AZERBAIJAN-GERMANY ECONOMIC RELATIONS: CURRENT SITUATION AND PERSPECTIVES Lecturer Elshan BAGIRZADEH Azerbaijan State Economic University Turkish World Management Faculty International Relations Department Siegen-Germany, 6 Mart 2010

Ukraine Kazakhistan Russia Turkey Mediterranean Sea Iran Germany Ukraine Kazakhistan Russia Caspian Sea Black Sea Uzbekistan Georgia Azerbaijan Armenia Turkmanistan Turkey Baku Mediterranean Sea Iran Iraq

AZERBAIJAN GERMANY Official name – Republic of Azerbaijan Official language – Azeri (Turkish of Azerbaijan) Government – President Republic Capital – Baku Declaring of Independent – 18 October 1991 Area – 86,600 km2 Population – 9,000,000 Ethnic groups – 90.6% Azeri, 2.2% Dagestani, 1.8% Russian, 1.5% Armenian, 3.9% other Labour force – 5,78 million Labour force by occupation – services (48,6%), industry (12,1%), agriculture and forestry (39,3%) (2005) Unemployment – 6% Population below poverty line – 11.0% Currency – Manat GDP per capita – $5,346 GDP by sector – agriculture (6.7%), industry ( 65.0%), services ( 28.3%) GDP Growth –9.3% Inflation – 1.5% Gini index – 36.5 HDI – 0.787 (medium) Main industries –petroleum and natural gas, petroleum products, oilfield equipment; steel, iron ore, cement; chemicals;petrochemicals; textiles; machinery; cotton; foodstuffs Total investment – 21.3% of GDP Exports – $14.2 billion Exports goods – oil and gas 90%, machinery, cotton, foodstuffs Main export partners – Italy 40.2%, US 12.6%, Israel 7.6%, India 5.1%, France 4.9% Imports – $ 6.12 billion Import goods – machinery and equipment, oil products, foodstuffs, metals, chemicals Main import partners –Russia 18.8%, Turkey 11.2%, Germany 8.3%, Ukraine 7.9%, China 6.7%, UK 5.4% Public debt – 4.6 % of GDP Public revenues – $ 12.9 billion Public expenses – $ 13.2 billion External public debt – $3.4 billion Reserves of foreign exchange and gold – $20.4 billion GERMANY Official name – Federal Republic of Germany Official language - German Government – Federal Parliamentary Republic Capital – Berlin Declaring of Independent -23 May 1949 Area – 357,021 km2 Population – 81,757,600 Ethnic groups – 91.5% German, 2.4% Turkish, 6.1% other Labour force – 43.6 million Labour force by occupation – services (67.5%) industry (29.7%), agriculture (2.4%) Unemployment – 7.7% Population below poverty line – 11% Currency – Euro GDP per capita – $ 44,729 GDP by sector – agriculture (0.9%), industry (30.1%), services(69%) GDP Growth – 0.0% (2009) Inflation – 0.0 % (2009) Gini index – 27 (low) HDI – 0.947 (very high) Main industries – iron, steel, coal, cement, chemicals, machinery, vehicles, machine tools, electronics, food and beverages, shipbuilding, textiles Total investment – 19.2 % of GDP Exports - $ 1.498 trillion Export goods – machinery, vehicles, chemicals, metals and manufactures, foodstuffs, textiles Main export partners – France 9.7%, US 7.1%, UK 6.7%, Netherlands 6.6%, Italy 6.4%, Austria 5.4%, Belgium 5.2%, Spain 4.4%, Poland 4% Imports – $1.232 trillion Import goods – machinery, vehicles, chemicals, foodstuffs, textiles, metals Main import partners – Netherlands 12.5%, France 8.3%, Belgium 7.5, China 6.2%, Italy 5.7%, UK 5.4%, Austria 4.3%, Russia 4.2%, US 4.2% Public debt – 64.4% of GDP Public revenues - $1.591 trillion Public expenses - $1.591 trillion External public debt – $5.2 trillion Reserves of foreign exchange and gold – $138 billion

FORMATION OF RELATIONS In 12 January 1992 the Independence of Azerbaijan was recognized by Germany. In 20 February 1992, it was formed the first relations between two countries diplomatically. In 2 September 1992, the embassy of Azerbaijan was opened in Germany. In 22 September 1992, the embassy of Germany was opened in Azerbaijan. In 1-4 July 1996 Haydar Aliyev, former President of Azerbaijan visited to Germany. In 24-26 August 2004, 14-16 February 2007, 21-22 November 2009 and 4-6 February 2010, Ilham Aliyev, President of Azerbaijan visited to Germany. From 1997’th year, the intergovernmental negotiations for development organize between Ministry of Economic Development of Azerbaijan and Ministry of Federal Economic Cooperation and Development of Germany every year. From 2004’th year, it has been organized ten Azerbaijan-Germany Business Forums. There are friendship groups in both parliament of countries. In this day, Germany is one of the important political and economical partnership of Azerbaijan in Europe. The relations between two countries have positive trends from 1992 year.

ADOPTED DOCUMETS ON ECONOMIC RELATIONS (1995-2009) DOCUMENTS NUMBER PROJECTS The intergovernmental agreement on air transport between Azerbaijan and Germany, 27 July 1995 - The intergovernmental agreement on encouragement and protection of investments, 22 December 1995 The intergovernmental agreement on formation of found of researches and specialists, 2 July 1996 The intergovernmental agreement on removing of doubled taxation related to incomes and wealth, 25 August 2004 The intergovernmental agreement on technical cooperation (GTZ) 2 Improvement of private sector Agrarian policy Reforms of system of Law court and jurisprudence Health, agriculture, education, system of bank, improvement of body of current law The agreement on intergovernmental financial cooperation 14 Project of aid for refuges Project of aid for Baku Airport Project of buying of share of Germany Investment and Development Organization (DEG) in Microfinance Bank (1.5 million Euro) Project of Construction of AzDRES-Imishly electric line Project of Formation of Credits Guarantee Fund Project of Opened Communal Infrastructure Project of Improvement of Small and Medium Entrepreneurship and Reparation of Systems of Electricity Project of Struggle with Tuberculosis Project of Formation Samur-Yalama National Park The agreement on credit and finance from Germany Reconstruction and Credit Bank 3 Total credit: 244,58 million Euro Reparation of infrastructure of electric, water and other Improvement of system of finance and bank

AID TO AZERBAIJAN Type of aid 1994-2009 Financial aid 24,5 million Euro Technical aid 44 million Euro

INVESTMENT RELATIONS GERMAN INVESTMENTS TO AZERBAIJAN ECONOMY 2000 2003 2004 2005 2006 2007 2008 2009 Total foreign investment (million $) 927 3371 4575,5 4893.2 5052.8 6674.3 6847.4 1846.6 Germany 1.7 - 2.1 21.6 17.4 22.9 48.2 0.375 Share of Total (%) 0.2 0.04 0.4 0.3 0.7 0.02 Today, there are 112 German companies in Azerbaijan.

COUNTRIES AND INTERNATIONAL ORGANIZATIONS WHICH INVESTED T0 AZERBAIJAN ECONOMY 2009’th YEAR thousand manat SHARE OF TOTAL (%) Total 1477260,3 100,0 United Kingdom 726626,5 49,2 U.S.A. 216769,5 14,7 Japan 113147,1 7,7 Norway 70526,3 4,8 Turkey 55929,2 3,8 France 40432,2 2,7 Czech Republic 34581,3 2,3 Switzerland 31370,3 2,1 Republic of Korea 12222,0 0,8 United Arab Amirates 3654,4 0,2 Suudi Arabia 2549,8 Austria 2183,3 0,1 Kazakhistan 1680,6 Russia 864,2 Italy 803,7 Germany 300,5 0,0 The World Bank 93857,5 6,4 The Asia Development Bank 39383,6 The Europe Reconstruction and Development Bank 21287,5 1,4 Kuviet Economic Development Fund 5620,7 0,4 The Islamic Development Bank 3470,1

FOREIGN TRADE RELATIONS AZERBAIJAN – GERMANY FOREIGN TRADE INDICATORS (1996-2009) 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Export (mil.$) 3,9 3,1 6,2 6,6 7,6 8,3 12,9 28,8 7,3 37,6 34,8 9,0 19,7 205,5 86,8 Import (mil. $) 43,8 77,2 38,8 46,7 46,2 67,5 72,8 83,4 170,0 198,4 256,3 403,8 471,2 598,6 550,9 Total 47,7 80,3 45,0 53,3 53,8 75,8 85,7 112,2 170,3 236,0 291,1 412,8 490,9 804,1 637,7 Source: The Statistical Committee of Azerbaijan Republic

THE FIRST TEN PARTNERS OF AZERBAIJAN IN FOREIGN TRADE AND GERMANY EXPORT (2009) IMPORT (2009) Million $ Share of % İtaly 3 788,44 25,77 Russia 1 070,93 17,50 U.S.A. 1 746,81 11,88 Turkey 905,98 14,80 France 1 326,11 9,02 Germany 550,97 9,00 İsrael 1 236,20 8,41 Ukraine 511,65 8,36 744,95 5,07 China 484,82 7,92 Taiwan 680,39 4,63 UK 274,77 4,49 Canada 660,65 264,22 4,32 Indonesia 587,48 4,00 Japan 146,21 2,39 Malaysia 395,01 2,69 Italy 142,12 2,32 Georgia 387,56 2,64 Belarus 136,66 2,23 Other 3 144,90 21,40 1 631,40 26,67 Total 14 698,50 100,00 6 119,73 Source: The Statistical Committee of Azerbaijan Republic

Source: The Statistical Committee of Azerbaijan Republic THE FIRST TEN FOREIGN TRADE PARTNERS OF AZERBAIJAN IN EUROPE UNION AND GERMANY 2009 (million $) Countries Export Share of % Import Total İtaly 3 788,44 25,77 127,73 2,09 3 916,17 18,81 France 1 326,11 9,02 142,12 2,32 1 468,23 7,05 Germany 86,75 0,59 550,98 9,00 637,73 3,06 United Kingdom 196,88 1,34 274,77 4,49 471,65 2,27 Spain 316,60 2,15 14,86 0,24 331,46 1,59 Greece 179,75 1,22 5,68 0,09 185,43 0,89 Bulgaria 128,47 0,87 8,63 0,14 137,10 0,66 Sweden 4,08 0,03 118,00 1,93 122,08 Niderland 66,10 0,45 54,53 120,63 0,58 Malta 83,47 0,57 0,20 0,00 83,67 0,40 Source: The Statistical Committee of Azerbaijan Republic

MAIN GOODS AND SERVICES IN FOREIGN TRADE BETWEEN AZERBAIJAN AND GERMANY STRUCTURE OF IMPORT FROM GERMANY (2008) Type of goods Thousand $ Share of % Automobiles and their parts 162 580,0 27,2 Equipment and mechanical devices and their parts 157 291,0 26,3 Tobacco 97 834,0 16,3 Optician, photographic, measure, supervision, medical tools and apparatuses 49 406,0 8,3 Electric machines and equipments, apparatus and their parts 37 770,9 6,3 Ferrous metals and its products 30 025,2 5,0 Other 63 663,1 10,6 Total: 598 570,2 100,0 STRUCTURE OF IMPORT FROM AZERBAIJAN (2008) Type of goods Thousand $ Share of % Raw oil 197 142,7 95,9 Hazelnut, caviar and other 8 342,9 4,1 Total: 205 485,6 100,0 Source: The Statistical Committee of Azerbaijan Republic

THE DEVELOPMENT STAGES OF AZERBAIJAN ECONOMY Crisis period ( 1991 -1995 ) Stability and reform period ( 1995 -1998 ) Progress period ( 1998 -2004 ) Raising period ( 2004 - ? )

MAIN STATE PROGRAMMES (2004 - ?) Struggle against poverty Rural development Public investments Improvement and supporting of private sector Struggle against corruption and shadow economy Improve of ecological situation Improve of sources of alternative energy

MAIN ECONOMIC INDICATORS OF AZERBAIJAN ECONOMIC DEVELOPMENT PROCESS Azerbaijan economy has increased 8.4 times from 1995 to 2009. State Budget has increased 10 times from 2003 to 2009. Poverty level has gone down from 49% to 11% from 2003 to 2009. Average monthly salary has increased 3.5 times from 2003 to 2009. Middle monthly pensions have increased 3.8 times from 2003 to 2009. Azerbaijan has been the leader country according to indicator of economical growth in the World in 2006-2008 years.

PERSPECTIVE OF AZERBAIJAN ECONOMY “Doing business-2009”: Azerbaijan is the reformist country of the world in area of improve of the business environment. “Doing business-2010”: The measures implemented in area of improve of the business environment in Azerbaijan are valued positively. World Economic Forum: Azerbaijan Economy is the first according to ‘Global Competitiveness Index -2009-2010’ in among CIS countries. IMF: Azerbaijan has economy that durable to crisis and the least undergoesed to influence of the foreign factors. IMF: It will be real economic growth of 12.3 % in Azerbaijan in 2010. The Economist: It will be real economic growth of 9.5 % in Azerbaijan in 2010. And this indicator will be the 3’rd in the World. The Banker: Azerbaijan is 4’th in the World according to indicator of ‘Economic Perspectives’. The Economist Intelligence Unit: It will be per capita GDP of 11.4 thousand U.S. dollar according to PPP in Azerbaijan in 2010.

PERSPECTIVE OPPORTUNITIES OF GERMANY-AZERBAIJAN ECONOMIC COOPERATION Formation of the intergovernmental commission on trade and economical cooperation, Cooperation between German and Azerbaijan banks in areas of finance and credit, Cooperation between Azerbaijan banks and KWF and other German banks in the area of financing of the small and medium enterprise, Creation of the joint ventures in areas of equipments of machine building, steel mill, telecommunication, electrical engineering, textile and pharmaceutics, Cooperation in areas of bring up, processing and packing up of the agriculture products, Creation of the joint ventures in area of organizing of production of equipments of electrical engineering, Participation of German companies and application of German experience in developing of service sector of Azerbaijan, Cooperation with German companies on formation of paid roads in Azerbaijan. Cooperation in area of adapting of Azerbaijan products to European standards.

Azerbaijan State Economic University E-mail: e.bagirzade@gmail.com İstiglaliyyat No. 6, Baku Mail: Az 1001 Web: www.ekoelsen.tr.cx E-mail: e.bagirzade@gmail.com elsen_bagirzade@hotmail.com GSM: (+99450) 374 41 33 Business: (+99412) 492 59 14 Fax: (+99412) 492 59 40

THANKS!

APPENDIX 1: PROJECTS OF NEW BUILDINGS AND SHOPPING CENTRES TO CONSTRUCT IN BAKU CITY

APPENDIX 2: PHOTOS FROM AZERBAIJAN