Tacis Indicative Programme for Azerbaijan

Transcription

1 Tacis Indicative Programme for Azerbaijan adopted by the European Commission on 22 May 2003

2 TABLE OF CONTENTS 1 Introduction Tacis National Indicative Programme Area of Cooperation 1 : support for institutional, legal and administrative reform Implementation of the PCA Improved border management and combating trafficking in people Modernisation of the State Customs Committee Improved targeting of social assistance Support to the Ministry of Ecology and Natural Resources Area of Co-operation 2: support to the private sector and assistance for economic development Support to encourage economic development and diversification Modernisation of the Tax System Phase Development of a Vocational Training Strategy and pilot application in selected region(s) TEMPUS Budget Conditionalities Annex 1: PRSP / NPPR priority areas and Tacis assistance Annex 2 : Programmes of EU Member States and other donors

3 1 INTRODUCTION The Azerbaijan Country Strategy Paper(CSP) , decided last year, provides the strategic framework within which EC assistance is provided. The CSP sets out EC cooperation objectives, policy response and priority fields of cooperation based on a thorough assessment of policy agenda and political and socio-economic situation of Azerbaijan. The new Indicative Programme for the period elaborates the response in more detail, highlighting objectives, expected results and conditionality for Tacis in the priority areas of cooperation. Azerbaijan has experienced a period of political stability, demonstrated increasing respect for democracy, rule of law, human rights and continued growth. The main challenges facing Azerbaijan over the medium term notably are reducing poverty, resolution of the Nagorno Karabakh conflict, economic diversification, improving governance including the reduction of widespread corruption, improvement of the country s infrastructure and reform of the banking and financial services sector. Azerbaijan also faces the difficult task of balancing its interests with those of its regional neighbours. It also has the task of completing the adjustment to the challenges of the market economy including changes in attitudes, structures and educational systems. 2 TACIS NATIONAL INDICATIVE PROGRAMME Azerbaijan has thus reached a degree of economic and political stability that gives it the opportunity to address some of its serious structural problems. However, to ensure the reform policies are fully implemented also requires the continuation of a strong EU engagement. The EU s broad objectives focus on the implementation of the PCA, reducing corruption in part through improving governance, improving the business climate, stimulating regional cooperation and encouraging the settlement of the Nagorno Karabakh conflict with Armenia. All of these objectives have poverty reduction either directly or indirectly as their focus. Good governance and a strengthened market economy are key objectives for the EU as these will provide the foundations for reducing poverty and the development of Azerbaijan. The EU has a comparative advantage in this context that comes from the credibility gained from long experience in assisting reform activities. The EU assistance strategy will support the Government s own poverty reduction strategy approved in autumn However, this commitment does not mean that the EU shall shoulder responsibility for the implementation of all aspects of the PRSP. Areas such as health and education are already the subject of investment programmes of other donors, most notably the World Bank. The Tacis Programme will seek to assist the implementation of the PCA and the National Programme for Poverty Reduction (NPPR) of Azerbaijan. As identified above, the core issues of good governance, the fight against corruption and poverty, and the need to develop a diversified economy and improve the business climate have to be addressed. Azerbaijan continues to undergo radical administrative and political changes in 2002 in preparation for the increasing oil revenues in the next 3-5 years. The EU recognises the importance of assisting Azerbaijan as a member of the CIS 7 group of countries in the fight against poverty. The political situation in Azerbaijan and its relationship with the European Union cannot be separated from the country s regional context, economic potential and cultural 3

4 heritage. Following the events of September 2001 there are new threats weighing upon the world and the geopolitical location enhances Azerbaijan s strategic importance. Since the approval of the CSP in November 2001, Azerbaijan has adopted a National Programme for Poverty Reduction (NPPR/PRSP) and there has been a change in aid coordination responsibilities with more authority invested in the Minister of Economic development who also became Tacis National Co-ordinator. The NPPR recognises the need to ensure sustainable economic growth which is also environmentally sustainable. To assist this process, all of the policy actions have been developed in the context of the country s Medium Term Economic framework. The target is for balanced economic growth both in terms of sectoral development of the economy as well as of a responsible approach to monetary and fiscal policy. Azerbaijan recently joined (2002) the Science and Technology Centre in Ukraine (STCU) which will allow for trans-regional cooperation and contribute to reducing proliferation risks. A dialogue on energy matters has started under the Partnership and Cooperation Agreement. While the Indicative Programme does not include assistance for the energy sector the dialogue will allow for a better understanding and sharing of views in what is the key industrial sector for Azerbaijan. There will necessarily be a read over resulting from the dialogue to the regional cooperation programmes. While these are significant policy announcements, they do not warrant a change in the EU response Strategy or the CSP as they were anticipated in the document approved in Wider political, economic or social changes have followed the trends anticipated in the CSP and so they too would not justify a revision of the CSP. However, there are two factors that might have an influence on the final outcome of the programming exercise for : 1) A number of projects under the National Action Programme have yet to be contracted and the Tacis Action Programme has yet to start. Therefore, it is still impossible to assess their impact. Adjustments to the IP might be required in the light of the implementation of the projects. 2) Presidential elections will take place in Azerbaijan in October It is furthermore important to note that the EC shall, in the light of the General Affairs Council's conclusions of 26/02/01 and 09/04/01, continue to follow closely, with all interested parties, developments in the peace process concerning the conflict with Armenia over Nagorno Karabakh, including with a view to contributing further to postconflict reconstruction. As stated in the Luxembourg Joint Declaration (and the conclusions of the General Affairs Council of 21 June 1999 and of the European Council at Cologne), the EU accords very high priority to measures which can both (a) underpin a peace settlement and (b) prepare Azerbaijan to derive maximum benefit from the ending of the conflict and the reopening of communications. In this context, priority should be given to demining actions in war-damaged areas adjacent to the cease fire line and in the event of peace settlement in what are currently occupied territories. The priorities established in this Indicative Programme are oriented towards (b). In the event of a comprehensive peace settlement, resources could be reallocated to address the most urgent needs for assistance to the normalisation process and the return of refugees and IDPs to their homes. Close coordination will be required with other EC programmes and other donors. The development of the Indicative Programme has been carried out with the full cooperation and commitment of the Azerbaijani authorities. Ownership of the Indicative 4

5 Programme by the Azerbaijanis has been strengthened through this process of dialogue. In parallel the coordination with other international donors has allowed the programme to be given a sharper focus. See Annex II for a donor coordination table. The Poverty Reduction Strategy Paper Matrix is available but has not been included in the IP for reasons of space. The Tacis programme seeks to assist the Government of Azerbaijan meet these challenges in coordination with the assistance of the IFIs and other donors. It will be important to ensure the visibility of Tacis and other EU funded programmes in Azerbaijan. This issue should be addressed in detail during the preparation of Action Programmes. Within the context outlined above and taking into account the objectives of the Partnership and Cooperation process, the Tacis programme can most effectively assist the partner country in meeting those challenges by focusing on priority sectors (i) support for institutional, legal and administrative reform; (ii) support to the private sector and assistance for economic development. These priorities are consistent with the objectives of the Azerbaijani National Programme for Poverty Reduction (originally called the Poverty Reduction Strategy Paper PRSP). Furthermore there is a direct synergy between the Tacis IP for and other EC Tacis programmes and other financial instruments. The linkage to the Food Security Programme which remains an essential instrument to contribute to the poverty reduction is particularly strong. The Tacis national programme for Azerbaijan will be around 30 million for period AREA OF COOPERATION 1 : SUPPORT FOR INSTITUTIONAL, LEGAL AND ADMINISTRATIVE REFORM Indicative budget for priority The total budget allocation will be approximately 17 m. 3.1 Implementation of the PCA The Partnership and Co-operation Agreement is the cornerstone of relations between Azerbaijan and the EU. Implementation of the PCA is a gradual process. The Tacis programme is the main tool for support to the implementation of the PCA. Specific objective Implementation of the Partnership and Cooperation Agreement The main focus shall be to assist the Government of Azerbaijan to implement the programme of legislative approximation and to provide legal and policy advice in the context of the PCA. See paragraph 3 below for specific activities related to the approximation of Customs legislation to that of the PCA. It shall continue the work of the PCA project started in the Action Programmes. Additionally the Institutional Building Partnership Programme may complement the activities of the PCA project. The Statistics Programme shall assist the establishment of a functioning statistical system and its remit shall cross both Areas of Cooperation. The National Coordinating Unit (NCU) has an important role to play in balancing aid requests of the line ministries on the one hand and improving co-ordination between the Commission 5

6 and Azerbaijan at the programming and implementation level and on the other hand facilitating co-operation between both parties. This while implicitly closely associated with PCA implementation should not necessarily be seen to be part of the PCA. Expected results Progress in the area of legislative approximation Achievement of deadlines notably in the area of intellectual property protection linked to implementation and enforcement of the legislation Improvements in the implementation of the PCA and respect for the provisions of the PCA Accession to the relevant treaties Proportion of legislation brought to EU standards Key domains for conditionalities, risks and assumptions. apply to all activities The EU, with other donors, will be consulted and participate in the development of the PRSP / NPPR. This must include a comprehensive analysis of the problems and establishment of what tasks have to be achieved. Reforms carried out under the 1998/99 and 2000/2001 and 2002/2003 Tacis national Action Programmes to be completed successfully before start of second phase projects. Implementation of the PRSP / NPPR to be carried out by the Government with the assistance of other donors according to the established timetable, including sectors not prioritised by the EC such as finance, health and education. Government commitment to the PRSP / NPPR to be made via the Public Investment Programme (PIP). Progress under EC funded non-tacis programmes e.g. food security programme will be taken into account when programming complementary Tacis actions. Risks and assumptions (applies to all activities) It is assumed Azerbaijan continues to strive for a peaceful resolution of the conflict with Armenia and that a military solution to the recovery of the occupied territories will not be attempted. Both Presidents have expressed the desire to settle the conflict through peaceful means. The use of military action to recover the occupied territories would also seriously threaten the government s ability to implement its reform programmes. The pace of government reform programmes has to be maintained in accordance with the national programme if they are to be effective. Any slippage in the timetable will have to be minimised. 3.2 Improved border management and combating trafficking in people Improved border management is one of the key factors in improving regional stability as well as in promoting regional trade. Azerbaijan is located in a focal point for illegal migration and is beginning to experience a growth in trafficking in people. An integrated approach to improving border management and border crossing is essential to allow for the growth of legitimate trade traffic. The programme for combating trafficking of people will follow the EC integrated approach by focussing on policy development, legal development (incl. the adoption of 6

7 international conventions related to human trade), prevention measures, capacity building and rehabilitation and reintegration of victims. Special attention will be given to the increase in women and child trafficking and providing the appropriate assistance (legal, medical, socio-psychological, etc.) to these victims. Specific objective Improved border management with particular attention to preventing illegal migration and trafficking in people and to improving the Customs service. The programme will help the modernisation and demilitarisation of the Border Guard service to improve the cooperation between the different government services operating at the major international crossings through the introduction of new working practices. Linked to this will be a programme to combat trafficking in people which will address the issues of legislative changes, prevention, prosecution of traffickers and protection of victims. The Ministry of the Interior shall be closely associated with this programme. The improvements in border controls will be complemented by assistance to the Customs service (the Customs Programme) see paragraph 3 below. This integrated approach will allow for better detection and prevention of illegal activity as well as reducing delays for legitimate cross border trade. Close cooperation with other donors is essential and it is likely that the programmes will give priority to technical assistance and training over the provision of equipment. Cooperation with the programme to improve the Georgian Border Guard service will be equally important. Expected results Improved border controls with more efficient handling of traffic using the border crossings. Improved success rate in preventing illegal migration and improved management of genuine asylum seekers. Reduction in trafficking in people and improved prosecution rates and better protection for victims. Shorter waiting times at border crossings Improved detection rates for illegal migration Seizure of illicit goods Improved inter-agency cooperation at the border Key domains for conditionalities, risks and assumptions. See above 3.3 Modernisation of the State Customs Committee The State Customs Committee (SCC) has successfully been pursuing reform and modernisation over the past years. However, it will take some time and require external aid before the SCC will have the appropriate capacity to service a market based economy in an efficient way and protect society also in non-fiscal areas. Continued support should be give to secure the aims of the PCA to guarantee compliance with the provisions scheduled for adoption in connection with fair trade and to achieve the approximation of Azerbaijan s customs system to that of the Community. 7

8 The further reform of SCC will be complementary to the TRACECA project and to the project on border management. Specific Objectives The Tacis customs programmes will help the Republic of Azerbaijan on the one hand to secure the state revenue, and on the other hand facilitate legitimate trade, while decreasing the illicit trade. The assistance will be based on strategic analyses of the SCC and will offer closer coordination with other donors. The customs programme will assist the development of customs legislation and customs procedures, and will offer improvement of working methods and training of staff. Approximation of the Customs legislation of Azerbaijan to that of the EC is provided for in Article 43 of the PCA. The programmes will also offer assistance in the automation of customs procedures and development of risk analysis methods etc. All technical assistance will be given in accordance with the needs identified in the overall strategic analysis of the SCC. Expected results Customs legislation should be made fully compatible with Azerbaijan s international obligations and customs procedures should be brought in line with EU standards. Introduction of a fully automated and fully integrated IT-system to capture and process data in relation to import and export transactions, including transit operation. Introduction of control methods based on risk analysis, selectivity and targeting. Introduction of post clearance audit. Steady or increased revenue collection. Shorter waiting times at border crossings Seizure of illicit goods Improved inter-agency cooperation at the border 3.4 Improved targeting of social assistance The PRSP recognises the importance of targeting of social assistance and the reform of the pension system and it is one of the priorities for poverty reduction. The EU Food Security Programme is focusing its budget support on complementary activities. Previous Tacis programmes have started the process of reform of the social protection system and it is essential that this continues. Specific objective Improvement of social and economic mechanisms related to social protection of lower income people and improved management structure for the pension system. Creation of a system of targeted social assistance, creation of a system of individual accounts for the better management of the pension system. Work carried out in the 1998/99 AP and the World Bank will provide the basis for a more widespread application of the targeted system of support. 8

9 These activities are linked to the activities of the EU Food Security programme where budget support is provided for these activities. Expected results Improved targeting of social protection and pension system, more efficient use of the budget with potential for savings Reduced leakage ratio, increased leverage ratio, decreased under-coverage ratio for the social protection and pension systems Key domains for conditionalities, risks and assumptions. See above Cross-conditionality with the Food Security Programme. 3.5 Support to the Ministry of Ecology and Natural Resources Environmental concerns are one of the building blocks for the PRSP. The creation of the Ministry for Ecology and Natural Resources in 2001 has shown the scale of the problem facing Azerbaijan both in terms of dealing with the past and preparing for the future. One of the principal difficulties facing Azerbaijan is the lack of adequate implementation of environmental policies. Part of this is structural and relates to a lack of skills and capacity as well as a lack of a general awareness of the importance of the environment within the general population. Specific objective Integration of environmental policy making and application in the Poverty Reduction Strategy. Institutional development of the Ministry of Ecology and Natural Resources. Improved management and administrative capacity to implement environmental legislation, notably through capacity building programmes for the Ministry and other Ministries and agencies with which it interacts. Work with the PCA project on approximation of environmental legislation and the inclusion of environmental considerations in the development of legislation. Attention should be paid to ensuring that the regulatory role of the Ministry is separated from any commercial activities and there is no conflict between its various land management roles. Expected results Improved efficiency of operation in the Ministry. Approximation of legislation with EU standards and principles Number of Ministry staff trained to modern standards 9

10 4 AREA OF CO-OPERATION 2: SUPPORT TO THE PRIVATE SECTOR AND ASSISTANCE FOR ECONOMIC DEVELOPMENT Indicative budget for priority The budget allocation will be approximately 13 m. 4.1 Support to encourage economic development and diversification The PRSP recognises that in addition to the need to tackle poverty through health, education and social provision, economic development and diversification will be fundamental. Dependence on oil and gas revenues is a problem today, even before the exploitation of the new Caspian fields has started. The Ministry of Economic Development will be the main strategic partner which establishes the development and diversification agenda in Azerbaijan. In addition, support through the Statistics Programme will complement activities primarily in area of cooperation 2. See also activities 7 on taxation and 4 social security which have been identified as important elements in the economic development and diversification programme. Specific objective Balanced growth in the economy. The government will focus its activities on promoting business activity and entrepreneurship in order to generate employment and income. Introduction of international accounting standards, increased exports and the development of local market infrastructure (consulting, training, information). An additional element will be to continue the work started in previous Action Programmes for the application of International Accounting Standards among SMEs. Consideration needs to be given as to how to best deliver economic development activities in the regions and whether the markets are ready for export promotion. Application of international standards to exported goods will need to be integrated into the development process. Separation of regulation and commercial functions will remain a key concept. All efforts to increase income generation opportunities and training to new working systems should promote the participation of vulnerable groups (women, refugees, IDP) as well as carry out special activities to facilitate access to these groups to employment opportunities. This programme will be the major component of Area of Cooperation 2. In addition support through the Statistics Programme mentioned in Area of Cooperation 1 will assist the building of a functioning statistical system activities which will cross both Areas of Cooperation. The Policy Advice Programme shall complement the activities in areas of cooperation 1 and 2. Expected results Further development of the SME sector; introduction of IAS among SMEs; Development of local market infrastructure for entrepreneurship in the regions 10

11 Improved statistical service provided by the State Statistical Committee for central administration, in accordance with the work programme agreed with EUROSTAT Strengthening competitiveness of domestic business. Strengthened management capacity of local SMEs. Key domains for conditionalities, risks and assumptions. see area of cooperation Modernisation of the Tax System Phase 2 The creation of enterprises depends not only on business opportunities but also on the business climate and in particular on the taxation system. Specific objective Promoting reform of the Tax System through the development of tax bodies' capacity and improvement of the social security system through improved registration of companies The aim of the programme will be to ensure that the tax system, introduced in 2001, applies more effectively, which requires proper information support, capacity building of tax bodies, including staff training and improved taxpayer's services. Improved company registration to minimise the non-recorded share of the economy will complement these activities. The programme will continue the work started under the AP Expected results The improvement of the business climate, increase in tax collections and social insurance fees from non-registered economy ensured by the properly functioning Tax System and the improvement of registration of non-recorded activities. Increased business opportunities and improved registration of non-recorded activities Key domains for conditionalities, risks and assumptions. see above 4.3 Development of a Vocational Training Strategy and pilot application in selected region(s) Currently the system of vocational educational training does not fully take into account the needs of the market economy and the likely skills needs for a developed and diversified economy. The PRSP identifies the development of a national vocational educational strategy as a main priority. The TEMPUS programme shall complement the development of the vocational training startegy. The Management Training Programme will provide training opportunities for managers employed by SMEs and shall operate in parallel to TEMPUS. 11

12 Specific objective Development of a national vocational educational training strategy (VETS) The programme will need to analyse the needs of the economy and workforce and develop the appropriate response strategies and tools for implementation. For the VETS to be effective, it would be appropriate to pilot the strategy in key geographical regions probably associated with industrial restructuring programmes. Coordination with other donors will enable the findings and the strategy to be piloted over a wider area than would be possible with EC resources alone. All educational programmes should include a component for the promotion of equal participation of women in education and develop programmes to enhance knowledge of women in particular sectors corresponding to the needs of the employing market. The programme will focus its attention on how best to train the workforce for identified employment needs and for the needs of the market economy in general. The programme will interact with the assistance to the Ministry of Economic Development where regional diversification and business development proposals overlap with vocational training provision. Expected results Development of national VETS Pilot application of the VETS in key regions A more strategic and coherent approach to Vocational Training via the development and pilot application of a national Vocational Training Strategy in pilot regions Better match between vocational training and needs of employers Lower levels of unemployment among trainees Reduced number of unemployed. 4.4 TEMPUS TEMPUS has established a good track record in assisting the reform and development of the higher education sector. While the PRSP does not place priority in this sector, rather concentrating its attention on primary and secondary school education, higher education will provide Azerbaijan with high skilled graduates for the developing economy. Specific objective The overall aim of Tempus III is to promote the development of the higher education systems through cooperation with partners from all Member States. TEMPUS - Projects address in particular: (1) curriculum development and renewal in priority areas; (2) reform and modernisation of the structure and management of higher education institutions in view of strengthening their role in the society; (3) development of skills-related training to address specific higher and advanced level skills shortage during the economic reform, in particular through improved and extended links with industry; (4) contribution of higher education and training to citizenship and the strengthening of democracy. 12

13 Achievement of TEMPUS programme objectives. Key domains for conditionalities, risks and assumptions general for Tempus. 13

14 5 BUDGET The indicative budget for Tacis assistance during is 30.0 m. Identification of budget items to sub-items is not appropriate within an Indicative programme of this size. Priority Indicative Programme activity Indicative Allocation ( m) Priority 1 Support for institutional, legal and administrative reform Priority 2 Support to the Private Sector and assistance for Economic Development Implementation of the PCA Improved border management and combating trafficking in people (see also Customs below) Modernisation of the State Committee Customs Improved targeting of social assistance and improvement of the administrative structure of the pension security system Institutional development of the Ministry of Ecology and Natural Resources Customs, Institutional Building Partnership Programme, Key Public Institutions and Support to Civil Society & other Local Initiatives Support to encourage economic development and diversification, including support for the development of SMEs; local market infrastructure for entrepreneurship in less developed regions, further implementation of International Accounting Standards Modernisation of the Tax system Phase 2 Development of a national vocational training strategy and pilot application in selected region(s) Management Training Programme, Policy Advice Programme TEMPUS 2.00 Indicative Allocation Grand Total CONDITIONALITIES Assistance in the period of is provided on the basis of the existence of the necessary elements for the continuation of cooperation through assistance, in particular respect of democratic principles and human rights, as well as the obligations of Azerbaijan as set out in the Partnership and Co-operation Agreement. 14

15 ANNEX 1: PRSP / NPPR PRIORITY AREAS AND TACIS ASSISTANCE Priority Current Tacis assistance Proposed Tacis Other EC Programmes assistance Social Protection and Food Security Pension Programme Health (Tacis Exceptional Assistance Programme EXAP) Education Tempus Tempus + Vocational Training Strategy Refugees and IDPs EC Post conflict rehabilitation programme implementation of 1999 and 2000 budget allocations Fiscal Policy Monetary Policy and Banking See EC Tacis assistance to EBRD Investment Policy Energy Policy Tacis Regional programme INOGATE Rural development and Agriculture Food Security Programme Environmental Safety Tacis regional programme for the environment South Caucasus Regional Environmental Centre + Caspian Environment Programme Tourism Sport Culture Juridical Reform 1 EC Democracy Programme assistance to the Council of Europe Poverty Monitoring 2 Technical assistance from the Food Security Programme used to establish the PRSP participatory process Footnote: 1 Projects under the 2000/01 and 2002/03 Action Programme start in autumn PRSP secretariat to be assisted as part of the overall donor contribution to PRSP implementation under the Policy Advice Programme.. 15

16 ANNEX 2 : PROGRAMMES OF EU MEMBER STATES AND OTHER DONORS WB UNDP IMF EBRD IDB JICA USAID ADB Tacis Others Macroeconomic Stabilisation, Structural Reforms and Public Sector Reform x x x GOA Reform (current projects), incl. Public Administration Capacity Building, Restructuring of CoM, Judicial system UK (DFID) Agriculture and Irrigation x x x x x X RIF phase II (current project) IFAD EU (Food Security) Basic Urban Social Infrastructure x x Germany (KfW) Education x Tempus (on-going) UNICEF, Soros Cultural Heritage x UNESCO Health x x x x UNICEF, WHO Germany (GTZ) UNFPA Social protection/pension Poverty Alleviation x x X Social protection and Pension Reform (current project) ILO UNICEF Assistance to Refugees and IDP x x x UNCHR WFP Japan, Germany (GTZ), Int. NGOs Oil and Gas x x Inogate (on-going), USTDA Energy x x x Support to the MoFE (preparation) JBIC KfW EU/EXAP Transport x x x Min.Transport (preparation ) Traceca (on-going) Bridges (current project) Kuwait Fund Finance Privatisation/Private Sector Development x x x x x Support to the MED (preparation) IAS (current project) Capital market development (current project) SME Development (current project) Environment x x x CEP, JEP (current projects) Kura river (current project) UNDP/GEF Law and Development x x x PCA Implementation (preparation) Germany (GTZ),CE, US Chamber of Com. Gender and Development x x UNIFEM UNFPA UNICEF NGOs 16