Economic
Opportunities
Bulletin |
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MERCY CORPS
INTERNATIONAL |
37 v, Suleyman Rustam street,
Baku-370007, Azerbaijan
Tel: 40 02 41 Fax: 41 10 65 E-mail:cathy@mci.baku.az
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AUGUST 1999 Volume I No.
4 |
GOVERNMENT NEWS
AGRICULTURE
ECONOMY
FINANCE
PROGRAMS
BUSINESS
INTERNATIONAL
Amendments
to the Ecology Code
The Parliament has made the following changes to the Ecology Code:
l In edition of 163-3 article of the Code On
administrative violations. In case of death of people or material damage during processing
of harmful wastes, people responsible for the fact will carry criminal responsibility and
be imprisoned from 1 to 5 years and
l The burying of dangerous wastes is prohibited
in natural resource areas.
Hasanov grateful to humanitarian organizations
On July 7, Azerbaijan's Deputy Prime Minister Ali Hasanov met with John Post, a
representative of the U.S. State Department's Program on Humanitarian Assistance. Mr.
Hasanov expressed his gratitude to humanitarian organizations which, "despite
restrictions imposed by Section 907, work hard to improve the living conditions of
numerous displaced communities in Azerbaijan."
Websites |
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* www.worldbank.org/html/exdr/offrep/eca/az.htm
- This is the homepage within the World Bank on Azerbaijan. It provides a country brief
with a snapshot of Azerbaijans development prog-ress at the macro level and a two page
country at a glance with key indicators tracing the trends in social and economic
development in the country for the last three decades. * www.bisnis.doc.gov/bisnis1/ - BISNIS is the
US Department of Commerces primary resour-ces for exploring business oppor-tunities in
Russia and the NIS. It provides market reports, tips on development, export and
invest-ment opportunities, and strategies for doing business in the NIS. It includes
industry reports, country reports, lists sources of finance, and other relevant
information
* www.usembassybaku.org
- The Baku US Embassy has it own website including information on USIS, Commerce, and
Consular activities. Under commerce it has specific information on oil industry, economic
development, and trade and investment opportunities. |
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Business and Economic Publications
As Azerbaijan continues it transition to a free market economy, a variety of
training guides, journals have been published in Azeri. For the Agriculture Sector
there are several training books for private farmers that have been prepared. These
include
- Diakonie Extension Manual
In both English and Azeri, this manual covers extension methodology, family
greenhouses, and vegetable production. They also have 9 individual brochures covering
specific vegetables and pesticide both natural and chemical
- Zacatala Management School Farmers Book
This book sponsored by GTZ and published in 1997, covers accounting, business
planning, livestock production, profit & loss statements, case studies, taxes, and
insurance. Almost 9000 farmers have been trained with this book.
- Short term course for farmers of the pilot farm project
Through WB loan the State Commission responsible for the pilot farm
privatization project has published this book. In, addition 12 issues.
- Business Journals by The Center for Economic & Political Research
Six 6 journals covering market research, constraints to business, advertising,
management, accounting, registration issues are available.
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Sources used:
"Azer-Press", BISNIS Bulletin
Herald Tribune
Sharg, Economist 9/11/99 issue |
ARRAs activities
ARRA has repaired 200 buildings in the liberated regions of Agdam, Goranboy, and
Fizuli, with another 3,193 to be built this year according to Ali Mamedov, head of ARRA.
In coordination with ARRA, UNHCR is repairing and reconstructing another 2000 buildings.
To date, ARRA has spend $73 million of which $30 million is allocated by WB and Islamic
Bank. The remaining $43 millions are grants given by TACIS, ICRC, UNDP, and UNHCR. In
addition, land mine clearance activities are being implemented in Fizuli. The tender for
building another 270 houses in nine villages in Fizuli will be determined in September.
Irrigation
& Drainage Assessment
An assessment of the rehabilitation and improvement of irrigation and drainage
infrastructure in the country has been completed. Eleven priority systems have been
identified including reconstruction of the Samu-Apsheron channel, the Main Mil-Mugal
collector. The assessment began in May and surveys were implemented in 10 regions, Guba,
Guza, Hachmaz, Divishi, and Saatli, Sabirabad, Imishli, Agcabedi, and Beylegan. They
reviewed the following topics, opportunities to pay for irrigation services, participation
in repair and maintenance of the systems and type of water customers.
Seedling exchange
Iranian scientists are planning to travel to Baku the end of September to exchange
seedlings and seeds. They will also conduct research in sugar beet, cotton, and grain
productions. Azeri scientists in turn are interested in olive production in Iran. Chinese
scientists are also interested in the same activities and are planning a visit in October.
Pasture erosion
Based upon results of geo-botanical survey, the mountainsides used as grazing for sheep
are being eroded by rain and wind. Farmers are encouraged to sow wild plans in the
autumn-winter period to protect the lands. In addition, trucks driving on fields should be
minimized.
Cotton producers less advance payments
The companies operating cotton plants have reduced advance payments to farmers growing
cotton by more than twice in comparison with last year, AzerPress learned from MKT
Company. This move was caused by the fact that the processing factories did not receive
sufficient harvest last year, although 20 billion manats had been paid in advance. In this
connection, the cotton processing companies restricted the advance to purchasing fuel and
lubricants for the producers at reduced prices; besides, they repaired artesian wells and
irrigation systems. The fact that the number of hectares used for cotton decreased twice
also influenced the decision to cut advance payments.
l The US Agency of Trade and Development will allocate $400,000
for rehabilitation of a major chemical facility in Azerbaijan in a move aimed at
revitalizing the countries petrochemical industry.
l The EU has decided to earmark 7 million EURO for
financing a fiber-optic communications line, which will connect the countries of the south
Caucasus with the European capitals.
l Industrial production increased 2.2% for the
first six months of 1999 compared to 1998 levels. In addition, the number of people
employed increased by 21.5% over last years level. However, industrial activities are
not operating at international standards in regards to environmental issues.
l Chinese Azeri trade deficit. For the first
six months $3.8 million was imported from China and only $61,000 was exported to China.
EBRD will monitor water project
A mission of European bank for Reconstruction and Development (EBRD) for water project
visited Baku. EBRD plans to allocate $23 million for replacement of pump stations. The
mission also held a seminar together with World Bank for the representatives of interested
offices and Baku municipality.
Azeri- German Economic Relation are being discussed
The second symposium and session of Azeri- German economic relations was held in June.
The first symposium was held in October 1998. According to the German Ambassador these
actions will give a new impulse to bilateral economic relations. German Ambassador
explained that for the development of investment process, improvement of legal defense of
investors, transparency of tax system, and reforms of banking sector are necessary which
may explain low foreign investment levels. The representative of German Economic Ministry
noted that lending to Azerbaijan needs governmental guarantees. On the other hand
dependency on the oil market and limited local market interfere investment process.
Germany hopes to development of projects at regional level. Potential German investors are
asked to give attention to projects in the sphere of tourism, agriculture, leasing, and
banking.
Work on Transport Ministry to start
A two-year project by TACIS to establish a Ministry of Transport will start within a
month. The project will determine status of transport department, training course for
staff, and assist with the initial creation of the Ministry.
Azadbanks property
seized
The economic court is reviewing the TACIS-Azadbank case, which began in July. The bank
owes 2.3 billion mantas to TACIS. The bank has refused to pay, as it has not received
repayment from loans for agriculture activities. The bank is accused of violating banking
rules when lending by not requesting adequate mortgage to minimize the risk. If the sales
of the banks assets are not adequate, then the banks management may be responsible.
International Monetary Fund
The IMF is currently supporting the Government Azerbaijan's economic reforms with
lending using resources from several IMF financing facilities. The total budget of the
program for 1999 is about $135 million of which $79 million is designed to help to
compensate the export shortfall experienced in 1998. IMF also is providing technical
assistance to Azerbaijan. A resident advisor on treasury development is assisting the
Ministry of Finance to further strengthen and computerize the national treasury. Another
resident advisor is working with the Azerbaijan National Bank to strengthen banking
supervision and regulation. Additional technical assistance is being provided to draft a
new tax code for Azerbaijan, strengthen tax administration and reform the payments system.
Bank Association Proposal 8/23/99
The Azeri Bank Association is working on a proposal for the IBA. The proposal addresses
several issues; to increase the limit on currency export, increase the 7% limit of capital
spending on foreign currency. In addition, to the proposals, the Bankers generally feel
the dollar will continue to rise to an estimated 4600 manat value per dollar.
The World Bank
The WB Board of Directors approved in March the Supplementary Credit in amount of SDR 5
million. For Azerbaijan to address negative impact of the Russian crisis and to help
promote stability in financial markets. The Board is also expected to endorse in the
coming few months another two projects Agricultural Development and Credit Project.
The aim is to create the land markets, development of rural advisory, information services
and improvement of the Government's capacity for the rural sector, and Education Reform
project. The purpose of which is to improve the effectiveness of teaching and learning in
selected grades of 20 general schools in different regions of Azerbaijan. The credit is
expected to be approved in the coming month.
Two more projects the Irrigation Project which would include rehabilitation of 50
km of Samur-Apsheron canal, and construction of 32 km of the Mil-Mugan irrigation drain,
and the Highway Project aimed at reconstruction of the part of East-West Highway
historical Silk Route are currently under preparation.
Number of commercial banks to reduce
On September 11 the National Bank held a board meeting to review the request to cease
operatio ofr two banks. Following a performance review of the first two quarters, four
other banks are reported to shut their doors.
Agriculture Insurance
The insurance company Bashak Inam is currently reviewing the six pilot farms funded
under a WB project for insuring loans and credit institutions. Insurance would reduce the
risks associated with agriculture production. Currently only two insurance companies are
licensed to insure agriculture activity. The tariff rates established by the firm are; .3%
for equipment, 6.5% for cattle, and 3% for poultry. Other proposals at the sessions
attended by the Ministries of Finance, Agriculture, Cabinet of Ministers, Agroprombank,
and Central Working Agency included having the state cover 50% of the administrative costs
of issuing the credit. Given the low interest by farmers for this credit the scope of
activities may be expanded to include small scale processing activities.
Processing Activities
Agroprombank under WB credit will begin lending for processing and preservation
activities under the pilot farm project. Projects over $30,000 will require approval from
the State Commission. This change in direction of financing was decided at the
Agroprombank conference based upon the results of the project success to date. The
financing was expanded to include three-year medium term credit. However, there was not a
high response by farmers to this loan product. It is suggested to build canneries in
Lenkoran, Hackmas, mills in Berda and Ujar and a sugar refinery in Sharur. They are also
considering funding a greenhouse project based upon an Israeli model. There are also
looking at decreasing the interest rates from 14% to 8-10%.
Banking school funded by TACIS
The firm to won the tender to start a banking schools will arrive 9/13/99. The $1.5
million two-year project will support a school for bankers.
Agrarian Investment Fund
The TACIS office is considering a new structure for its agriculture activities. The new
Agrarian Investment Fund was presented under the RARP-1 project. The idea is to form a
council that will guide the credit policy, state fee, and encourage business plan
development. The credit will only be given after a MOU is signed between the EU and GoA
with a focus on short-term projects.
SME credit support from Germans
The signing of a $6 million credit agreement was expected during a visit from the
German Government. Credit will be provided to the GoA for 40 years and .75% interest rate.
The visit also included stops at several electrical power substations in which a German
company is working. The reconstruction is part of another loan from the German Government.
The German-Azeri Foundation (GAF) established under the program will serve as an agency
responsible for disbursing the credit to agent-banks. Azerdermiryolbank and Arkobank have
already been selected as agent-banks. The banks will individually examine the business
plan and will have the right to disburse for small loans. For medium sized loans, GAF
experts will review the projects. The loans sizes will range from $10,000-50,000.
Electricity line from Agjabedi to Barda
A tender is out to build a 110 kw electricity line from Agjabedi to Berda under funding
from the Islamic Bank of Development. This tender is part of a larger project to
reconstruct the Mingechevir HES.
Japan's interest to reconstruct the Baku Port
Industrial Finance Group of Japan were discussing on behalf of Japan investors on
allocation of favorable credit for reconstruction of general cargo terminal of Baku Port.
According the feasibility study carried out by European Union $17 million investment is
needed for modernization of piers of cargo terminal and for increasing capacities of the
container area.
Marketing Program almost finished
The Azerbaijan Institute of Economics has just finished the coursework for a new
International Economic Relations Bachelors Degree. The program will cover international
trade, customs, foreign trade, economics, and marketing. Six textbooks will be issued by
the end of the year.
Departure
of Foreign Investors
In a press release, a lawyer representing a foreign firm cited a specific example in
which connections with Azeri officials were used to avoid payment of contractual
obligations. Despite repeated visits to the Prosecutors office no action was taken.
Antimonopoly Committee proposes license reform
The State Antimonopoly Policy and Entrepreneur Support Committee prepared and offered
proposals on revising licensing requirement for businessmen. The main points are;
- Expand the list of activities under the license so businessmen not forced to buy new
license for each individual activity,
- Consider opening license houses to deal with this rather than being issued by various
state bodies,
- The licensing fee should be adjusted to according to size of business and activity, and
- Regulation of the entity issuing the license is needed.
Control books results from first six months
74 private enterprises submitted information on un-official visits by government
employees demanding payment or favors. During the first six months of documenting these
visits, the businesses did say there was some reduction in the number of visit but theses
problems still hinder the success of the business. 85% of the unofficial visits were from
the tax department, 71% by police, 31% by customs, 27% by health and sanitation, and 25%
by prosecutors office.
Antimonopoly Committee concerned with reduction in JV
The number of operating JV is dropping due to high registration fees and lack of
financing. During the survey 55 JV were interviewed. The committee has suggested a
reduction of registration fee particularly for local JV processing agriculture products,
and foreign JV involved in industry creation and export of equipment. In addition, the
committee proposed to strengthen the information systems.
UNDP & Antimonopoly Committee to conduct seminar
On September 30 a seminar to support cooperation between SMEs and foreign investors
will be held. Issues regarding intellectual property rights, EU-Azeri cooperation,
technology transfer, direct foreign investment, and skills development will be covered.
Association of Securities Brokers (ASB) to start
Until the President approves the roles of order for licensing professional broker
activities, the ASB will delay registration with the Ministry of Justice. The ASB main
activities will be to train brokers, provide ethical guidelines for operation, represent
brokers rights, and to standardize brokers operations.
First JV between Baku and Tebriz
An understanding between the Baku and Tebriz executive powers has been reached. The JV
would deal with import and export of construction materials and food products.
Cash registers in petrol stations
The Tax department announced a plan to introduce cash registers at petrol stations to
increase tax revenue. Of the 700 petrol stations, the majority is not paying taxes on
sales activities. As expected this announcement was not received well by station owners.
In their opinion, cash registers will slow down the service provided and increase
expenses. Currently one cash register costs approximately $400. If the requirement is one
cash register per pump the cost could rise to $1600 per station.
Leasing activities
Azerlizing, a leasing company is investigating the leasing market in the country. While
they are still awaiting registration, the company intends to buy equipment from bankrupt
companies and lease it for one month to two years.
Tax Service targeting services
The tax inspectors were out in force during the beginning of July to monitor the use of
cash registers. Over 381 violations were found ranging from lack of receipt or writing a
lower price. They also monitored the Marriage Registration House. Tax rates for services
are determined by a variety of methods. For traders, every cubic meter of space is subject
to 7000 manats. For restaurants, 80,000 is assessed for every 6-person table and 80,000
per chair for hairdressers and beauticians. In addition, rates were increased if
businesses were located in the center by two.
Ukraines
Farm Reform
Individual farmers are only allowed to own 100 hectares of land and while there is no
shortage of land in the Ukraine, only 5% of the peasant farmers have chosen to be private
farmers. 46% of the land still remains in the enterprise control with individual farmers
owning 2% of the land. The land code introduced in 1992 recognized three forms of
ownership, state, collective, and private. All the collective farms according to the
government have been replaced by private collective agriculture enterprises. But
these new private enterprises are the same soviet style collective farms and farm output
continues to decrease. Land reform is not the only challenge, there is no open market for
farm produce. The government is the largest buyer and only suppliers for seeds,
fertilizer, and other inputs.
Georgian Budget
Addressing the parliament on 10 September, Minister of State Vazha Lortkipanidze said
Georgia'scurrent budget deficit amounts to 356 million lari ($180 million), Caucasus Press
reported. As a result, Lortkipanidze said, the government still owes a total of 42.8
million lari in wage and pension arrears for 1999. He noted there are problems with
funding the army, police, and border guards. And he called for changes in Georgia's
investment policy to attract investment in larger enterprises.
New Mulitlateral Bank
In June 1999 the Black Sea Trade and Development Bank located in Greece began
operations. The bank will provide financial and technical assistance to viable projects
and trade activities to the 11 shareholder countries which includes Azerbaijan. The goal
of the bank is to accelerate development and cooperation among the member countries.
Eligible projects from both the public and private sector are required to facilitate trade
and investment activities. Priority will be given to telecommunications, manufac-turing,
financial services, transport and agribusiness.
Agribusiness Progressing in Moldova
Moldova has the potential to be a key producer of agriculture products in the NIS.
Agriculture currently accounts for 40% of GDP. Major reforms are currently being
implemented but leave newly privatized farmers cash and equipment poor similar to
Azerbaijan. While there is limited access to capital financing, banks require excessive
collateral and have a complicated application process. Moldova is also recovering from the
Russian economic crisis of August 1998 which resulted in a currency drop and a collapse of
market for Moldovan agriculture products. A new initiative supported by USAID is aimed at
organizing Farm Service Centers. Small farm stores will be created in each village to
augment the distribution system. Typically payment for these goods and services is made
with harvested crops. While it is planned that the farmers will operate with cash
transactions in the future, currently most transactions will be through barter.
Georgia to Build New Black Sea Oil Terminal
The President has approved plans by an Austrian-Georgian joint venture to build a new
oil terminal in the village of Kulevi, north of Poti. The terminal will have a capacity of
5-6 million tons per year and will be used primarily for the storage of crude to be
transported by barge across the Caspian from Turkmenistan and then by rail across
Azerbaijan and Georgia. The joint venture has reached a preliminary agreement with the
EBRD on financing for the project, the cost of which is estimated at $70 million.
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