geopolitical player. It does return to the Middle East. But here it can overestimate its own abilities. The strength in the modern world is not only strong military forces, but also a strong economy.

And in the disintegration of states there is little good and even less sense. The fastest of all, it seems, was realized by Scotland, which assessed all the negative consequences of an early exit from Britain. Many political scientists say the autonomy of Catalonia was very broad and dignified, but here we are dealing not so much with the mystical desire to have their own national state, but with the ambitiousness of the new elites - they wanted to become a new independent state in the European Union. The EU unequivocally stated that Catalonia cannot be a part of the European Union, understanding that in the event of Catalonia"s independence, the chain reaction of secessions will begin.

The next point of the crisis was Iraq. There was a referendum, according to which 92% of the region"s population voted for an independent Iraqi Kurdistan. Almost all countries, with the exception of Israel and Saudi Arabia, spoke out against the idea of ​​creating an independent Kurdish state. The Iraqi government tried to take Kirkuk, which is the oil storehouse of the Middle East, out of Barzani"s jurisdiction. But during the war in Syria, the Kurds proved that they can be a mobile strike force for the coalition forces, and it is difficult to talk in the language of force with them. This could be followed by the formation of Greater Kurdistan, after which the total redrawing of all borders in the Middle East would begin. Erdogan went to Tehran at the beginning of October and it seems that all three countries are ready for a partial embargo against Iraqi Kurdistan. Barzani before the referendum slyly said the proclamation of the independence of Iraqi Kurdistan is almost a symbolic act, and there is still no question of Greater Kurdistan. This convinced no one, but the referendum still passed. Now, after the ultimatum of the neighbors, Barzani states he is ready to "freeze" the results of the referendum in exchange for suspending the decision on the economic blockade. (Moreover, in early October we have seen that Barzani did not resist the Iraqi troops when they captured Kirkuk).

The Catalan government also took a step back, "freezing" the results of the referendum and starting negotiations with the central government of Spain.

It would seem that the more disorder in the world, the more important is the restoration of the negotiation platform. But the recent attempt to launch a large-scale reform of the UN has also proved to be an empty exercise. The idea came from Donald Trump, but its main goal is just the reduction of US spending on maintaining the UN. In addition, any reform is almost impossible in the midst of general chaos in international relations. This situation is most pronounced in the North Korean problem. No one has any illusions about the regime in North Korea. But the US is bound hand and foot by the simple fact that the DPRK will undoubtedly bring down artillery to South Korea and even Japan if the US starts military operations against it. Something here could be solved by agreed collective efforts and negotiations. But the UN Security Council is not able to make any decisions, because there is always an opposing party that vetoes any proposals of opponents. That"s why everyone talks about the need to reform this main UN treaty platform (or expand it). And before that we have to agree on values, on the "red lines", which must not be violated by any state. But how can this be done when the members of the Security Council themselves cross these lines?

This is the real foreign policy background on which Azerbaijan should build its foreign policy, in the center of which, of course, the Karabakh problem stands. All September and the first half of October various aspects of the new agreement between the EU and Azerbaijan have been discussed in Brussels. They concern all aspects of these relations: energy, trade and investment policy, security, human rights and democracy. And in November, the summit of the EU Eastern Partnership countries will take place, in which, as already announced, Azerbaijani President Ilham Aliyev will participate. The Azerbaijani side very much hopes for a clear position of the European Union on the Karabakh conflict, especially as the EU, as part of its global strategy, is an active supporter of the territorial integrity and security of all partner countries.

Armenia is also trying to build some kind of its line of relations with the European Union. It"s hard to say how far it will go in this, and how much the aspirations of Armenia towards the European Union are related to the Karabakh settlement. But the fact is that Armenia does its utmost to evade the negotiation process. But the stronger Azerbaijan becomes militarily, the more actively Armenia is pushed to the negotiation process. The prospect of war does not suit anyone. The OSCE Minsk Group co-chairs have significantly stepped up their activity over the past few months. Already with confidence we can say that the Presidents return to the negotiating table. But the President of Azerbaijan has directly stated that the return to negotiations is not a favor and if Armenia again tries to impede the negotiation process through endless evasions, Azerbaijan will draw its own conclusions from this. We need at least a minimal demonstration of Armenia"s will to negotiate. Today, everyone says about the return of at least five regions of Azerbaijan occupied by Armenia. And further persistence of Armenia can be dictated only by looking at the next electoral cycles: presidential elections in Russia and Azerbaijan. There are no abrupt movements in such periods.

APPLICATION

MAIN ECONOMIC INDEXES

Main macroeconomic indices

2017 January-Augustmln. AZNVIII- 2017 VIII- 2016 %2016 January- Augustmln. AZNVIII -2017 VIII- 2016 %
Gross Domestic Product43 713,298,938 027,896,9
Industrial Production24 774,594,020 258,3101,0
Agricultural Production4 431,0101,73 914,5102,4
Money incomes per capita (in AZM)3 269,1106,53 011,7107,4
Turnover of Goods by Transport, comm. (in mln Tons/km.)150,1101,9147,098,8
Capital Investments9 868,5100,18 999,169,3
Trade turnover21 723,0102,018 463,7102,2
Services5 164,1100,64 682,6100,9
Export ($ mil.)6 152,4135,84 589,853,5
Import ($ mil )4 369,791,84 757,389,6
Balance
Average monthly salary ( from the beginning of the year, (in AZN)523,1106,9489,3106,6
Index of Consumer PricesX114,0X110,8

GROSS DOMESTIC PRODUCT IN OIL AND NON-OIL SECTOR

January-AugustJanuary-August 2017 compared to January- August 2016, the percentage
20172016*
Gross domestic product43713,237619,098,9
- oil sector16281,713212,092,4
- non-oil sector27431,524407,0102,4

* 2016 figures are determined based on final data

STRUCTURE OF GDP BY INDUSTRIES IN JANUARY-JULY 2017, %

PRICE AND TARIFF INDEXES

In August 2017 compared with August 2017January- August 2017 compared to January- August 2016
Consumer price Index100,2114,0
Producer price index104,8142,9
The price index of agricultural producers103,9111,2
Transport, Postal tariffs100,7109,1
Postage rates100,0100,3
Communication services100,0100,0

KEY INDICATORS OF HOUSEHOLD INCOMES

In January-August 2017Compared to the previous year, in percent *)
Nominal income of the population, mln. AZN31770,8107,6
For each, Manat3269,1106,5
Disposable income, mln. Manat29046,0107,4
For each, Manat2988,8106,3

*) In 2017, the indicators were defined on the new information.

STRUCTURE IMPORT AND EXPORT (VIII - 2016/VIII - 2017)

CAPITAL INVESTMENTS BY FUNDING SOURCES (%)

In January-August 2017, million manatCompared with the last year (in comparable prices),%Share of total, %
Total9868,5100,1100,0
Including funds of enterprises and organizations6 885,793,769,8
Bank loans1168,4117,611,8
Budget resources1167,394,611,8
Extra-budgetary funds141,2134,81,4
Funds of population442,3140,04,5
Other tools63,62,3 d.0,7

DYNAMICS OF PRODUCTION IN THE MANUFACTURING INDUSTRY in 2016 and January-August 2017

Compared with the previous period,%
Total in manufacturingnon-oil processing industry
January102,4106,9
January-February106,4111,9
January-March105,7112,8
January-April102,6112,0
January-May102,3110,9
January-June104,2109,7
January-July102,8108,5
January -August100,4108,3
January -September100,7108,5
January -October100,999,8
January -November101,3109,8
January -December101,3109,4
2017
January107,2118,4
January-February101,3106,1
January-March96,5101,7
January-Aprel98,6102,8
January-May99,0102,3
January-June98,0101,4
January-July97,4100,7
January-August97,6100,9

DYNAMICS OF PRODUCTION OF CONSTRUCTION MATERIALS

CRUDE OIL AND NATURAL GAS PRODUCTION

Types of productsProduced in January-August 2017A comparison last year,%The presence of the finished product on 01.09.2017
Crude oil (including condensate), tons25 572,790,7486,4
the marketable25 538,590,7486,4
Natural gas, million cubic meters18 769,193,6-
the marketable12 059,495,9-

RELEASE THE MAIN PRODUCTS OF THE OIL INDUSTRY

Types of productsProduced in January-August 2017A comparison with the last year,%The presence of the finished product on 01.09.2017
Car benzinb th. Tons783,8107,011,0
Gasoline for use in oil and himicheskyo industry, thous. Tons124,5103,82,4
Kerosene, thousand thous. tons392,594,118,1
Diesel fuel, thousand thous. tons1 215,981,564,8
Fuel oil, thous. tons252,060,58,3
Lubricating oil, thous. tons22,83,0 d.4,3
Bitumen, thous. tons130,8116,12,3
Petroleum coke, thous. tons137,2113,315,0

ELECTRICITY

Types of productsProduced in January-August 2017In comparison with the previous year,%Inventories of finished goods on 09/01/2017
Electricity million. Kilowatt-hours15 243,0101,0-
GES1 333,592,9-
CHP13 231,4102,4-
Wind power8,980,9-
Solar Stations28,965,8-

RATE OF GROWTH POPULATION`S INCOME, AVERAGE SALARY AND INFLATION (mln. AZN)

CREDIT INVESTMENTS IN THE ECONOMY (billion manat)

crd-en.JPG

DEPOSITS OF THE POPULATION

August 1, 2015 million manaCompared with last year's period,%
Deposits of population - total6860,787,5
Besides that:in national currency1822,0121,0
in foreign currency5038,779,5

TRADING VOLUME AT THE BSE (mln.AZN)

AZN RATES TO USD AND EUR

COMPARISON OF BARRELS OF CRUDE OIL BRENT AND AZERI LIGHT YEAR ($)

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