AZERBAIJAN ECONOMY 1991-2016 Elchin Suleymanov Qafqaz University elsuleymanov@qu.edu.az www.qu.edu.az/en/staff_directory/staff/elsuleymanov www.researchgate.net/profile/Elchin_Suleymanov www.qafqaz.academia.edu/Elchin www.ideas.repec.org/f/psu349.html BAKU 2016

ECONOMIC INDEPENDENCE OF AZERBAIJAN ... Political Independence: 18 October 1991 Economic Independence 1. Natural Resources: - oil, natural gas - lead, zinc, cooper, iron mine, gunpowder, cobalt, marble, limestone, mineral water, salt and rock salt 2. economic and geographic conditions

ECONOMY BEFORE INDEPENDENCE Central Planning and related production No ownership right over the resources 1986 liberal economic concepts : Perestroika 1988 concepts like market, ownership, unemployment started to be discussed 1991 intellectual rights started to be recognized... 1960-70 1970-80 1981-85 1986-1990 Econ develop % 5.2 7.4 4.9 5-6

The Legacy of Pre-Independence Period Problematic economic structure Non-equal distribution of production capacity between urban and rural areas Low quality of production Foreign trade – after 1980th export was 30- 40% more than import ...?

ANALYSIS OF STAGES OF DEVELOPMENT OF ECONOMY OF AZERBAIJAN Initial Stage: Crisis Period (1991-1994) Second Stage: Search of Stability (1995-2003) Third Stage: Economic Development Period (After 2003)

Period of Economic Crisis 1991-1994

INITIAL STAGE: CRISIS PERIOD (1991-1994) PROBLEMS Lose of Existed Market Stagnation in Production Beginning of Mass Unemployment Hyperinflation Budget-Tax problems No Foreign Direct Investment ON OTHER SIDE...

GDP growth rate, in comparison of previous years

Changes in % of consumer price index (CPI) and nominal income of population

Employment Level (Labor Force/# of Employed)

Trade Balance, mln USD (Import/Export/Balance)

INITIAL STAGE: CRISIS PERIOD (1991-1994) PROBLEMS Lack of knowledge about Market Economy Problems with the Privatization Conflict with Armenia from *Budget *IDP perspective Negative effect of Chechen War Political instability Social Tensions

INTIAL STAGE : CONFLICT WITH ARMENIA ECONOMIC LOSS: 20% of territory was occupied 27 city and districts with total area of 22,7 thousand sqm 87 habitation at the occupied Garabagh region: - 7 administrative districts, 11 cities - 1.3 mln ha land under crop - total 600 thousand big and small horned cattles including 313 thousand big horned catttles - 7000 agricultural enterprises, 850 educational points, 650 medical centers, 120 thousand habitation places were abandoned -Region had more than 180 industrial companies operating in mechanical, food, electricity and other industries 300 thousand jobs were lost 24% of wheat, 41% of grape, 46% of potato, 18% of meat and 34% dairy production of country obtained from this region country lost 3 gold reserves of total 39.6 thousand tons, 4 mercury and antimony reserves

INITIAL STAGE: RESULTS 1990 in comparison with 1994 resulted in: GDP %53 Industrial Production %62 Agriculture %44 Consumption %75 Tax collection %45 decrease As a result standard of life decreased in 3.6 times, whereas real average salary (wage) decreased in 80%... * 20 September 1994 Contract of Century was signed

INITIAL STAGE: REFORMS Law on Private Property: June 1991 Price Liberalization 1992 Law on Foreign Investments April 1992 National Bank Law (AZN circ.) August 1992 Law on SME Privatization January 1993 Manat as single currency law January 1994

SEARCH OF STABILITY 1995-2003

SECOND STAGE: SEARCH OF STABILITY 1995-2003 MAIN ISSUES Self exploration of natural resources Creation of structure for liberal-democrat type of market Global and regional economic integration

SECOND STAGE: SEARCH OF STABILITY 1995-2003 IMPROVEMENTS Formalization of Market Economy Privatization Reorganization of tax and financial systems Liberalization of trade Reorganization of agriculture Legal base and 12 November of 1995 Azerbaijan announced its first Constitution Developments regarding the Contract of Century Ceasefire agreement

GDP trend, in % change from previous year

GDP per person, AZN

% Private Sector in GDP

Budget revenue, mln AZN

Budget expenses, mln AZN Trend of budget expenses (change in %)

Trade balance, mln USD (Import/Export/Balance)

SECOND STAGE: RESULTS Inflation start to decrease (1.8 at the end of 2000) Negative balance of Budget Minimized Most of small enterprises were privatized Privatization of mid and large enterprises started Most of agricultural area was privatized FDI was attracted: economic relations was established with 122 countries *Between 1994-2000 5,9 bln $ FDI was attracted to the country out of which 3,4 bln $ was directed to the oil industry 1994-2000 finance % oil industry other areas 5.9 bln $ 22.8 56.3 20.9

SECOND STAGE: RESULTS Macro economic stability was achieved Economic Development was obtained * in 5 years GDP increased in % 26,3, * private sector % in GDP increased from %29 to %68.

SECOND STAGE: REFORMS Acceptance of IMF program in 1995 Privatization of small enterprises 1995 Realization of land reform 1996 Customs Law : simplified new customs tax 1997 Law on Securities 1998 Law on employment 1999 Decision on establishment of Oil Fund 1999 Establishment of Ministry of Property 2000

THIRD STAGE: PERIOD OF ECONOMIC DEVELOPMENT (AFTER 2003) MAIN POINTS Continuation of economic development with new power Empowerment of energy sector after state privatization program Increasing the social welfare level Redirection of additional sources obtained from oil industry into the other industries

THIRD STAGE: PERIOD OF ECONOMIC DEVELOPMENT (AFTER 2003) “State Program on Poverty Reduction and Economic Development (2003-08)” In 2001 IMF accepted this program - According to the WB income of 40-50% of population is less than 1 $ - Min standard of life was at 86 dollar - Average monthly salary was 64.4 $ Azerbaijan State Program on Regions Social and Economic Development 2004-2008 - vitalization of non-oil sector - increase level of employment - increase household income and life standards - increase GDP per capita from figure of 2008 to 2011 to 7000 $ - increase private sector in economy till 85%.

MACRO ECONOMIC ANALYSIS: GDP: 1990-2005 Years Mln Manat Mln USD Change in GDP by % 1990 1.5 244.3   1991 2.7 703.1 -0.7 1992 24.1 1309.8 -22.6 1993 157.1 1326.9 -23.1 1994 1873.4 1629.3 -19.7 1995 2133.8 2415.2 -11.8 1996 2732.6 3180.8 1.3 1997 3158.3 3960.9 5.8 1998 3440.6 4446.6 10 1999 3775.1 7583.6 7.4 2000 4718.1 5272.6 11.4 2001 5315.6 5107.8 9.9 2002 6062.5 6236.1 10.6 2003 7146.5 7276.3 11.2 2004 8583.2 8680.2 10.2 2005 11875.6 12553.6 26.4

GDP (1995-2012) Years Mln Manat Mln USD GDP % Per person manat $ 1995 2133.8 2415.2 -11.8 282.1 319.3 1996 2732.6 3180.8 1.3 357.5 416.1 2000 4718.1 5272.8 11.4 595.1 665.1 2001 5315.6 5707.7 9.9 665.2 714.3 2002 6062.5 6235.9 10.6 752.9 774.4 2003 7146.5 7276 .0 11.2 880.8 896.8 2004 8530.2 8680.4 10.2 1042.0 1060.3 2005 12522.5 13238.7 26.4 1513.9 1600.4 2006 18746.2 20983.0 34,5 2241.1 2471.5 2007 28360.5 33050.3 25 2980.9 3841.9 2008 38004.2 47500.2 10,8 4471.2 5603.6 2009 34578.7 42575.7 9.3 3917.3 5018.1 2010 41 574.7 51968.3 5 4619.1 5774.2 2011 50 069.0 65951,6 0.1 5752,9 7285.0 2012 53995.0 68730,9 2.2 5884,5 7490,5 2013 57708.2 73984.6 5.8 6205.0 7995.0 2014 58 977,8 75612.5 2.8 6553.0 8400.0

GDP VOLUME, IN CURRENT PRICES, (MLN MANATS)   2000 2003 2004 2005 2010 2011 2012 2013 GDP- total 4,718.1 7,146.5 8,530.2 12,522.5 42,465.0 52,082.0 54,743.7 57,708.2 including: oil and gas industry 1,371.0 2,149.1 2,672.0 5,520.9 20,409.5 25,829.9 24,487.3 24,035.1 non-oil industry 3,055.9 4,447.6 5,242.5 6,055.1 19,179.0 23,196.1 26,864.4 29,982.8 Taxes on products and import 291.2 549.8 615.7 946.5 2,876.5 3,056.0 3,392.0 3,690.3

GDP and non-oil industry in GDP

Increase in GDP, in comparison with previous year, % 2011 : 0.1 2012 : 2.2 2013 : 5.8 2014 : 2.8 Trends non-oil industry GDP trends After 2003 oil and gas industry foster economic development, in average economic development between 2003-2010 was in average 17.8%

GDP per capita, dollar 2011 : 7285 $ 2012 : 7490 $ 2013 : 7995 $ 2011 : 7285 $ 2012 : 7490 $ 2013 : 7995 $ 2014 : 8400 $

Average monthly nominal wages (wages / % in comparison with previous year)

GDP SECTORAL DIVISION (%)

GDP STRUCTURE

GDP’s SECTORAL RATIOS (1991- 2004) Years Change in GDP (%) Industry Agriculture 1991 -7.8 -8.9 0.3 1992 -22.6 -30.4 -23.8 1993 -23.1 -19.7 -15.5 1994 -24.7 -12.8 1995 -11.8 -21,4 -7.0 1996 1.3 -6.7 3.0 1997 5.8 -6.1 1998 10 2.2 6.2 1999 7.4 3.6 7.1 2000 11.1 6.9 12.1 2001 9.9 5.1 2002 10.6 6.4 2003 11.2 6.1 5.6 2004 10.2 5.7 4.6

GDP STRUCTURE, (NON-OIL INDUSTRY / OIL INDUSTRY)

PRIVATE SECTOR IN GDP, IN %

PRODUCTION OF ECONOMIC REGIONS, Current Prices, In Thousand Manats   2006 2007 2008 2009 2010 2011 2012 Baku city 20,086,151.1 27,914,409.0 37,064,040.5 28,290,617.8 35,295,930.4 43,121,208.7 42,495,269.1 Sum by regions: 5,149,848.9 6,878,863.4 9,618,625.2 8,950,799.4 10,425,333.6 13,652,888.7 15,670,336.9 including: Absheron economic region 489,131.5 674,710.8 1,011,774.7 668,658.7 692,609.3 1,020,993.8 1,203,918.1 Ganja-Gazakh economic region 989,887.8 1,184,381.7 1,610,256.4 1,554,910.9 1,835,529.7 2,230,552.1 2,553,797.6 Shaki-Zagatala economic region 349,063.7 529,925.1 712,131.2 674,469.0 786,160.7 1,080,825.2 1,478,592.3 Lankaran economic region 464,831.3 606,538.4 756,855.1 732,656.9 836,757.1 1,009,421.9 1,122,883.5 Guba-Khachmaz economic region 427,171.7 613,910.7 1,116,571.4 851,506.9 1,104,363.3 1,310,364.5 1,319,909.9 Aran economic region 1,656,253.0 2,155,291.7 2,800,825.6 2,675,400.9 2,973,691.0 3,877,501.9 4,332,016.9 Karabakh economic region 134,301.6 227,569.1 302,621.1 221,592.0 274,002.3 306,133.8 370,300.9 Kelbejer-Lachin economic region 15,875.7 16,057.8 19,935.4 23,434.1 26,196.5 58,785.1 81,940.9 Shirvan economic region 168,387.4 240,734.1 352,698.2 388,960.2 430,440.8 463,313.4 527,459.1 Nakhchivan economic region 454,945.2 629,744.0 934,956.1 1,159,209.8 1,465,582.9 2,294,996.8 2,679,517.7

Ration of Regional Production in GDP, in %   2006 2007 2008 2009 2010 2011 2012 On country level: 100.0 Baku city 79.6 80.2 79.4 76.0 77.2 74.9 Total of regions: 20.4 19.8 20.6 24.0 22.8 25.1 including: Absheron economic region 1.9 2.0 2.2 1.8 1.6 Ganja-Gazakh economic region 3.9 3.5 4.2 4.0 4.1 Shaki-Zagatala economic region 1.3 1.4 1.7 2.4 Lankaran economic region Guba-Khachmaz economic region 2.3 2.1 Aran economic region 6.5 6.2 6.0 7.2 6.8 7.0 Karabakh economic region 0.6 0.5 Kelbejer-Lachin economic region 0.1 0.0 Shirvan economic region 0.7 0.8 1.0 0.9 Nakhchivan economic region 3.1 3.2 4.3

Role of Azerbaijan in Southern Caucasus Economy, in % Georgia, Armenia

GDP OF CIS AND GEORGIA (MLN USD)   1995 2000 2005 2010 2011 2012 2013 Azerbaijan 2,415.2 5,272.8 13,238.7 52,909.3 65,951.6 69,683.9 73,560.5 Belarus 10541.2 11,417.2 30,191.7 54,940.0 53,008.6 63,366.1 70,982.0 Armenia 1286.6 1,911.6 4,900.4 9,260.3 10,142.1 9,958.0 10,431.2 Kazakhstan 1,6645.2 18,292.4 57,123.7 148,023.1 188,050.0 203,520.6 224,414.8 Kyrgyzstan 1492.2 1,369.6 2,459.8 4,794.7 6,198.3 6,605.1 7,226.3 Moldova 1439.9 1,288.8 2,988.2 5,799.0 7,022.5 7,285.5 7,934.7 Uzbekistan 10157.2 13,725.1 14,307.5 39,315.6 45,915.2 51,114.8 56,805.2 Russia 313,685.1 259,710.1 764,136.0 1,525,314.3 1,906,890.2 2,002,522.6 2,097,903.9 Tajikistan 648.7 975.7 2,311.7 5,642.2 6,523.6 7,592.6 8,506.0 Turkmenistan 5905.1 5,022.1 17,174.0 22,148.0 29,233.0 35,164.0 … Ukraine 37,008.7 31,262.9 86,153.8 136,427.9 163,449.3 176,598.5 182,025.6 Georgia 2863.2 3,059.1 6,411.0 11,636.5 14,438.5 15,846.8 16,126.4

GDP Per Person 2000 2005 2010 2011 2012 2013 Azerbaijan 662.9 1,579.8   2000 2005 2010 2011 2012 2013 Azerbaijan 662.9 1,579.8 5,922.0 7,285.0 7,594.3 7,912.5 Belarus 1,143.1 3,124.2 5,788.9 6,207.0 6,695.1 7,498.7 Armenia 593.5 1,523.1 2,842.8 3,103.0 3,292.9 3,451.7 Kazakhstan 1,229.0 3,771.3 9,070.0 11,356.6 12,118.9 12,933.0 Kyrgyzstan 279.6 491.5 920.2 1,130.1 1,233.2 1,319.7 Moldova 354.1 831.3 1,632.0 1,971.0 2,046.0 2,229.3 Uzbekistan 556.8 546.8 1,377.1 1,565.5 1,716.6 1,878.4 Russia 1,771.6 5,324.3 10,677.8 13,338.5 13,983.9 14,618.8 Tajikistan 157.7 340.9 750.4 845.7 961.4 1,053.5 Turkmenistan 639.5 1,836.0 2,985.9 3,590.3 3,888.7 4,009.7 Ukraine 689.7 1,483.5 2,623.0 3,230.7 3,523.4 3,596.6

GDP PER PERSON RATES IN THE WORLD (2014, USD) 1 -Qatar – 88.539 2 - Luxembourg – 76.224 3 -Norway – 65.785 4 -  Iceland – 56.364 5 – Ireland – 49.533 6 – Switzerland – 49.485 7 – Denmark – 48.530 8 – USA – 44.168 9 – Sweden – 39.562 10 – Canada – 38.659 176 – Ethiopia – 170 177 – Malawi – 164 178 – Congo – 137 179 – Burundi – 126 180 – Myanmar – 83

Poverty Level 1996 2001 2002 2003 2004 2005 2006 2007 2008 2009 61 % 49 46 44.7 42.5 29.3 20.8 15.8 13.2 10 2010 2012 2014 10.9 9.1 7.6 1995 2003 2005 2006 2007 2008 2011 2012 2014 Average monthly wages $ 50 78 150 186 269 335 456 501 556

INFLATION Process of 90th CB emission effects Chechen war effect North railway closure effect Development program prepared together with IMF -1995’s tight monetary policy effect -1999 weakening of tight policy Relation between money supply & inflation Economic development and inflation?

INFLATION: 1990-2012 Years Inflation 1990 23.1 1991 206.6 1992 1012.3 1993 1229.1 1994 1763.5 1995 511.8 1996 19.9 1997 3.7 1998 -0.8 1999 -8.5 2000 1.8 2001 1.5 2002 2.8 2003 2.2 2004 6.7 2005 12.4 2006 8.3 2007 16.6 2008 21.4 2009 Years Inflation 2010 5.7 2011 7.9 2012 1.1 2013 2.4 2014 1.4

Production price index in industrial products, in %

Producer price index on industrial goods :

Food, non-food and paid services price indexes: (%)

Producers price index in agriculture, % Livestock Plant - Growing

Consumer price index on agricultural production: (%)

CONSUMER PRICE INDEX and AVERAGE NOMINAL MONTHLY SALARY CPI inf: 2009-1.5, 2010-5.7, 2011- 7.9, 2012-1.1, 2013-2.4 Aver. mon. sal. :2009-8.6, 2010- 9.1, 2011- 8.3, 2012- 9.1, 2013- 6.6

GDP DEFLATOR IN CIS AND GEORGIA (IN %)   1995 2000 2005 2008 2009 2010 2011 2012 2013 Azerbaijan 645.8 112.5 116.1 127.8 81.2 113.6 122.5 102.9 99.6 Belarus 761.0 285.3 119.0 121.2 105.7 111.1 171.2 175.4 Armenia 261.0 98.6 103.2 105.9 102.6 107.8 104.3 98.8 Kazakhstan 117.4 117.9 121.0 104.7 119.6 117.8 104.9 106.2 Kyrgyzstan 142.0 127.2 107.2 122.2 104.0 110.1 122.4 108.7 102.0 Moldova 137.0 127.3 109.3 109.2 102.2 107.9 104.5 Uzbekistan 471.0 147.3 121.4 126.8 117.2 116.5 116.6 113.3 114.1 Russia 244.0 137.7 119.3 118.0 114.2 115.9 107.5 Tajikistan 122.7 109.5 128.2 112.1 111.9 Turkmenistan 109.8 … Ukraine 516.0 123.1 124.5 128.6 113.0 113.8 114.3 108.1 103.1 Georgia 199.0 109.7 98.0 108.5 101.2 99.3

INFLATION IN THE WORLD In % 2001 2005 2006 2007 2008 2009 2010 2011   In % 2001 2005 2006 2007 2008 2009 2010 2011 2012 2013 Azerbaijan 101,5 109,6 108,3 116,7 120,8 105,7 107,9 101.1 102.4 Russia 121,5 112,7 109,7 109,0 114,1 111,7 106,9 108,4 105.1 106.8 Turkey - 110,5 108,8 110,4 106,3 108,6 106,5 108.9 107.5 Georgia 104,7 108,2 109,2 110,0 101,7 107,1 108,5 99.1 99.5 Kazakhstan 107,6 110,8 117,2 107,3 105.8 Kyrgyzstan 104,3 105,6 110,2 124,5 108,0 116,6 102.8 106.6 Ukraine 112,0 113,5 109,1 112,8 125,2 115,9 109,4 100.6 99.7 Great Britain 101,2 103,0 102,3 103,6 102,2 100,3 103.1 102.6 Hungary 103,5 103,9 106,1 104,2 104,9 105.7 101.7 Germany 101,9 101,8 102,8 100,1 101,1 102.0 101.6 Italy 102,0 100,8 101.3 Canada 102,5 102,1 102,4 102,9 100.8 101.2 China 104,8 105,9 99,3 103,3 105,5 102.5 USA 103,4 103,2 103,8 99,7 101,6 102.1 101.5 France 101,3 100.7 Switzerland 101,0 100,7 99,6 100,2 99.6 99.8 Sweden 102,7 99.9 100.4 Japan 100,0 101,4 98,6

EMPLOYMENT Independence period Migration effect ( %60 of population is active) Brain drain How to prevent brain drain ? According to WB in 2009 %18 , 2015 %7 people daily income was 1.2 USD

EMPLOYMENT Labor Force Labor Force Age: 2011-male 15-62, female 15-57;

No OF EMPOYED PEOPLE IN ECONOMY Years Employed people (in thousand) 1940 998.8 1950 1049.5 1960 1523.2 1970 1756.3 1980 2299.5 1990 3703.4 2000 3855.5 2001 3891.4 2002 3931.1 2003 3972.6 2004 4016.9 2005 4062.3 2006 4110.8 2007 4162.2 2008 4215.5 2009 4271.7 2010 4329.1 2011 4375.2 2012 4445.3 2013 4521.2

SOCIO-ECONOMIC INDICATORS OF LABOR MARKET   2000 2003 2004 2005 2008 2009 2010 2011 2012 2013 Average annual population – thousand people 8073,6 8309,2 8398,3 8500,3 8838,5 8947,3 9054,3 9173,1 9295,8 4757.8 Economic active people –thousand people 4370,2 4373,5 4365,6 4380,1 4477,7 4531,9 4587,4 4626,1 4688,4 4521.2 Number of employed/engaded in economy-thousand people 3855,5 3972,6 4016,9 4062,3 4215,5 4271,7 4329,1 4375,2 4445,3 on legal origin: government 1278,2 1180,0 1209,3 1229,8 1244,4 1149,7 1142,7 1143,2 1157,7 1169.4 non-government 2577,3 2792,6 2807,6 2832,5 2971,1 3122,0 3186,4 3232,0 3287,6 3351.8 unemployment, thousand people 514,7 400,9 348,7 317,8 262,2 260,2 258,3 250,9 243,1 236.6 official registered unemployed number of people 43739 54365 55945 56343 44481 41100 38966 38330 36791 36206 Number of people who receives social payment 2768 3111 3084 2087 2109 2721 87 1002 934 636 Number of employed female – thousand people 1839,0 1905,9 1931,6 1957,6 2042,1 2071,9 2101,7 2125,2 2153,5 2183.7 Average monthly salary of employed – AZN 44,3 77,4 99,4 123,6 274,4 298,0 331,5 364,2 398,4 425.1

Employment level (Labor Force/No of Employed)

SECTORAL DIVISION OF EMPLOYMENT (%) Years Industry Agriculture and livestock Other 1990 12.7 30.9 56.4 1995 9.8 30.8 59.4 1996 7.7 31.8 60.5 1997 6.6 29.0 64.4 1998 6.8 62.4 1999 7.0 42.3 50.7 2000 41.0 52.2 2001 39.9 53.5 2002 6.7 40.1 53.2 2003 40.0 53.3 2004 7.1 41.3 51.6 2005 7..3 42.5 51.2 2006 7.6 51.1 2007 7.8 43.4 48.8 -highest income – oil and gas industry, -lowest income – observed in health area

Government And Private PARTICIPATION In EMPLOYMENT

FOREIGN TRADE DYNAMICS Years In mln USD % Trade turnover import export balance 1991 4 002,2 1 881,2 2 121,0 239,8 - 1993 1 353,5 628,8 724,7 95,9 55,8 66,9 48,8 1994 1 430,6 777,9 652,7 -125,2 105,7 123,7 90,1 1995 1 304,9 667,7 637,2 -30,5 91,2 85,8 97,6 1996 1 591,9 960,6 631,3 -329,3 122,0 143,9 99,1 1997 1 575,7 794,4 781,3 -13,1 99,0 82,7 123,8 1998 1 682,6 1 076,5 606,1 -470,4 106,8 135,5 77,6 1999 1 965,6 1 035,9 929,7 -106,2 116,8 96,2 153,4 2000 2 917,3 1 172,1 1 745,2 573,1 148,4 113,1 187,7 2002 3 832,9 1 665,5 2 167,4 501,9 102,3 116,4 93,7 2003 5 216,6 2 626,2 2 590,4 -35,8 136,1 157,7 119,5 2004 7 131,4 3 515,9 3 615,5 99,6 136,7 133,9 139,6 2005 8 558,4 4 211,2 4 347,2 136,0 120,0 119,8 120,2 2006 11 638,9 5 266,7 6 372,2 1 105,5 125,1 146,6 2007 11 771,7 5 713,5 6 058,2 344,7 101,1 108,5 95,1 2008 54 926,0 7 170,0 47 756,0 40 586,0 466,6 125,5 788,3 2009 20 824,5 6 123,1 14 701,4 8 578,3 37,9 85,4 30,8 2010 27 960,8 6 600,6 21 360,2 14 759,6 105,0 125,3 2011 36 326,9 9 756,0 26 570,9 16 814,9 103,9 145,3 2012 39 473.1  8 444.7  31 028.4  22583.7 2013 39 702.9 9 728.6 29 974.3 20245.7 104.0 113.2 101.0 2014 36 692,1 8 112,1  28 580,0 20467.9 95,3 83,0 99,3 2014 non oil export : 1 mln 569 thousand USD

TRADE BALANCE, MLN USD GDP 2014 : 58974.8 (manat) , 75188.4 (USA dollar)

Number of Trade Partners in Foreign Trade

EXPORT AND IMPORT WITH MAIN 6 COUNTRIES

TRADE WITH CIS COUNTRIES Years Import % Export % 1991 80 94 1999 31.4 22.7 2000 32 13.5 2014 32.9 11 In 1991-1993 around 80-85% of foreign trade was conducted with CIS countries

FOREIGN TRADE WITH CIS COUNTRIES 2005 2006 2007 2008 2009 2010 2011 2012 TOTAL (thousand USD) 8 558 373,6 11 638 908,7 11 771 747,6 54 926 021,1 20 824 469,3 27 960 821,8 36 326 867,0 33 560 854,4 TOTAL CIS countries 2 100 983,5 2 693 408,4 2 598 320,5 3 417 803,0 2 964 573,1 4 034 980,5 5 477 900,0 3 630 005,0 including:   Belarus 19 294,0 22 160,4 79 290,3 94 968,9 141 928,0 119 760,4 731 310,8 79 719,4 Kazakhstan 112 511,2 232 908,0 349 888,5 490 300,6 205 771,8 338 144,3 275 589,3 393 427,4 Kyrgyzstan 3 367,7 7 507,0 3 622,3 4 927,6 5 310,1 41 547,7 22 074,7 28 917,6 Moldova 2 907,3 5 007,4 9 909,7 6 436,2 6 656,1 6 102,1 8 119,5 9 037,6 Uzbekistan 102 645,2 34 347,4 23 586,2 29 893,1 18 135,1 32 634,1 72 436,8 19 550,8 Russia 1 002 638,7 1 525 843,5 1 531 305,0 1 933 258,0 1 818 498,5 1 918 560,5 2 828 452,0 2 338 254,6 Tajikistan 79 044,7 131 186,7 52 079,3 46 102,4 8 837,1 9 437,2 15 985,6 44 149,7 Turkmenistan 516 529,4 378 532,1 53 893,5 72 561,4 63 649,8 214 596,4 56 835,2 91 629,8 Ukraine 262 045,3 355 915,9 494 745,7 739 354,8 695 786,6 1 354 197,8 1 467 096,1 625 318,1

IMPORT FROM CIS COUNTRIES 2005 2006 2007 2008 2009 2010 2011 2012 TOTAL (thousand USD) 4 211 221,8 5 266 744,0 5 713 525,3 7 169 980,9 6 123 110,5 6 600 611,6 9 755 968,7 9 652 870,6 Re-import   TOTAL on CIS countries 1 404 029,4 2 048 966,4 1 839 663,9 2 289 369,2 1 827 131,9 2 051 109,3 2 553 455,6 2 378 019,4 including: Belarus 18 119,2 20 689,3 76 966,0 89 764,1 136 757,5 112 549,9 64 540,1 68 028,3 Kazakhstan 95 345,1 127 252,0 222 294,2 200 052,1 63 617,7 293 552,9 217 307,9 340 557,1 Kyrgyzstan 1 532,5 474,6 924,1 1 342,5 751,6 1 006,5 923,4 2 240,7 Moldova 2 705,3 4 668,3 9 801,1 6 116,7 2 910,6 5 924,3 5 576,8 8 785,9 Uzbekistan 99 800,9 27 489,3 19 131,5 22 439,0 12 365,8 12 332,7 50 555,2 8 027,4 Russia 717 222,6 1 181 584,0 1 004 181,0 1 350 366,9 1 072 072,2 1 145 008,7 1 641 094,8 1 378 416,5 Tajikistan 107,7 289,4 514,6 500,3 742,9 1 256,1 2 773,5 159,6 Turkmenistan 242 945,3 369 007,2 40 294,0 51 559,0 26 172,3 13 918,4 12 913,6 32 714,2 Ukraine 226 250,8 317 512,3 465 557,6 567 228,5 511 741,3 465 559,8 557 770,3 539 089,7

EXPORT TO CIS COUNTRIES 2005 2006 2007 2008 2009 2010 2011 2012 TOTAL (thousand USD) 4 347 151,2 6 372 165,0 6 058 222,3 47 756 040,2 14 701 358,8 21 360 210,2 26 570 898,3 23 907 983,7 TOTAL ON CIS countries 696 954,1 644 441,9 758 656,6 1 128 433,8 1 137 441,2 1 983 871,2 2 924 444,4 1 251 985,6 including:   Belarus 1 174,8 1 471,1 2 324,3 5 204,8 5 170,5 7 210,5 666 770,7 11 691,1 Kazakhstan 17 166,1 105 656,0 127 594,3 290 248,5 142 154,1 44 591,4 58 281,5 52 870,3 Kyrgyzstan 1 835,2 7 032,4 2 698,2 3 585,1 4 558,5 40 541,2 21 151,3 26 676,9 Moldova 202,0 339,1 108,6 319,5 3 745,5 177,8 2 542,7 251,7 Uzbekistan 2 844,3 6 858,1 4 454,7 7 454,1 5 769,3 20 301,4 21 881,7 11 523,4 Russia 285 416,1 344 259,4 527 124,0 582 891,1 746 426,3 773 551,8 1 187 357,1 959 838,1 Tajikistan 78 937,0 130 897,3 51 564,7 45 602,2 8 094,2 8 181,1 13 212,1 43 990,1 Turkmenistan 273 584,1 9 524,9 13 599,7 21 002,2 37 477,5 200 678,0 43 921,6 58 915,6 Ukraine 35 794,5 38 403,6 29 188,1 172 126,3 184 045,3 888 638,0 909 325,7 86 228,4

FOREIGN TRADE FIGURES WITH COUNTRIES 2005 2006 2007 2008 2009 2010 2011 2012 Total 8 558 373,6 11 638 908,7 11 771 747,6 54 926 021,1 20 824 469,3 27 960 821,8 36 326 867,0 33 560 854,4 Total on CIS countries 2 100 983,5 2 693 408,4 2 598 320,5 3 417 803,0 2 964 573,1 4 034 980,5 5 477 900,0 3 630 005,0 Total on other countries 6 457 390,1 8 945 500,3 9 173 427,1 51 508 218,1 17 859 896,2 23 925 841,3 30 848 967,0 29 930 849,4 Incuding   Germany 291 137,0 412 820,4 491 858,6 804 136,7 640 949,2 616 973,9 1 368 654,9 1 744 738,6 USA 184 430,8 289 842,4 497 235,1 6 281 697,6 2 007 360,2 1 834 270,9 2 435 130,1 2 316 494,6 Bulgaria 105 410,4 21 782,3 15 877,5 211 531,7 137 104,2 149 465,7 446 318,2 623 536,8 Great Britain 389 445,2 459 362,3 414 280,2 1 311 930,4 471 610,8 309 198,8 501 594,5 822 845,4 Brasil 9 095,7 85 317,4 186 730,1 278 430,2 115 626,5 161 820,8 176 034,4 183 592,2 Czech Republic 18 418,6 25 529,2 19 876,9 21 367,5 29 421,2 38 014,5 306 581,7 609 986,1 China 273 049,7 228 883,5 288 915,9 977 802,4 615 034,3 926 469,2 667 261,1 815 625,0 Afganistan 11 679,9 32 211,2 47 583,9 81 258,0 57 603,3 69 430,3 100 221,2 119 916,4 France 528 527,8 403 341,0 362 644,5 2 455 505,0 1 468 325,8 1 992 659,1 4 645 509,6 1 961 478,6 Georgia 253 934,9 334 477,3 406 750,5 542 202,8 454 891,4 461 382,1 624 810,2 700 660,2 India 57 515,8 58 455,4 216 931,9 2 542 888,3 321 564,6 335 446,3 411 519,8 1 960 356,7 Indonesia 2 044,5 2 252,4 396 304,0 1 416 678,9 664 492,9 788 529,3 926 341,5 1 794 590,7 Irag 11 351,7 12 263,4 33 799,2 59 644,7 47 362,1 31 499,3 99 459,3 418 743,4 Iran 242 786,4 381 819,0 539 966,8 452 874,8 168 811,5 243 219,3 305 315,2 263 787,1 Israel 205 819,0 711 008,6 400 688,3 3 685 879,1 1 317 205,0 1 804 190,7 855 131,7 1 728 210,7 Switzerland 28 357,9 50 292,4 48 849,5 81 407,9 103 887,9 191 304,5 357 471,3 215 744,9 Italy 1 410 316,0 2 970 014,3 1 081 820,0 19 410 565,1 3 916 177,8 7 162 466,0 9 595 564,7 5 809 616,1 Korea 42 120,8 115 286,2 216 387,0 859 600,8 273 159,2 375 702,0 648 039,2 243 935,7 Malaysia 22 688,6 4 069,4 16 572,6 36 769,9 429 206,0 780 133,4 701 297,7 389 669,4 Singapore 507 970,5 40 141,1 17 902,9 57 609,1 10 132,1 684 770,7 16 838,1 270 136,5 Thailand 3 710,5 42 502,6 8 591,8 100 028,0 4,0 206 130,8 153 999,7 370 048,9 Taiwan 2 088,3 2 677,9 3 781,7 359 359,8 690 458,1 313 782,2 29 505,2 677 944,7 Turkey 588 960,9 773 185,0 1 680 895,5 1 433 326,1 1 014 604,2 942 336,1 1 758 204,0 2 120 430,2 Japan 70 628,8 188 338,4 295 065,1 387 480,0 146 418,4 146 468,9 175 323,7 244 072,0 Greece 100 701,4 187 351,9 145 840,9 297 498,7 185 426,0 267 088,5 216 987,4 849 039,0

IMPORT FROM COUNTRIES Countries 2005 2006 2007 2008 2009 2010 2011 2012 Total (thousand USD) 4 211 221,8 5 266 744,0 5 713 525,3 7 169 980,9 6 123 110,5 6 600 611,6 9 755 968,7 9 652 870,6 Total other countries 2 807 192,4 3 217 777,6 3 873 861,4 4 880 611,7 4 295 978,6 4 549 502,3 7 202 513,1 7 274 851,2 including:   Germany 256 335,4 403 815,7 472 127,4 598 651,1 554 201,6 607 067,6 845 291,0 779 971,3 USA 141 272,8 197 949,0 269 039,0 267 439,4 260 555,0 206 271,1 630 492,2 715 665,0 Bulgaria 4 550,7 15 474,1 10 184,4 17 090,6 8 633,4 12 929,9 35 907,6 25 975,3 UK 384 945,2 453 765,9 411 196,8 386 004,3 274 728,1 302 757,2 485 722,8 496 188,3 Brazil 9 088,7 85 288,0 117 555,2 95 721,4 115 540,8 161 634,7 175 937,9 183 275,9 China 173 812,0 222 493,1 278 812,3 478 834,4 485 160,9 587 618,7 628 250,2 631 856,1 France 121 810,5 55 837,6 103 801,8 132 837,2 142 214,3 136 135,5 608 856,9 185 834,8 Georgia 45 498,8 49 201,8 62 930,8 51 535,2 59 883,8 50 412,7 89 501,1 129 934,6 India 55 890,3 57 447,6 71 984,0 110 391,4 54 694,3 35 803,7 44 671,4 69 701,1 Indonesia 2 044,5 2 239,6 6 011,3 5 592,4 3 839,8 6 368,4 13 188,7 37 272,9 Iran 76 318,4 85 917,4 105 235,7 97 227,2 78 681,4 118 238,6 160 486,5 176 444,8 Israel 10 756,3 26 179,7 30 842,5 80 049,5 81 007,7 59 368,8 37 556,6 61 591,4 Switzerland 26 645,5 45 465,6 43 596,9 80 284,7 90 973,7 96 875,9 180 678,8 133 733,4 Sweden 72 403,0 84 367,2 13 645,4 22 613,4 118 146,7 42 730,6 85 733,0 63 679,9 Italy 94 574,0 124 606,1 140 891,5 190 557,8 127 738,4 118 312,1 254 566,4 261 622,1 Korea 41 632,3 46 932,6 91 615,9 162 786,3 124 955,9 157 316,1 203 819,1 242 803,3 Netherlands 160 435,4 90 938,1 100 736,6 80 311,7 54 854,2 46 417,1 141 173,8 150 086,1 Turkey 313 001,6 385 040,2 624 572,5 807 168,9 906 984,2 771 442,4 1 302 443,1 1 520 405,1 Japan 70 610,5 188 293,7 295 064,0 241 593,3 146 334,0 146 304,8 174 883,9 243 112,9

IMPORT STRUCTURE № Product lines 2007 2008 2009 2010 2011 2012   Total in thousand USD 5 713 525,3 7 169 980,9 6 123 110,5 6 600 611,6 9 755 968,7 9 652 870,6 including: Food & livestock 655 632,6 819 740,0 639 584,7 864 145,7 988 313,5 958 490,4 1 Beverage & tobacco 199 035,2 229 560,7 248 608,1 264 788,2 294 833,5 353 159,0 2 Non-food raw material (except oil) 150 764,9 205 434,9 105 606,1 178 237,3 264 552,3 333 852,6 3 Oil, lubricants and similar goods 143 089,1 114 019,0 64 629,6 73 639,6 83 803,7 84 712,8 4 Animal and vegetable oils, fats 45 419,3 67 959,6 66 462,4 84 976,6 80 089,8 96 745,0 5 Chemical production and other related products 425 036,6 595 211,9 499 206,9 586 350,8 862 135,8 969 645,1 6 Industrial goods classified based on materials used 1 078 277,6 1 211 687,7 1 062 857,8 1 425 096,9 1 920 829,9 2 073 265,4 7 Machinery and transport equipment 2 611 558,5 3 404 444,5 2 901 246,1 2 680 532,6 4 722 975,7 4 023 616,0 8 Different industrial products 404 548,5 517 343,9 528 190,9 434 007,2 513 974,2 748 134,4 9 Other products 163,0 4 578,7 6 717,9 8 836,7 24 460,3 11 249,9

EXPORT TO THE COUNTRIES 2005 2006 2007 2008 2009 2010 2011 2012 Total in thousand USD 4 347 151,2 6 372 165,0 6 058 222,3 47 756 040,2 14 701 358,8 21 360 210,2 26 570 898,3 23 907 983,7 Other countries total 3 650 153,6 5 721 441,6 5 299 565,7 46 627 606,4 13 563 917,6 19 376 339,0 23 646 453,9 22 655 998,1 Including   Germany 34 801,6 9 004,7 19 731,2 205 485,6 86 747,6 9 906,3 523 363,9 964 767,3 USA 43 158,0 91 893,4 228 196,1 6 014 258,2 1 746 805,2 1 627 999,8 1 804 637,7 1 600 829,6 Bulgaria 100 859,7 6 308,2 5 693,1 194 441,1 128 470,8 136 535,8 410 410,5 597 561,5 UK 4 500,0 5 596,4 3 083,4 925 926,1 196 882,7 6 441,6 15 871,7 326 657,1 Czech 786,9 44,2 373,3 1,7 1 492,0 233,7 203 903,8 511 763,1 China 99 237,7 6 390,4 10 103,6 498 968,0 129 873,4 338 850,5 39 010,9 183 768,9 Afganistan 11 678,8 32 209,6 47 579,9 81 206,6 57 580,7 69 419,5 100 194,1 119 916,4 France 406 717,3 347 503,4 258 842,7 2 322 667,8 1 326 111,5 1 856 523,6 4 036 652,6 1 775 643,8 Georgia 208 436,1 285 275,5 343 819,7 490 667,6 395 007,6 410 969,4 535 309,0 570 725,6 India 1 625,5 1 007,8 144 947,9 2 432 496,9 266 870,3 299 642,6 366 848,4 1 890 655,6 Croatia 176 909,7 3 559,4 39 863,6 542 657,4 193 740,5 787 168,9 347 710,7 330 588,8 Indonesia - 12,8 390 292,7 1 411 086,5 660 653,1 782 160,9 913 152,7 1 757 317,8 Iraq 10 371,5 11 993,6 33 799,2 59 635,8 47 233,4 31 320,1 99 096,0 418 427,1 Iran 166 468,0 295 901,6 434 731,1 355 647,6 90 130,1 124 980,7 144 828,7 87 342,3 Israel 195 062,7 684 828,9 369 845,8 3 605 829,6 1 236 197,3 1 744 821,9 817 575,1 1 666 619,3 Italy 1 315 742,0 2 845 408,2 940 928,5 19 220 007,3 3 788 439,4 7 044 153,9 9 340 999,1 5 547 994,0 Malaysia 245,7 0,3 39,9 0,4 387 557,1 740 783,8 663 989,9 370 669,2 Singapoure 123 094,4 33 968,7 9 227,5 23 730,2 5 422,5 510 877,4 887,1 250 362,3 Thailand 13,1 34 786,8 5,2 77 209,1 284,6 194 397,1 135 374,5 343 709,0 Taiwan 4,2 12,6 28,0 353 920,9 680 392,5 294 606,1 8,1 650 103,6 Turkey 275 959,3 388 144,8 1 056 323,0 626 157,2 107 620,0 170 893,7 455 761,0 600 025,1 Greece 95 673,1 181 983,0 115 060,0 290 884,3 179 745,3 255 012,6 208 123,8 833 834,5

EXPORT STRUCTURE Product lines Total in thousand USD including: № Product lines 2007 2008 2009 2010 2011 2012   Total in thousand USD 6 058 222,3 47 756 040,2 14 701 358,8 21 360 210,2 26 570 898,3 23 907 983,7 including: Food & livestock 407 581,0 408 473,7 404 438,0 415 118,7 547 722,0 617 632,8 1 Beverage & tobacco 28 402,1 22 762,1 16 568,2 21 972,2 25 034,1 29 704,9 2 Non-food raw material (except oil) 107 076,5 83 402,9 31 570,7 22 949,5 38 011,4 83 054,6 3 Oil, lubricants and similar goods 4 931 210,5 46 362 868,4 13 639 469,0 20 110 120,4 25 089 287,5 22 259 197,9 4 Animal and vegetable oils, fats 67 010,7 98 769,4 103 655,4 154 862,1 140 728,0 180 819,4 5 Chemical production and other related products 98 113,3 174 428,5 90 237,0 130 179,2 242 375,9 239 644,4 6 Industrial goods classified based on materials used 221 049,6 408 466,8 171 256,1 170 847,9 303 733,3 284 438,1 7 Machinery and transport equipment 147 357,5 174 163,2 200 975,6 217 765,1 56 621,1 92 490,3 8 Different industrial products 50 421,1 22 705,2 32 177,1 34 604,9 36 675,5 40 203,7 9 Other products - 11 011,7 81 790,2 90 709,5 80 797,6

BUDGET INCOME AND EXPENSES mln. Manat 1991 1996 2000 2005 2009 2010 2012 2013 2014 Income total 208,8 402,6 714,6 2055,2 10325,9 11403,0 17281,6 19494,6 18400.6 including:   Individuals income tax 12,0 41,3 94,0 317,4 581,9 590,2 813,0 859,7 980.3 Legal entities income tax 26,1 122,0 125,9 355,4 1329,2 1429,9 2252,0 2374,8 2302.7 Land tax 0,1 1,0 6,7 15,3 26,2 35,3 30,6 33,1 35.4 Property tax - 0,9 11,8 40,4 66,2 101,8 105,1 125,1 141.3 VAT 56,3* 93,9 190,8 599,9 2012,8 2082,5 2366,9 2710,0 3119.6 Excise tax 22,4 141,0 485,1 514,9 531,5 593,3 797.3 Mining tax 1,9 8,3 50,4 53,5 121,9 130,1 125,8 121,5 116.2 Taxes on foreign economic activity 0,8 22,5 63,4 205,2 418,1 291,8 592,5 673,4 684.7 Other taxes 98,2 40,3 9,0 28,1 86,8 90,3 157,5 161,5 192.7 Other incomes 13,4 31,1 140,2 299,0 5197,7 6136,2 10306,7 11842,2 10030.4 Expenses-total 192,8 481,9 764,0 2140,7 10503,9 11765,9 17105,6 19143,5 18699.3 2015 budget income: 19438.0 , expenses : 21100.0 mln manat 1991-ci in 000 manats

BUDGET INCOME AND EXPENSES mln. Manat 1991 1 1996 2000 2005 2009 2010 2012 2013 2014 Income-total 208,8 402,6 714,6 2055,2 10325,9 11403,0 17281,6 19494,6 18400.6 Expenses-total 192,8 481,9 764,0 2140,7 10503,9 11765,9 17105,6 19143,5 18699.3 including:   On economy 52,7 78,6 89,4 444,7 4373,9 4889,9 6960,8 8207,9 7596.6 Social and cultural events 92,8 225,3 382,6 843,3 2763,0 2901,4 3827,5 4082,0 4484.4 which are: Education 37,1 101,8 181,8 372,5 1147,9 1180,8 1312,1 1437,8 1553.9 Health 15,5 40,1 40,9 115,3 402,4 429,2 567,8 618,9 665.3 Social protection and allowance 35,1 70,6 139,3 304,9 1054,4 1123,0 1710,0 1750,4 1971.2 Other activities which are not related from above mentioned one 5,1 12,8 20,6 50,6 158,3 168,4 237,6 274,9 294.0 Science 1,1 4,8 9,3 28,8 83,3 108,6 117,0 124.2 Judiciary, law enforcement and prosecution 2,0 42,2 74,4 206,4 648,9 668,5 902,6 1049,3 1103.6 On support and maintenance of legal and executive authorities, municipalities 2,6 21,7 37,0 123,9 289,7 303,0 319,1 349,3 449.7 Other expenses 41,6 109,3 171,3 493,6 2345,1 2910,3 4987,0 5338,0 4940.8 1991 000 manat 2015 education : 1711.1 , science : 150.4 mln manat

EXTERNAL (FOREIGN) DEBTS Years Debt (Mln $) % of GDP GDP in mln USD 1993 0.05 4.0 1326.9 1994 0.1 6.7 1629.3 1995 0.3 12.4 2415.2 1996 0.4 13.6 3180.8 1997 0.5 15.8 3960.7 1998 0.7 15.7 4446.4 1999 0.72 4583.7 2000 1.158 21.9 5272.8 2003 1.570 18.6 7276 .0 2004 1.588 18.1 8680.4 2005 1650.5 12.0 13238.7 2006 1972.0 7.9 20983.0 2007 2272.1 6.0 33050.3 2008 3001.1 5.3 47500.2 2010 3857,3 7,95 51968.3 2011 4512,6 8,1 65951.6 2013 4,753.2 8.2 73984.6 2014 6,478.2  8.6 75612.5

SOURCE AND USAGE OF FOREIGN DEBTS Mainly World Bank Asian Development Bank Islamic Development Bank European Bank for Reconstruction and Development Japan International Cooperation Agency and other source attracted from international bodies. To support economic reforms, Rehabilitation and Reconstruction of infrastructure, Road construction, Water supply development in regions, Development of railroad services, Industry and directed to other related areas.

% debt vs GDP Years 2003 2004 2005 2006 2007 2008 2009 2010 GDP mln manat 7146.5 8530.2 12522.5 28360.5 38004.2 34578.7 41574.7

INDUSTRY 1988 42% is made up by industry, - 1005 industrial organization - 529 heavy industry - 206 light industry - 263 agriculture and food production organization 1995 vs 1990 have decreased in %70... Less control from government side

HEAVY INDUSTRY Oil production technologies Oil processing area Energy processing Computer processing Metal processing Machinery Seafaring... After 2000 processing area of the country have developed In 2008 industry production indicator have not reached the level of 1990s

Light Industry Weaving Carpet-weaving Leather products Furniture production There were many fabric on cotton processing... They made up %10-15 of industry, in 2007 their weight reached only %3-5

Volume of Industrial Product (Service), In Current Prices, MLN Manat   2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Total industry 5 961 9 309 15 544 22 496 29 773 22 564 27 978 35 027 34 565 33898.1 Mining industry 2 958 5 673 10 566 16 413 22 631 16 460 20 862 26 894 25 607 24655.3 Crude oil and natural gas production 2 730 5 370 10 208 15 972 22 149 15 981 20 199 26 055 24 747 23657.8 Ore production 0,6 0.2 0.3 2.5 6.2 62.5 74.3 68,1 51.2 Other mining products (salt, stone, gravel, etc.) 12.9 23.8 28.2 48.9 48.0 36.8 59.0 83.2 66,4 65.3 Services in mining industry 215,3 278.5 329.6 391.6 431.5 435.4 542.4 681,4 725,7 881.0 Processing industry 2 542 3 073 4 311 4 919 5 700 4 836 5 736 6 392 7 032 7243 Electricity, gas and steam production, distribution and supply 413.2 480.8 569.3 1024.6 1280.4 1148.3 1225.5 1555.9 1724,3 1773.9 Water supply, waste treatment and processing 47.5 82.2 97.8 139.0 161.6 119.5 154.5 184.3 201,7 225.1 Years 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 GDP in mln Manat 8530.2 12522.5 28360.5 38004.2 34578.7 41 574.7 50069.0 53995.0 57708.2

Volume of Industrial Product (Service), In Current Prices, MLN Manat   2004 2005 2006 2007 2008 2009 2010 2011 2012 Industry total 5 961 9 309 15 544 22 496 29 773 22 564 27 978 35 027 34 565 Processing industry 2 542 3 073 4 311 4 919 5 700 4 836 5 736 6 392 7 032 Food production 986,6 1094.5 1154.3 1254.9 1381.0 1520.3 1924.6 2 108 2 575 Beverage production 49,8 72.5 97.0 132.0 147.2 153.2 170.2 169 175,5 Manufacture of tobacco products 21.0 30.5 27.0 22.4 21.7 22.3 22.8 19,6 Wearing industry 19.7 34.8 52.9 36.0 50.4 33.9 29.4 52.3 57,7 Clothing production 9.9 16.3 19.1 23.3 26.0 26.4 34.7 38.5 36,8 Manufacture of oil products 709.7 836.8 1821.2 2118.2 2400.0 1844.8 2160.6 2483.8 2376 Chemical industry 179.3 198.3 193.5 212.3 219.1 132.1 120.3 189 180,6 Manufacture of rubber and plastic products 19.8 23.5 27.7 37.1 70.0 59.8 43.3 78.9 71,6 Construction materials production 106.2 135.4 165.2 253.0 352.5 369.6 452.2 280.7 323,0 Metallurgy industry 192.7 271.9 351.8 278.7 348.9 88.8 135.2 195,6 347,1 Fabricated metal products, except machinery and equipment products 53.1 56.3 51.6 125.0 166.7 101.2 135.1 105,1 171,2 Computer and other electronic equipment production 3.1 7.3 10.9 18.0 21.6 36.2 54.6 72,5 66,5 Manufacture of electrical equipment 11.0 18.6 35.0 45.7 40.3 75.0 171.6 186,1 Manufacture of machinery and equipment 44.0 32.8 55.7 81.6 91.0 93.3 151.2 156.7 151,5 Furniture production 12.4 17.5 19.4 25.9 35.7 51.5 38,7 Installation and maintenance of machinery and equipment 67,6 147.8 155.3 146.8 188.1 166.3 66.3 94.0 126,7

PRODUCTION OF ENERGY GOODS   2007 2008 2009 2010 2011 2012 2013 Crude oil, thousand ton 42597,5 44514 50415,9 50 838,20 45626,2 43375 43457 Natural gas, mln cub m 10 832 16 336 16 325 16 673 16 361 17242 17895 Total electricity, mln kWt h 21 847,20 21 642,60 18 869,10 18 709,50 20293,8 22988 23354

Crude oil production and consumption, mln tons

Oil processing in the world   Cəmi, milyon ton 2002 2003 2004 2005 2006 2007 2008 2009 Azerbaijan 15.2 15.3 15.5 22.2 32.3 42.6 44.5 50.4 USA 283.4 393.7 364.4 340.8 342.6 342.2 335.1 357.9 Brasil 73.8 76.5 75.3 83.1 89.7 88.9 92.4 99.1 UK 115.9 106.1 95.3 84.7 76.6 76.8 71.7 … UAE 87.2 102.5 108.1 114.6 123.1 121.7 124.9 107.5 China 170.3 170.4 174.7 180.7 184.7 186.7 190.0 189.6 Irag 120.0 66.0 96.7 90.9 96.1 Indonesia 67.2 56.8 60.8 52.3 51.4 48.2 48.3 46.6 İian 160.3 185.5 188.2 200.6 204.7 200.2 202.4 176.6 Canada 91.1 99.2 104.3 105.4 110.3 Qatar 27.3 32.4 36.9 37.8 36.3 39.0 41.1 35.7 Kuwait 87.7 105.9 114.9 129.6 134.4 131.9 134.9 113.8 Libya 57.9 69.0 76.2 81.2 84.3 82.0 83.4 71.0 Egypt 35.0 33.4 32.5 31.9 30.5 33.3 33.2 Mexico 165.2 178.9 179.3 168.6 172.5 163.8 157.2 Norway 156.7 153.6 151.8 140.1 128.8 119.4 114.4 Nigeria 106.8 123.2 124.5 118.4 103.7 104.4 Russia 380 421 459 470 481 491 488 494 Saudi Arabia 370.6 442.5 442.8 468.8 467.8 440.7 460.1 408.0 Turkey 2.4 2.3 2.2 2.1 Venezuella 127.2 131.2 157.3 172.9 170.8 148.6 163.3 149.5

Energy Products : Natural Gas   2007 2008 2009 2010 2011 2012 2013 Natural gas, mln cub m 10 832 16 336 16 325 16 673 16 361 17242 17895

Production of natural gas, bln cub meters

NATURAL GAS PRODUCTION IN THE WORLD   Total, bln cubic meters 2002 2003 2004 2005 2006 2007 2008 2009 Azerbaijan 5.1 5.0 5.7 6.8 11.0 16.3 UK 109.2 108.5 101.7 92.8 83.9 76.0 73.5 62.1 Venezuela 25.5 23.7 23.4 23.8 24.5 25.0 … Germany 22.3 22.2 20.6 19.8 19.6 18.0 16.4 15.3 Egypt 28.3 31.9 34.5 49.5 50.9 52.4 India 27.7 28.5 28.8 32.4 Indonesia 72.1 75.7 72.8 71.9 73.4 69.7 Iran 69.1 78.2 87.0 94.3 103.5 106.7 Canada 187.3 184.1 183.6 188.4 184.0 173.3 161.3 Qatar 31.8 33.8 41.1 43.6 59.6 China 32.7 35.0 42.2 58.6 67.7 Malaysia 60.6 53.0 55.1 65.6 66.5 66.7 Mexico 37.8 39.6 41.4 43.1 49.3 55.8 58.2 60.4 Netherland 75.8 72.9 86.0 78.6 77.3 76.6 85.7 79.6 Norway 82.2 86.5 88.6 90.9 99.7 103.4 UAE 42.5 44.8 46.3 46.5 47.3 49.7 Pakistan 23.9 29.6 32.2 33.7 33.5 34.2 Saudi Arabia 50.8 56.9 62.5 65.7 67.5 USA 536.4 541.2 526.8 511.5 523.5 542.0 583.4 594.8

ENERGY PRODUCTS : ELECTRICITY   2007 2008 2009 2010 2011 2012 2013 Electricity total, mln kWt hour 21 847,20 21 642,60 18 869,10 18 709,50 20293,8 22988 23354

ELECTRICITY PRODUCTION IN CIS COUNTRIES   Total, bln. kWt-hour 2005 2006 2007 2008 2009 2010 2011 Azerbaijan 22.9 24.5 21.8 21.6 18.9 18.7 20.3 Belarus 31.0 31.8 35.1 30.4 34.9 32.0 Kazakhstan 67.9 71.7 76.6 80.3 79.0 82.6 85.8 Kyrgyzstan 14.9 14.5 14.8 11.8 11.1 12.1 15.2 Moldova 1.2 1.1 1.0 Russia 953 996 1 015 1 040 992 1 038 1 052 Tajikistan 17.1 16.9 17.5 16.1 16.4 16.2 Turkmenistan 12.8 13.7 … ... Uzbekistan 47.6 49.3 49.0 50.1 50.0 51.7 52.4 Ukraine 186 193 196 174 189 194 Armenia 6.3 5.9 6.1 5.7 6.5 7.4

AGRICULTURE Areas Land Reserves (thousand ha) %-i Total area 8641 100 Agricultural area 4588 53.1 Area available for irrigation 3200 37 Sown Area 1622 18.8 Forests 1037 12 Area exposed to errosion 3610 41.8

TOTAL AGRICULTURE PRODUCT (IN CURRENT PRICES; mln manat) Years Total including plant growing products livestock products 1990 0.102 0.065 0.037 1991 0.198 0.125 0.073 1992 1.560 1.056 0.504 1993 10.726 5.615 5.111 1994 143.7 93.1 50.6 1995 726.8 418.1 308.7 1996 925.3 529.7 395.6 1997 853.5 486.5 367.0 1998 921.6 538.6 383.0 1999 989.1 541.7 447.4 2000 1112.4 617.7 494.7 2001 1242.2 718.6 523.6 2002 1342.9 774.1 568.8 2003 1450.5 807.0 643.5 2004 1572.7 874.8 697.9 2005 1844.8 988.2 856.6 2006 2115.5 1124.4 991.1 2007 2918.6 1726.4 1192.2 2008 3505.9 2084.9 1421.0 2009 3805.5 2106.0 1699.5 2010 3877.7 1999.2 1878.5 2011 4525.2 2339.8 2185.4 2012 4844.6 2458.2 2386.4 2013 5244.6 2629.6 2615.0

STRUCTURE OF AGRICULTURE PRODUCT BY ORIGIN OF PRODUCTION (in current prices; % to the total agriculture products)`   2000 2005 2006 2007 2008 2009 In all categories 100 including: plant growing 58.2 57.1 62.4 63 63.3 livestock 41.8 42.9 37.6 37 36.7 Agriculture organizations 74.5 20.3 25 19.4 22.1 21.1 25.5 79.7 75 80.6 77.9 78.9 Household production 57.9 58.6 64.4 65.5 65.8 42.1 41.4 35.6 34.5 34.2

PLANT GROWING PRODUCTION (000 TONS) Years Cereals and legumes Cotton Tobacco Potato Vegetables Melons for food 1913 485.9 64.0 1.0 37.9 ... 1928 829.9 55.5 91.5 1937 643.6 207.3 55.2 1940 567.2 154.2 5.4 81.8 63.4 40.4 1945 541.0 64.7 4.0 81.4 57.5 23.0 1950 522.9 283.6 8.1 118.9 67.3 26.9 1960 725.2 365.5 13.7 114.4 190.2 49.5 1970 723.4 335.6 24.6 129.9 409.9 46.9 1980 1136.5 753.5 57.1 172.1 824.2 91.0 1990 1413.6 542.9 52.9 185.2 856.2 67.5 1995 921.4 274.1 11.7 155.5 424.1 41.9 2000 1540.2 17.3 469.0 780.8 261.0 2005 2126.7 196.6 7.1 1083.1 1127.3 363.8 2006 2078.9 130.1 4.8 999.3 1186.4 362.1 2007 2004.4 100.1 2.9 1037.3 1227.3 417.6 2008 2498.3 55.4 2.5 1077.1 1228.3 407.7 2009 2988.3 31.9 2.6 983.0 1178.6 410.8 2010 2000.5 38.2 3.2 953.7 1189.5 433.6 2011 2458.4 66.4 3.6 938.5 1214.8 478.0 2012 2802.2 57.0 4.3 968.5 1216.2 428.0 2013 2955.3 45.2 3.5 992.8 1236.3 429.8

MAIN LIVESTOCK PRODUCTION (000 tons) Years Meat Milk Egg, mln pcs Wool Cocoon Honey 1913 39.6 202.5 94.1 4.1 - … 1940 41.0 274.5 158.4 4.2 2.4 1945 32.3 238.3 78.1 4.5 1.6 1950 33.1 234.8 105.2 4.8 2.6 1960 79.2 426.7 333.4 8.8 3.1 1.1 1970 93.9 478.1 412.5 7.6 3.7 0.9 1980 138.9 796.1 721.2 10.7 5.0 1.4 1990 175.5 970.4 985.3 11.2 4.9 0.5 1995 109.4 826.5 455.8 9.0 0.3 2000 153.6 1031.1 542.6 10.9 0.1 0.6 2005 205.0 1251.9 874.6 13.1 2006 212.7 1299.5 760.9 13.6 2007 225.5 1341.3 953.6 14.2 1.2 2008 232.3 1381.6 1101.2 14.8 0.02 2009 237.1 1433.1 1209.4 15.3 0.01 1.3 2010 253.8 1536.2 1178.6 15.6 1.9 2011 263.7 1622.3 1011.0 16.2 0.004 2.3 2012 285.6 1719.6 1226.7 16.5 0.003 2013 297.9 1820.5 1401.5 16.8 0.001 2.5

IMPORT OF MAIN GOODS IN 2013 Goods Quantity Amount, in 000 USD Live cattle, in numbers 133,838.0 31,980.7 Live poultry, in thousand units 6,942.0 5,109.1 Beef cattle, tons 5,147.6 12,289.8 Poultry and other meat production, tons 2,550.2 1,959.2 Fresh and frozen fish, tons 12,691.6 7,888.8 Milk and cream, tons 12,117.2 9,441.3 Butter, other milk oils and creams, tons 8,367.0 21,313.7 Cheese and cottage cheese, tons 11,465.4 13,995.0 Eggs, thousand pieces 46,183.7 9,245.4 Potatoes, tons 62,534.6 7,211.4 Vegetables, tons 21,461.4 4,051.4 Fruits, tons 20,243.9 13,506.2 Tea, tons 8,955.4 20,321.8 Wheat, thousand tons 1,451.3 395,282.4 Rice, tons 18,003.1 6,625.8 Wheat flour, tons 46,449.3 17,975.1

WHEAT PRODUCTION IN CIS, IN NET WEIGHT   1995 2000 2005 2006 2007 2008 2009 2010 2011 2012 2013 Total, thousand tons Azerbaijan 882 1509 2077 2032 1965 2446 2927 1950 2395 2732 2881 Armenia 261 225 396 213 453 415 375 326 441 456 549 Belarus 5502 4856 6420 5923 7216 9013 8510 6988 8273 9226 7602 Kazakhstan 9506 11565 13781 16512 20138 15578 20831 12185 26961 12865 18231 Kyrgyzstan 913 1569 1667 1562 1491 1511 1929 1584 1581 1438 1813 Moldova 2669 1935 2838 2290 902 3170 2177 2421 2498 1206 2660 Russia 63406 65420 77803 78227 81472 108179 97111 60960 94200 70900 91300 Tajikistan 233 543 926 904 923 933 1275 1248 1087 1049 1211 Uzbekistan 3215 3929 6402 6655 6643 6735 7392 7404 7140 7515 ... Ukraine 33930 24459 38016 34258 29295 53290 46028 39271 56675 46200 63000

VEGETABLES PRODUCTION IN CIS   1995 2000 2005 2006 2007 2008 2009 2010 2011 2012 2013 Total, thousand tons Azerbaijan 424 781 1127 1186 1227 1228 1179 1190 1215 1216 1236 Armenia 451 376 664 780 845 825 820 708 787 849 876 Belarus 1031 1379 2174 2153 2296 2308 2335 1816 1581 1626 Kazakhstan 1544 2169 2059 2196 2280 2457 2577 2878 3062 3242 Kyrgyzstan 318 747 737 761 790 823 833 812 821 866 882 Moldova 607 364 389 475 222 308 341 362 231 292 Russia 11275 10822 11348 11370 11509 12960 13402 12126 14696 14626 14674 Tajikistan 491 355 719 760 835 908 1047 1143 1242 1102 1219 Uzbekistan 2725 2645 3518 4279 4692 5221 5705 6347 6994 7767 … Ukraine 5880 5821 7295 8058 6835 7965 8341 8122 9833 10017 9872

MEAT PRODUCTION IN CIS   1995 2000 2005 2006 2007 2008 2009 2010 2011 2012 2013 Total, thousand tons Azerbaijan 109 154 205 213 226 232 237 254 264 286 298 Armenia 48 49 56 67 70 71 72 73 147* Belarus 657 598 697 767 815 842 921 971 1020 1093 1170 Kazakhstan 985 623 762 809 839 874 896 937 939 934 943 Kyrgyzstan 180 196 182 183 184 186 188 190 192 195 Moldova 137 88 87 97 78 91 111 118 116 158* Russia 5796 4446 4990 5278 5790 6268 6720 7167 7520 8090 8542 Tajikistan 52 30 54 60 65 75 81 Uzbekistan 509 502 633 … 721 1 288* 1 368* 818 958 Ukraine 2294 1663 1597 1723 1912 1906 1917 2059 2144 2210 2398

MAIN PROBLEMS OF AGRICULTURAL AREA Lack of modern irrigation systems Erosion Weak technical infrastructure Inefficient usage of land Lack of quality pesticides, fertilizers and seeds Low and expensive feed production Low financial capability of farmers

SERVICE SECTOR OF AZERBAIJAN Service sector of Azerbaijan is mainly consist of: Education Health Tourism Finance Transportation and communication Construction

SERVICE SECTOR OF AZERBAIJAN

SERVICE SECTOR OF AZERBAIJAN Service sector of Azerbaijan is mainly consist of: Education Health Tourism Finance Transportation and communication Construction

EDUCATION OF AZERBAIJAN Education of Azerbaijan is mainly consist of: 1680 preschool education organization 4575 school 112 college and lyceums 61 vocational school 56 university.

Expenses on education from government budget (mln AZN)

IMPROVEMENTS IN EDUCATION During 2003-2015 1149 new education organization was constructed In the frame of State Program on Economic Development and Poverty Reduction government have built up 28 new education organization and renovated more than 200 As a result of transfers from Oil Fund on improvement of life conditions of IDP it is expected that totally 1050 education organization will be able to serve on modern conditions. State program on education abroad of 2007-2015 estimates that will finance 5 thousand student, academician abroad. Additionally, state works on programs on improvement of income of researchers and scholarships of students.

Expenses on science from government budget (mln AZN)   2000 2005 2008 2009 2010 2011 Expenses on science from government budget, mln AZN 9,3 28,8 62,1 83,3 92,8 106,1 % against GDP 0,2 % against expenses in budget 1,2 1,3 0,6 0,8 0,7

HEALTH AREA OF AZERBAIJAN For each 10 thousand people Azerbaijan accounts: 34.6 doctors 59.3 medical workers 49 beds in hospital For Baku for each 10 thousand people statistics is following 85 doctors 110 medical workers 115 beds

HEALTH AREA OF AZERBAIJAN Years Hospitals Polyclinics Doctors Medical workers 1995 768 1779 29217 67000 1996 759 1694 28873 63200 1997 746 1630 28477 60700 1998 739 1611 28485 60600 1999 735 1614 29033 60000 2000 1618 29084 59900 2001 738 1603 29090 59100 2004 734 1591 29700 59500 2005 732 1594 30100 59700 2006 729 1595 30600 60800 2007 726 1589 30800 61600 2008 748 1692 32400 62200 2009 752 1695 32500 62500 2010 756 32800 62900 2011 516 1688 33100 60100 2012 523 1690 31400 57800 2013 539 1725 32300 57500 2014 553 1744 56900 2015 566 1746 56100

Expenses on health from government budget (mln AZN)

TOURISM AREA OF AZERBAIJAN Tourism of Azerbaijan is made up of the following areas: Holiday Tourism: Especially popular in summer period and most frequently visited areas are Zagatala, Shaki, Guba, Ganja, Gazakh and Lankaran. Plateau and Mountain Tourism: Azerbaijan is one of the most suitable areas for this type of business; forests in Zagatala, Guba, Ismayilli, Lahich, Gabala, Agdash, Ganja, Hajikend, Goygol. Bath and Health Tourism: Azerbaijan has rich resources of drinking and treatment water. Country has 200 mln ltr water reserves which are made from 2000 mineral water resources. Beach Tourism: East coast of Azerbaijan is bordered with Caspian Sea where locates km of beaches which makes this country suitable for this type of tourism as well. Hunting (Tourism): Azerbaijan has 97 variety of mammal animals, 346 variety of birds and 95 variety of fish. Special permission should be obtained from hunting association. Cultural Tourism: Azerbaijan has rich cultural and historical heritage, lots of different organization were put up for restoration of these monuments.

Expenses on culture, sports, art and mass media in a budget (mln AZN)

TOURISM AREA OF AZERBAIJAN

FINANCE AREA OF AZERBAIJAN Financial sector of Azerbaijan could be studied under the following headlines: Banks Insurance Markets

BANKS OF AZERBAIJAN Country has following types of banks: Central Bank of Azerbaijan State owned stocks bank Private local banks Foreign capital banks

BANKS OF AZERBAIJAN Development of banking system in Azerbaijan could be divided into three stages: First stage happened in 1990-92 when National (Central) Bank was created. In 1992-94 during hyperinflation period in very unstable conditions banking area continue to develop. In 1994 and later in more stable conditions banking system reformatted and continue to develop

LEGAL FRAME FOR BANKS IN AZERBAIJAN First legal frame for banking and money circulation appeared at the Constitution of Azerbaijan Republic in 1991 Later in 1992 National (Central) bank of Azerbaijan was established In 1992 another law on “Banks and bank activities” was adopted directly after approval of National Banks charter. First law on “Azerbaijan Respublic National Bank” was adopted on 10 June 1996 and later on 1997, 1998, 2001, 2002, 2004 was finally approved Last change to this law happened in 2015

BANKS OF AZERBAIJAN In 2001 Azerbaijan had totally 158 bank and non-bank financial organization In 2002 the number decreased to 116 In 2005 there were only 114 licensed In 2009 the were only 42 deposit organization, 43 who provide services in foreign currency, 41 organization who deliver warranty and documentary services and 30 loan organizations worked with plastic cards. In 2015 Azerbaijan had totally 38 bank and non-bank financial organization

LOANS OF BANKS OF AZERBAIJAN Years Short term Short term in (%) Long term Long term in (%) 1995 1264.8 87.3 184.2 12.7 1997 1901.1 93.1 140.9 6.9 1998 2087.7 97.8 45.9 2.2 1999 2160.5 97.5 55.0 2.5 2002 1672.0 72.0 649.8 28.0 2004 1769.9 72.8 661.4 27.2 2006 1871.2 71.9 1129.6 28.1 2007 1649.5 35.2 3032.3 64.8 2008 2295.9 31.9 4895.4 68.1 2009 2359.9 6047.5 2010 2567.1 6596.3 2011 3051.2 30.7 6899.1 69.3 2012 3885.1 30.5 8835.4 69.5

INSURANCE IN AZERBAIJAN On 20 September of 1991 Azerbaijan adopted a decree on Azerbaijan Republic State Insurance Commerce (Trade) Company. According to this decree State Insurance Company become independent from Ministry of Finance. From 2000-2008 necessary legal frame for insurance companies was created and different decrees and decisions were adopted by government. First law on Insurance was proposed on 5 January 1993, later this law was developed and signed in August of 1999 by President of Azerbaijan.

INSURANCE IN AZERBAIJAN From 1992 insurance companies were established in partnership with foreign capital From 1995 insurance market get new players with local capital In 2009 there was 28 insurance companies. 22 of which local and 7 with foreign capital participation

INSURANCE SERVICES IN AZERBAIJAN There are 35 insurance services which are currently offered in the market. Obligatory insurance type: 9 Voluntary insurance type: 26 Most popular insurance types are: accident, medical, individual accident, transport, financial, engineering, life, agricultural and livestock insurance.

MARKETS IN AZERBAIJAN State Committee for Securities under the President of the Republic of Azerbaijan was established following the 30 December 1998  Privatization as a catalyst for market development Baku Securities Market was established by 18 companies on 15 February of 2000 and officially was launched in 2004. Currently employs 30 workers and have full infrastructure for trade as an international market. Cooperates with foreign and mostly regional partners

MARKETS IN AZERBAIJAN Initially established for government property trades, later market become a place for shares trade of cooperatives and stock companies. In 2004 first bank bonds were issued on the market. In 2004 Central bank issued new type of short term bond which it called not. The aim of not is to be used as a mean of exchange without increasing the amount of money supply into the economy.

TRANSPORTATION AND COMMUNICATION IN AZERBAIJAN

TRANSPORTATION AND COMMUNICATION IN AZERBAIJAN In 2014 according to the statistics following transported goods were transported by: 57.9% by road 27.7% by pipelines 9.8% by railroad 4,5% by sea Each year private sector participation grow in area of telecom services and in 2009 it reached 71.3%. Currently, almost 80% of service in this area is delivered by private companies.

CONSTRUCTION IN AZERBAIJAN Construction contribution to GDP in % In 1991 it was 8.1% In 1999 it reached 10.9% In 2000-2001 this ratio have not changed seriously After 2002 it start to grow and in 2004 it reached 13% In 2010 it was 8.1% In 2014 it grow to 12.5%.

REGIONAL ANALYSIS Economic classification of regions is done according: Economic and geographic structure and position Natural resources and richness Active population density Area and land structure History

REGIONAL ANALYSIS According to before mentioned country is divided into 10 regions which are Absheron Ganja-Gazakh Naxchivan Shaki-Zagatala Lankaran Guba-Khachmaz Aran Garabakh Kalbajar-Lachin Shirvan.

ABSHERON ECONOMIC REGION Covers Absheron and Khızı administrative region as well as one of the most important cities of country Sumgayit. Area of Absheron economic region excluding Baku is 3.34 thousand km2. It makes 3.9% country’s areas. 4.8%- of country population 551.800 people lives in this region. Density is 148 person per sq km. Active population of region is 163 thousand people. Region has dry subtropical climate. Region is rich with natural resources which are: stone, cement, quartz and construction sand. Absheron peninsula has lots of bath treatment sources, hot waters. Caspian coast has tourism beach and resources for tourism. However, it is only region on which area does exist any drinking water sources. Drinking water of region supplied from other regions and from Samur and Kura rivers.

ABSHERON ECONOMIC REGION Industry of this region is concentrated in oil, natural gas, electricity, chemical, polymer, glass, metallurgy, steel and other metal, textile production, light and food industries. Transport and related services has a big importance for the region. Agricultural area prevails with sub-tropic fruits, vegetables, flowers, grapes, dairy production, poultry-breeding and livestock breeding. Regions agriculture enables to grow olives, saffron, pistachio. Construction and communication are fastest growing areas as well.

GANJA-GAZAKH ECONOMIC REGION This important region includes Agstafa, Dashkasan, Gadabay, Goranboy, Khanlar, Gazakh, Samukh, Shamkir, Tovuz administrative regions as well as Ganja and Naftalan cities are part of this region. Area of region is 1249 thousand sq km which is 14.4% of total country area. 1.240.800 people population makes 13.6% of country population. Density for each km is 101. 47% population lives in the cities, 53% in rural areas. Active population is 633 thousand people. Region is rich with its natural resources. Iron ore, aluminum, copper, limestone, marble, zeolite, gypsum and cement raw material are one of the most important naturalresources of region. Kura river which passes through the region provide hydro energy resources. Due to mountain, climate, forests and mineral waters region enables to locate lots of recreation and resort centers. Goygol, Hajikand and Naftalan are located inside of this region.

GANJA-GAZAKH ECONOMIC REGION With its 12-13% contribution to the country region is considered to be the second important region in the country. Main industrial areas of the region: production of electric instruments, communication equipment, agricultural machinery, metallurgy, cotton, textile, carpet, cement, ceramic, glass, heavy and food industries. Main agriculture products are: Sugar, potatoes, wheat, grapes, wine, candy, canned food, meat and dairy products, animal breeding. Main agricultural products of region are potato, grapes and wheat which makes 13-14% of total production of the country. Potato production accounts for nearly 80%, grape production for 28% of all.country. Cotton is produced on in Goranboy at this region. Animal breeding makes 15% of all country production Inside of the country 6.2% railways and 6.1%vehicle infrastructure correspondence to this region. Ganja, Gazakh and Agstafa are main infrastructure networks.

GANJA-GAZAKH ECONOMIC REGION Europe-Caucasus-Asia transport corridor passes through this region and therefore, in frame of State Program on regions development road and bridge have been re-built and renovated. Since Great Silkway intersect this region demand for railway transportation increase and there is a plan for second bridge over Kura in frame of State Program. Ganja, Khanlar, Shamkir, Tovuz, Agstafa, Gazakh region socio- economic situation was improved since Baku-Tbilisi-Ceylan pipeline construction and intersection from these regions. Korchay, Karayazı-Agstafa and Karayazı are State Sanctuaries and protect by the government. Ganja international airport plays a vital role in cooperation with CIS countries in line with the Agstafa and Naftalan airports.

SHAKI-ZAGATALA ECONOMIC REGION Economic region includes Balakan, Gakh, Gabala, Oguz, Zagatala and Shaki administrative regions. Total area of region is 8.96 thousand sq km which 10.3% country’s area. Due to hill and mountain structure of the region it lack of agricultural land plots. Population of the region is 599.900 people. This makes only 6.5%. Economically active number of people are 632 thousand. Density for 1 sq km is 68 people. 27% lives in city and 73% in rural mountain areas. Region has mild climate. Copper, sulfur, lead, zinc, sand and other construction products, drinking water are among the natural resources of region. 90%- of sulfur, 97%-lead, 99%-zinc production comes from this region. Sole source of cooper is this region. Construction materials are obtained from mountain areas. Region 27% is covered forests which mostly locates on Balakan and Zagatala areas. Gabala, Balakan, Gakh, Shaki and Zagatala regions resort and tourism complexes are famous for their touristic value, however they are not enough. Region cross main international road which goes to Georgia.

SHAKI-ZAGATALA ECONOMIC REGION In the region where is industry is weak and mostly mono type only light industry and food industry have been developed. These areas accounts for 95% of all industrial production of the region. Region makes only 3% of country production. Whereas region area makes 27% of whole country area and Shaki has 30% of population of the region which produces half of the regions products. Light industry is made up from silk production. There lot of textile production organizations in the middle of region. Agriculture is one of the important areas for the region. Main agriculture products of region are tobacco, silk, fruits, wheat products, grapes, meat and milk, cotton and livestock. 75%- of tobacco, 17%-of wheat, 35%-of mulberry, 2%-of green tea produced in the country comes from this region. 10% of farm products of the country are produced in this region Gakh in the region has a rich potential for tourism however, due to slow development and distance this region was left by its inhabitants. After implementation of regions development program state was able to stop migration and help this region.

SHIRVAN ECONOMIC REGION Shirvan or Higland Shirvan Economic Region includes Agsu, Ismayilli, Gobustan and Shamakhi administrative regions. Total area of the region is 6.06 thousand km2 which 7%-of total area of the country. In this region inhabits 3.2% of country’s population which is 304.000 people out of which 141 thousand are economically active. This region has lower density of population in comparison with other regions. Here for 1 sq km corresponds 50 people. Region in topographic sense divided into the highland and lowland areas and therefore has different climate. Moist, warm, cold or hot and dry climatic conditions prevail in the region. There is not so much natural resources in the region. Region has stone, sand, lime, crushed and other construction materials. Highland areas are rich with the curative mineral waters. Water with rich with sulfur and hydrocarbon are used for treatment and drinking purposes.

SHIRVAN ECONOMIC REGION Low industrial development of this region is obvious. Main industrial areas are food and light industries which processing agricultural products of the region. Light industry of region is made up from juice production, textile and carpeting. Food industry is wine production which is used regions grapes as a raw material. Additionally, region has wood processing, construction materials production, agricultural maintenance organizations. This region is famous by its hand made and textile products, i.e. Lahich for its cooper and Shamakhi for its silk shawl The main grain-growing areas of agriculture and livestock, grape growing, winemaking, large and small horned cattle. Grain has a key advantage in the production of wheat. Other grain products to meet regional consumption only. Growing sectors of the tourism sector in the region and among the leading areas of silk production.

ARAN ECONOMIC REGION Aran economic region consists of Agjabedi, Beylagan, Barda, Bilasuvar, Goychay, Hacıgabul, Imishli, Kurdamir, Neftchala, Saatli, Sabirabad, Salyan, Ujar, Zardab administrative regions, along with Ali-Bayramli, Mingachevir, Yevlakh towns. The region has an area of ​​21.43 million km2 24.7% of the country's territory is covered. An important part of the region (more than half) of the areas in the plains below the sea level. The regional population is 1,936,000 people, equivalent to 20.5% of the population of the country. The active population is 918 thousand people. The regional population density is 82 people / km2. Aran economic region has a subtropical climate. Natural resources and energy mineral reserves are mainly in the southeast and centralized region. Rich solar energy, water resources in the Kura and Araz rivers, soils suitable for agriculture and other natural resources of the region.

ARAN ECONOMIC REGION Industry of this region is well developed. The main industries are oil, natural gas, iodine, bromine, chemicals, textile, leather processing, construction materials, light and food industry. Industrial areas in the south-west, Ali Bayramli, Salyan and Neftchala; Mingechevir, Yevlakh concentrated in the north-west. Fruits and vegetables, fish, meat, milk, large and small horned cattle, cotton, sugar beets, wheat, potatoes and grapes are the region's main agricultural areas. The region accounted for 90% of the country's cotton production.

NAKCHIVAN ECONOMIC REGION The economic region of Nakchivan consists of Autonomous Republic of Nakchivan (NAR). Babak, Julfa, Ordubad, Sadarak, Shahbuz, Nakchivan administrative regions are part of the economic region. The area of ​​5.5 million km2, 6.3% of the country's territory, which covers the NAR. 4.5% of the country's population of more than 439,800 lives in the region. 198 thousand people are active in the region. Density is 80 people per square kilometer. Natural resources of the region are: molybdenum, polymetallic ore, rock salt, dolomite, marble, construction materials, concrete, sand, gravel, mineral water. There are more than two hundred mineral water reserves in the region. All of molybdenum and dolomite reserves produced in the country, 60% of the mineral water is obtained from Nakchivan economic region. Only 0.5% of the region was covered by forests.

NAKCHIVAN ECONOMIC REGION Energy, electronic products, cement, sugar, food, aluminum plates, furniture, silk, tissue-knitted carpets and major industrial areas in the region. The country's industrial production accounted for approximately 2.6% of the region. Industrial production in half, the city accounted for 35% of industrial production labor. The region is of particular importance in the light and food industries. In light industry, weaving, silk processing, weaving, knitting enterprises in the food industry, canning, tobacco processing, mineral water bottling, meat and fish processing enterprises producing remarkable contribution to the economy of the region. Tobacco, grapes, fruits, vegetables, wheat, henna, beet sugar, meat, milk and wool production on food, agriculture and livestock breeding and fishing areas are main areas in the region. 3.6% of the country's performance in the production of agricultural products comes from this region. Favorable climatic conditions, the agricultural sector contributed to the different areas of specialization. Nakchivan, the country's second major economic region, which produces tobacco. Nakchivan agricultural reforms began in 1992 and accelerated since 1996.

LANKARAN ECONOMIC REGION Region is consist of Astara, Jalilabad, Lerik, Masalli, Yardimli administrative regions. Region borders with the Caspian Sea to the east, west and in south its border is Iran. The total area of ​​6.08 million km2 in the region of 7% of the country's territory. Lankaran lowland made up from mountains. The regional population of 893,000 people, 9.3% of the country's population. The number of active population in the region is 366 thousand people. Density in the region is 147 people per square kilometer. In Lankaran lowland, the population density is 170 people. Differs from other economic regions of the country in terms of natural conditions in the region. Lankaran economic region accommodates 7 climate zones out of 11 existing. Basically, has a humid subtropical climate. There are very few natural resources in the region. Natural resources of region are river stone and construction sand. Region is rich in terms of thermal waters. The beautiful natural areas, hot and cold mineral water, favorable climatic conditions and developed transport hub in the region creates the necessary conditions for the development of health tourism. Lankaran tourist center Istisu operates as the treatment center from Soviet times. 26% of the territory is covered with forests.

LANKARAN ECONOMIC REGION Regional economy is based on agriculture, industrial complexes. According to the food products industry and the fishing industry is base of the region economy. Industrial production accounts for 90% of the food industry. Food industry is made of fish, tea, fruits and vegetables canning, wine production and tobacco as well. Fruit and vegetables, tea, grapes, grain products and potatoes are the main agricultural areas in the region. Humid subtropical climate, great land, water and labor resources useful in the development of agriculture and it plays an important role in the region. This region's most important economic region in the production of citrus fruits. In coastal areas, fishing activity. Poultry has developed in the region. 99% of the tea produced in the country, vegetables 27%, wheat 15%, potatoes 24%, and 13% of the grapes in this region accounts for 10% of the fruit. Production of tea is another important area. Region was in second place after Georgia.

GUBA-KHACHMAZ ECONOMIC REGION Guba-Khachmaz economic region, Devechi, Khachmaz, Guba, Siyazan administrative regions have been organized. The total area of ​​7.66 million km2, which is 8.8% of Guba-Khachmaz economic region covers a territory of the country. 5.6% of the country's population lives in the region of 525,700 people. 257 thousand active population. While there are 76 people per square kilometer. Due to the topographical structure of the region's population lives in the more flat areas on the coast of the Caspian Sea. 32% of the urban population, 68% live in rural areas. Region is divided into four distinct zones has a specific topographic character. Therefore, hot, cold, wet and cold climates of which has a type. Among the region's natural resources of oil, natural gas, shale, sand, gravel and water takes place. It covers 10-11% of the region's forests. The economic region is rich in natural recreational resources. In this region, the most important health. Siyazan Galaalti mineral water resort in the country's major function.

GUBA-KHACHMAZ ECONOMIC REGION Dependent on oil and natural gas industry in the region. Siyazan region's oil and natural resources (Keshchay, Siyazan-Nardaran, Amirdjan, Zoglu-Zeyva, Tangi, Saadan, Vayimdag-Togcay, etc.) are concentrated. Agricultural sector of the region contributes to the development of light and food industry. Fruit and vegetable canning industry in the field of agriculture, weaving and fish products have an important place. Agriculture and livestock sector in the region, which has an economic advantage. Agriculture in particular, fruit and vegetable production is concentrated. Along with these grapes, potatoes and wheat are also produced. Milk and meat production in the plains of the region, has developed a small cattle and livestock. Siyazan and Devechi districts spread in poultry in the region. Among the leading sectors of tourism in the region is developed. Places of importance to the region's tourism Khudat seashore, Galaalti for kidney disease treatment center, Gusar, Guba, Khachmaz and Devechi in terms of hunting and fishing. Along with tourism in the region, canning, alcoholic and non-alcoholic drinks, flour, meat and dairy products, packing, construction materials and carpet industries may be considered more favorable investment areas.

STATE PROGRAM ON REGION SOCIAL AND ECONOMIC DEVELOPMENT The regional socio-economic development of the State Program covers; The continuation of macroeconomic stability, A small amount of inflation to continue the design of optimal investments directed to areas of strategic importance, the second is the implementation of reforms in the agricultural sector, the development of private enterprise in the regions in order to speed up privatization, Increasing export capacity, investment in non-oil sectors in order to develop technologies aimed at the implementation of structural policies, improving the investment climate for private business The main areas have been identified as increasing the level of social services.

STATE PROGRAM ON REGION SOCIAL AND ECONOMIC DEVELOPMENT The purpose of the program; By using the existing potential development of individual regions of the economy, the resumption of the activities of companies engaged in production and further development, to promote the production of products that can be exported, with the development of local entrepreneurship and improve the people's income level, the level of employment, especially for young people to ensure the dynamic development of the national economy and employment as areas have been identified.

STATE PROGRAM ON REGION SOCIAL AND ECONOMIC DEVELOPMENT State Program on socio-economic development of the regions of the country, 10 of 30 major geographic regions of the project is to be carried out. These new complexes to be built and connected with the tourism infrastructure. The program of education, health, agricultural and other socio-economic reforms in all spheres of life was designed. The state program, in 2009, gross domestic product increased by 2.3 times compared to 2003 to reach 76.3 trillion rubles planned. In the private sector, the share of GDP is planned to be 85%. GDP growth rate in the agricultural sector, however, was the level of 10-15%. According to the investment volume reached 16.8 billion US dollars, 60% of which were directed to the regions. The program was implemented within 5 years, 600,000 jobs were created and average monthly wages increased by 3.1 times.

ECONOMIC FREE ZONES Free economic zones in the development of the industry in many countries, limited financial capacity of local investors played important role for establishment. Creation of free economic zones in some regions of Azerbaijan is necessary. The problem is the government several times in the last couple of different ideas and, although controversial, Baku, Sheki-Zagatala, Guba-Khachmaz, Lankaran-Astara and Nakhichevan, as economic conditions in the regions where there is affordable enough for the establishment of free economic zones in the states that, The steps taken in this direction and work considerably weak. Sumgait, Lankaran and Nakhchivan possible the creation of free economic zones. The railway lines in the cities of Sumgait and exits to the sea of ​​Lankaran, Nakhchivan, Lankaran and Nakhchivan, as well as a number of airports in the country in terms of the establishment of free economic zones in the border towns of favorable factors. Free economic zones are located on the main roads in the area belonging to the essence of the favorable international trade, services and the establishment of export-manufacturing sector at this time that the zone are exempted from customs duties, taxes and low-interest loans are carried out to determine discounts. Failure to provide the energy resources of the regions and other resources for the establishment of free economic zones difficult.

OIL HISTORY OF AZERBAIJAN The history of oil in Azerbaijan correspondence to the beginning of our era In IV BC in early writings of Ammian Marsel it is mentioned “midya oil=nafta” Italian traveler of XIII-XIV century mentioned that region used it for “lightening and therapy” Mechanical oil production at XVII century in a placed called Bibiheybat Oil becomes most important raw material in the world at the beginning of XIX century First industrial exploration in the world of oil started in 1847 in Azerbaijan Interests of foreign companies and establishment of Nobel Oil company in Azerbaijan

OIL HISTORY OF AZERBAIJAN Oil history of Azerbaijan could be splited in 3 periods. Which are: 1- Tsar Russia Period (1806-1918) 2- Soviet Period (1920-1991) 3- After Independence (1991- ......)

TSAR RUSSIA PERIOD AZERBAIJANI OIL First country who produced oil in the Caspian Sea In 1821 was produced 3.000 tons of oil in mechanical way In 1869 transformation from mechanical into the industrial method In 1879-1888 oil production of Azerbaijan reached the level of production of USA In 1890 oil production of Baku made up %97.7 of Russia production In 1899 Azerbaijan become first in the world in production In 1901 with the production of 11.5 mln ton= Azerbaijan was delivering %50 of world production.

TSAR RUSSIA PERIOD AZERBAIJAN OIL FDI at the end of XIX – beginning of XX centuries: Nobel Brothers-Rothscild Brothers-Russkiy Standart 1917 Bolshevik Revolution- nationalization decision 28 May 1918- INDEPENDEND AZERBAIJAN... Cancellation of nationalization decision 1.WW+political instability reduced production: in 1901 11.5 mln tons vs. 1919 3.7 mln tons 28 April 1920: OCCUPATION – 1921 2.4 mln tons Caucasus Industrial organizations % Employers % % industrial products 1908 59 80 92

SOVIET PERIOD AZERBAIJANI OIL INDUSTRY Country continue its dependence on oil and oil related industries... This period could be considered in following stages: 1) 1920-1945 and 2) 1945-1990 1.stage is recognized as a period of major challenges 2.stage is recognized as a period of oil production in the sea 1949 first time in the world at Oil Rock oil was produced from the sea Between 1920-1930 in average it was produced 4.6 mln tons of oil In 1930 Azerbaijan accounted for %57 of production in USSR Between1930-1939 in average it was produced 17.5 mln tons of oil In 1940 Azerbaijan was accounted for %71 of the USSR production

SOVIET PERIOD AZERBAIJANI OIL INDUSTRY 2.World War and in 1941 25.4 mln ton, %75 of USSR production, (1942-15.8; 1943-12.6; 1944-11.8 and 1945-10.4 mln tons) Oil production decreased during: 1950-1960 and 1969-1985 due to finding oil reserves in other places... During SOVIET times main industry was: OIL In line with: - Oil procurement (at the end of 1980 %70 of Soviet production) - Oil refinery complexes-Oil and Chemical, etc. Remaining of Soviet: -Old and outdated technology+Oil experience Conclusion: Oil dependence of country comes from history 1940 1950 1960 1970 1980 1985 Independence %71.6 %39.2 %12 %5.7 %2.4 13 mln tons 9 mln tons %1.7

ENERGY CONSUMPTION IN THE WORLD (Source: BP Statistical Review, 2013)

AMOUNT OF OIL RESERVES ACCORDING TO THE REGIONS (SOURCE: BP Statistical Review, 2013)

FIRST 10 COUNTRIES BASED ON THEIR NATURAL GAS RESERVES (SOURCE: BP Statistical Review, 2013)

CASPIAN OIL DISTRIBUTION BASED ON COUNTRIES Confirmed reserves Estimated reserve   (mln tons) Kazakstan 1590 13515 Azerbaijan 572.4 4293 Turkmenistan 238.5 5056.2 Russia 31.8 795 Iran 15.9 1908

TOTAL OIL RESERVES ON REGIONAL COUNTRIES Confirmed oil reserves Production (2005) Consumption (2005)   (bln barrels) (thousand barrels/day) Iran 137.5 4049 1659 Russia 74.4 9551 2753 Kazakstan 39.6 1364 208 Azerbaijan 7 452 103 Turkmenistan 0.5 192 110

OIL INDUSTRY Guneshli, Chırag, Azeri and Kapaz In September of 1992 on base of merge of Azerineft and Azneftkimya established State Oil Company of Azerbaijan On 20 September of 1994 Azerbaijan have signed 23 international contracts with 33 companies which represented 19 countries Total amount of investment on 60 bln USD On implementation of oil project were attracted 400 companies 72 of which were locals During these project there were employed 75 thousand people

OIL AND NATURAL GAS CONTRACTS “Azari-Chırag-Guneshli” (20 September 1994 )- Contract of Century “Shahdeniz” Contract (4 July 1996)

“Azeri-Chırag-Guneshli” In 1992 Azerbaijan have signed agreement with Azerbaijan International Oil Consortium (AIOC) with the 30% of SOCAR In 1994 announced of agreement with Lukoil on 10% purchase It is estimated that project cost of 11 bln USD could produce 5.4 bln barels (730 mln tons) of oil and 96 bln m3 of natural gas. Gunashli locates 82 km, Chirag 94 km and Azer 113 km far from coast in the sea.

“Azeri-Chırag-Guneshli” (20 september 1994 ) BP (operator) 34.13% Unocal 10.3% SOCAR 10% İNPEX 10% Statoil 8.56% ExxonMobil 8% TPAO 6.75% Devon 5.62% İtochu 3.72% AmeradaHess 2.72%

“Shahdeniz” contract Signed on 4th of July in 1996 Located in 70 km far from Baku. The field covers an area of 800 km2. Total project investment is 4.1 bln USD It is estimated that Shahdeniz field has1 trillion m3 of natural gas reserve. 400 bln m3 are already confirmed. It is estimated that 60 bln m3 natural gas will be produced annually.

“Shahdeniz” contract UK BP 25.5% Norway Statoil 25.5% Azerbaijan SOCAR 10% Russia Lukoil 10% France TotalFinaElf 10% Iran OIEC 10% Turkey TPAO 9%

PIPELINES OF AZERBAIJAN Before to start to produce and transport Azerbaijani oil country have reviewed and discussed around 7-8 pipelines to trandport oil and gas products. However, Azerbaijan International Oil Consortium (AIOC) established to produce Azerbaijani oil have shortlisted only 3 pipelines which are: Baku-Novorossiysk, Baku-Supsa and Baku-Tbilisi-Ceyhan.

Baku-Novorossiysk During the discussions with the support of Russia country refocused on the existing pipeline to make transportation easy and cheap. Later, this pipeline was re-developed and laid on area of Chechen Republic as well. As a result, Azerbaijan signed a separate agreement with Russia and Chechen Republic for Baku-Grozny-Tikhorotesk-Novorossiysk pipeline. Agreement signed between AIOC and Russian Transnefton 16 January of 1996 enables to start first export operations within the Baku-Grozny- Novorossiysk pipeline. From November of 1997 oil was exported by this pipeline. Oil which was transported by this line to Russia and later by tanker to Istanbul first time reached Istanbul on 12 of December of 1997. Bakı-Novorossiysk pipeline exports annually 2.5 mln ton of oil. SOCAR pay to Russia for export 15.67 per ton. This payment is higher than the payment for Baku-Supsa.

Baku-Supsa Alternative destination was selected as a Supsa port of Georgia till which country is decided to export oil by Baku-Supsa (Western) pipeline. On 8 of March of 1996 in Tbilisi there was signed an agreement between AIOC, Georgian government and SOCAR. Initially it was agreed that oil produced from Azeri, Chirag and Guneshli will be exported by this line. When Chechen war started to threaten Baku-Novorossiysk pipeline it was decided to build up Bakı-Supsa. This pipeline started to operation in 1999 as it was planned and constructed. From the date of exploration till 2004by this pipeline was exported 6.3 mln ton oil.

Baku-Tbilisi-Ceyhan Since it was clear that on higher production volumes existing pipelines Baku- Novorossysk and Baku-Supsa will not be enough it was researched and finally agreed on Baku-Tbilisi-Ceyhan pipeline. Total length of pipe is 1768 km which starts at Sangachal terminal in area close to Baku and goes by land to Georgia’s capital city Tbilisi and later enters to Turkey Anatolian side. Pipeline with its 443 km in Azerbaijan, 249 km in Georgia and 1076 km in Turkey nowadays plays crucial role in oil export in the region. It also considered to export Kazakhstani oil and Turkmenistani gas through this line and for this reason Trans caspian pipeline should be built trough Caspian Sea. 18 September of 2002 with participation of all sides BTC construction was launched. In 2004 160 mln of loan line was provided for this pipeline from USA Exim Bank after the government approval. Later, major financial institution decided to participate in this project of total cost of 3.6 bln USD. In 2006 BTC transferred 25 mln ton, and in full operational 200745-50 mln tons of oil. Ceyhan export terminal has a capacity of 120 mln tons/year, approximately 71 mln tons of which comes from Irag-Turkey oil pipeline and only 49 mln tons/year is dedicated for the BTC pipeline export.

Baku-Tbilisi-Erzurum gas pipeline In March 2001 in Ankara Turkey and Azerbaijan have signed an agreement on gas export. According to the agreement, initially in 2004 Turkey should receive 2 bln cubic m of gas from Shahdeniz and later as: In 2005 3 bln m3, In 2006 5 bln m3, In 2007-2008 6.6 bln m3 As a result according to the agreement in 5 years Turkey was assumed to receive 23.2 bln m3 of gas. However due to technical and other problems construction of Baku-Tbilisi-Erzurum gas pipeline started only in 2004. This pipeline is planned to built up in paralel with BTC to reduce costs and future problems. Distance between 2 pipelines is considered to be 12 m.

Baku-Tbilisi-Erzurum gas pipeline In 2004 to transport gas from “Shahdeniz” BP initiated construction of South Caucasus gas pipeline (another name for BTE). Construction was finalized in 2005 and in winter of 2006 natural gas was produced and delivered to this pipeline for export. According to another contract this pipeline will be used to deliver 1 bln m3 of gas to Greece and Europe. Later, export amount should increase to 14.3 bln m3. To obtain these levels there is planned to construct separate pipeline between Turkey and Greece. Participation of Greece in this project is strategically important for both Turkey and Azerbaijan in terms of political stability and support.

OIL & ECONOMIC DEVELOPMENT Increased foreign direct investments into the energy area Renovated oil industry Increased employment areas Developed oil related industries Invested into the non-oil areas (especially into the service) Observed increase in life standards Increased GDP.

WORLD EXPERINCE IN OIL & ECONOMIC DEVELOPMENT Effective usage of natural resources for future development - long-term investments Lack of capital Wide range of products in import Few products in export Ratio of oil and oil based products in export 1998 1999 2000 2001 2002 2008 64.8 75.9 84 91.23 81.23 95

PROBLEMS OF OIL BASED ECONOMIES %53.1 of GDP %58 of Budget income %90 of export %90 of foreign investments into the oil industry shows dependency of country on oil Dutch Decease (Syndrome) According to OPEC data on oil production: - In 2095 S.Arabia - In 2125 United Arab Emirates - In 2135 Kuwait - In 2025 Azerbaijan will finish its oil production

EFFECTS OF DEPENDENCE Fluctuations in oil prices Possibility of increase of dependency in future years Lack of oil reserves, i.e. Azerbaijani oil reserves is less than S.Arabia’s in 45, Iran’s in 25, Kuwait’s in 17 times

PROBLEMS OF OIL DEPENDEND ECONOMU (RESEARCH) Azerbaijan between 1965-2035 1965-2000 period: - Between 1965-1984 Development Period - Between 1984-1988 Crisis Period - Between 1988-1995 Fall Period - Between 1995-2000 Stability Period 2000-2035 period: - 2000-2022 : development started at the beginning of 2000th will reach it top line in 2022 - between 2022- 2035 if no major changes will happen country will experience deep crisis which will last till 2035...

STATE OIL FUND OF AZERBAIJAN (SOFAZ) Azerbaijan with support of IMF have established in 29.12.1999 SOFAZ. Goals: - Exploration, production and proceeding of energy resources. - Distribution of income to current expenses and to the future generations. However, expenses have not been defined.

SOFAZ RESERVES 34 bln USD in 2015 These resources are diversified and allocated into the gold, assets and deposits in the foreign countries In 2002 Azerbaijan joined under the leadership of UK to the Extractive Industries Transparency Initiative.

SOFAZ RESERVES DYNAMICS

USAGE OF SOFAZ RESERVES Up to date Funds were used: - To finance SOCAR shares in BTC project - To improve live standards of IDPs - To finance education – related projects - To finance Oguz-Gabala water pipeline - etc.

AZERBAIJAN ECONOMIC POLICY The role of the state in the economy is decreased, when the economy started to be liberalized. The state’s regulatory and supervisory role increases same time, with the numbers of the private institutions. The maintenance of the macroeconomic stability, the continuation of the reforms and application of successful economic policies will secure the competitive economy. To do so, “State Program on Poverty Reduction and Economic Development” and “State Program on the Socio-economic Development of the Region” are realized.

MONETARY POLICY The first years of the transition period was observed with high inflation in all former Soviet states. The steps towards the liberalization in prices, foreign trade activities, and finance sector, caused the general growth in the prices, naturally. The only solution in such kind of circumstances is to balance the amount of money in turnover, via the money and loan policies. To do this, it is possible to deter the general growth of the prices. The abovementioned balance policy should also reduce unemployment rate and secure the high economic development in terms of developing countries. National Bank started to apply strict monetary policy in order to deter the existed hyper-inflation in the country, from 1995. National Bank has a full authority on the all monetary policies. National Bank applies strict monetary policy. The emission of the Manat was 500% in 1994. However it was decreased to 175% in 1995. In 1997, the emission was increased, at the amount of 28%. The amount of money in turnover was decreased, as a result of the application of the strict monetary policy. However after the second period of 1999, the money in turnover was started to increase.

MONETARY POLICY/SUPPLY Years M0 M1 M2 1995 602.4 355.2 957.6 1996 865.4 338.8 1204.2 1997 1170.5 385.8 1556.3 1998 926 292.5 1218.5 1999 1135.8 268.5 1404.3 2000 1349.8 311.3 1661.1 2001 1469.0 286.6 1755.6 2002 1668.7 357.1 2025.8 2003 2040.9 551.3 2592.2 2004 2389.0 1029.0 3418.0 2005 2523.4 1234 3689.6 2006 3256.7 1452 3965.8 2007 3725 1756 4565.2 2008 4123 1845 4856.3

MONETARY POLICY The National Bank applied range of strategies in order to secure effective and reliable development of bank system; The growth of the roles of the Banks in economy. The activity in the loan investments The enlargement of the finance in order to secure the development of the regions. The National Bank applied strict policies on the banks, which don’t obey the rules and regulations. Thus, the banks, which do not increase their paid-in capitals to $5.000.000 dollars, started to be strictly followed by the National Bank from 2006. “Azerbaijan Deposit Insurance Fund” was established in order to ensure the trust of the people to the banks in 2005.

FISCAL POLICY According to the Law on budget system of the Republic of Azerbaijan, enacted in 1992, the budget system is consisted of the budget of Azerbaijan Republic, the budget of Nakhchivan Autonomous Republic and the local budgets. Budget revenues are formed from income tax, VAT (Value- Added Tax), custom taxes, land taxes, and excises (taxes collected from cigarette, beverage, imported cars, and mining taxes). Social protection expenditures, defense expenditures, are the most important budget expenditures.

FISCAL POLICY The war between Azerbaijan and Armenia from 1991 to 1994 negatively affected the state budget of Azerbaijan. The ratio of the state expenditures to Gross Domestic Product (GDP) increased 55%, and the rate of the budget deficit to GDP increased 15% during that period. The ratio of the budget deficits to GDP increased 5.4%. However the government intended to reduce this figure. To do so the government planned to; Reduce the budget expenditures Control the budget deficit Maintain low inflation rate Minimize the effects of the crisis in neighborhood Strengthen believes to Manat Reduce real and nominal rates (interests)

FISCAL POLICY The importance of the companies in accordance with tax is increased day after day. The most important tax organization - The Ministry of Taxes of the Republic of Azerbaijan was established within the Ministry of Finance in 1990. In 1991, this organization became the independent tax inspection. Eventually, in 2000, it became the ministry, with the order of the President of Azerbaijan Republic. Then, several departments of the Ministry were established. This process continued in the regions of Azerbaijan also. The tax policy and the tax collection are in the authority of the Ministry of Taxes of the Republic of Azerbaijan. There are three types of the taxes in Azerbaijan: 1) State taxes, 3) Autonomous Republic taxes and 3) local taxes. Tax collection is conducted in two ways: 1) Tax collection directly from source and 2) Tax collection via statement. There are 9 state taxes, 8 Autonomous Republic (only in Nakhchivan Autonomous Republic) taxes, and 4 local (municipal) taxes in Azerbaijan. There are some privileged people, who are free from the value added tax. Furthermore it’s planned to form tax system, same with developed countries.

FISCAL POLICY It’s very important to reduce the value added tax ratio, and simplify the tax system in Azerbaijan. These will trigger the improvement of the non-oil sector, and positively affect price stabilization. The international practice shows that, we can expect any improvement in economy, while the value added tax will be 5-10%. When this ratio becomes huge, there will be some problems, which are existed in South America. 124 Appendix and Amendments are added to the Tax Code, until 2010. The Amendments plans; to increase the effectiveness in the Tax Control to protect the rights of taxpayers to deter the tax evasion According to the amendments, new limits were applied to the tax procedures. One of the changes in Tax Code devoted to the people, who want to rent their assets. Furthermore, the customs system was simplified. On the other hand, the profit tax was decreased from 22% to 20%.

INTEGRATION Japan is in the first place in terms of the credits given to Azerbaijan in accordance with the global sectors, such as energy and water sectors. The credits given to Azerbaijan Japan International Cooperation Bank (27%) World Bank (26%) International Monetary Fund (17%) European Bank for Reconstruction and Development (5.1%) Eximbank Turkey (5%) Others (14%)

IMF & AZERBAIJAN The international organizations also support Azerbaijan’s intention to access market economy. These organizations are interested in stability in Azerbaijan’s economy. Azerbaijan and International Monetary Fund (IMF) have signed assistance agreements in order to support macroeconomic stability. First loan was given to Azerbaijan in April, 1995. The total amount of the loan was $46.000.000 dollars. IMF supported the economic reforms of 1995-1996 with $132.000.000 dollars in November, 1995. The economic reforms included; to reduce the inflation rate with the regular monetary and finance policies to reconstruct finance system the rationalization of the price structure to have fast improvement in privatization In 1998, the International Monetary Fund gave two loans to Azerbaijan, amounted $64.000.000 dollars. Those loans were given due to; reduce inflation rate secure macroeconomic stability The loan given in January, 1999 was $112.000.000 dollars. That credit considered; to support economic and financial reforms of 1999 in Azerbaijan. to compensate the damages of the oil prices’ reduction in 1998. to support the reconstruction of the public sector. In 2001, International Monetary Fund gave three-year loan of $100.000.000 dollars, under the Poverty Reduction and Growth Facility (PRGF) for the Azerbaijan Republic to support the government’s economic program. IMF gave $16.1 million dollars loan in 2002 and $12.87 million dollars loan in 2003 for Azerbaijan.

IMF & AZERBAIJAN The Poverty Reduction and Growth Facility (PRGF) is an arm of the International Monetary Fund, which lends to the world’s poorest countries. PRGF supported programs are underpinned by comprehensive country owned poverty reduction strategies. Poverty Reduction Strategy Papers are looked up by governments with the active participation of civil society and other development partners. Currently Azerbaijan is used only technical aids of PRGF. According to the figures of October, 2009, Azerbaijan’s IMF debts were $81.9 million dollars. According to the figures of November, 2015, the debt is $29 million dollars.

WORLD BANK & AZERBAIJAN The World Bank is an international financial institution that provides loans to developing countries for capital programs; privatization and investment, improvement of gas pipelines and power lines, the improvement of education and medical systems, poverty reduction and etc. In the first years, the loans of World Bank for Azerbaijan included; reconstruction and aids for refugees. However, World Bank launched huge projects in Azerbaijan, recent years; budget activities, social reforms, education, health, and water supply. World Bank’s Azerbaijan policies have three directions: To improve non-oil sector and create new workplaces in this sector To create transparency in the government organizations To improve social services, such as education and health Furthermore, fighting against corruption and improvement of accounting system are also important parts of World Bank policy in Azerbaijan.

WORLD BANK & AZERBAIJAN The first loan of World Bank for Azerbaijan considered oil sector. If we consider the importance of oil for Azerbaijan economy, it is possible to say that, this loan was vital for Azerbaijan. The loans allocated by World Bank are important, same as foreign investments. World Bank’s loans are given for 35 years without interest. The government annually pays only 0, 75% service price. In May, 2000, World Bank signed a loan agreement with Azerbaijan, which is called “Development and Loaning of Agriculture”. The value of that project was $33.7 million dollars. As a result of the project; 20 Credit Associations were established (Nakhchivan -6, Beylagan-6, Sheki-5, and Masalli-3). Improved the registration system of real estate in the regions The plan about the “Development Strategy of Agriculture System until 2010” was prepared

WORLD BANK & AZERBAIJAN World Bank launched 9 projects in Azerbaijan, in 2003-2010. The total amount of the financial aids during that period was $155-200 million dollars; Reconstruction of the water supply system ($12 million dollars) Development of Education System ($18 million dollars) Development of Irrigation System ($30 million dollars) “State Program under Poverty Reduction and Economic Development” ($17 million dollars) Development of the regions ($22 million dollars) Reestablishment of Pension System ($10 million dollars) Rehabilitation of the distribution of the electricity ($40 million dollars) Reconstruction of Shahdagh National Park ($8 million dollars) Launching of “PRSC-2” project ($20 million dollars) Furthermore, World Bank also allocated $300 million dollars in order to construction of the BTC (Baku-Tbilisi- Ceyhan) pipeline. From 2005, Azerbaijan Republic started to give back the loans to World Bank. The first loan agreement between Azerbaijan and World Bank was signed in 1995 and expired in 2005. According to the agreements, Azerbaijan repays loans after 10 years. World Bank gives huge importance to the Agriculture of the country, recently. Azerbaijan and World Bank signed 57 loan agreements until June, 2010. The total amount of the agreements was $1,6 billion dollars. In 2014, Azerbaijan and World Bank signed loan agreement in the amount of $300 million dollars. From 1992 until 2014, the total responsibility of Azerbaijan was $3.8 billion dollars.

IFC AND AZERBAIJAN International Finance Corporation (IFC) was established within the World Bank Group in 1956. IFC was formed in order to give project loans for the developing countries. The Organization has 175 members and $2.4 billion dollars budget. IFC in Azerbaijan focused on; the strengthening of the financial system the creation of small business institutions the development of industry and agriculture the development of non-oil sector

EBRD AND AZERBAIJAN The European Bank for Reconstruction and Development (EBRD) is an international financial institution founded in 1991. As a multilateral development investment bank, the EBRD uses investment as a tool to build market economies. Initially focused on the countries of the former Eastern Bloc it expanded to support development in 30 countries from central Europe to central Asia. EBRD in Azerbaijan focused on; promoting competition and improving the business environment to deepen reforms pursuing investments in energy projects that improve efficiency and energy security supporting partner banks in the development of new financial instruments to target improved access to finance for women-owned and -run businesses Azerbaijan and EBRD in 1991-2003; 19 projects €279.801.000 euro loan; (€261.577.000 euro - direct investment; and €18.224.000 euro - regional investment) From 2003 until 2010 EBRD and Azerbaijan signed several agreements in accordance with 14 projects. The total amount of loans was $500 million dollars. The biggest parts of the loans were allocated oil sector. Approximately $200 million dollars were spent for oil and gas sector. The other parts of the loans were spent for non-oil and construction sectors.

JICB AND AZERBAIJAN The cooperation between Japanese International Cooperation Bank (JICB) and Azerbaijan is mainly focused on energy sector. Japanese International Cooperation Bank is one of the most important international organizations, which support Azerbaijan in order to improve energy sector. The bank allocated $339 million dollars for the energy sector in Azerbaijan. JICB also give a loan $100 million dollars amount in order to construction of the petrol industry in Sumgayit. The Organization gave loan due to establish gas pipeline form Garadagh (district in Baku) to other parts of the region.

ADB AND AZERBAIJAN In 2001, Asian Development Bank started to cooperate with Azerbaijan. Purposes are; establishment of the new infrastructure and new workplaces in order to development of private sector. In 2004, Asian Development Bank launched an aid project amounted $2,5 million dollars in Minghachevir, due to improve the life conditions of the refugees. $850.000 dollars allocated to Azerbaijan Republic Ministry of Health. From 2001 until 2009, ADB allocated $190 million dollars for the projects; especially poverty reduction, improvement of private sector. Until 2009, ADB granted 20,5 million dollars for 28 technical aid projects. From 2009 until 2012, ADB allocated 17 loan projects for Azerbaijan. Only in 2011, ADB gave $300 million dollars loan for Azerbaijan. In 2015, ADB allocated $120 million dollars loan for Access Bank, FINCA Azerbaijan, and Demirbank in order to improve agriculture, and small businesses.

IsDB AND AZERBAIJAN Azerbaijan has been the member of Islamic Development Bank since 1992. In 2004, Azerbaijan and IDB, signed $22 million dollars loan agreement for the construction of the Ucar - Yevlax highway. IDB allocated $10 million dollars loan for the construction of the Velvelechay-Takhtakorpu part of the Samur - Absheron channel. IDB allocated 13,5 million dollars loan for the construction of the Khachmaz Electricity Production Centre and its connection to Yashma-Derbent Electricity Distributor. Most of the loans of the Islamic Development Bank are allocated for the energy sector, communication sector, as well as the development of the private sector. In short, IDB allocated 1,2 billion dollars loan for Azerbaijan, form 1992 until now.

Germany-Azerbaijan Fund & Azerbaijan Germany-Azerbaijan Fund was established by KfW Development Bank and the Ministry of Finance of the Republic of Azerbaijan in 1999. The fund allocated loans for the improvement of small and medium enterprises. The banks in collaboration with the Germany-Azerbaijan Fund gave 751 loans in the value of €5.96 million euro in 2003. In 2003, German and Azerbaijan governments signed an agreement on to increase subsidies from €3,6 million euro to €8,7 million euro. The budget of Germany- Azerbaijan Fund was €3,3 million euro for 2004. The sewerage and water supply systems of Ganja and Shaki were reconstructed with the loans of the KfW Development Bank. The loans of the KfW Development Bank are used for the support of the private sector and the “insurance fund of the deposits”.

BSTDB & Azerbaijan In 1997, Azerbaijan became the member of the Black Sea Trade and Development Bank. The main targets of the Organization in Azerbaijan; Improvement of the non-oil sector Reconstruction of the private enterprises Financing of the projects in accordance with telecommunication, transportation, production, and agriculture BSTDB allocated €34 million dollars loan for four (4) finance organization in 2013.

EU PROJECTS The relationships between Azerbaijan and European countries were improved as a result of the aid of European countries to Azerbaijan. The projects such as TRACECA, INOGATE, and TACIS triggered the relationships between Azerbaijan and European Union. Furthermore European Union, started to launch “Food Security” program due to support state budget from 1996. EU allocated €30 million euro for Azerbaijan, within the “Exceptional Assistance” program. These loans considered the reconstruction of the infrastructure. “Rehabilitation” program considered the reconstruction of the territories, freed from the Armenian occupation. “Demining” program was launched, after the Rehabilitation program. From 1992 until now, European Union allocated €400 million euro for Azerbaijan.

TRACECA European Union and Azerbaijan signed “Partnership and Cooperation” agreement in 1996, and this contract came into force in 1999. Especially United Kingdom was interested to strengthen the relationships, because of English companies, operated in Azerbaijan. Azerbaijan has more trade relationships with European Union, than other Caucasus Republics. The most important products in this relationship are oil, gas, and cotton. The volume of trade has been increased since 1993, between Azerbaijan and European Union. Silk Way will positively affect the economies of the countries, which participates in the reconstruction of it. Silk Way is the bridge between East and West, and this fact will help Azerbaijan expand its economic power. TRACECA is the most important project in the reconstruction of Silk Way. TRACECA project considers; The construction of the shortest and cheapest road from Europe to Central Asia, via Black Sea and Caucasus. TACIS program was the first steps due to reoperation of Silk Way.

TACIS TACIS technical aid program was planned in order to support economic reforms in post-soviet countries in European Union Summit in Rome, 1990. The program was planned to help cooperation between CIS countries and European Union. In 1992-93, European Union started to realize TACIS program. The project includes technical aids of legal, structural, administrative, and economic reforms. European Union will finance the technological projects, create free market economy, and support the establishment of democratic society via TACIS program. TACIS program also helps the reconstruction of the bridges and highways, as well as communication infrastructures.

INOGATE Interstate Oil and Gas Transport to Europe - INOGATE is the most important regional program of European Union in order to support reforms in former USSR countries. The main targets of the programs are; reconstruction of the transportation systems for oil and gas discovering of alternative transportation systems due to transport oil and gas to Europe. The energy resources of Azerbaijan, Kazakhstan and Turkmenistan take the most important part of the INOGATE project. In 1998, the meeting of the INOGATE countries took place in Brussels and they support the Baku-Supsa and BTC (Baku-Tbilisi-Ceyhan) pipelines.

CIS On December 8, 1991, the USSR (Union of Soviet Socialist Republics) collapsed and Russia, Belorussia, and Ukraine declared the establishment of the CIS. Azerbaijan became the member of the CIS, in September, 1993. 12 countries of former USSR were the member CIS and they didn’t depend on each other. Each of them has own economy, currency, language, religion, and etc. It’s possible to say that, CIS is not successful after its establishment. The democratic revolutions in Ukraine, Georgia, and Kyrgyzstan as well as the war between Azerbaijan and Armenia injured the effectiveness of the organization. Furthermore Georgia left the organization 2008, because of Russian occupation. Ukraine also left the organization after Russia invaded Ukraine in 2014.

GU(U)AM The GUAM organization for Democracy and Economic Development is a regional organization of four post-soviet states; Georgia, Ukraine, Azerbaijan and Moldova. The Organization was established on 10 October 1997, in Strasbourg and named after the initial letters of each those countries. After the dissolution of the USSR, former union republics confronted with some uncertainties. There was a political instability in the region. As a result, political powers of the world started to focus on this region, especially, Caspian and Black Sea countries. This situation triggered the region countries to maintain their independence. The discussions around how to transport energy resources to western countries was another concern after the Contract of Century. The main concern was around the Russian hegemony on the existed pipelines. This situation urged the region countries to establish new regional organization. Thus Georgia, Ukraine, Azerbaijan, and Moldova formed new organization in 1997. Uzbekistan also became the member of the GUAM in 1999. However they left the organization in 2005, because of the ineffectiveness of GUAM. Turkey and Latvia are the observant countries in GUAM. Azerbaijan oil is transported to Moldova, via Georgia, Black Sea and Ukraine is the most important factor for this Organization. The United States also support the activities of GUAM in the region.

INVESTMENT CLIMATE IN AZERBAIJAN

INVESTMENT CLIMATE IN AZERBAIJAN

INVESTMENT CLIMATE IN AZERBAIJAN The main factors, which attract foreign investors, due to invest non-oil sector of Azerbaijan are; rich mineral resources cheap labor force However abovementioned reasons are not enough for investment. The most important factor is the investment environment. Several researches should be realized in order to learn the relevant investment environment. The negative sides of the investment environment of Azerbaijan will be reviewed in the next slides. Then we will discuss legal and administrative initiatives in order to deter the negative activities.

LEGAL ENVIRONMENT Some important reforms have been realized since 1995, in customs, labor, agrarian, state services and anti-monopoly fields. In 1995-2010, new laws were enacted in accordance with all fields of the economy of Azerbaijan. The competitive internal and foreign trade environment was established with those reforms. According to the survey of EBRD (European Bank for Reconstruction and Development), the trade laws and regulations are enough. Of course, some important reforms should be realized in the future also. The decrees of the President of Azerbaijan are especially important for reforms.

LEGAL ENVIRONMENT The changes in tax regulations and procedures strengthen the belief of the taxpayers for transparency in tax system. According to the Amendments and Appendix to the Tax Law, the fines have reduced since 2004. The new law also removes the fines for the violation of the laws, which are happened repeatedly throughout the years. By this, government tries to improve the small and medium sized institutions. Foreign physical and legal person cannot privatize any asset or land. However they can rent via contract. The government started to realize new projects, within the State Investment Program from 2005. Furthermore “The Law on Investment Activities” was enacted in order to support economic development in the country. Newly enacted law came into force instead of the laws of 1992 and 1995. The main target of the law is to make transparent investment environment in order to attract foreign investments. The law planned to attract the investors who invested 24 billion dollars to Azerbaijan economy previous years. This time Azerbaijan government tries to attract those investors’ investment to tourism and food industry. This new law does not consider income limit for foreign investors. One of the most important aspects of “The Law on Investment Activities” is the exemption of the businessmen from the tax, who brings agricultural equipment to Azerbaijan. This will trigger the establishment of the free trade zones in the regions. Furthermore, some privileges will be given to foreign investors, who will participate in the projects in accordance with the establishment of industrial cities and free trade zones. The application of the code of anti-monopoly will trigger the establishment of competition environment.

Nationalization “Law on the Protection of Foreign Investment” nationalizes the properties of foreign investors and protects them from expropriation. The abovementioned activities can be realized with compensation, only if the state’s national interests and people suffer, or any natural disaster happens. Only Milli Majlis (The Parliament of Azerbaijan) can make a decision on the nationalization. Only the Cabinets of the Ministers can make a decision on expropriation. Not any nationalization happened in the country recent years. The compensation of any damages come from illegal activities of the state power, is also guaranteed.

TAXES Currently, there are three different types of tax regimes in Azerbaijan. The companies that work predominantly in the oil & gas sector under Production Sharing Agreements (PSAs) are subject to the oil consortium tax regime. Companies working under Host Government Agreements (HGAs) are subject to the HGA tax regime. The statutory tax regime is applicable to all other legal entities. The statutory tax regime is regulated by the Tax Code and numerous regulatory legal acts. The characteristics of the tax system in Azerbaijan are; Profits tax for local and foreign businessmen is 20%. The incomes of social aid organizations, grants, membership fees and aids come from non-commercial organizations are out of the income tax. Income tax from the foreigners (4%, 6%, 10%) changes according to the type of the tax. Income tax is changed between 14-30% according to increasing rate. The income tax of the embassy workers, and the people, who work in Azerbaijan less than 182 days is exceptional. The ratio of VAT (Value Added Tax) is 18%. A wealth tax (capital tax), is collected according to the type of the property. The income tax of the foreigners, who live in Azerbaijan less than 182 days, the properties of diplomats and embassy workers are free from taxes. Land tax is collected according to the region, where it’s located. The mining tax is changed 3-26%. The automobiles belong to the foreigners are taxed according to their types, volume and distance and etc.

EFFECT OF CRISIS ON FDI One of the most important effects of global crisis on the developing countries was reduction of the direct foreign investment. In 2008, the volume of the direct foreign investment to Azerbaijan was decreased. Thus, 2008 the volume of the direct foreign investment to Azerbaijan was 2.2 billion manat. That figure was 16.3% less than previous year’s figures. The main reason of the reduction was the global economic crisis. Great Britain invested $1.2 billion dollar in Azerbaijan in 2008 and they were in the first place in this category. Other important investor countries were USA, Japan, Turkey, and Norway. The total amount of their investment was 941.3 million manat, and that was the 42.3% of the total investment in Azerbaijan. In 2008, $9 billion dollars were invested to the economy of Azerbaijan. That was 34.3% more than the figures of 2007.

EFFECTS OF CRISIS ON BUDGET In the economic crisis of 2008, the annual price of oil was higher in amplitude. Thus, the price of Brent crude oil has changed over the years, from US $ 38.1 up to US $ 144.9. For every barrel of oil fall to $ 10, which means a loss of 2.2 billion dollars. In this case, the Fund projected budgets allocation for this specific year should be 34% of the Fund's income. As noted above, in the worst scenario (for example, US $ 40 per barrel) even in this case of Fund's planned income can not be decreased in more than 2 times. Even in the context of such a sharp decline, Fund will be able to fulfill its obligations not only in the state budget, but also to cover its own expenses. But in this case 60% of the Fund's total income can be transferred to the state budget. Budget losses from decline of oil prices will not be observed on stated budget, however they will be seen on total budgets. Saving in the budget expenditures is needed. Along with the crisis, the fall in the price of oil revenues leads to several problems. As an example, in the state budget for 2010 we can see that there is a decrease in revenues as well as costs for the first time in modern history of Azerbaijan.

EFFECTS OF CRISIS ON MACRO LEVEL The most important issue was that, the crisis affected Azerbaijan Republic State Oil Fund. Thus, the price of “Azeri Light” oil brand decreased to 50$, the cheapest figure last three years (It should be noted that the state budget was formed according to 70$ per barrel.). The commercial turnover of Azerbaijan was also affected by global financial crisis. According to the official statistics, oil and oil resources are the most important part of Azerbaijan’s export (93.80%). Furthermore the foreign investors delay their investments to the country because of the global financial crisis. The crisis caused; Reduction of the oil revenues, which are the most important part of our economy. Delaying of some important socio-economic investment projects. Economic growth will be less than expectations. Weakening of the economic subjects as a result of the reduction of the demands.

Elchin Suleymanov Qafqaz University elsuleymanov@qu.edu.az www.qu.edu.az/en/staff_directory/staff/elsuleymanov www.researchgate.net/profile/Elchin_Suleymanov www.qafqaz.academia.edu/Elchin www.ideas.repec.org/f/psu349.html Baku 2015