Baku industry conference wraps up Azerbaijan's “Year of Industry”; Russia gas plans raise questions over Azerbaijani gas exports through Turkey; PASHA Bank and British Council to support local journalists; Azqtel plans to launch 4G LTE wireless internet services in 2015
Multilateral strategic partner Azerbaijan Export & Investment Promotion Foundation Baku industry conference wraps up Azerbaijan's “Year of Industry” AZPROMO is the main partner of the bne:Invest in Azerbaijan newsletter. www.azpromo.az Content: 3 Top story 5 Corporate statement 6 Interview 8 Feature 10 Sector 12 Economics & finance 14 Chart 15 News in brief bne: Invest in Azerbaijan December 2014 www.bne.eu Follow us on twitter.com/bizneweurope The Azerbaijani Ministry of Economy and Industry, in collaboration with the United Nations Industrial Development Organization (UNIDO) and the German Federal Enterprise for International Cooperation (GIZ), hosted the Baku International Industry Conference on November 26-27. The event gathered over 300 participants from Azerbaijan and abroad to discuss trends in industrial policy, technology, and industrial parks or clusters as a way of promoting industrial development. This was the culmination of the Azerbaijani administration's efforts to grow the non-oil economy this year by decreeing 2014 as the “Year of Industry”. The action plan for the development of industry in Azerbaijan stipulated, among other things, the hosting of an international industry conference in Baku. The guests – who included high-profile attendees such as Montenegrin Minister of Economy Vladimir Kavaric; Iranian Minister of Industry, Mining and Trade Mohammad Reza Nematzadeh; and the regional directors of
Baku industry conference wraps up Azerbaijan's “Year of Industry”
AZPROMO is the main partner of the bne:Invest in Azerbaijan newsletter. www.azpromo.az
Content: 3 Top story 5 Corporate statement 6 Interview 8 Feature10 Sector12 Economics & finance14 Chart15 News in brief
bne:Invest in Azerbaijan
December 2014 www.bne.euFollow us on twitter.com/bizneweurope
The Azerbaijani Ministry of Economy and Industry, in collaboration with the United Nations Industrial Development Organization (UNIDO) and the German Federal Enterprise for International Cooperation (GIZ), hosted the Baku International Industry Conference on November 26-27.
The event gathered over 300 participants from Azerbaijan and abroad to discuss trends in industrial policy, technology, and industrial parks or clusters as a way of promoting industrial development. This was the culmination of the
Azerbaijani administration's efforts to grow the non-oil economy this year by decreeing 2014 as the “Year of Industry”.
The action plan for the development of industry in Azerbaijan stipulated, among other things, the hosting of an international industry conference in Baku. The guests – who included high-profile attendees such as Montenegrin Minister of Economy Vladimir Kavaric; Iranian Minister of Industry, Mining and Trade Mohammad Reza Nematzadeh; and the regional directors of
the European Bank for Reconstruction and Development (EBRD) and the European Investment Bank (EIB) – were welcomed by Azerbaijani Minister of Economy Shahin Mustafayev.
Noting the rising importance of developing countries in global industrialisation, Minister Mustafayev said that: “Special attention is being paid to the development of industry in a period of rapid economic growth, and 2014 was declared the ‘Year of Industry’ in Azerbaijan. The reforms carried out this year successfully delivered large-scale infrastructure projects, and continuous improvements in the business environment, enhanced the government’s support for the private sector and political and macroeconomic stability, and have created favorable conditions for the formation of a strong industry in the country. Economic diversification is one of the priorities of our economic policy at the moment. [...] I am sure that the conference will give an impetus to fruitful discussions on the key trends in industrial policy and the establishment of new partnerships.”
The conference could not have come at a better time, as plunging oil prices have resulted in a 1.7% decline in the energy sector this year and have given a new sense of urgency to the need for economic diversification away from energy. Estimated at $35.6bn, Azerbaijani industrial production dropped in the first ten months of the year, while non-oil industrial growth was recorded at 6.3% in the same period. Extractive industries, including mining, account for over 77% of Azerbaijan's industrial production, although manufacturing is becoming increasingly important, and accounts for over 15% of industrial output thanks to the production of food and beverages, tobacco, textiles, chemicals, clothing and metallurgy.
The Sumgayit Chemical Industrial Park, Azerbaijan's first such zone, was inaugurated in 2013 and has so far attracted the attention of potential investors from various countries including Germany, France, Japan, Saudi Arabia and other.
The offer by Russian President Vladimir Putin on December 1 to re-route Russia's stalled 63bn cubic metre a year (cm/y) South Stream gas pipeline through Turkey appears to have taken Ankara by complete surprise.
After Russian gas exporter Gazprom arbitrarily slashed the volume of gas it was sending through Turkey's western import line the week before, Turkish officials were warning of a major confrontation and possible gas shortages.
Instead, Putin offered to supply Turkey with 14bn cm/y of gas through the new line in place of the gas it currently receives via Ukraine, and to transit the almost 50bn cm/y remainder for export to Europe via a new gas hub to be developed on the Turkey-Greece border.
Russia's rationale is clear: it is committed to building a new line to bypass the troublesome Ukraine and having been refused permission to run South Stream across Bulgaria, it has turned to Turkey as an alternative route.
However, the projected pipeline would pose competition to Turkey's other ongoing gas transit projects: namely, the 31bn cm/y TANAP pipeline that Turkey is developing in partnership with Azerbaijan to carry Azeri gas to Europe, and construction of which is slated to begin next year, and Turkey's more nebulous plans to transit gas from the Kurdistan Region of Northern Iraq to Europe.
Tip top TANAPTurkish Energy Minister Taner Yildiz confirmed December 2 that the only agreement inked with Moscow was one to "discuss" the possibility of developing a new form of the South Stream project.
He also confirmed that Turkey had no intention of doing anything to jeopardize TANAP or the development of Azerbaijan's Shah Deniz gasfield, which will supply that pipeline. "We are partners in Shah Deniz and TANAP – these are very important projects for both Turkey and the European Union," he said, referring to long-standing EU support for the development of a southern gas corridor through Turkey to compete with Russian gas.
However, Shah Deniz will supply only 16bn cm/y to the 31bn cm/y TANAP, and with no clear idea on where the remaining 15bn cm/y will be sourced from, questions have been raised over whether the pipeline can be operated profitably.
According to BP – the main shareholder and operator of Shah Deniz, which has agreed in principle to take a 12% stake in TANAP, along with Azerbaijan's Socar (58%) and Turkey's Botas (30%) – the unfilled capacity is not an issue. "The whole South Caucasus value chain can operate profitably using the 16bn cm/y from (the second phase of ) Shah Deniz II," a spokesperson for BP Turkey tells bne IntelliNews, confirming that the 16bn cm/y of Shah Deniz gas has already been sold, which guarantees the viability of both Shah Deniz and TANAP, as well as the planned Trans Adriatic Pipeline (TAP) which will carry the gas from the Turkey-Greece border to Italy.
Yet how the remaining 15bn cm/y of TANAP will be filled is still unclear. Both Socar and BP have signalled that they want to fill that capacity with gas from other Caspian fields, while Shah Deniz's newest shareholder, Malaysia's Petronas, is thought to be interested in supplying the line with gas from a field it is developing in Turkmenistan.
Development of all these fields will be costly, but with no requirement to meet the costs of developing TANAP, the gas from them should still be competitive with South Stream gas.
However, with European gas markets still not seeing any surge in demand as the Eurozone economy continues to struggle, both will face stiff competition from cheaper options.
Kurdish questions, Turkish optionsForemost amongst possible cheaper options is gas from the Iraqi region of Kurdistan, where onshore development costs are considerably lower
than offshore alternatives.
Kurdish Oil Minister Ashti Hawrami said in November that gas exports to Turkey were possible as soon as 2017, while Botas has confirmed that a planned 20bn cm/y capacity line linking existing transit infrastructure to the Iraqi border could be completed in less than a year, opening the prospect of transiting Kurdish gas to Europe.
And with ongoing talks between the Kurdistan Regional Government and the Iraqi central government in Baghdad going well, a deal between the two allowing for gas exports appears to be more a question of "when" rather than "if".
Already financially committed to TANAP and politically committed to transiting Kurdish gas – at least partly in hope of leveraging economic cooperation with the KRG into a permanent settlement with Turkey's own fractious Kurdish minority – the appearance of South Stream presents Ankara with a difficult choice.
Support all the gas transit projects and risk one or more failing as European gas prices fall through oversupply, or reject one and risk antagonising the backers.
The same question may have occurred to Russia.
With the bulk of the Turkish economy located in the northwest of the country, and relying on Russian gas for both heat and power, Ankara cannot have failed to notice the threat implicit in Gazprom's still-unexplained cuts to gas supplies.
Which in turn raises the questions of just how far Moscow is prepared to go in pressuring Ankara to facilitate this new version of South Stream. Too much pressure and Moscow risks both alienating potential gas buyers and forcing Turkey to turn to the already available alternatives.
PASHA Bank and British Council to support local journalists
PASHA Bank, in partnership with the British Council Azerbaijan, launched a training programme for Azerbaijani business journalists. This is the last of a series of initiatives PASHA Bank has undertaken to promote good quality business journalism in the Caspian country, and fair and professional reporting in business reporting. The previous such training programme took place in 2011.
The goals are to strengthen professional competencies and skills by tailoring the training to the needs of the journalists.
The British Council and PASHA Bank selected 11 journalists representing news and broadcasting agencies in Azerbaijan, including but not limited to AzerTaj, Trend, Lider TV, Regional TV, Banco.az, Fins.az, Gun.az, ANS TV and E-Government
news portal. At the end of the course, selected participants will visit the offices of leading media organisations in the UK, and meet with prominent business journalists.
The programme will be implemented in cooperation with the UK's Thomson Foundation, which is one of Europe's biggest media organisations empowering thousands of journalists worldwide to generate and sustain a diverse media and working in over 100 countries.
Meanwhile, PASHA Bank Georgia was awarded the Bank of the Year award by President Giorgi Margvelashvili at the Caspian Energy Forum 2014. The recipient of the prize, Chairman of the Board Shahin Mammadov, said that: “This year’s Caspian Energy Forum was a platform for discussing different aspects of the Georgian economy, including how to attract more investment into the country. The event did not exclusively focus on the energy industry, with the ways the financial sector could be better integrated across the Caspian region being another key area of discussion. PASHA Bank Georgia is proud to support Georgian business and contribute to its development. I strongly believe that the Caspian Energy Forum 2014 was another step towards achieving our common goal of growing the Georgian economy and strengthening the relationship between Azerbaijan and Georgia.”
PASHA Bank opened its Tbilisi office in 2013 and is eyeing a further regional expansion in the coming years, starting with Turkey.
Azqtel plans to launch 4G LTE wireless internet services in 2015
Azqtel – a veteran of Bakutel, Azerbaijan’s expo that brings together international ICT companies – has a long-standing allegiance to the event, as it was at the one in 2010 that the telecommunications company launched its 4G wireless internet services under the orange-coloured brand SAZZ, which has since become very popular among young Azerbaijanis.
Speaking about how his company has taken advantage of Bakutel, Jayhun Mollazade, CEO of Azqtel, notes that: "This is the fifth year that Azqtel has participated at Bakutel. We have used this forum to learn about new technologies we can deploy in our network and to introduce new services. For example, at Bakutel 2010 we
announced the launch of our new brand Sazz, and new WiMAX technology services. At Bakutel 2011 and 2012, we announced the expansion of our services to the Absheron Peninsula and into Ganja, the second largest city in Azerbaijan and Mingechevir region. At Bakutel 2013, we announced the introduction of our new private line service called Skyport, for business customers who need reliable high speed internet… And this year, we presented a new wireless technology, TDD LTE, which has the capacity to deliver data transmission speeds of up to 100 megabits per second (Mbps). We plan to deploy this technology in our network in 2015."
Launched in 2007, Sazz specialized in WiMAX technology early on, deploying it in 2008. The technology can achieve speeds of up to 10 Mbps, higher than the average broadband speed in Azerbaijan, but still beatable. For that reason, Azqtel is testing the ten-times faster 4G TDD LTE technology, which it will introduce next year starting with the capital Baku and gradually into the 13 regions that are covered by SAZZ's WiMAX network at the moment.
Standalone internet dongles constitute the majority of the company's business, and Mollazade is realistic about their future. Speaking about the shift towards smart phones and tablets in Azerbaijan, he expects, "dongles to continue to be a useful part of this market in the near future, but they will eventually be replaced by smart phones, tablets and other technologies."
The three large mobile operators in Azerbaijan – Nar Mobile, Azercell and Bakcell – also offer 3G and 4G internet dongles, and are a force to be reckoned with, as they bundle products with other
mobile services to gain more market share. SAZZ, on the other hand, has used its specificity as an advantage, and has introduced benefits like a five-day trial period, which is unique in Azerbaijan, to stay afloat. Mollazade believes that making it in the Azerbaijani ICT sector comes down to the basic "good quality services and good, around the clock customer service."
That said, competition is becoming fierce, as the number of internet users in the country surpasses 5mn, and telecom and internet providers fight to capture the remaining 4mn. The incumbent Azercell has seen its market share eroded by the other two companies, according to Mollazade, but "the increase in competition is good for consumers, as it results in lower prices and better quality services."
Nonetheless, Mollazade sees Azerbaijan as an attractive investment destination for ICT companies like his, which is a joint venture between foreign investors and Transkaspian Telecom LLC of Azerbaijan. "We have been investing here since 2005, and have increased our investment year-to-year. We expect to continue at this rate for the foreseeable future."
In an environment that espouses innovation, and where new technologies like fibre to the home (FTTH) are constantly being introduced, Azqtel invests resources and time into the research of new technologies, according to Mollazade. In 2013, the company introduced a very reliable internet service for business customers, and, looking ahead, it has its eyes on deploying TDD LTE for the first time in the Caspian country by the end of next year.
Azerbaijan's banking sector puts in strong and stable growth
With the rest of the world grappling with a slow-moving banking crisis, the banks in Azerbaijan are flourishing, catering to the demands of a rising middle class. The credit and investment capacities of Azerbaijan’s banking sector have doubled over the past two and a half years, the central bank says.
Azerbaijan has been enjoying something of a credit boom this year. The year started with loan growth rising by 40% month-on-month in January, leading to fat rise in profitability. But the central bank stepped in in the second half of the year to cool lending and head off a potential consumer credit bubble.
The Azerbaijani banking sector reported healthy profits over the first nine months of this year after total lending grew by just under 20% on year to a total of AZN17.6bn ($22.5bn), of which three-quarters of the loans (73.6%) were denominated in the national currency, the manat. Of the country's 44 banks, 38 made collective profits of AZN348.5m ($445m), while the losses of the remaining six banks was only AZN31m, reports Trend.
However, lending remains geared towards the simpler products and the consumer; banking is playing a role in financing the growth of industry, but this is still far from its potential. "Demand is either absent or negligible for many types of banking products because of the simple structure of the economy," head of the Baku Interbank Currency Exchange (BBVB), Farhad Amirbayov, said in a recent interview. "Industrialization
would… increase the number of financial instruments and products."
Consumer lending accounted for 41.1% of total loans in the first ten months of this year, with trade and services ranking second at 14.4%, loans to the real sector of the economy were in third place at 11.5% of the total, while loans to industry were in fourth place with 9.9% of the total.
And the banks are busily reinvesting their profits to promote growth. The banking sector assets as a proportion of GDP has increased from 62% in 2010 to 78% as of September, equivalent to AZN3.8bn ($4.9bn), the central bank reports. Boosting the size of the sector is a key part of the government's efforts to promote economic diversification. In general, the banking sector’s assets have been growing by around 20% a year in the last two years.
Rating agency Moody's confirmed its stable outlook for the country's banking system of Azerbaijan earlier this year, saying: "Against the backdrop of negative forecasts for the other countries, it is estimated by Moody's that over the next 12-18 months, Azerbaijani banks will continue to benefit from a favourable operating environment, stable assets quality and adequate capital reserves.”
Azerbaijan has not wholly escaped from the impact of the global problems, nor is it immune from problems associated with fast growth. Non-performing loans (NPLs) were up 0.1% from the previous year to AZN973, or 5.5% of the total – still considered a manageable level.
Consumer lending in particular has been growing fast as the middle class start to leverage their incomes, but the Central Bank of Azerbaijan (CBA)
has moved to cool lending by increasing prudential rules, to head off an nascent consumer credit bubble that has afflicted other countries in the former Soviet Union in the past.
However, the structure of the loans is stable, with only 20% of the total being short term and the rest long-term, of which only 4% are overdue. And the share of long-term loans is growing faster than the short-term loans.
Demand for foreign currency remains a feature of the banking sector, as the population still want to keep part of their savings in hard currency. The CBA has allocated $1.5bn to the local market to finance exchange operations, which has helped keep the exchange rate stable.
Foreign interestAzerbaijan’s growing banking sector is becoming increasingly attractive to foreign investors. Azerbaijan already has 22 banks with foreign capital, of which seven have more than 50% of foreign capital, and another two banks that are foreign branches of Russian banks.
CBA chairman Elman Rustamov told the Caspian European Club forum in October: ""[International banks] are showing an interest in the Azerbaijani phenomenon and the reasons behind its sustainable economic development."
Rustamov went on to reassure delegates that the fall in oil prices would not negatively impact the sector, as the state's minimal external debt and hard currency reserves worth 74% of GDP provide an enormous cushion against tumbling crude prices and problems elsewhere. Russia's woes are also having little affect on the country. "Azerbaijan is among the countries which will experience the smallest impact of these sanctions, since the country's dependence on Russia's economy is less
than 3%," Rustamov said.
The CBA is working to further improve the stability of the sector and to encourage consolidation. Credit was getting out of hand earlier this year, so the CBA stepped in to hike prudential rules to cool things off and the credit growth rate fell from 40% to 29% from July onwards. Unsecured private lending and car loans in particular were targeted. Consumer loans are still growing, but at a slower rate than loans to businesses, says the CBA.
Among other initiatives to promote business lending, the European Bank for Reconstruction and Development (EBRD) expanded its highly successful small business loan programme in November with a $125mn credit line to local partner banks.
In November, Azerbaijan’s cabinet ordered the drafting of a banking code in the next six months, according to a decree signed by President Ilham Aliyev. The banking code was first suggested in 2003 as part of the reform of the banking system that came into force on April 1, 2004, but remained pending since.
However, the big change comes into effect at the end of this year when the minimum capital requirement for banks will be increased to AZN50m. This is a five-fold increase from the AZN10m that banks were required to have when the decision was made in 2010. At that time only a quarter of Azerbaijan's banks met the requirement, but over the last four years almost all have managed to increase their capital to meet the new requirements.
The CBA estimates that five to six banks will not meet the new requirements and will either have to close or be sold. However, as these banks account for less than 1% of the total sector assets, the CBA chief Rustamov believes the rest of the sector will easily absorb them.
Bakutel showcases ICT innovation in Azerbaijan; AzerCosmos buys 2nd satellite
The 20th edition of the annual information and communications technology (ICT) conference and exhibition Bakutel at the Baku Expo Center on December 2-5 wrapped up another year of significant changes and growth in Azerbaijan’s ICT sector.
The developments in ICT are great news for the oil-rich country at a time of volatility in the global energy market; oil prices in December sank to their lowest levels in five years, and far beneath the Azerbaijani government's $90/barrel reference rate for the 2015 state budget.
The Azerbaijani ICT sector has been growing at rates of 25-30% a year for the last decade, according to the European Bank for Reconstruction and Development (EBRD)'s Transition 2014 report, becoming the second largest destination for foreign direct investment (FDI) in the country. For these
reasons, the hopes for economic diversification and stability in Azerbaijan are closely linked to the developments in ICT.
Hailing from 23 countries, this year's 250 exhibitors competed to showcase their products and services. Repeat exhibitors like Azvirtel, Azercell, Azerfon, Azqtel, Aztelekom, Bakcell, BestComp, Caspel, SINAM, Microsoft Azerbaijan, Softline, Ultra and SINAM accounted for 40% of this year's participants, while country pavilions representing 19 different countries and first-time comers like HDL technology provider SIP, network security provider Arbor Networks, Schneider Electric, Finland's Tecnotree and Switzerland's Smartlink made up the remainder.
The largest Azerbaijani telecom providers, Azercell, Bakcell and Nar Mobile, vied with each other to introduce innovations like augmented reality, mobile health, M2M technologies, LTE Advanced (LTE-A), virtual supermarkets, and themed gaming zones based on simulations of the Baku 2015 European Games.
Bakutel 2014 also attracted some high-level visitors and delegations that held meetings with Azerbaijani officials, including President Ilham Aliyev, on the sidelines of the conference. These included the new secretary-general of the International Telecommunication Union (ITU), Houlin Zhao; a delegation led by the British Parliament and Prime Ministerial trade envoy to the region, Charles Hendry; and Iranian Minister of Communication and Information Technologies Mahmoud Vaezi.
In spaceThe highlight of the event pertained to the
aerospace industry – the signing of a deal between the Azerbaijani space agency AzerCosmos and France's Airbus for the purchase of a second low-orbit satellite, Spot 7, to be called Azersky. The deal means Azerbaijan joins 19 other nations that operate 50 such satellites, according to Azerbaijani Minister of Communications and High Technology Ali Abbasov. In an interview with Euronews, Bruno Bertolini of Airbus Defence and Space noted that the remote sensing satellite will generate images that, "will be used on a daily basis by organisations and companies in Azerbaijan and the wider Caspian region, for mapping and environmental purposes, to manage environmental risks, to help oil and agronomic companies plan ahead, and to follow and update geographic data based on space imaging."
The largest consumer of technology in the country, the government has launched a flurry of initiatives in recent years to promote e-government, centralised library, medical and educational platforms and transparency, which have generated contracts for the rising number of local and international IT companies. Microsoft, HP, Ultra and BestComp are frequent participants in government tenders for such programmes.
The Azerbaijani Service and Assessment Network Service (ASAN) is the most important project launched as part of the e-government campaign, and has enabled the introduction of electronic visas and the streamlining of tax payments and other state duties. Launched in 2013, ASAN is a one-stop-shop where citizens and residents can register for tax purposes, retrieve or make changes to their identity cards, renew driving licenses, register marriages, deaths and divorces or solicit residency permits. The centres are cash-free, as all payments must be made online, thus limiting opportunities for graft. Appointments booked online also reduce the need for queuing,
and the status of an application filed at one of ASAN's offices can also be traced online. The Ministry of Taxes cooperated with ASAN to design an electronic signature, ASAN Imza, that was launched this year and that can be used to digitally sign documents using a secure mobile technology.
Other public initiatives that have contributed to the development of an innovation-based economy in Azerbaijan are the High Tech Park, a technology incubator that has approved 24 applications to date; and the IT University, which opened its doors to students in 2013, and an IT fund to train and fund future innovators.
In the private sector, growth this year has been driven by mobile data in telecom and systems integrators, mapping companies and application developers in IT. All three established telecom providers have introduced 4G in the capital Baku, and are rolling out the service in the regions, where 3G is prevalent. Furthermore, companies like Bakcell are eyeing technologies like LTE Advanced as the next technology to replace 4G. The speed of mobile data in Azerbaijan, which, according to Ookla's Netindex, averaged 6.86 megabits/second and 2.26 megabits/second for incoming and outgoing traffic respectively between April and July 2014, is very similar to that of broadband, which may explain why 30% of Internet users access it exclusively on mobile devices.
A budding category of IT companies like GoldenPay, which launched its one-stop-shop payment service www.hesab.az in 2011, for bills, taxes, and more recently, insurance and travel arrangements; Caspian Navtel, a real-time mapping and GPS service that caters to individual users and freight companies, and Simbrella, which designed the country's first taxi application, are thriving and contributing to technological development in the Caspian country.
Azerbaijan economy in Jan-Sep - slower, but still solidThe slowdown in Azerbaijan’s growth continued in the third quarter, with a contraction of agricultural output and falling oil extraction combining to leave GDP growth at 2.5% y/y in the first nine months of 2014. The weak agricultural activity undermined non-oil GDP, which retreated from 10.4% y/y growth seen in the first nine months of 2013 to 6.0% y/y in the same period this year. Oil GDP fell 2.0% y/y on lower oil extraction and refinery activity in the first half of the year. Falling oil prices have affected both exports and budget revenues. “However, international reserves remain strong and the government is ready to revise the budget if the oil price changes significantly. The government’s cautious position is reflected in its draft 2015 budget, which is based on oil at US$ 90/bbl, with the government willing to adjust it further in the event of continued oil price weakness,” says Galt & Taggart in a research note.
Azerbaijani central bank to invest $1bn in Asian stocksThe Central Bank of Azerbaijan (CBA) is planning to invest $1bn in Asian securities markets, AzerNews reported on November 20 citing the bank’s Deputy Chairman Avtandil Babayev. Half of the allocated sum will be invested in the Chinese market and will be administered directly by the CBA. Three foreign companies – Anamundi, Eastspring Investments and Western Asset Management – will manage the remaining $500mn focusing on Indonesia, Malaysia, Singapore and South Korea’s markets.
According to the report, Babayev stated that the central bank will also increase its foreign exchange reserves.
As the Central Bank pursues an intervention policy “aimed at the redemption of foreign currency from the market and increasing foreign exchange reserves, we plan to increase the volume of interventions to $1.5bn by the end of this year”, he was reported as saying.
At the end of September, the CBA’s foreign exchange reserves amounted to over $15bn, 6.29% up from the end of 2013.
Fourth Azerbaijani insurance company gets its licence suspended
The State Insurance Supervision Service has suspended the licence of the Era Trans Sigorta insurance company, AzerNews reported on November 26 citing a report issued by the institution. Era Trans Sigorta is the fourth company whose licence was put on hold by the supervisory service operating under the Ministry of Finance in 2014.
According to the report, the company did not meet the minimum capital requirements set by law, as well as due to other irregularities. Azerbaijan’s legislation requires a minimum capital of ANZ5mn ($6.3mn) for non-life insurers. The company has now six months to amend the irregularities. As of October 31 Era Trans Sigorta, operating since 1994, collected premiums worth AZN414,945 ($528) with payments for AZN 1.02mn($1.3mn).
In 2014 the insurance supervisory service suspended the licence of three other companies, Royal Sigorta, Gunay Sigorta and Basak I'nam Sigorta Sirketi. The licence of Royal Sigorta was completely revoked in early September due to its failure to meet the minimum requirements set for capital, while Gunay Sigorta regained its licence. Basak I'nam Sigorta Sirketi’s licence was held off and is said to be taking measures to increase its capital.
Azerbaijani foreign exchange reserves up 7% y/y in 9M 2014Azerbaijan’s strategic foreign exchange reserves increased by 7% y/y, or $3.5bn, in the first nine
months of 2014, pushing the total amount to $15bn, AzerNews wrote on November 25 citing a report by the Central Bank of Azerbaijan (CBA).
The review on the monetary policy in January-September 2014 states that the country’s forex reserves are sufficient for covering import of goods and services for three years and are expected to reach $15.5bn-15.7bn by year-end. According to the report, the growth favoured the strong macroeconomic buffer, safeguarding the domestic economy against external shocks.
Between January and September foreign investment exceeded $4.5bn, accounting for 29.6% of total investment.
All Central Asian and South Caucasus countries improved their standings on Transparency International's 2014 Corruption Perception Index (CPI), except for Turkmenistan.
The CPI ranks countries based on how corrupt their public sector is perceived to be and it scores countries on a scale from 0 – perceived to be highly corrupt, to 100 – perceived to be very clean
Azerbaijan moved up one place to 126th place from last year and remains a middle-ranking country in the region with a score of 29, the same
Azerbaijan improves slightly in corruption index
as Kazakhstan. Ahead of it in the CIS region are only Georgia, Armenia and Belarus.
Behind Azerbaijan are the rest of the CIS states: Kyrgyzstan (136), Russia (136), Ukraine (142), Tajikistan (152), Uzbekistan (166) and Turkmenistan (169).
With a score of 52, Georgia – 50th in 2014, up four notches from 2013 – ranks highest in the CIS region. Georgia also scored higher than a number of EU member states, such as the Czech Republic, Slovakia, Croatia, Bulgaria, Greece, Italy and Romania.
eastern europe and central asia
eu and western europe
CORRUPTION PERCEPTIONS INDEX 2014Eastern Europe & Central Asia
The 2014 Corruption Perceptions Index measures the perceived levels of public sector corruption in 175 countries/territories around the world. To see the full results go to: www.transparency.org/cpi
95%Eastern Europe & Central AsiaAverage score
33/100
Country/Territory
Score | Global rank
Turkmenistan
17/100 | 169/175
Uzbekistan
18/100 | 166/175
Tajikistan
23/100 | 152/175
Ukraine
26/100 | 142/175
Russia
27/100 | 136/175
Kyrgyzstan
27/100 | 136/175
Kazakhstan
29/100 | 126/175
Azerbaijan
29/100 | 126/175
Belarus
31/100 | 119/175
Kosovo
33/100 | 110/175
Albania
33/100 | 110/175
Moldova
35/100 | 103/175
Armenia
37/100 | 94/175
Bosnia and Herzegovina
39/100 | 80/175
Serbia
41/100 | 78/175
Montenegro
42/100 | 76/175
Turkey
45/100 | 64/175
The FYR of Macedonia
45/100 | 64/175
Georgia
52/100 | 50/175
GlobalAverage score
43/100
of countries score below 50 out of 100
100Very clean
0
Highly corrupt
Score:
#cpi2014
CORRUPTION PERCEPTIONS INDEX 2014Eastern Europe & Central Asia
The 2014 Corruption Perceptions Index measures the perceived levels of public sector corruption in 175 countries/territories around the world. To see the full results go to: www.transparency.org/cpi
95%Eastern Europe & Central AsiaAverage score
33/100
Country/Territory
Score | Global rank
Turkmenistan
17/100 | 169/175
Uzbekistan
18/100 | 166/175
Tajikistan
23/100 | 152/175
Ukraine
26/100 | 142/175
Russia
27/100 | 136/175
Kyrgyzstan
27/100 | 136/175
Kazakhstan
29/100 | 126/175
Azerbaijan
29/100 | 126/175
Belarus
31/100 | 119/175
Kosovo
33/100 | 110/175
Albania
33/100 | 110/175
Moldova
35/100 | 103/175
Armenia
37/100 | 94/175
Bosnia and Herzegovina
39/100 | 80/175
Serbia
41/100 | 78/175
Montenegro
42/100 | 76/175
Turkey
45/100 | 64/175
The FYR of Macedonia
45/100 | 64/175
Georgia
52/100 | 50/175
GlobalAverage score
43/100
of countries score below 50 out of 100
100Very clean
0
Highly corrupt
Score:
#cpi2014
CORRUPTION PERCEPTIONS INDEX 2014Eastern Europe & Central Asia
The 2014 Corruption Perceptions Index measures the perceived levels of public sector corruption in 175 countries/territories around the world. To see the full results go to: www.transparency.org/cpi
95%Eastern Europe & Central AsiaAverage score
33/100
Country/Territory
Score | Global rank
Turkmenistan
17/100 | 169/175
Uzbekistan
18/100 | 166/175
Tajikistan
23/100 | 152/175
Ukraine
26/100 | 142/175
Russia
27/100 | 136/175
Kyrgyzstan
27/100 | 136/175
Kazakhstan
29/100 | 126/175
Azerbaijan
29/100 | 126/175
Belarus
31/100 | 119/175
Kosovo
33/100 | 110/175
Albania
33/100 | 110/175
Moldova
35/100 | 103/175
Armenia
37/100 | 94/175
Bosnia and Herzegovina
39/100 | 80/175
Serbia
41/100 | 78/175
Montenegro
42/100 | 76/175
Turkey
45/100 | 64/175
The FYR of Macedonia
45/100 | 64/175
Georgia
52/100 | 50/175
GlobalAverage score
43/100
of countries score below 50 out of 100
100Very clean
0
Highly corrupt
Score:
#cpi2014
CORRUPTION PERCEPTIONS INDEX 2014EU & Western Europe
The 2014 Corruption Perceptions Index measures the perceived levels of public sector corruption in 175 countries/territories around the world. To see the full results go to: www.transparency.org/cpi
16%EU & Western Europe
Average score 66/100
Country/TerritoryScore | Global rank
Romania43/100 | 69/175
Italy43/100 | 69/175
Greece43/100 | 69/175
Bulgaria43/100 | 69/175
Croatia48/100 | 61/175
Slovakia50/100 | 54/175
Czech Republic51/100 | 53/175
Hungary54/100 | 47/175
Malta55/100 | 43/175
Latvia55/100 | 43/175
Slovenia58/100 | 39/175
Lithuania58/100 | 39/175
Spain60/100 | 37/175
Poland61/100 | 35/175
Portugal63/100 | 31/175
Cyprus63/100 | 31/175
France69/100 | 26/175
Estonia69/100 | 26/175
Austria72/100 | 23/175
Ireland74/100 | 17/175
Belgium76/100 | 15/175
United Kingdom78/100 | 14/175
Iceland79/100 | 12/175
Germany79/100 | 12/175
Luxembourg82/100 | 9/175
Netherlands83/100 | 8/175
Switzerland86/100 | 5/175
Norway86/100 | 5/175
Sweden87/100 | 4/175
Finland89/100 | 3/175
Denmark92/100 | 1/175
GlobalAverage score
43/100
of countries score below 50 out of 100
100Very clean
0
Highly corrupt
Score:
#cpi2014
CORRUPTION PERCEPTIONS INDEX 2014EU & Western Europe
The 2014 Corruption Perceptions Index measures the perceived levels of public sector corruption in 175 countries/territories around the world. To see the full results go to: www.transparency.org/cpi
16%EU & Western Europe
Average score 66/100
Country/TerritoryScore | Global rank
Romania43/100 | 69/175
Italy43/100 | 69/175
Greece43/100 | 69/175
Bulgaria43/100 | 69/175
Croatia48/100 | 61/175
Slovakia50/100 | 54/175
Czech Republic51/100 | 53/175
Hungary54/100 | 47/175
Malta55/100 | 43/175
Latvia55/100 | 43/175
Slovenia58/100 | 39/175
Lithuania58/100 | 39/175
Spain60/100 | 37/175
Poland61/100 | 35/175
Portugal63/100 | 31/175
Cyprus63/100 | 31/175
France69/100 | 26/175
Estonia69/100 | 26/175
Austria72/100 | 23/175
Ireland74/100 | 17/175
Belgium76/100 | 15/175
United Kingdom78/100 | 14/175
Iceland79/100 | 12/175
Germany79/100 | 12/175
Luxembourg82/100 | 9/175
Netherlands83/100 | 8/175
Switzerland86/100 | 5/175
Norway86/100 | 5/175
Sweden87/100 | 4/175
Finland89/100 | 3/175
Denmark92/100 | 1/175
GlobalAverage score
43/100
of countries score below 50 out of 100
100Very clean
0
Highly corrupt
Score:
#cpi2014
CORRUPTION PERCEPTIONS INDEX 2014EU & Western Europe
The 2014 Corruption Perceptions Index measures the perceived levels of public sector corruption in 175 countries/territories around the world. To see the full results go to: www.transparency.org/cpi
Prices of agricultural products up by 2.6% in Azerbaijan in OctoberIn October producers’ prices of agricultural products increased by 2.6% compared to the previous month, according to data released by Azerbaijan’s State Statistical Committee on November 6.
Azerbaijan to build nuclear reactor by 2020Azerbaijan plans to construct a nuclear reactor with a capacity of 20 MW by 2020, AzerNews reported on December 4 citing the National Nuclear Research Centre’s (NNRC) chairman, Adil Garibov.
The NNRC applied for a required licence to the International Atomic Energy Agency (IAEA) and plans to announce the tender for the construction in 2015.
In an effort to diversify its energy supply, oil and gas-rich Azerbaijan has been exploring renewable energy sources, including nuclear power. The NNRC, operating under the Ministry of Communications and High Technologies, was established with a presidential decree in May 2014 and is due to be fully operational by 2015.
EBRD launches $125mn credit line for energy use for Azerbaijani SMEs
The European Bank for Reconstruction and Development (EBRD) launched a $125mn credit line to local partner banks in Azerbaijan
to boost the use of energy resources for small and medium-sized enterprises (SMEs), local businesses and households, according to a press release issued on November 25.
The main objective of Energocredit is to help local financial institutions promote sustainable energy investments by their clients and to demonstrate the technical and financial benefits of such investments for private businesses and households.
Energocredit is part of the Caucasus Energy Efficiency Programme (CEEP) which EBRD launched in 2007 with the aim of helping industrial and residential clients reduce their energy intensity and make greater use of renewable energy sources. Energocredit is also supported by grant funding from the European Union Neighbourhood Investment Facility, the Austrian Federal Ministry of Finance as well as by the EBRD Shareholder Special Fund. These grants will be used for technical assistance and investment incentives for successful sub-projects.
The EBRD has deployed a team of international consultants to provide support to local banks, firms and households with a dedicated technical package. This support will enable companies and homeowners to make the transition from using inefficient equipment and technologies towards better-performing, more energy-efficient facilities, which will gradually reduce energy bills over time.
Three local banks, DemirBank, Muganbank and AccessBank, have already benefited from the programme. AccessBank has directed resources it borrowed from the EBRD towards improving the energy efficiency of its head office building
while DemirBank and Muganbank will on-lend their EBRD funding to local firms and retail clients to finance energy efficiency projects.
Azerbaijan places bonds for $252.2mn for Southern Gas Corridor
The Southern Gas Corridor closed joint-stock company (CJSC) has placed 2.522mn bonds at the nominal value of $100 each for a total of $252.2mn, AzerNews reported on November 28 citing the Baku Stock Exchange. PSG-Broker LLC is the underwriter of the placement
The bonds have a 10-year maturity period, with a yield of six-month Libor +1%. Interest will be paid every six months.
This is the fourth bonds placement by CJSC since Azerbaijan's President Ilham Aliyev signed a decree on establishing the company on February 25, 2014. The company was set up to manage energy projects specifically connected with the second stage the giant Shah-Deniz gas field and the expansion of the South Caucasus Pipeline, Trans-Anatolian (TANAP) Pipeline and the Trans-Adriatic (TAP) pipeline. The State Oil Fund of the Republic of Azerbaijan, SOFAZ, provides an equity financing for the CJSC.
The previous three bonds placement amount to $917mn, $1,2bn and $101mn.
Azerbaijan allocates $1.8mn for IT start-upsAzerbaijan’s State Fund for Information Technology Development is allocating AZN1.46mn
($1.8mn) to finance start-up projects in IT, the Azerbaijani media report citing the country’s Communications and High Technologies Ministry.
About AZN560,000 ($713,558) is grant support to 31 projects (out of 194 submitted), while AZN900,000 ($1.14mn) is in credit financing of two larger projects.
The Fund gives small, medium and large loans – small range between AZN10,000 and AZN50,000 (over three years), medium between AZN50,000 to 500,000 (up to five years), and large between AZN500,000 to AZN5mn (up to 10 years). The interest rate of the loans will not exceed 5% per annum. Grants range between AZN10,000 and AZN300,000.
Only 5 banks are currently authorised finance start-up projects – Pasha Bank, Bank Respublika, Demir Bank, Rabita Bank and Bank BTB.
The fund was established in 2012 under the Ministry of Communication and High Technologies, to develop and support small enterprises through investments, grants and credits with low interest loans as well as investing with direct acquisition of equity shares in the authorised capital of legal entities operating in ICT. Funded projects focus mainly on e-payment, software applications, air navigation system, e-government, e-commerce, as well as projects in education and healthcare.
Azerbaijan to launch two new petrochemical plants by 2020Azerbaijan’s Oil, Gas Processing and Petrochemical Complex (OGPC) will open two new gas processing and petrochemical plants in 2020, AzerNews reported on November 20 citing
According to Jafarov, head of the organisation and control department, the project's feasibility study sets estimated costs at $17.1bn, including accrued interest on loans received during the construction work.
The plants are expected to produce around 3mn tonnes of petrol and nearly 3.6mn tonnes of diesel fuel per year, both meeting the Euro-5 standards. In addition, the plan is to produce about 1.7mn tonnes of A-1 jet engine fuel. The gas processing plant would have an annual capacity of 10bn cubic metres. The products are aimed for both export and domestic use.
Oil products are now produced by two refineries in the capital, Baku, with a total capacity of 20mn tonnes per year. The state-owned oil company, SOCAR, owns both refineries.
Azerbaijani housing stock up by 30% over the last 20 years; still not enough
Azerbaijan’s housing stock increased by 30% over the last two decades reaching 166.4mn square metres, AzerNews reported on November 21 citing the Centre for Economic and Social Development (CESD). Experts maintain that despite the trend the housing stock remains low for the country’s 9mn people.
According to the Baku-based think-tank, about one third of the country’s households is in need of better housing conditions. As an average of 14,000 apartments are put on the market yearly, the centre estimates that it will take about 60 years to meet the demand for housing.
Vugar Bayramov, CESD’s chairman, estimates that at the current average real estate prices of $500 per square metre, “about $15bn would be required to improve the living conditions of all citizens in Azerbaijan”.
The 2009 housing code included a social housing programme which, according to CESD, remains yet to be implemented. According to Bayramov, about AZN400mn ($509mn) would be enough to kick off the programme.
The Azerbaijani government is seeking a new strategy for the development of mortgage lending. The draft of the 2015 state budget allocates ANZ50mn ($63mn) as mortgage support, up by 25% from last year. Several MPs proposed to increase the support up to AZN100mn ($126mn).
In 2011, the government established the Azerbaijan Mortgage Fund (AMF) under the umbrella of the country’s central bank to facilitate access to mortgages for families with financial difficulties. In addition to budgetary financing, the mortgage fund places bonds and proceedings are used to issue loans as part of conventional mortgage.
The maximum amount of a conventional mortgage is ANZ50,000 ($63,000) at a rate of 8% and a maturity of 25 years, while a social mortgage is granted at a 4% interest and for 30 years. The initial payment under the social mortgage is 15% of the cost of housing, five%age points lower than the downpayment on a conventional loan.
As of October 1, the AMF issued 15,425 mortgage loans amounting to AZN613.89mn ($782mn).
Trump Hotel Collection to open luxury hotel in Azerbaijan’s Baku
Donald Trump’s Trump Hotel Collection is developing a new luxury hotel in Azerbaijan’s capital Baku slated to open in June 2015. The towering 33-storey building, designed by London-based Mixed Design and developed by Azerbaijani developer Garant Holding, resembles the mast of a sail and it will feature 72 residential suites and 189 hotel rooms. The residences, ranging from 84 to a staggering 890 m2, will be available on a long-term lease basis.
The structure will cover 20,000 m2 in the central Nasimi district, and it will be surrounded by gardens, fountains and park paths. Neither Trump nor the developer has commented on the price tag.
Baku’s historical centre is a Unesco’s World Heritage, but the Trump tower will join an ever increasing number of skyscrapers dotting the Caspian sea skyline.
Transport terminal for Shah Deniz opens Georgian portOn November 23 Georgia’s Prime Minister Irakli Garibashvili, inaugurated the new transport terminal of the Shah Deniz-2 gas pipeline in the Black Sea port of Poti in western Georgia. The terminal, which will create about 100 jobs, will transport the pipes and other equipment required
for the expansion of the South Caucasus Pipeline through Azerbaijan and Georgia. The cost of the entire Shah Deniz project is estimated at $28bn.
“This is one of the most difficult and complex energy projects, which will strengthen the geopolitical positions of Azerbaijan and Georgia,” Garibashvili told journalists.
Shah Deniz-2 is schedule to start supplying gas to Turkey in 2018 and to southern Europe in 2019.
Discovered in 1999 about 70km offshore in the Azerbaijan sector of the Caspian Sea, the Shah Deniz field is one of the world's largest gas-condensate fields with gas reserves estimated at 1,200bn cubic meters. Shah Deniz fields (1 and 2) are operated by a BP-led consortium including Turkey’s TPAO, Azerbaijan’s state-owned SOCAR, Russia’s Lukoil, and Iran’s NICO. On October 13, Norway’s Statoil phased out of the project and sold its remaining 15.5% stake to Malaysia’s Petronas for $2.2bn as part of asset sales to shore up returns to shareholders. Likewise in May, France’s Total sold out its stake in the gas field stating it would focus on operating projects rather than holding minority stakes.
In June 2013 the Shah Deniz consortium announced the selection of the Tran Adriatic Pipeline (TAP) as the main route for transporting its gas to Italy, Greece, and Southern Europe. The TAP’s construction is planned to start in 2015. Its initial capacity of TAP will amount to 10bn cubic metres per annum with the possibility of expanding it to 20bn.
