Azerbaijan Country Presentation

Basics Establishment: 28 May 1918 Independence: 18 October 1991 Area: 86.6 thsd km2 Population: 9.48 million Official Language: Azerbaijani Government system: Presidential Republic Membership in:UN, Council of Europe, OSCE, Non-Aligned Movement, OIC Highlights: 1st democratic republic in the Islamic world 1st Opera in the Islamic world Women voting right in 1918 (while in Italy ; Switzerland ; France – 1944) Currency:Manat: 1 AZN = 1.27 USD 1.01 EUR

Characteristics of economy ECONOMIC STABILITY FAVOURABLE BUSINESS AND INVESTMENT CLIMATE PRIVATE SECTOR CLEAR VISION FOR FUTURE

Economic stability: Macroeconomy Economic stability: Macroeconomy 2 nd fastest growing economy among 179 countries for GDP per capita growth in Source: The Economist 8 th among 148 countries in terms of stability of macroeconomic environment Source: World Economic Forum

Economic stability: Diversification Economic stability: Diversification Structure of GDP Diversification of economy and development of non-oil sectors are key strategic priority of economic policy

Economic stability: Competitiveness GLOBAL COMPETITIVENESS REPORT The report assesses the ability of countries to provide high levels of prosperity to their citizens. This in turn depends on how productively a country uses available resources. Therefore, the Global Competitiveness Index measures the set of institutions, policies, and factors that set the sustainable current and medium-term levels of economic prosperity. 1 st among CIS countries (6 times running), 38 th among 144 countries Other indicators (place among 144): Inflation – 1 st Macroeconomic environment – 9 th Government budget balance – 15 th General government debt – 12 th Labour market efficiency – 33 rd Capacity for innovation – 43 rd Technological readiness – 56 th

Business enabling environment Reformist business environment Firm legal basis and continuous improvement of business legislation Top-reformer of business regulations according to Doing Business Report 2009 Decrease of red tape, simplifying business permitting and licensing systems One-stop-shop for business registration One of the easiest start-up procedures in the world 2 days for business registration Internet registration of individual entrepreneurs and local commercial legal entities Competitive tax system E-filing and e-payment Corporate tax – 20%; VAT – 18%; Simplified tax – 4% and 2% No agriculture tax Tax holidays for residents of industrial and high-tech parks User-friendly government services 428 e-services by state authorities Web portal on business permissions and licenses ( and B2B facilitation ( One-stop-shop services by ASAN Service Centers (State Agency for Public Service and Social Innovations)

Business enabling environment WB Doing Business Report th among the 50 economies narrowing the distance to frontier the most since The distance to frontier measure shows how far on average an economy is from the best performance achieved by any economy on each Doing Business indicator since EconomyRank Georgia8 Kazakhstan50 Bulgaria58 Italy65 Turkey69 Azerbaijan70 Romania73 Czech Republic75 Croatia89 Russia92 Ukraine th among 189 countries Some sub-indicators: Starting a business– 10 th Registering property – 13 th Investor protection – 22 nd Enforcing contracts – 28 th Getting credit – 55 th In Global Competitiveness Index (rank/148): Hiring and firing practices – 8 th Burden of government regulation – 21 st Strength of investor protection – 25 th

Liberal investment climate Welcoming policy National regime for foreign investors No restrictions for any type of foreign investment Incentives for foreign investors Guarantees Guarantee against adverse changes in the legislation, nationalisation and requisition No discrimination policy Guarantee of compensation of damages and repatriation of profits Sophisticated legal base Law on Investment Activity and Law on Protection of Foreign Investments Party to New York (1958) and Washington (1965) Conventions 46 bilateral investment treaties 45 double taxation treaty Institutional support Azerbaijan Export and Investment Promotion Foundation (AZPROMO) Azerbaijan Investment Company National Fund for support of Entrepreneurship

Liberal investment climate Total Investments bln USD Domestic 88.7 bln USD Foreign 83.7 bln USD Non-oil sector 64% Oil sector 36%

Food industry/agriculture Climatic zones/types – 9 out of 11 existing in the world and fertile landLargest employer with up to 40% of employed workforceTax breaks and subsidiesStrong comparative advantage in exporting fresh fruits and vegetablesImport substitution and export orientationAccess to the regional markets: FTAs with the CIS countriesFocus on productivity, competitiveness and marketing

Tourism Unique geografic and climatic conditions In 2013 number of tourists increased by 3.9 times in comparison with 2003 World Tourism Organisation: Azerbaijan is top 2 nd in terms of the growth of tourist inflow in percentage ratio (+27% in 2012) Tourism related expenditures of foreingers: in $0.577 bln and in 2013 increased by 2.8 times up to $1.6 bln. Focus on establishment of modern tourism infrastructure, restoration of historical, cultural and natural sites and marketing Potential for the development of almost all types of tourism The largest project: winter-summer tourism complex in Shahdag – to be completed in 2016 and able to welcome tourists

ICT Average annual growth rate at 20-25% in the last 10 years 80% of income in ICT belongs to private sector, while mobile telephony and IT are completely private Around 2.5 bln USD invested in ICT in the last 10 years, 72% of which accounts for private sector and foreign investments 70% of population uses internet, 50% uses broadband internet Space industry started with the launch of the first national satellite in February, 2013 First among CIS States on share of internet users according to the WEF Global Information Technology Report 2013 Recent projects: High technologies park, ICT Development Fund, IT University

Industry Share in GDP: 46.3%Intensive industrialization policy: increase of 262% since 2005Investment (2013): total $9.5 bln – 53.4% foreign, 46.6% domestic Priorities on heavy industry, mechanical engineering, agroindustry, construction materials, chemicals, alternative energy, light industry Establishment of industrial parks: chemicals, waste recycling Focus on establishing supply chains and clusters as a driving force for industrial development New industrial parks to be established

Special zones Total area: about 300 ha Administration:“Sumgait Chemical Industrial Park” LLC under management of Ministry of Economy and Industry Priority products: chemicals used in agriculture, construction, packaging and automotive industries Infrastructure: All utilities are provided by plug-and-play concept Tax holidays (corporate, property and land taxes and VAT on imported equipment) for 7 years Key advantage: Availability of in-door raw materials, increasing domestic demand and close proximity to regional markets Sumgait Chemical Industrial Park (SCIP)

Special zones Balakhani Eco-Industrial Park Total area: 7 ha Administration: “Tamiz Sheher” OJSC under management of Ministry of Economy and Industry Priority areas: Recycling of plastics, tire/rubber, electronics, accumulators, non-ferrous metals, cabels and specific types of domestic waste Infrastructure: Offices, training centers, laboratory, All utilities are provided by plug-and-play concept Tax holidays (corporate, property and land taxes and VAT on imported equipment) for 7 years Key advantage: Proximity to city waste landfill site, Material Recovery (waste sorting) Facility and modern Waste-to-Energy Plant

Azerbaijan Investment Company Supporting Non-Oil Sector Development

ABOUT AIC “Azerbaijan Investment Company” OJSC (AIC) is a state owned equity fund, established by the Presidential Decree on the 30th of March 2006 AIC serves the purpose of developing non-oil sector of the national economy via termed equity injections Supervisory Board is the supreme governing body of AIC

Supporting non-oil sector development via termed equity investments in commercially viable projects and investment funds Attraction of local and foreign investments into the economy of Azerbaijan Increase market value and competitiveness of investee companies by integrating new technologies and know-how, and promoting modernization and innovation Support development of capital markets in Azerbaijan OBJECTIVES

KEY INVESTMENT PRINCIPLES Investments in all sectors excluding oil and gas industry Investments into brownfield or greenfield projects Minority shareholding in the invested projects

Competitive products IFRS compliance Independently audited financial statements Corporate governance best practices Board member at investee companies INVESTMENT CRITERIA

Divestment via IPOs Sale to third-party strategic acquirers Sale to existing shareholders EXIT STRATEGY Subject to terms of shareholders’ agreement AIC may choose from the following exit strategies:

PORTFOLIO DISTRIBUTION

Azerbaijan Investment Company 37 Khojali Ave. Baku, Azerbaijan AZ1025 TEL: (+99412) FAX: (+99412)