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Public Disclosure AuthorizedReport No. 44365-AZReport No. 44365-AZAzerbaijanCountry Economic MemorandumA New Silk Road: Export-led DiversificationPoverty Reduction and Economic Management UnitEurope and Central Asia RegionPublic Disclosure AuthorizedCountry Economic MemorandumPublic Disclosure AuthorizedAzerbaijanPublic Disclosure AuthorizedDecember 23, 2009Document of the World Bank
EFAPIPIPPISAPITPPAForeign exchangeGeneral Accounting Office (US)Gross domestic productGeneral Employment DepartmentHectareHuman capitalInternational Bank of AzerbaijanInternational Bureau of Fiscal DocumentationImplementation Completion ReportInternally displaced personIndependent Evaluation GroupInternational Finance CorporationInternational Financing Reporting StandardsInternational Labor OrganizationInternational Monetary FundInitial public offeringIndependent power producerInternational Standard Classification of OccupationsLatin America and CaribbeanLarge Taxpayer’s UnitJoint Staff Advisory NoteKnowledge Economy IndexLabor Force SurveyLogistics Performance IndicatorLong-Term Oil Revenue Management StrategyMinistry of Economic DevelopmentMinistry of AgricultureMinistry of Economic DevelopmentMinistry of FinanceMinistry of Labor and Social Protection of the PopulationMinistry of TaxesMinistry of TransportMicro, small and medium enterpriseMedium-Term Expenditure FrameworkNot applicableNational Bank of AzerbaijanNominal effective exchange rateNational Entrepreneurship FundNone Governmental OrganizationNon Performing LoansNet present valueOrganization for Economic Co-operation and Development(See SOFAZ)Organization Petroleum Exporting CountriesOver the counterPerformance Evaluation and Fiduciary AssessmentPermanent incomePublic Investment ProgramProgram for International Student Assessment (OECD)Personal income taxPower purchasing agreement
RUNDPUSTATIMSVATVETWDIWTOYENPurchasing Power Parity and also Public Private PartnershipA state bankPoverty Reduction Support CreditProduction Sharing AgreementsPricewaterhouseCoopersResearch and developmentRevealed comparative advantageReal effective exchange rateReduced rateRoad Transport Service DepartmentStructural Adjustment CreditState Committee for the Management of State PropertySupervision Control and Data AcquisitionState Secretariat for Economic Affairs (of Switzerland)Small and medium enterprisesState Oil Company of Azerbaijan RepublicState-owned enterpriseState Oil Fund of Azerbaijan (Oil Fund)Social protectionSocial Protection FundState Program for Poverty Reduction and Economic DevelopmentSanitary and phyto-sanitary standardsState Program for Socio-Economic Development of the RegionsState Statistical CommitteeSocial Security TaxSimplified tax regimeUnited Nations Development ProgramUnited States of AmericaTechnical assistanceTreasury Information Management SystemValue-added taxVocational education and trainingWorld Development IndicatorsWorld Trade OrganizationUN Secretary General’s Youth Employment NetworkVice President:Country Director:Sector Director:Sector Manager:Task Team Leader:Philippe H. Le Houerou, ECAVPAsad Alam, ECCU3Luca Barbone, ECSPEKazi Mahbub-Al Matin, ECSPEChristos Kostopoulos, ECSPE
CONTENTSFORWARD FROM THE FORUM ON ECONOMIC AND SOCIAL DEVELOPMENT OFAZERBAIJAN . iPREFACE. iiiACKNOWLEDGEMENTS . vEXECUTIVE SUMMARY . viiCHAPTER 1.A.B.C.D.E.F.G.H.INTRODUCTION . 2ECONOMIC BACKGROUND . 3EMPLOYMENT AND POVERTY REDUCTION . 10MEDIUM-TERM CHALLENGES . 12AZERBAIJAN’S DEVELOPMENT STRATEGY AND RESPONSE OF THE ECONOMY . 16SUCCESSFUL DEVELOPMENT IN RESOURCE-RICH AND SMALL ECONOMIES. 21OVERCOMING THE HURDLES CAUSED BY THE GLOBAL CRISIS . 27CONCLUSION. 28CHAPTER 2.A.B.C.D.E.TAILORING INVESTMENT IN UTILITIES TO PRIVATE SECTOR NEEDS . 73INTRODUCTION . 73INFRASTRUCTURE READINESS AND QUALITY OF PUBLIC SERVICES . 75DIRECTION OF PUBLIC INVESTMENT PROGRAM (PIP) . 78ELECTRICITY. 80TELECOMMUNICATIONS . 85ROADS . 87RAILWAYS . 90WATER SUPPLY AND WASTEWATER . 91CRITICAL CROSS-SECTORAL ISSUES . 94CHAPTER 5.A.B.C.D.E.F.FISCAL SUSTAINABILITY AND PUBLIC FINANCE GOVERNANCE. 51INTRODUCTION . 51SMOOTHING OIL SPENDING: PERMANENT INCOME APPROACH . 55STRATEGY FOR AZERBAIJAN’S PUBLIC FINANCES . 58BUDGET INCREASES AND CONSTRAINTS ON FUTURE SPENDING (2005-2008) . 62INSTITUTIONAL STRUCTURES, BUDGET MANAGEMENT AND MAXIMIZING SPENDING IMPACT . 66CHAPTER 4.A.B.C.D.E.F.G.H.I.THE ECONOMY AND ITS PROSPECTS . 30AZERBAIJAN’S FUTURE: BROAD STROKES FOR THE MEDIUM TERM . 30SECTORAL DEVELOPMENTS AND IMPEDIMENTS . 33REGIONAL INTEGRATION AND TRADE . 42GOING FORWARD. 48CONCLUSION. 49CHAPTER 3.A.B.C.D.E.INTRODUCTION. 1ENCOURAGING A BROADER, MORE COMPETITIVE PRIVATE SECTOR . 96INTRODUCTION . 96INTERNATIONAL STANDINGS . 97THE STATE AS A MAJOR PRODUCER AND INVESTOR . 100INCENTIVES FOR ENTRY AND EXPANSION . 102FOREIGN TRADE REGIME AND COMPETITION . 109PRO-GROWTH/DIVERSIFICATION REFORM PACKAGE . 111CHAPTER 6.AZERBAIJAN’S FINANCIAL AND BANKING SECTORS. 115
A.B.C.D.E.F.INTRODUCTION . 115FINANCIAL INTERMEDIATION. 116ACCESS TO COMMERCIAL BANK FINANCING . 120EQUITY FINANCING. 122GOVERNMENT FINANCIAL INSTITUTIONS . 124RISKS TO THE FINANCIAL SECTOR . 126CHAPTER 7. ENSURING A QUALIFIED LABOR FORCE AND BETTER USE OF HUMANCAPITAL . 129A.B.C.D.E.F.A NECESSARY PART OF AZERBAIJAN’S DEVELOPMENT STRATEGY . 129LABOR MARKET DEVELOPMENTS . 131INEFFICIENCIES OF THE EDUCATION SYSTEM . 134IMPROVING LABOR MARKET POLICIES AND THE EDUCATION SYSTEM . 137ATTRACTING, RETAINING, AND MANAGING PUBLIC SECTOR EMPLOYEES . 140CONCLUSION: THE RETURNS TO INVESTING IN HUMAN CAPITAL . 143ANNEX 1: COMPARISON OF THE RECOMMENDED SCENARIO & VERY HIGH SPENDINGSCENARIO, 2005–30 . 144REFERENCES . 146
LIST OF TABLESTable 1.1: Azeri Economy After Independence, 1992-2008 . 9Table 1.2: Poverty 2002-2005 . 11Table 1.3: EBRD Transition Indicators, 2008 . 13Table 1.4: Main Constraints to Businesses in Azerbaijan and Neighboring Countries, 2007–08 . 14Table 1.5: Azerbaijan and Comparators -Productivity Level (2005), and Average Annual Growth Rate (1995-2005). 15Table 1.6: Estimated Non-oil Private Investment Breakdown, 2003–08. 20Table 2.1: Agriculture: Recent Developments. 33Table 2.2: Non-Oil Extractive Industries, Growth Rates . 37Table 3.1: Oil Price Scenarios in Current Prices, Permanent Income (PI) Estimates, and Average of Real Prices . 55Table 3.2: Consolidated Budget, 2005-08 . 63Table 4.1: Implicit Subsidies, 2006 . 74Table 4.2: Total Investment Needs for Infrastructure in Azerbaijan (US mil) . 75Table 4.3: Potential Productivity Growth Gains from Infrastructure Development in ECA Countries (%) . 76Table 4.4: Firms’ Cost Elasticity to Infrastructure Quality . 76Table 4.5: Azerbaijan: Consolidated Investment Budget2004–07 (000 AZN). 79Table 4.6: Azerbaijan: Public Investment Program for Transport Sector, 2004–07 (AZN) . 79Table 4.7: Azerbaijan: Public Investment Program for Water Sector, 2004–07 (AZN) . 80Table 4.8: Electricity Tariffs in Azerbaijan, 2006–07 (AZN per kWh) . 82Table 4.9: Electricity Tariff Collection Rate From Distribution Companies, 2005–07 (%) . 82Table 4.10: Interconnection Regulation. 86Table 4.11: Water Tariffs in Azerbaijan, 2005–07 (AZN per m3) . 92Table 4.12: Unaccounted-for Water in Azerbaijan, 2005-07. 93Table 5.1: MSMEs in Selected Countries (by size and per 1,000 people). 100Table 5.2: Non-Oil Tax Revenue, 2003-07 . 105Table 5.3: Simulation: Effect of Crossing the VAT Threshold on Tax Burden (In AZN) Using Statutory Rates. 106Table 5.4: Tax Rates in the CIS Countries (%) . 107Table 5.5: Logistical Performance Indices and Customs Assessments of CIS Economies, 2006 . 110Table 5.6: Estimated Effect of a Reform Package on Reducing Tax GDP Ratio: An Illustration . 112Table 5.7: Effect of Rate Reduction on Tax Burden of Firms . 113Table 5.8: Effect of Rate Reduction on Tax Burden of Firms . 113Table 5.9: Effect of Rate Reduction on Cost of Labor Taxation Assuming Taxes are paid in Full. 114Table 5.10: Effect of Rate Reduction on Cost of Labor Taxation Assuming Taxes Are Paid in Full . 114Table 6.1: Financial Intermediation, 2008 (% of GDP) . 117Table 6.2: Credit by Sector (AZN mil., end of period) . 121Table 6.3: State Financial Institutions in Azerbaijan . 125Table 7.1: Employment Dynamics, 2003 and 2006 (x 1,000) . 132Table 7.2: Contrasts in Employment, Wages, and Productivity Among Sectors (2006) . 133Table 7.3: Workers Without Labor Contracts in Total Employment, 2003 and 2006 (%) . 133Table 7.4: Structure of Employed and Unemployed Population by Education Level, 2006 (%) . 134Table 7.5: Total Public Expenditures on Education, 2000–06 (%). 135Table 7.6: Comparison of Average Wages Between the Public and Private Sectors, 2006 (AZN). 140
LIST OF FIGURESFigure 1.1: Oil and Gas-Proven Reserves Per Capita, International Comparison . 2Figure 1.2: Indicative Oil Production Profile for Azerbaijan, World Bank Projections (2005-2024) Based onProduction Profile of June 2008 . 2Figure 1.3: Index of Real GDP (1989 100) . 5Figure 1.4: Real GDP Growth . 5Figure 1.5: Inflation and Nominal Ex. Rates . 5Figure 1.6: Fiscal Balance (% of GDP) . 5Figure 1.7: Government Revenue and Expenditure (% of GDP). 6Figure 1.8: Current Account Balance (% of GDP) . 7Figure 1.9: Foreign Direct Investment (% of GDP) . 7Figure 1.10: Savings and Investment (% of GDP) . 7Figure 1.11: Oil Share of GDP . 8Figure 1.12: Oil Dependence . 8Figure 1.13: Revenue, Expenditure and Non-Oil Deficit (% of non-oil GDP) . 8Figure 1.14: Current Account and Trade Balances (in percent) . 8Figure 1.15: Non-Oil Trade (% of Non-Oil GDP) . 8Figure 1.16: Investment (% of Non-Oil GDP) . 8Figure 1.17: Nominal and Real Effective Exchange Rates . 9Figure 1.18: Employment Shares (%),. 10Figure 1.19: Azerbaijan Growth Incidence Curve, 2002–2005 . 11Figure 1.20: Investment (% of GDP) . 12Figure 1.21: Recent Expenditures (2003-2008) . 18Figure 1.22: Non-oil Primary Deficit, Money Growth, and Inflation (2003-2008) . 19Figure 1.23: Fiscal Scenarios–Expenditures as Percent of Non-Oil GDP . 21Figure 1.24: Natural Resource Endowments and . 21Figure 1.25: Long-term Measure of Institutional Quality. 23Figure 1.26: Exports of Selected Small Economies (% of GDP) . 24Figure 1.27: Non-Commodity Exports of Selected Natural Resource Economies (% of GDP) . 24Figure 2.1: Real Wages, Output per Worker, NEER, and REER: Total GDP . 32Figure 2.2: Real Wages, Output per Worker, NEER, and REER: Non-Oil Economy. 32Figure 2.3: Farm Gate Prices of Agricultural Products . 35Figure 2.4: Retail Prices of Agricultural Products . 35Figure 2.5: Analysis of Cement Prices (Index 2004 100) . 40Figure 2.6: Composition of Azeri Non-Oil Exports, 2001, 2004, and 2007 . 43Figure 2.7: Destination of Azeri Non-Oil Exports, 2001, 2004, and 2007 . 43Figure 2.8: Composition of Azeri Non-Oil Imports, 2001, 2004, and 2007 . 44Figure 2.9: Origin of Azeri Non-Oil Imports, 2001, 2004, and 2007 . 44Figure 3.1: Azerbaijan Fiscal Revenues from Oil (AZN Bill): Actual 2005-07; Estimates for 2008, and ThreeScenarios For 2009-24 . 52Figure 3.2: Annual Average Domestic Crude Oil Prices, 1946–Jun 2008 . 53Figure 3.3: Oil prices 1960-2030–Actual Through October 2008 and Forecasts Thereafter (in 2007 US ) . 56Figure 3.4: Prioritization: Increase in Consolidated Government Expenditures by Function, 2005–07 (mil. manat and% of total increase). 63Figure 3.5: Prioritization: Increase in Consolidated Government Expenditures by Economic Classification, 20052008 (Mil. Manat and % of Total Increase) . 64Figure 4.1: Estimated Benefits from Improving Quality Infrastructure, 2005-07 (% GDP) . 77Figure 4.2: Predicted Operating Cost for “Average” Firm . 78Figure 4.3: Azerbaijan: Consolidated Government Operations, 1999-2007 . 78Figure 4.4: Allocation of Consolidated Budget: International . 78Figure 4.5: Electricity Service Quality And Technical Losses, 2004-05, Before Investments Initiated. 81Figure 4.6: Fixed Line and Mobile Teledensity. 85Figure 4.7: Telecommunications Reform Index . 85Figure 4.8: Road Quality in Azerbaijan and Other Countries in the Region, 2005 . 88
Figure 5.1: First-Generation Reforms . 97Figure .5.2: Second-Generation Reforms . 97Figure 5.3: Business Environment Regulations in 2008: Europe and Central Asia. 98Figure 5.4: Control of corruption (Comparison Between 2007, 2000, and 1996, Top-Bottom Order). 99Figure 5.5: Breakdown of 2007 Fiscal Revenues (AZN 7.9 Billion) . 105Figure 6.1: Monetary Base and Net International Reserves (Rate of Change) , 2003-08 . 117Figure 6.2: Average Interest Rates: Domestic Currency, 2005–2008 . 120Figure 6.3: Average Interest Rates: Foreign Currency, 2005–2008 . 120Figure 6.4: Credit Granted for Agriculture and Processing, 2000–08 . 121Figure 7.1: Relationship Between GDP Per Capita and the Knowledge Economy Index, 2007 . 130Figure 7.2: Monthly Wages in Azerbaijan, 1995-07 . 134Figure 7.3:Average Student Performance in PISA 2006 International Comparison . 136Figure 7.4: Labor Relations as a Problem for Doing Business BEEPS Survey (% of Respondents) . 138LIST OF BOXESBox 1.1: GDP vs. Non-oil GDP; What Metric to Measure Economic Performance in Azerbaijan? . 4Box 1.2: Azerbaijan’s Oil Fund–International Role and Recognition . 18Box 1.3: Malaysia’s Successful Diversification . 22Box 1.4: Examples of Diversification in Resource-rich Countries: . 25Box 2.1: Transformation of a Chinese SOE by Private Management . 39Box 3.1: Permanent Income Calculation . 57Box 3.2: Recommended Spending Scenario, 52 per Barrel in 2007 US (2005-30) . 59Box 3.3: Use of SOFAZ Funds. 65Box. 3.4: Examples of Coordinated Economic Management*. 68Box. 4.1: Private Sector Participation in Power Distribution in Georgia . 83Box. 4.2: Private Sector Participation in Power Generation . 84Box. 4.3: Accelerating Telecommunications Sector Reforms . 87Box 4.4: Road Fund and Private Motorway Development in Poland and Hungary . 89Box 4.5: Private Sector Participation in the Water Sector in the Czech Republic and Bulgaria . 94Box 6.1: The Impact of Competition in the Banking Sector. 118Box 6.2: The Development of Bond and Equity Markets. 123
FORWARD FROM THE FORUM ON ECONOMIC AND SOCIALDEVELOPMENT OF AZERBAIJANA High Level Forum on the Economic and Social development of Azerbaijan was held in Bakuon October 21, 2009. The Forum was co-chaired by Mr. Artur Razi-zadeh, Prime Minister of theAzerbaijan Republic and Ms. Ngozi Okonjo-Iweala, Managing Director of the World Bank. Thepurpose of the Forum was to discuss strategies for Azerbaijan’s growth in the post crisis period.Distinguished external participants included Mr. Garret FitzGerald, former Prime Minister(Toiseach) of Ireland; Professor Ricardo Hausmann, Kennedy School of Government, HarvardUniversity; Mr. Ivan Miklos, Parliamentarian of the Slovak Republic and Former Deputy PrimeMinister, Minister of Finance, and Minister of Economic Development; and Prof. Ed Walsh,Founding President of the University of Limmerick, Ireland. Distinguished Azeri participantsincluded Mr. Yagub Eyyubov, First Deputy Prime Minister; Mr. Abid Sharifov, Deputy PrimeMinister; Mr. Elchin Afandiyev, Deputy Prime Minister; Mr. Ali Hasanov, Deputy PrimeMinister; Mr. Ziyad Samadzade, Chief, Parliament Economic Policy Standing Commission; Mr.Shahin Mustafayev, Minister of Economic
FX Foreign exchange GAO General Accounting Office (US) GDP Gross domestic produc
history of Christendom and Islam might well have been very different from what we know.3 It is perhaps not surprising, given these circumstances, that in 732— after a resounding Khazar victory over the Arabs— the future Emperor Constantine V married a Khazar princess. In due time their son became the Emperor L
Interface in Simulink Azad Ghaffari San Diego State University Department of ECE San Diego CA 92182-1309 12/20/2012 This document provides a tutorial introduction to the dSPACE software (ControlDesk Next Generation version 4.2.1), the dSPACE DS1104 R&D controller board, and their use
on DSpace software Edited by Dr. A.R.D. Prasad & Dr. Devika P Madalli Faculty Members Documentation Research and Training Centre Indian Statistical Institute, 8th Mile Mysore Road Bangalore 560059, India Organized by National Science Foundation Sri Lanka Sponsored by UNESCO, Bangkok 27 - 30 July 2011 Unite d Nations Educational. Scientific and
An integrated laboratory for real-time signal processing and control has been established at Buck-nell University. The laboratory has ten digital signal processing (DSP) units from dSPACE Corporation [1] and ten Sun workstations. The dSPACE units are controlled and programmed through Simulink [2], which is a graphical interface to Matlab [3].
Arthur Koestler, author of The Thirteenth Tribe , easily the most expansive single work on the subject, states, "The story of the Khazar Empire, as it slowly emerges from the past, begins to look like the most cruel hoax which history has ever perpetrated." 1 This is the story of a kingdom o
Influence of the frog vagosympathetic nerve fascicle stimulation on the heart activity. 60 Reflex influence on heart activity (reflex of Holtz, Dagnini - Aschner reflex). 63 Effect of hormones and electrolytes on heart activity (heart isolation by Schtraub method). 63 Measuring of the blood pressure of man. 70 The Donders model. 87
Sperry Petrophysicist) at SS Drilling Services. e-mails: e.amirov@hw.ac.uk ; eamirov@khazar.org ; elnuramirov@outlook.com ; amire3@bp.com WELL CONTROL The ultimate objective of well control in the petroleum industry is the technique used in oil and gas operations such as drilling, well work over, and well completions to maintaining the fluid .
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