Economic Review of Azerbaijan in Informational and analytical bulletin

Transcription

1 Economic Review of Azerbaijan in 2010 Informational and analytical bulletin Baku, April 2011

2 Economic Review of Azerbaijan in 2010 Publisher Economic Research Center (ERC) Project Manager: Gubad Ibadoglu Editor of bulletin: Galib Toghrul The new issue of informational and analytical bulletin Economic Review of Azerbaijan in 2010 has been published, where the dynamics, qualitative changes and tendencies that have taken place in the country s economy during the 2010 are analyzed. The publication has been issued in two languages (Azeri, English). Official statistical data and ERC alternative calculation serves as the initial source of information. The review consists of three thematically chapters. The first chapter considers the main macroeconomic indicators: economic growth, inflation, investments into the economy, as well as the situation in the foreign trade. The second chapter analyzes the revenue and expense in the government budget, monetary policy of the Central Bank, banking sector, insurance market, stock market and exchange rate policy. The third chapter describes the tendencies and issues in the development of industry and agricultural sector. The publication is prepared for wide range of users: employees of government agencies, business, scientific research institutes and centers, public and international organizations, embassies staff, university professors and students, other interested individuals. This bulletin is made possible by the financial support of the Government of Switzerland through the State Secretariat of Economic Affairs SECO within the framework of the project Calculation of alternative inflations level and development of models implemented by Economic Research Center (ERC). The content of this bulletin are the sole responsibility of the author(s) and do not necessarily the represent views of SECO or the Government of Switzerland. Economic Research Center Corresponding Address Economic Review of Azerbaijan in 2010 Ahmad Radjabli str.5a, apar. 82, AZ1052, Baku-Azerbaijan Phone: ; Fax: Web: office@erc-az.org The bulletin of Economic Review of Azerbaijan in 2010 is a publication of Economic Research Center and issue four a year since 2010 Copyright Economic Research Center 2

3 Contents Economic Review of Azerbaijan in MACROECONOMIC INDICATORS Gross Domestic Product Investment İnflation Foreign trade FINANCIAL SECTOR Consolidated budget Monetary Policy Banking System Exchange rate policy Insurance Market Stock and Bond Market SECTORS AND INDUSTRIES OF ECONOMY Industry Agriculture...33 Abbreviations AIOC...Azerbaijan International Operating Company AMF...Azerbaijan Morgage Foundation BSE...Baku Stock Exchange BTC...Baku-Tbilisi-Ceyhan CBA...Central Bank of Azerbaijan CIS...Commonwealth of Independent States CPI...Consumer price index ERC...Economic Research Center EU...European Union FDI...Foreign Direct Investment GDP...Gross Domestic Product NBCI...Non-bank Credit Institution NEER...Nominal Effective Exchange Rate REER...Real Effective Exchange Rate SCCAR...State Customs Committee of Azerbaijan Republic SOCAR...State Oil Company of Azerbaijan Republic SOFAZ...State Oil Fund of the Republic of Azerbaijan SSC...State Statistical Committee CURRENCY EQUIVALENTS (Exchange Rate Effective, December 30, 2010) Currency Unit = New Azeri Manat (AZN) AZN 1.00 = US$ US$ 1.00 = AZN Fiscal Year 01 January December 31 3

4 Tables Table 1. Consumer price index, in % (SSC)...10 Table 2. Consumer price index, in % (ERC)...10 Table 3. Food, non-food and services inflation (SSC)...11 Table 4. Food, non-food and services inflation (ERC)...11 Table 5. Structure of industrial production by economic types of activity...30 Table 6. Production of plant-growing products...33 Table 7. Production of main cattle breeding products thousand tonnes...34 Figures Figure 1. Rate of growth of real and nominal GDP...6 Figure 2. The GDP sector in 2010 (in billion AZN)...7 Figure 3. Investment expenditures, mln. AZN...8 Figure 4. Growth of non-oil investments, %...8 Figure 5. Funding of the investment expenditures, 2010 (in billion AZN)...8 Figure 6. Funding of the investment expenditures, 2009 (in billion AZN)...8 Figure 7. Inflation forecast for Figure 8. Exports and Imports, mln. AZN...13 Figure 9. Structure of exports...13 Figure 10. The share of import by sector...14 Figure 11. The share of import by trade partners...14 Figure 12. The share of export by trade partners...14 Figure 13. SOCAR tax payments, mln. AZN...16 Figure 14. SOFAZ transfers, mln. AZN...16 Figure 15. Budget Revenues, mln. AZN...17 Figure 16. Budget Expenses, mln. AZN...17 Figure 17. Budget Expenditures, mln. AZN...18 Figure 18. Monetary Aggregates, mln. AZN...19 Figure 19. Interest Rates...19 Figure 20. Change in M0 and Reserves...20 Figure 21. Change in Deposits, mln. AZN...20 Figure 22. Capital structure of the banking sector...21 Figure 23. Deposit and credit interest rates in Figure 24. Credit/deposit ratio in Figure 25. Credit portfolio and credit-to-asset ratio...22 Figure 26. Consolidated income of the banking sector...22 Figure 27. Central Bank intervention, mln. USD...24 Figure 28. Non-oil sector NEER and REER (2000 december = 100)...24 Figure 29. Insurance premiums and claims in Figure 30. Volume of placements, 2010 (mln. manat)...27 Figure 31. Corporate Bonds Market (mln. manat)...27 Figure 32. Stock Market (mln. manat)...27 Figure 33. Growth rates in agricultural sector

5 MACROECONOMIC INDICATORS 5

6 Gross Domestic Product In 2010, the volume of gross domestic product (GDP) increased by 5,0% when compared to the corresponding figure of the last year and reached 41,6 billion manat. The weight of the industrial fields in the gross domestic product increased from 62,4% in the last year to 65,5% and the share of services sector decreased from 29,7% to 27,4%. The net taxes imposed on the products and importation consisted of 7,1% of the gross domestic product. The per capita GDP increased 3,7% in 2010 and reached to 4653,3 manat or 5797,8 USD. The main positive development in GDP growth figures is the fact that the growth rate in the trade sector surpassed the growth rate in the non-trade sector: the weight of industrial areas in the gross domestic product increased from the last year s level of 62,4% to 65,5% and the share of the service sector correspondingly decreased from 29,7% to 27,4%. The net taxes on the goods and importation consisted of 7,1 % of the gross domestic product. The second tendency is that first time after the start of the operation of BTC pipeline the oil sector was not able to be the locomotive for the general economic growth as in the previous years. In 2010, the non-oil sector demonstrated increasing growth rate: within the aforementioned year, we have observed the growth rate of the non-oil sector was 7,9% in against the oil sector s growth rate of1.8%. In this period, the earned value in non-oil areas increased by 5,9%, in the construction complex 20,3% and in the service fields 7,2%. As the figures reveal, the economy showed a mild revival in the construction sector, which was lagging Figure 1. Rate of growth of real and nominal GDP % 40% 35% % 25.0% 10.8% 9.3% 5.0% 3.8% 30% 25 % 20% 15% 10% 5% % GDP volume, thousand AZN GDP growth rate, in percent Source: State Statistics Committee 6

7 behind rest of the sectors in previous years. The most rapid growth rate in the construction was taken place in the last year thanks to the state investments. The government decided to increase the investment expenditure aiming to stimulate the aggregate demand. The growth rate in the information communication technologies sector of Azerbaijan during 2010 was 35,5%, in the telecommunication sector 32,8%, in the post sector 29,2 %. The detailed information can be found in the report of the Ministry of Communication and Information Technologies concerning the results for In 2010, the growth rate in non-oil sector was recorded as 7.9% against the background of the growth rate of oil sector that consisted of 1.8%. Only 39.4% of the nominal growth of GDP in 2010 fell to the share of GDP. In this period, the surplus value in the non-oil fields of economy increased by 5.9%, in the construction complex by 20.3% and in the service area by 7.2%. Within 2010, the earned value in the industry was in the amount of 21.9 billion manat, or up to 52.6% of the gross domestic product, in the agriculture, forestry and fishery 2.2. billion manat (correspondingly 5.4%), in construction 3,1 billion manat (7.5%), in the transport and depot 2.5 billion manat (6.0%), in the information and communication services 788,4 million manat (1.9%), in whole and retail trade, in services of cars and cycles million manat (1/0%), in social and other service fields 4.9 billion manat (11.9%). The weight of non-petroleum export of Azerbaijan in GDP increased from 5% in 2001 and reached 10% in However, these indices decreased during The previous growth was occurred mainly owing to the export of foodstuff and agricultural products. During the gross domestic product of Azerbaijan encompassing non-oil sector has demonstrated the growth rate of 12.6% at the expenses of the fiscal incentive. Oil product related composition of the export is still higher. And the country s foreign trade black ink was increasing in So, the sales turnover of Azerbaijan was in the amount of 27,9 billion USD in 2010, at the same time, the volume of exports in this structure was in the amount of 21,3 billion USD and the import volume 6,59 billion USD. Within the year, the exportation was increased in 45% and importation Figure 2. The GDP sector in 2010 (in billion manats) industry social and other services 4.9 hotels and public cathering services 0.43 whole and retail trade, in services of cars and cycles construction 3.1 agriculture, forestry and fishery 2.2 Source: State Statistics Committee 3.1 information and communication services 0.79 transport and depot ,78%. Azerbaijan had commercial relations with 147 countries of the world. 93,9% of the export of Azerbaijan was composed of oil and oil products, including natural gas. The share of the state sector in export trade was 94, 65% (20,1 billion USD), in import trade 29% (1,0 billion USD). In 2010, the capacity of the declared export trade of Azerbaijan was 31 million 860 thousand 476,8 ton, the revenues received from the delivery 18 billion 453 million 204,9 thousand USD. Using these figures as the base, the average annual export price of Azerbaijan oil within the last year was 78,2 USD per a barrel. The last year, this figure was 62,1 USD. It is to be noted that in 2010 the share of crude oil in the general export of Azerbaijan was 86,53%. As examples to the goods, increasing with high rate in exportation may be provided as the crude oil, white sugar, tea and vegetable oil. As per the official information, in Azerbaijan the prices for exported goods are increasing with higher rate than those determined for imported goods. So, in comparison with the adequate period of 2009, the export goods were scores an advance in 16,7% and the imported goods 2,8% within January-November

8 İnvestments In 2010, the investment expenditures surpassed the pre-crisis figure million AZN (in 2008) and reached million. Gross investment expenditures increased by 21.2% and constituted 23.3% of GDP. In addition, FDI went up by 41% whereas domestic investment increased by 20%. The per capita investment expenditures reached 930$ in the previous year whereas private non-oil investments went up by 36% and reached 410$ per capita. The volume of investments in the oil sector reached 2948 million manat when compared to the previous year figure of million AZN and hence, constituting 30% of overall investment expenditures. The nonoil sector investment expenses exceeded the pre-crisis figure of million AZN by 499 million manat or constituted 70% of overall investment expenditures. Though non-oil investment expenditures reduced by 14% in 2009, its volume went up by about 15% Figure 3. Investment expenditures, mln AZN Figure 4. Growth of non-oil investments, % non-oil oil Private non-oil Non-oil investments investments Figure 5. Funding of the investment expenditures, 2010 (in billion AZN) Figure 6. Funding of the investment expenditures, 2009 (in billion AZN) internal resources budget resources of firms bank credits private funds of househollds others Source: State Statistics Committee internal resources of firms bank credits others budget resources private funds of househollds 8

9 whereas private non-oil investment expenses increased by 36% in However, 55% of overall non-oil investment expenditures were financed by budget expenses whereas remaining by private expenditures. When the structure of the funding of the investment expenditures is concerned, internal resources kept its primary importance and almost 51% of investment expenses were financed by the sole resources of firms and companies. In the second place came the budget resources, whereas contribution of bank credits was relatively small. The trivial role played by financial markets in the funding of investment expenditures once more reveals the reasons of underdevelopment of financial markets which in general result from lack of large investment opportunities in the real sector. This may also be related to the high concentration in the market and widespread of conglomerations in the economy. The investment expenditures, though covered the short-term horizon, were generally channeled to the services sector. The growth rates of investment expenditures in construction, machine and equipment, chemistry and agricultural sectors were relatively high. 9

10 Inflation According to the official calculations of the Azerbaijan State Statistics Committee (SSC), the inflation was at 5.7 percent in Alternative calculations of the Economic Research Centre (ERC), which is an independent research centre, proved that the inflation is even higher. According to its calculation the inflation was 11,45 percent in last year. According to the other calculations of the ERC the results of the statistical observations show that, the consumer prices increased 2.09% during the month. Prices increased by 2.83% in Baku, by 1.36% in the regions. There was a 11.45% inflation during the 12 month of last year in the country. The indices on prices, aggregate tariffs and groups for this period have been registered as Table 1 and Table 2. Similarity between SSC and ERC is that the growth rate of Azerbaijan foodstuffs inflation gets ahead of the general inflation rate. High rate of foodstuff inflation is indicated in the calculations of both organizations, except So, according to the calculations of the SSC, though there was at 5,7 percent inflation (consumer price index- CPI) and the calculations of the ERC shows that 11,45 percent in the country in The inflation rate in Azerbaijan for the year of 2011 (5%) is predicted more than that of 2010 year inflation rate (3%) in the official forecasts. Estimations show that, the official inflation forecasts in Azerbaijan do not prove true. So, actual inflation rate in 2010 was 2 times higher than the official forecasted (3%) and the current inflation rate was close to the ERC s forecasting figures (8.3%). According to the forecast of the ERC, the inflation rate is expected to be 11,2 percent in 2011 year. Despite the fact that calculations of the SSC and ERC are held according to the same methodology, they enable us to compare between these indexes, the difference between them shows that, the SSC is interested in showing the inflation rate lower to emphasize the macro-financial stability in the country. Thus, experts, business structures and international organizations mostly refer to in- Table 1. Consumer price index (in, %) Months Monthly, % Source: State Statistics Committee Source: Economic Research Centre From the beginning of the year to a relevant period of previous year, % January February March April May June July August September October November December Table 2. Consumer price index (in, %) From the beginning of the year to Months Monthly, % a relevant period of previous year, % January February March April May June July August September October November December

11 Table 3. Food, non-food and services inflation Months Food products Non-food products Services Monthly, % From the beginning of the year to a relevant period of previous year, % Monthly, % From the beginning of the year to a relevant period of previous year, % Monthly, % From the beginning of the year to a relevant period of previous year, % January February March April May June July August September October November December Source: State Statistics Committee Table 4. Food, non-food and services inflation December / November 2010 December 2010 / December 2009 January-December 2010/ January-December 2009 Food, non-food products & services in total +2,09 +11,45 +6,82 Food-stuffs, products, beverages & tobacco +3,49 +20,25 +10,01 Non-food stuffs +0,58 +2,01 +0,12 Services +0,29 +1,20 +7,05 Source: Economic Research Centre dependent calculations, the alternative estimations of ERC, when discussing the inflation rate in Azerbaijan. But here we should not forget one point. According to the method used by the SSC; the inflation rate in the country is calculated on the basis of services and products basket which contain 585 items. In fact, this serves to distort the current truth, because, products and services used by the population of the country do not exceed 100 items. So that; ERC has conducted a survey among 3000 households, preparing the basket of 100 most frequently used products and services 11

12 Figure 7. Inflation forecast for % 1.5% 1.6% 1.2% 1.4% 1.5% 0.9% 1.0% 0.5% 0.2% -0.3% -0.1% Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Source: Economic Research Centre (63 of them are the most used products) and began to calculate the inflation rate according to that basket. These calculations are held in the on-line family inflation calculator, too. The calculations of the family inflation calculator shows that, the inflation of 100 mostly used products was at 14,1 percent in January, 2011, compared to January, Baku is becoming the most expensive city of the CIS lately. According to the rating table of ECA International Consulting Company, Baku is the 29th most expensive city of the world, moving 20 steps up on the "list of most expensive cities" in comparison with its previous position. According to the estimations, Baku is more expensive city than New-York, London, Istanbul, Vienna, Brussels, and Berlin. It is noteworthy that when the rating was compiled, analytics took into consideration main expenditures spent on food, alcohol, cigarette, technique and petrol. 12

13 Foreign trade In 2010, the volume of trade reached million USD which is 31.1% more than the same figure of the previous year. The volume of the export constituted million USD or 45.5% more whereas the volume of import reached million USD or 7.8% more than the same indicator of the previous year. Raw oil covered the largest share (86.5%) in the com- Figure 8. Exports and Imports, mln. AZN position of the export which was 153.9% more relative to 2009, processed petrol and chemical materials constituted 6.02% and 0.22% respectively. Overall, the oil related commodities dominated the structure of exports (92.5%) whereas the remaining was produced by non-oil sector. Therefore, the trade surplus of was generated over the course of the year Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec export import Figure 9. Structure of exports 86.53% 6.02% 0.54% 5.07% 0.73% 0.88% 0.22% Raw oil Processed oil materials Chemical industry materials Bright and black metals Fruit and vegetables Others Plant and animal fats Source: State Statistics Committee 13

14 However, non-oil trade deficit, which is calculated as the difference between non-oil exports and imports, turned out to be million USD which was approximately 80% of the Central Bank reserves or 17% of the strategic reserves. The raw oil, white sugar, tea and vegetable oil might be given as examples of goods with increasing share in exports. The share of government sector in export transactions was 94.65% ( million USD), private sector constituted 4.71% ( million USD) whereas remaining portion was accounted by physical persons. The machine and electric equipments, electro-technical equipments and their spare parts constituted 28.8%, food products were 14.6%, means of transportation and their spare parts were 12.1%, black and bright metals formed 11.9% in the structure of imports. The 28.9% ( million USD) of overall imports were undertaken by the government sector, 65.9% ( million USD) by private sector and the remaining by physical persons. The grain, unprocessed sugar and metal pipes might be given as examples of goods with increasing share in the structure of imports. EU countries received large portion of overall exports whereas CIS and neighbor countries enjoyed large share of imports to Azerbaijan. According to the official statistics released by State Statistics Committee, the rates of increase in export prices are higher than those of imports. That is, the prices of exports rose by 16.7% whereas import prices went up by 2.8% which led to the improvement in terms-of-trade. Figure 10. The share of import by sector 26.19% 28.83% machines and electrical equipments black and bright metals means of transportation 2.49% 2.31% 0.76% 14.63% 12.07% 11.93% food products consumption goods furniture and its parts pharmaceutical goods 0.78% wood-derived materials others Figure 11. The share of import by trade partners, % Figure 12. The share of export by trade partners, % İtaly France Others İsrail US Ukraine Croatia İndonesia Russia Malaysia Singapure Russia Turkey Germany China Ukraine UK Kazakhstan US Singapure Others Brazil Source: State Statistics Committee 14

15 FINANCIAL SECTOR 15

16 Consolidated Budget In 2010, the revenues of the consolidated budget increased by 4.9 billion manat with respect to the previous year and constituted 19.3 billion manat which was 25.2% more than the projected amount. Accordingly, the expenses of the budget formed 13.5 billion manat or were 5.3% less than the planned amount which was 1.3 billion manat more than the respective figure of the previous year. Consequently, the actual surplus turned out to be 5.8 billion manat or 43% of the overall expenditures in contrast to the projected 1.2 billion manat. The revenues of the state budget were 11.4 billion manat or 1.1 billion manat more than the respective indicator of the previous year. Although the amount of State Oil Fund (SOFAZ) transfers to the state budget was planned to be million manat, the actual transfer figure exceeded that amount by one billion or reached million manat in In the third quarter, SOFAZ transfers constituted million manat to the state budget whereas 2,290 million manat was transferred to the budget only in the last quarter. In addition, throughout the year SOCAR s tax payment went up from 848 million manat in the end of third quarter and reached to million AZN. For January-December period of 2010, SOFAZ and SOCAR transfers/tax payments reached million manat or constituted 63% of the overall budget revenues. Moreover, non-oil sector revenues reached million manat whereas annual custom revenues were million manat. This is again an evidence of considerable dependence on oil sector and decreasing participation of non-oil sector in the generation of budget revenues. In turn, the expenditure of the state budget reached to 11.8 billion manat which was 1.3 billion manat more than the same figure of the previous year. Over the course of the year, the current expenses of the budget rose from million AZN in the third quarter to AZN. Investment expenditures from state budget increased to 4.1 billion manat which was 16.3% more than capital expenditures of the previous Figure 13. SOCAR tax payments, mln. AZN Figure 14. SOFAZ transfers, mln. AZN Source: State Statistics Committee I Q II Q III Q IV Q I Q II Q III Q IV Q year. However, current expenses increased 9.8% in the structure of overall expenses and respectively, investment expenses, as well, went up by 16.2% when compared to the previous year. Budget expenditures surpassed fiscal revenues by about 366 million AZN which implied 3.2% fiscal surplus. However, non-oil fiscal deficit which was calculated on the basis of fiscal expenditures and non-oil revenues composed million AZN or 39% of overall expenses. Even deducting investment expen- 16

17 Figure 15. Budget Revenues, mln. AZN Overall revenues Oil revenues Non-oil revenues Figure 16. Budget Expenses, mln. AZN Overall expenses Current expenses Capital expenses Source: State Statistics Committee ditures from the composition of overall expenses did not help non-oil revenues to cover the current expenses of the budget which encompassed salaries, wages, social transfers, etc. As it is obvious from the above graphs, the dependence on oil revenues is becoming more apparent over time. That is, it is clear that the expansion of the budget expenditures due to investment expenses or even current size of the budget is not sustainable in the medium term. This situation will pose serious problems for the government given the political constraint or lack of political will against reduction in the size of the budget. The second problem that causes negative impacts on the macroeconomic performance of the economy and dampens the effects of stabilization efforts is the design and implementation of the government expenditure policy. Fiscal authority demonstrates unwillingness to smooth out its expenditures over the mid-term even throughout the year. Rough examination of the previous years fiscal expenditure policy reveals the illplanned nature of it, which led to the unwanted fluctuations in the money supply due to its financing from oil revenues. Fiscal policy is proved to be procyclical which has exacerbated the business cycles and forced 17

18 monetary policy to demonstrate procyclical behavior as well. Then, macroeconomic coordination between monetary and fiscal authorities will enhance the effects of stabilization efforts and reduce the effects of disturbances to the money supply. In 2011, the state budget has been prepared on the projection that income part would make up million manat where expenses would constitute million manat and the budget deficit was expected to be 687 million manat. The 2011 budget is based on the oil price of $60 per barrel. The amount of State Oil Fund (SOFAZ) transfers to the state budget is planned to be million manat. Considering the increasing trend in oil prices the SOCAR tax payments are not expected to be less than the previous year figure. Therefore, SOFAZ and SOCAR transfers/tax payments are expected to reach 8 billion manat or constitute 66% of the overall budget revenues. The government plans to spend million manat on capital investments which is 22% less than the previous year figure. Rising current expenses and high dependence on oil revenues show that the fiscal authority is not inclined to narrow down non-oil fiscal deficit which gives way to concerns on the sustainability of the state budget. If lower GDP growth projection of 2011 is considered, the non-oil tax base is expected to shrink and hence, its contribution to diminish during the course of The sustainability of real growth performance of the economy and the budget is possible only if the non-oil sector becomes a locomotive of the economy in the mid-term. This, in turn, requires fundamental institutional reforms and substantial investments. Figure 17. Budget Expenditures, mln. AZN jan feb mar apr may jun jul aug sep oct nov dec Source: State Statistics Committee 18

19 Monetary Policy In its monetary policy guidelines for 2010, CBAR underlined the importance of achieving several goals - ensuring low inflation and stability of exchange rate, preserving and deepening the stability of financial sector, meeting the demand for money. Over the course of the year, the official 3% annual inflation forecast turned out to be very optimistic. The excessive fiscal expansion in the election year, rising international commodity prices, decline in agricultural production due to floods and positive external developments signaled increasing pressure on inflation towards the end of the year. Although single digit annual inflation figures (officially, 5.7% period average, 7.9% cumulative annual inflation) were interpreted as acceptable by the authorities, alternative inflation calculation indicated much gloomier situation. According to the ERC calculations, annual inflation was recorded as 11.5% though food prices went Figure 18. Monetary Aggregates, mln. AZN up by more than 20%. If the fact that the lower-income classes are more sensitive to food prices is considered, then adverse welfare effects of increasing inflation are becoming more apparent. In the first half, CBAR did not go for modifications on the parameters of its monetary policy instruments and continued its crisis accommodating ease monetary policy by keeping the 2% refinancing rate, the 7% upper limit and 1% lower limit of interest corridor and required reserve ratio unchanged. According to the CBAR statement, taking into account positive developments in the domestic demand, inflation factors and balance-of-payments (BOP) it made a decision to rise refinancing rate from 2% to 3% as well as to impose 0.5% required reserve on international liabilities in order to accommodate the effects of external factors to the money supply in November of CBAR interpreted these measures as moving from ease monetary policy in the direction of neutral one. Therefore, it seems that CBAR started to tighten monetary policy to accommodate inflationary pressures resulting from various sources. Though rising international food prices were considered as temporary supply shocks, CBAR s measures to reverse the inflationary effects might be attributed to the fact that inflation expectations were suspected to be under influence. That might be the main reason of allowing manat to strengthen before US dollar (0.65%) after a long history of peg regime in its literal sense of the word. Figure 19. Interest Rates % 16.0% 14.0% 12.0% 10.0% 6.0% 0 jan feb mar apr may jun M1 M2 M3 jul aug sep jan feb mar apr may jun jul aug sep AZN deposits USD deposits AZN credits USD credits oct nov dec Source. Central Bank of Azerbaijan Fiscal expansion and associated non-smoothed expenditure policy (30% of annual budged spending (3240 mln. manat) was undertaken in December) contributed to the volatility of money supply and CBAR was unable to control monetary expansion given the unavailability of sufficient sterilization instruments. In fact, monetary base expanded 32.8% ( mln. AZN) over the course of the year, 15.9% of which was experienced in December. Cash in circulation (M0) rose by 30.6% (1281 mln. manat) which points to accumulating reserves of banking sector 19

20 (332.2 million) at CBAR. Calculations show that the liquidity in the banking sector doubled over the year. Monetary aggregates (money supply), M2 and M3, increased by 34.5% ( mln. manat) and 24.3% ( mln manat) respectively in 2010, 1281 million manat of which was sprung from the rise in M0. Though banking sector witnessed declining foreign currency denominated deposits, the overall manat deposits in the sector increased substantially (42.5%). Throughout the year, CBAR collected mln. manat from the foreign exchange market and the largest intervention came in the second half of the year. Given the inadequate sterilization instruments, main part of this intervention is transmitted into money supply shocks. The volume of CBAR notes in the market increased from 8 million in January to 34.2 million in the end of the year whereas the average yield of notes rose from 1% to 2.08% in the last auctions. The REPO transactions constituted 5.8 million manat in the end of the year while its volume reached 812 million manat over the course of the year. The undertaken measures by CBAR point to the gradual tightening of monetary policy which was also reflected in the change of the parameters of the interest rate corridor. However, the interest rate in the banking sector remained stable though interest rate on USD credits tipped up which can be ascribed to the banks increasing concern of strengthening manat. CBAR sets achieving single digit annual inflation and precluding the volatility of it as the main target for the monetary policy in To ensure the realization of this target, it considers the determination of exchange rate by the supply and demand forces as the precondition, however, taking into account financial stability priorities, it will not tolerate severe fluctuations in the market. This statement emphasizes CBAR s gradual adoption of a new policy framework. In the midterm, CBAR intends to formulate and adopt a new monetary policy framework that will emphasize inflation as an overriding goal. Before new framework become fully operational CBAR plans to gradually pass to a flexible exchange regime, deepen interbank money market and implement other necessary institutional reforms. However, unwillingness of fiscal authority to Figure 20. Change in M0 and Reserves 445 Figure 21. Change in Deposits, mln. AZN Source. Central Bank of Azerbaijan I Q II Q III Q IV Q FX reserves AZN deposits USD deposits smooth out its expenditures and ensure stable supply of reserves to the exchange market constitutes a serious risk to the new regime. The procyclical nature of fiscal policy leads to the destabilizing monetary policy and unnecessary fluctuations in the money supply. As long as the poor macroeconomic policy coordination is unresolved, any attempt of monetary policy to stabilize the economy is destined to result in failure. In fact, given the excessive nature of fiscal expenditure policy expected rise in oil prices and projected 15-16% increase in international commodity prices will make the achievement of single digit inflation target of 2011 difficult. Without necessary reforms, monetary policy s stabilization efforts do not promise to result in the intended consequences which create real threats to the credibility of the Bank. M0 I Q II Q III Q IV Q 20

21 Banking system Economic Review of Azerbaijan in 2010 The banking sector in Azerbaijan has witnessed appreciable growth in past few years and has continued the trend despite crisis. Showing resistance to the global economic meltdown, the sector continued to record growth. As of January 01, 2011 the assets of the banking system amounted to million manat, up by million manat from the end of In the same period the volume of liabilities increased by million manat, amounting to million manat, while the authorized capital moved up only by 77 million manats, totaling million manats. The increment in assets was conditioned by the increase in the amounts of corresponding accounts of the banks as well as by the rise of the lending to private sector. The liabilities of the banking sector increased mostly due to the bank and non-bank deposits, while the equity capital remained almost unchanged. In 2010 the banks lending market has shown the signs of recovery in the course of restructuring of the funding base in favor of internal sources (deposit bases, placement of bonds on the local market), along with the normalization of the liabilities in general with respect to their maturity dates and values. In 2010, unlike in the previous year, the banking system was enjoying a significant growth. In October 2010 the growth rates of domestic credits and deposits relative to the beginning of the year were 12.45% and 20.31% respectively. With regards to liabilities, the banks operating in the country markedly increased liquidity buffers and attracted more financial resources in the domestic market thus reducing liquidity risk in 2010 compared to situation in During the period under considerations the demand deposits and term deposits in manat increased by 31.1% and 48.9% respectively. Interest rates on national and foreign currency denominated deposits demonstrated the reverse dynamics after the period of November The drop in the interest rate on manat credits was associated with modest decline in the volume of those credits. In contrast, the slump in the foreign currency denominated credits was accompanied by the steady increase in the interest rate. During 2010 they remained stable on average. The latter partly reflects the fact that the significant portion of the bank credits was made available through Figure 22. Capital structure of the banking sector Q IV, 2009 Q III, 2010 Q IV, 2010 Total assets Domestic credits Deposits Reserves Figure 23. Deposit and credit interest rates in % 16.5% 15.0% 13.5% 12.0% 10.5% 9.0% 7.5% 6.0% jan feb mar apr may jun jul aug sep oct nov dec deposits credits Figure 24. Credit/deposit ratio in % 210% 205% 200% 195% 190% 185% 180% 175% 170% jan feb mar apr may jun jul aug sep oct nov dec credit/deposit ratio Source. Central Bank of Azerbaijan 21

22 borrowing from overseas. This feature of the banking sector can be easily pinpointed by examining the credit/deposit ratio over time. In 2009 as well, banks continued to cut off the share of their short-term loans in the structure of their credit portfolio. When currency structure of the credits, which is also one of the indicators of dollarization in the economy, are concerned, foreign currency denominated credits comprised more than 40% of the credits. This trend was observed through 2010 as well. The credit-deposit ratio remained stable during the past year at the level of 186.2%. The decision of the CB to lower the refinancing rate down to 2% enabled the banks to refinance the amounts due. CB s claims on banks increased 31% times in the past year from mln to mln. manats, while bank s foreign liabilities increased only mln manats. In comparison with the last year bank credits increased for mln. manat or 8.9% and constituted mln. manats mln. manat of credit investments fell to the share of past-due loans. On 1st January of million manat (25.9%) of credits were short-term credits, million manat Figure 25. Credit portfolio and credit-to-asset ratio Q4, 2009 Q1, 2010 credit portfolio, mln. manat Q2, 2010 Q3, 2010 Q4, 2010 credits/assets % (right scale) Source. Central Bank of Azerbaijan 74% 73% 72% 71% 70% 69% 68% 67% 66% 65% (74.1%) long-term credits million manat of short-term credits or 10.2%, million manat or 4.2% of long-term credits are past-due loans. There were invested credits into economy by state bank million manat (42.6%), by private banks million manat (55.3%), by non-bank credits organizations million manat (2.1%). In 2010, profit realized by banks (before-tax) was mln. manat which is mln. manat less than that of Figure 26. Consolidated income of the banking sector (mln. AZN) Q4, 2009 Q4, 2010 Net interest profit Net non-interest profit Loan loss provisions Net profit Source. Central Bank of Azerbaijan 22

23 As a result of credit interests fall trend in the banking system net interest income of banks decreased 11.5% in comparison with the respective period of the last year and constituted mln. manat by the end of year. Net non-interests loss increased 16.3% and constituted mln. manat. Increase in the noninterest expenses (fees, currency operations and security trade) by more than the increase in the non-interest income dragged the profitability down. The worsening of macroeconomic conditions and the increased exposure to economic risks forced the banks to increase the loan loss provisions, which adversely affected banks profitability. The Central Bank of the Republic of Azerbaijan continued its policy aimed at maintenance of macroeconomic and financial stability in the country. The past period of 2010 was accompanied with gradual recovery of global economy, significant increase of the surplus of the balance of payments and foreign exchange reserves of the country, expansion of internal and external sources of money supply. Thus, active phase of negative effects of the global economic crisis on the national economy is in the past. Growth processes of the country economy endured within the period, and gradual expansion of fiscal and other channels of aggregate demand supported economic activity. The Management Board of the Central Bank of the Republic of Azerbaijan, taking into account the dynamics of the key macroeconomic indicators within 9 months and expectations establishes 3% refinancing rate from 1 November At the same time, in order to regulate external monetary factors of the money supply growth it is decided to implement 0.5% reserve requirement norm on foreign liabilities of the banking sector. Institutional development of the banking system continued. As of end of year, 148 credit organizations are licensed to carry out bank operations. 101 of them are NBCIs. The license of Birlikbank OJSC has been revoked at the decision of the Management Board of the Central Bank of the Republic of Azerbaijan. As at 31 January 2011, 44 banks are licensed, of them 1 is state owned, and 43 are private banks. 23 banks operate through participation of foreign capital. Foreign capital constitutes 50% 100% of the authorized capital of 7 banks, and less than 50% of the authorized capital of 14 banks. The number of local branches of foreign banks is 2. The number of operating local bank branches is of them account for state, 608 for private banks. The number of banks with local branches is 42, and the number of bank departments is 119. The number of banking structures functioning abroad is 8. Of them 5 are representative offices, 2 affiliates, and one is a branch. 23

24 Exchange rate policy Economic Review of Azerbaijan in 2010 During the past year in accordance with key directions of monetary policy declared by 2010 the Central Bank targeted its performance at maintaining reasonable level of inflation, protection of exchange rate stability, endurance of stable development in ban king-financial sector, coverage of demand of the eco nomy for money. Central Bank of the Republic of Azerbaijan continues series of measures to improve the framework of monetary and exchange rate policies. In 2010 the Central Bank provided its exchange rate policy in the environment of supply channels expansion on the foreign exchange market. The Central Bank ensured preserving the nominal rate of manat on a stable level. Therefore, the CBA made additional inflows to the foreign exchange market in the country, and the volumes of intervention amounted to mln. manat. In 2010, the nominal rate of Azerbaijani national currency to the U.S. dollar strengthened by 0.6 percent. As of early 2010, the dollar rate compared to manat was manat, and on Dec. 31, 2009, it was manat. The dollar rates falling value on world currency market has an effect on the transmission mechanism of the formation rate in the country. Supply and demand are the main factors affecting the formation rate of manatdollar in the domestic market. In 2011, the CBA exchange rate policy will also be implemented, depending on the situation inside the country and the global climate. While carrying out the exchange rate policy, special attention will be paid to the inflation processes and the competitiveness of the country. Meanwhile, CBA completely abandoned the use of dual currency (U.S. dollar-euro) basket while determining the exchange rate of manat. It moved to bilateral (manat-u.s. dollar) exchange rate from January, 2011 The CBA has realized the transition to maintain the value of manat by introducing the mechanism of twocurrency basket comprising the U.S. dollar and euro since March 11, Macroeconomic analyses demonstrate that USD-manat bilateral exchange rate target is in better harmony with the goals of Central Bank, particularly the target to affect inflation level under the current environment. This mechanism, along with being favorable from communication point of view, amplifies opportunities of the Central Bank to switch to floating exchange rate regime in a long run. Many countries are now starting to actively stimulate Figure 27. Central Bank intervention, mln. USD Figure 28. Non-oil sector NEER and REER (2000 december = 100) ,998 2, ,260 1, Jan,2009 Apr, 2009 Jul, 2009 Oct, 2009 NEER Source. Central Bank of Azerbaijan export and economic growth by reducing the value of the national currency. However, the CBA considers it incorrect to link these measures with the exchange rate policy. It is possible to contribute to these processes through the exchange rate policy, with the policy pursued by the CBA in accordance with the structure of the economy, as it aims to expand exports and economic growth. However, new situation characterized with recent further sharpening of volatility in the exchange rate of leading currencies, simultaneous undervaluation of national currencies by developing economies and priority given to financial stability have necessitated amendments to be made to the tactics of the exchange rate policy. Jan,2010 Apr, 2010 Jul, 2010 REER Oct,

25 Insurance Market The local insurance market did not develop qualitatively in But new companies came into the market. It is believed the market could be vitalized by large and renowned companies. E.g. AIG-Caspian Insurance is already called Chartis Azerbaijan, while MBASK is АХА-MBASK now. Meanwhile BE&G turned to Mega Sigorta after the company s hosts changed. The owner of an auto salon became the new patron. In fact, Auto CASCO is the main insurance direction in Azerbaijan s market. The Finance Ministry decided to increase the demand for the capitalization of insurance and reinsurance companies to AZN 5 million and AZN 10 million respectively by Several insurers already increased their capitals by October 1. E.g. Khalg Sigorta, Pasha Sigorta, International Insurance Company, and Garant Sigorta increased them to AZN 21 million, AZN 20 million, AZN 8.8 million, and AZN 8 million respectively. The collection of insurance premiums stabilized in the quarters of the year. State-run Azersigorta (the market s leader) collected AZN 24.2 million of premiums almost AZN 6 million per quarter. The leaders shortlist also included Azsigorta (AZN 15.6 million), Ateshgah (AZN 14.6 million), Pasha Sigorta (AZN 13.1 million) and Azal Sigorta (AZN 12.1 million). The entire premiums collected by Azerbaijan s insurance companies in 2010 were mln. manat. The insurance claims in 2010 were 53.8 mln. manat. During the first half of the current year the highest premiums for voluntary insurance were collected from motor vehicle insurance 36.5 mln. manat, medical insurance 23.3 mln. manat, fire and other perils insurance 22.7 mln. manat, personal accident and diseases insurance 7.4 mln. manat. In Azerbaijan, insurance companies are mainly patronized by banks related to one or another high-ranking official. E.g. International Insurance Company Figure 29. Insurance premiums and claims in life personal property compulsory Source: Ministry of Finance premiums claims 25

26 (IIC) and Khalg Sigorta entered the Top Five for two years, because The International Bank of Azerbaijan (IBA) and Khalg Bank increased their assets and injected their free funds into subsidiaries, including insurance companies. IBA is shaken by scandals now, and its shares are sold at the nominal value (AZN 0.22 each) in the best case. As for Khalg Bank, it actually stopped the financial injections. Therefore these companies positions are occupied by Pasha Sigorta and Azsigorta having very influential founders. Pasha Sigorta was established by Pasha Holding, which somehow bought 99.5% of the assets of Capital Bank. Azsigorta was established under Gilan Holding (no comments). Positive is the fact that Azerbaijani insurance companies continue their close cooperation with the world s large reinsurance companies, such as Grouрama, Lloyds of London, Munich Re, etc., whose rating is А+ from Standard & Poor s. The adoption of new laws helps increase the companies competitive ability and long-term functioning. E.g. the law on obligatory casualty insurance could help develop the insurance of life, which has not developed yet. Only one specialized life insurance company (Ateshgah Hayat) works in Azerbaijan now, while four others have received the appropriate licenses. It is expected that parallel to the improvement in the banking sector insurance market will continue to recover. However, for the sustainability of this process certain reforms should be undertaken to stimulate the life insurance segment as well as the law on compulsory insurance should be passed in the Parliament to contribute to the further growth of the market. The insurance market of Azerbaijan in the medium term can grow annually by 5-10 percent under favorable conditions. If Azerbaijan does not adopt new legislation in the field of insurance, for example, such as insurance against fire, which is very difficult because it is unrealistic to expect any new arrangements in the insurance market of the country over the next two years, the serious growth cannot be expected. The government should get rid of the burden of compensation to cover the damage caused by natural disasters, as already it is time to transfer it to insurance companies. The insurers themselves believe the insurance in Azerbaijan will develop, depending on real economic competition, monopolization of the economic life, transparency of the financial reports, the laws and the human resources. 26

27 Stock and bond market The total volume of transactions for the period of January - December 2010 for all securities traded in Baku Stock Exchange hit 2.23 billion manat, which is 32.9 percent less than the figure of the year before last, the Baku Stock Exchange reported. The government securities market decreased by 1.95 times, and hit million manat. This was affected by a significant reduction in the repo transactions in 2.33 times, although the number of transactions declined insignificantly (by 4.73 percent). During the reporting period Ministry of Finance continued to issue short-term bills and these securities were placed in the market successfully. The volume of T-bills placement constituted million manat, 71.4% of which took place in the last two quarters. During the period the market capitalization of T-bills decreased 31.1% (or million manat) down to million manat. The yield and coupon rate for these securities was around 0.7% - 4.5%. The Central Bank notes and the yields of the Central Bank notes remained at 1% level. Therefore, low yield of issued securities and prevalence of security holders preferring held-to maturity strategy caused low activity in financial markets. The volume of replaced notes during the period under consideration was mln manat, which is 63.7 mln manat less in comparison to that in Repo transactions are provided for portfolio investors, mainly banks and other financial institutions to solve their problems with short-term liquidity. But, now the central bank uses repurchase operations with the purpose of efficient management of money in circulation, and therefore the activity of the treatment notes of the CBA on the stock market is high. In the first three quarters of the current year there was observed an activity in the corporate securities market. The corporate securities market increased by two times and hit million manat. The increase in transactions with corporate securities is observed due to the increased volume of transactions with bonds at 2.3 times, while the number of transactions grew by 1.7 times up to 214. Stock market increased by 37 percent in The corporate debt instruments market increased by 2,5 times. The IMF technical assistance played an important role in providing liquidity on the secondary market. The Azerbaijani State Securities Committee plans Figure 30. Volume of placements, 2010 (mln. manat) T-bills CBA notes REPO Figure 31. Corporate Bonds Market (mln. manat) 200% 150% 100% 50% IPO Figure 32. Stock Market (mln. manat) IPO Source: State Commitee for Securities Secondary market Secondary market 27

28 to offer in 2011 the market new market instruments, including the conduct of repo transactions with investment securities and secured mortgage bonds. So far, repo and reverse repo transactions were carried out with notes of the Central Bank of Azerbaijan (CBA), but under the new rules, the securities market participants will be able to conduct repo transactions among themselves on stocks and bonds. In the first three quarters of the current year there was observed an activity in the corporate securities market. The corporate securities market increased by two times and hit million manat. The increase in transactions with corporate securities is observed due to the increased volume of transactions with bonds at 2.3 times, while the number of transactions grew by 1.7 times up to 214. Currently, the Baku Stock Exchange (BSE) develops corresponding trading platform and special arrangements for trade to carry out these operations. Work is completed on a legal basis and the rules of holding repo transactions with investment securities have been submitted for approval to the Justice Ministry. Regarding the second instrument -- a secured mortgage bonds, there was developed a legal framework -- the draft law "On mortgage bonds", whose adoption is possible at the next session of Parliament. Unlike the mortgage bonds issued today, this is more structured tool that puts certain requirements to fulfill the obligations of risk management. To date, the Azerbaijan Mortgage Fund (AMF) under the CBA had issued three issues of mortgage bonds. The first issue of 55 million manat was posted in 2009; the second issue of 75 million manat is placed at 68 million. In November, 2010 the State Committee registered the new issue of mortgage bonds on 60 million manat. 28

29 SECTORS AND INDUSTRIES OF ECONOMY 29

30 Industry The volume of goods and services produced by the market participants of the national industry 2,6% increased in 2010 when compared with 2009 and reached the amount of 27,4 billion manat. There was observed an increase in mining engineering and processing fields of industry, including in main sectors of these areas, in production of foodstuff, petroleum and chemical, metallurgical, polygraph, car, electric, machine and equipment and other goods. The production output in the private sector comprised 81,4 % of the industrial goods, 93,1 % of the total production fell on the share of industrial goods and 6,9 on the share of services of industrial nature. The production of commodities of the non-oil sector increased more or 6,6%, amounting to 5,0 billion manat. 75,8% of industrial goods was produced in the mining, 19,1% in processing, 4,5% in the supply with electric power, gas, steam and conditioned air, 0,6% in water supply and removal of waste water and garbage sectors. The production output in mining sector, amounting to 20,8 billion manat exceeded the level determined in the last year in 1,1%. The output of crude oil, considered a main product of Table 5. Structure of industrial production by economic types of activity Indicators Output of goods and servi - ces, in absolutive prices Beginning of reporting period The same period in previous year By industy, total including: Beginning of reporting period The same period in previous year Total state non-state Extraction industry state non-state Manufacturing industry state non-state Electricity, gas, steam and air condutioning supply state non-state Water collection, treatment and supply state non-state Source: State Statistics Committee 30

31 the industry increased 0,9% and reached the amount of 50,8 million manat and the output of gas increased 11,2% and reached the level of 26,2 billion m3. The machine and equipment manufacturing increased 1,9% and the automobile manufacture in 48,6 times. In 2010, there were manufactured 706 pieces of the field engine of the mark Belarus, 486 pieces of motor car of the mark Lifan and 767 pieces of motor lorry of the mark MAZ. The weight of electric energy, gas, steam and conditioned air sector in the industry increased by 4,5% and within the year there were produced goods and services in this field, in the total amount of 1,2 billion manat. The output of electric energy in the country within the mentioned year was 17,6 billion kw/hour, 18,5% of which fell on the share of hydroelectric power stations and 81,5% to thermo- power stations. The price index number for industrial commodities as of December 2010 increased 0,4% versus the last month and within a year in 28,2% versus the last year. The price index number for industrial commodities on the mining engineering field increased in 34,7% on the processing industry in 6,5% in comparison with the last year; the price index number in the field of the supply with electric energy, gas, steam and conditioned air was 99,9% and the manufacturing prices in the field of removal of water wastes did not change. The basic stock was invested in the amount of 9,7 billion manat from all financial sources in 2010 aiming at the country s social and economic development, 2/3 part of which or 6,4 billion manat was spent to the construction-building works. The volume of the fixed assets assigned towards the basic stock was more than 21,2% and towards construction-building works more than 19,8% in comparison with the last year. The financial assets spent by the state owned and non-state organizations and enterprises were correspondingly 5,8 and 3,9 billion manat. There spent financial assets to the construction of the commodity production units in the amount of 4,7 billion manat and to the construction of units of service area 5,0 billion manat. More than ¾ part of the assets assigned to the basic capital comprised the internal and 24,8% the exterior sources; 73,9% of the assets assigned from internal sources fell on the share of state owned enterprises and 26,1% on non-state enterprises. Within a year, 42,5% of the assets assigned to the basic capital was spent to the development of industrial fields, 4,6% to the agriculture, forestry and fishery, 2,4% to the trade, 24,6% to the transport and depots, 1,5% to the construction, 1,8% to the information and communication, 1,7% to the catering trade, 0,1% to the finance and insurance activity, 9,5% to the operations related to the real estate (9,3% to the dwelling construction), 3,7% to the public administration, 1,2 % to the education, 1,7% to the public health, 3,4% to the entertainment and fine arts, 0,6% to the administrative and supporting services, 0,2% to the vocational, scientific and technical activity, 0,5% to rendering of services in other fields. In 2010, the financial assets used for development of the non-oil and oil sectors comprised correspondingly 6,8 and 2,9 billion manat. The industrial units put into operation in 2010 included Oguz-Gabala water line, the facet-marble plant in Baku city, the grain elevator of 100 thousand ton in Sangachal, the automobile factory in Nakhchivan city enabling to manufacture 5 thousand motor cars in a year and the central mixing-plant in Ordubad district, Bilav hydroelectric power station in Ordubad district, the Gamigaya Stone Industrial Complex in Nakhchivan, the Nakhchivan- Sadarak motor road with the length of 87 km, the water distribution device in Nakhchivan city, the canning, Tea and ice-cream factories in Lankaran district, the milk and tobacco processing factories in Zagatala district, the salt processing factory in Absheron district, the wine production manufactory and Goytapa water basin in Jalilabad district, the canning factory in Bilasuvar district, the mineral water production manufactory in Agstafa district, the refrigerator depot complex in Salyan district, Gilan Piano factory, the refrigerating warehouse for fruits and vegetables, the building of the bus service station in Gabala district, the automated telephone station of 262,2 thousand numbers in various districts of the country, the fiver-optic main cable line of 252,5 km length, new dwelling houses with the total space of 1803,2 thousand m2, the hospital of 886 beds, local secondary schools building for pupils, the out-patient polyclinics for 685 patients, the pre-school enterprises for 1270 children, club of 1055 seats, Olympic-Sportive Complexes in Agdash, Balakan and Goychay districts, Horadiz Olympic- Sportive Complex in Fizuli district, the Medical centre and Mugham House, Kur Olympic Sportive Centre and 31

32 the Chess House in Mingachevir city, the Regional Information centre for families with poor facilities in Nakhchivan city, the Treatment and Diagnostic Centre and the Chess House in Jalilabad district, the Regional Mother and Children Centre in Bilasuvar district, Mushfigabad Sport Centre in Baku city, Dalga-Bulvar Business, Park Bulvar Trade and Entertainment centers, as well as Exhibition Centre, the hotels Ramada Plaza in Ganja city and Gubek in Balakan district, the hotels Caucasus resort and Caucasus Riverside in Gabala districts and Fitness healthy Centre. The volume of the financial assets assigned from exterior sources to the basic stock in 2010 being amounted to 2,4 billion manat exceeded the level fixed within the last year in 40,9%; 94,8% f the assigned exterior assets was deposited by investors from Great-Britain, USA, Czech Republic, Japan, Norway, Turkey, Korea and France. 32

33 Agriculture Figure 33. Growth rates in agricultural sector Plantgrowing -8.9% 6.1% Cattle breeding Source: State Statistics Committee Agriculture -2.2% The growth rates in agriculture, including in crop production within 2010 was correspondingly -2,2 and -8,9 % whereas the growth of the animal yield in cattle-breeding was 6,1 %. The output produced in 2010 in agriculture, forestry and fishery amounted to 2,2 billion manat or 5,4% of the gross domestic product. Although approximately 40% of the working population is working in the agrarian field, the sector s share in GDP is around 6% which implies that the productivity is still lower. In addition, the cereal stock, including maize gathered in 2010 was in the quantity of 2000,9 thousand ton that was lesser than 33 % of the level reached within the last year. The crude cotton gathered during the last year in quantity of 37,3 thousand ton, was increased in 17% versus 2009 and the tobacco, being in the quantity of 3,2 thousand ton, increased in 24,3%. The last year there was made a wide-space sowing of sugar-beet in 8,5 thousand ha for the processing industry that allowed to receive product of 256,5 thousand ton. The production of sugar-beet versus 2009 was increased in 33,6% or 65 thousand ton. As to the production of green tea leaves increased in 2010 by 22% and reached 545 ton. The last year, the sector gathered 953,7 thousand ton potato, 1181,1 thousand ton vegetable and the potato production versus the same period of the last year was decreased in 3,0% and the vegetable production was increased in 0,2%. The production of water-melon products increased by 5,3%, and reached 433,5 thousand ton. Table 6. Production of plant-growing products Products Collected field, 1000 ha % Gathered crop, 1000 ha Productivity, (cent/ha) Collected field, 1000 ha Gathered crop, 1000 tonn Productivity, (cent/ha) Grain (without corn) 935,1 99,7 1856,7 19,9 1091,4 2831,8 25,9 Corn 10,5 35,2 41,6 39,5 12,1 52,6 43,5 Sunflower 6,6 73,4 11,8 17,8 5,8 11,1 19,3 Tobacco x x 1,8 x x 1,3 x Potato 48,4 73,6 650,7 134,4 46,2 672,9 145,6 Vegetable 69,3 85,7 930,5 134,2 70,2 943,8 134,4 Garden 29,5 92,7 375,5 127,1 29,0 359,2 123,7 Fruit x x 248,1 x x 267,2 x Grape x x 23,2 x x 23,4 x Green tea leaves, t x x 380,2 x x 303,6 x Source: State Statistics Committee 33