The Asian Development Bank (ADB), with which Azerbaijan has been cooperating since 1999, has improved its forecast for the country's development for this year, taking into account the world’s gradual transition to the post-pandemic period. Moreover, the non-oil sector is becoming the main engine of economic growth.
Report presents an interview with ADB Vice-President Shixin Chen, who spoke about the bank's forecasts for Azerbaijan’s development in the short and medium term and plans for cooperation between ADB and the country.
- What are your expectations for economic growth in Azerbaijan for this and next year, and what recommendations could you give to the government considering the current global instability?
- In the first half of the year, the GDP growth in Azerbaijan was around 6.2%. Compared with the same period last year (2.1%), it is a significant improvement, mainly driven by the non-oil sector of the economy. I think this is a good sign; besides, domestic demand and consumption in the country are strong.
So, considering this, our expectations for the short-term period for Azerbaijan are about 4.2% for this year and 2.8% for the next year due to some instability. This kind of prediction has some uncertainty considering the overall global context.
Domestically, I think many measures have been taken, which is a positive thing. In addition, Azerbaijan has lots of potential areas that can support growth. First is green growth, which is strategically targeted by the government; for instance, renewables in the energy sector as well as energy efficiency.
Second is human capital. For instance, ADB is preparing a VET (vocation education training) project with Azerbaijan. We see huge potential for skills development in the human capital area. Education, health, and social areas all have the potential for further development. Third, regional cooperation is also an important area.
Combining these factors together, we are still looking very positively at future – medium to long term —development in Azerbaijan. It would help to maintain sustainable growth during global economic instability.
-How is the work on a new strategy for the ADB-Azerbaijan partnership moving forward? What areas will the strategy cover and what is the budget allocated to support projects, including for the private sector?
-As you may know, the current ADB country partnership strategy (CPS) for Azerbaijan will end next year. We are working with the government towards the next five-year strategy for 2024-2028.
Generally speaking, the new strategy will fully align with the government strategy for 2022-2026 and with the ADB Strategy 2030.
We think about a country-focused approach to see how we can work together. We also will put more effort into innovative solutions with integrating these solutions not only for the public sector but also for the private sector to see how to gain synergy for those two sectors together. I think those are our efforts and goals.
As for the areas, we are looking at green growth, climate change in both mitigation and adaptation perspectives, putting some efforts like supporting solar and wind development into reducing emissions of greenhouse gases, working on adaptation projects like improving irrigation for reducing the impact of climate change.
The other area is gender issues. We look at improving the gender situation so we will support women and girls.
As I mentioned before, besides ADB’s support in the private sector, the other important area is high technology, digitalization, etc.
ADB’s resource allocation will depend on project readiness. For the public sector, we will provide support with priority to high readiness projects. For the private sector, we will depend on market conditions, so the team will work with the government of Azerbaijan.
We will continue to do our operations and service better, and then whenever we can do more, we will do more.
- How do you assess the investment climate in Azerbaijan? What is your suggestion to make it more attractive?
- Historically, the oil and gas sector in Azerbaijan used to attract large FDI, it was quite a successful effort. We also see that the government has been quite successful to stimulate the private sector, which ensured growth for instance in agriculture, transport, logistics, tourism. Many measures have been taken to develop renewable energy in the country.
Anyway, some challenges still remain to further improve the investment environment. For instance, further measures could be considered in tax, custom policy, and some reforms that would be helpful as well.
Another major area where we can put our efforts together is the diversification of the economy, specifically in the non-oil sector and manufacturing. These areas have unlimited potential, and this requires medium- and long-term efforts.
As I mentioned before, in many fields the Azerbaijani government can also try to enhance its activity in attracting more investment, such as green growth, high technology, and digitalization, as well as areas of human capital development, education, health, and social protection. We can put joint efforts there. In addition to that, it includes the development of infrastructure, including cross-border ones.
On top of that, because of the COVID pandemic and global complexity and inflation, ADB member countries put a lot of effort into supporting the social protection of vulnerable groups. So fiscal consolidation and sustainability require more attention.
However, all of this requires support to poor and vulnerable groups, women and at the same time not to jeopardize investment in some key sectors as social protection demands lots of expenditure.
The government must balance between supporting the vulnerable and economic growth. It would help to create a good environment for investments.
In addition to that, the private sector is important for the economy, so we will continue our efforts in easing doing business, as it is critical for attracting more investment.
One good measure could be adopting a public-private partnership law (PPP), which will pave the way for increasing confidence in the private sector and enhance private and public sector partnerships in terms of risk sharing.
- What could be the place of Azerbaijan in further enhancement of regional cooperation?
- Nowadays the global economic situation is quite uncertain, so for moving ahead we need to enhance regional cooperation that can help to stay together to face the challenges.
Azerbaijan plays an important role in regional cooperation, and puts a lot of effort into that, including CAREC or the Central Asia Regional Economic Cooperation Program. Last year the country chaired the CAREC Ministerial Conference.
Azerbaijan can continue its efforts to support and promote regional cooperation and integration. It will significantly help Azerbaijan itself and the whole region.