Ilham Aliyev received delegation of American Chamber of Commerce in Azerbaijan

President of the Republic of Azerbaijan Ilham Aliyev has received a delegation of the American Chamber of Commerce in Azerbaijan.

Opening speech of President Ilham Aliyev

- I am very pleased to meet with representatives of the US Chamber of Commerce. I am aware that the companies and members of the Chamber have been working in Azerbaijan for many years, contributing greatly to the economic development of our country. First of all, I want to express my appreciation to the companies for such an important contribution and long-term partnership.

I am told that the Chamber was established 20 years ago. This coincides with the start of a rapid economic development of Azerbaijan, because prior to that time the situation was very difficult. There were serious economic difficulties, an economic recession and stagnation. Year 1996 marked the beginning of our economic development, and this growth has continued for 20 years.

I am also aware not only American, but also local companies and companies from other countries are members of the Chamber. But, of course, the Chamber was established by US companies, which is why it is called the US Chamber of Commerce.

As you know, I have recently paid a very successful visit to the United States. I attended a Nuclear Security Summit and had meetings with political leaders – the Vice-President and Secretary of State. We discussed important issues of the bilateral agenda, political and economic cooperation, cooperation in the field of security and energy security. Our economic cooperation was discussed mainly in the meeting with the Secretary of Commerce. In fact, we also discussed your activity in Azerbaijan and came to the agreement that economic cooperation between our countries should be consistent with the development of our country and the region, US interests in Azerbaijan and our plans for the development of the country, the sustainable development of Azerbaijan.

You have been working in our country for many years. You are aware of our realities and achievements. Therefore, I would not like to talk much about that. It would be better if I say a few words about our plans. These plans are well known to the public, as well as the business community, because, as you know, I often have meetings with the business circles of Azerbaijan. Once a year we hold an extensive conference. The event discusses the successes achieved during the year, including the development of the districts. We review all the important issues. In addition, we examine the work done, our achievements, shortcomings and plans for the next quarter at meetings of the Cabinet of Ministers.

Therefore, what I will say to you may not be a secret. However, I believe it would be better if you hear it directly. Given the current economic situation in the world and the political situation in the region, it is obvious that no country can rely only on its own resources in the long run. Different countries have different resources. As far as the countries of the former Soviet Union are concerned, they mainly rely on resources. In some cases we are talking about oil and gas, in others about other resources. Perhaps at the beginning it was only natural, because we had to change the economy at the time, create the initial capital and think of ways of integrating into the mainstream economies.

Currently, this period has ended, which is mainly due to the sharp – three to four times – fall in oil price. It was a kind of signal to the fact that we need to do more work in the area of reforms. If you look at the experience of developed countries, we can see that almost all of them are not rich in oil and gas. However, innovation, business environment and technology contributed to their development. Today they are the leading force in the global economy. There are excellent examples of that, and we are committed to deep and serious reforms.

Our top priority is to reduce the dependence on oil and gas although oil and gas will continue to play an important role in our economy, region and energy security. As you know, Azerbaijan plays an important role in the energy security of our partners. The investment in the oil and gas industry is investment in the future of our country and indeed other countries. But this is no longer a priority for our economy. I have recommended to the Cabinet of Ministers that it should forget about oil. Production, transportation and beginning of large-scale production of gas are needed only to accumulate more funds in our Oil Fund. I hope that there will come a time when we will dramatically reduce the transfer of funds from the State Oil Fund into the state budget. Currently, these transfers are taking place, which is due to the oil price. However, I believe that this situation is a good opportunity for diversifying our economy. Goal number one is to reduce the dependence on oil and gas, and to ensure economic diversification. We are working on this, and over the last more than 10 years we have been able to create over a million permanent jobs. We have achieved the development of regional infrastructure and services.

We have also created the industrial potential. However, this is not enough, because we need more rapid growth in the non-oil sector of the economy. Therefore, diversification is issue number one. At the same time, we should create more jobs, because due to the positive demographic situation in Azerbaijan, we must create thousands and even tens of thousands of jobs annually. Our population is increasing faster than the new jobs. A growing population is clearly due to economic development. If you look at the dynamics of population growth, we can see that it is consistent with the economic situation of Azerbaijan. Of course, in the future we plan on a more rapid economic development. Therefore, the creation of jobs should be linked to educational reform, because the sectors where the government plans on the greatest economic activity we will need experts. Until now, there was no such link. Therefore, there is a certain imbalance. In a number of sectors, we have more experts than we need, while in other areas we have a shortage of them.

One of the priorities is also to reduce the dependence on imports. We have managed to reduce dependence on main areas of consumption. However, we are still in a state of dependence. Therefore, the inevitable devaluation of our national currency due to the oil price and what is happening in the neighborhood, of course, had an impact on inflation. If we provided ourselves on all areas of consumption by 100 per cent, then the negative impact of devaluation would be less. At the same time, it is an opportunity to build a more competitive local industry.

Currently, one of the main priorities is to produce export-oriented goods. At first, it was not a priority, because, frankly, the oil revenues were sufficient to ensure a budget surplus and tangible foreign exchange reserves. Now that the oil price has dropped fallen, we have to compensate for it with other products of export orientation. To do this, we need to carry out proper marketing and active diplomacy. Accessing international markets with new products is not easy, especially at this stage and in the current geopolitical situation. Even traditional manufacturers are experiencing difficulties in accessing traditional markets.

In other words, what can we offer to foreign markets? Above all, we are talking of goods it is easy to sell. Therefore, our top priority now should be to focus on these sectors of the economy, in particular, the infrastructure sector. We have taken significant steps in the field of export promotion and improvement of the business environment. Therefore, it would be good to hear from you what needs to be done in this area to create an export-oriented economy. Of course, improving the business environment is one of the main priorities. This is the aim behind improving the investment environment. In the energy sector, there is a very favorable investment environment, because all production sharing agreements are approved by the Parliament and signed into law. But, of course, we have to ensure the same in all other sectors of the economy, so that investors are fully confident that their investments are protected, that there are no changes in the conditions and procedures. We must have a predictable investment environment. Only in this case can we attract investment under the current circumstances. We need that. But this, as you know, requires relevant conditions. The legislative framework, the rule of law, the protection of investment, the elimination of bureaucratic obstacles and the illegal interference in the work of both local and foreign companies are highly important. I think that foreign companies are in the best conditions, because when unlawful interference happens sometimes, they can report it directly or through their governments, and these issues are resolved.

Local companies are sometimes in a hopeless and helpless situation. This is one of the biggest obstacles to sustainable economic development. In short, we are committed to reforms, good governance and the creation of more opportunities for businesses, including the investment environment, stimulation of the export potential and attraction of investments. There is a lot to do. I think we will achieve our goals. At the same time, there are some sectors that are a priority for us. Of course, it would be nice to attract investments to these sectors. One of them is agriculture, which could create additional capacity, including exports. It can also promote employment, because almost half of our population lives in rural areas. We have already set up an appropriate infrastructure in rural areas, provided gas, electricity and water, built roads, etc. All of these projects are either fully implemented or are nearing completion.

The priority for us is also the high-tech sector. There is good cooperation sphere between Azerbaijani and American companies in this sector. By using your technology, including agriculture, we can grow more products on the same land plots.

With regard to tourism, we are actively investing in this area. Currently, additional steps are being taken in order to facilitate the visits of foreign tourists to Azerbaijan. In particular, given the geographical location, the hospitality of our people, the security, the friendly atmosphere and the existing infrastructure in Baku and the regions, as well as a variety of climatic conditions, we can attract more tourists. Unfortunately, the current situation does not suit us. We need to create a tourism industry. We do not have it. Certain steps have been taken to create, if I may say so, an additional volume of tourism, but there is no tourism industry. We need to do this. Currently, there are internationally renowned hotels in our country. I think that companies can help us in this.

Of course, as I have already noted, employment will always be on our agenda. In this area, we never consider our work complete. Therefore, the creation of industrial sectors, heavy and textile industries are also associated with our resources. Given the large reserves of iron ore, the steel industry has great potential. If we consider appropriate climatic conditions for growing cotton, there are opportunities for the textile industry and so on.

I can talk about this for a long time, but I would not like to spend all our time on comments. However, I wanted to inform you about our plans, and you can express your thoughts on what should be done. What hampers more active investment, the work of local and foreign companies? What do you think the government needs to do to create a situation we want to create? Given all this, I invite you to speak up. Thank you for your attention.

Closing speech of President Ilham Aliye

- Thank you for your valuable thoughts. All of them will be summarized and play the role of a guide in the continuation of our reforms. As far as I know, some members of the Chambers are already working together with my assistant on economic reforms, for which I want to express my gratitude. Some of the reforms implemented in recent years appeared thanks to your valuable thoughts.

I want to express my attitude to some thoughts that have been expressed here. I agree with all the suggestions and want a speedy implementation of the proposals. I absolutely agree that small and medium-sized enterprises are the driving force of any economy. From the experience of the largest economies, it is also known to be the case.

We also need that. Twenty-five years ago things were different, because we needed to transform our political system, build a state and, at the same time, transform the economic system. Therefore, we are still at the beginning of this process. However, I believe that the focus on supporting small and medium-sized enterprises will be the dominant factor here.

We have taken certain steps in this direction, encouraged domestic production and allocated loans to private sector areas in need of the greatest economic growth. However, I believe that attention in this area should be focused on legislation related to taxation and the investment environment. If we create an appropriate investment environment and opportunities for small and medium-sized enterprises, they will develop. State bodies should not interfere with their daily work and only create the necessary conditions.

Small and medium-sized companies are the most vulnerable, because large companies can protect themselves and express their position. Unfortunately, small companies are often faced with interventions. I consider it necessary to take administrative and institutional measures in this area and to create favorable conditions for them.

As you have noted, another important step has been the reduction of licenses. As I said at the latest meeting of the Cabinet of Ministers, we have achieved a sharp reduction in the number of inspections and audits. This is only a beginning. I think that the private sector is also adapting to the new situation. We need to continue our work. This is not some kind of a campaign. This is our policy, and it should be continued.

But this is not such an easy issue, and you know that. There have been many counter arguments I can still hear. However, I believe that it is necessary to wait for the results. We may need to further tighten control. Let's wait until the end of the year and see what results will be achieved. I am confident that the results will be better than today.

It is very important, as you pointed out, to monitor the financial and banking sector. As we have seen in the recent past, the lack of proper control in this sector has created many challenges for our financial system. The banking and financial sector needs stricter control. As you know, steps have been taken to enhance confidence in the national currency. Full deposit insurance has been introduced. All these steps have been taken to stabilize the financial system. If the banking sector was appropriately controlled, we would probably have a more acceptable situation now.

At the same time, I believe that the steps we have taken are assessed quite highly by you and will help us establish a system inherent in developed nations.

Issues such as work permits are solvable. We must reduce bureaucracy and apply new elements to existing laws. These thoughts have been voiced by the Vice-President of the Chamber. An important idea has also been expressed by a representative of Holcim. With regard to this company, let me cite one example. When Holcim came to Azerbaijan, the Swiss government told us that this company wants to work and invest in Azerbaijan. I remember that this taking place in the first economic crisis, in 2008.

I immediately supported that idea. Afterwards, Holcim made investments in our country. If I am not mistaken, the investment amounted to approximately $300 million. At a time when the world was experiencing a lack of investment, this was a good signal. In addition, this created an opportunity for other companies to invest in the cement sector as well.

Today, we are fully self-sufficient in this field. We have export capacity. Of course, the protection of local production and manufacturers is a very important issue. I have always considered it a major priority. Along with this, we must create a good balance so that local producers do not eventually become a monopoly. Imports, of course, are important in terms of increased competition. However, the question we will have to address is not only the protection of local production, but also the creation of opportunities for others.

I want to say that we need to create conditions in Azerbaijan for no government to have to apply to the President of the country for the creation of necessary conditions for a company to invest in Azerbaijan. Our goal is to enable Holcim and others to do that on their own, to have procedures and laws in place, so that they could easily make investment without bureaucracy. There should be no need for arrangements with anyone or for calling the President.

My wish is to see such conditions, and I believe that this will happen with your help. As soon as this happens, businesses will develop and investments will be made. This is also a good and effective mechanism. Otherwise, the President, the Prime Minister or ministers will be receiving requests for assistance. I hope that it will be done even more autonomously in the future.

You have also touched upon issues related to infrastructure and transport infrastructure. We are dealing with that and trying to create a hub. Given our geographical location and regional communications, projects of transport corridors North-South and East-West are already being implemented.

Along with this, it has already been announced that there is a need to establish a free trade zone near the seaport in Alat. Thus, we can use the positive experience of the Middle East and East Asia.

Thank you for your thoughts about positive changes in the customs and tax systems. Everything is pretty easy here. We should have tax and customs administration consistent with relevant international standards – transparent for businesses, open and predictable system with a user-friendly approach. We should have transparent conditions of free competition without any interference, illegal demands, delays and monopolistic trends. We are moving in this direction. I believe that early successes are already there, and this will be a long-term policy.

You have touched on the possibility of joining tax audits and the social protection funds in terms of inspections and ease of operation. At the same time, you pointed to some issues related to the Criminal Code. In general, I believe that we need to work on decriminalization of the Criminal Code. We should articles envisaging punishment for minor violations of law, for example, violations in the amount of 2 million manats. Even before the devaluation 2,000 manats was little money. I think we will work on that. Thank you for these suggestions.

To the issue of state-owned enterprises. I agree that corporate governance should be the same as in private companies. I have already instructed the heads of such enterprises, and some of them have already embarked on a process of transformation. There are positive changes in SOCAR and the Caspian Shipping Company, and I look forward to other companies also working in this direction. The only difference between them and private companies will be the fact that they are owned by the state.

This is understandable, because these companies are of strategic importance. Perhaps the time will come when their shares will be put on sale. I can assume that so. But if we consider the past and, I would say, the way of thinking, they should belong to the state at the moment. If a particular village has no gas, people knock on the doors of a state company. There will come a time will some of these companies will be offered for sale, but corporate governance is a very important issue today. At the same time, I believe that you also have to offer a specific direction associated with a greater system efficiency. In this case they will carry out more effective, transparent and open activities, and be more active in financing or elsewhere.

With regard to transparency, I have repeatedly spoken about this. It is important for every country and company. We will continue to work in this area.

Gordon, thank you for your thoughts! In contrast to other participants, we meet quite often, which stems from our strategic cooperation. I am glad that BP has been active in Azerbaijan for over 20 years. You work well in the area of investment, in particular, the creation of opportunities for local companies, in the sphere of education. As you said, about 90 per cent of your staff are Azerbaijanis. This is a good indicator. It is a sign of the fact that we are good partners.

But although BP has a special status in the economy of Azerbaijan, we also experience certain problems in our day-to-day activities, and they should all be taken into account. I am aware that you maintain excellent business relations with SOCAR and other government agencies.

The political culture of problem-solving is a very important issue. In general, political culture is very important. We are a young state. The stability of the legal and political system and predictability are key contributors to any investment decision. Investment can only be made in a sustainable and predictable country with stable institutions. I believe that political stability is one of the advantages of Azerbaijan. Economic and financial stability is also provided. There is unanimity in our society as to foreign policy priorities, economic and domestic policies, as well as the country's development directions.

I think I have expressed my attitude to almost all of your ideas. I would like to add a few more comments. The issue of e-government has also been mentioned. We are working in this field. A good example is “ASAN xidmət”. Over the course of two years, it has received 7 million applications, and this figure is likely to have further increased. It has created a watershed in public service. It was a great innovation not only in the area of civil service, but also for our people in general. People did not believe this was possible. In other words, people have gained the opportunity to get what they want without any requirements. In short, this has proved that it is possible. It has shown that we can achieve this. Our aim at the current stage is to expand this activity. I am not just talking about expanding it geographically. Two centers are currently under construction in the districts. In addition, the number of services provided will also be increased. We will add more services.

As I said, “ASAN” will be everywhere. “ASAN” means transparency, culture, service, zero corruption and zero bureaucracy. This is what we have to achieve in our country for people to live comfortably. What do people want? They want to exercise their rights. They should not be subjected to any illegal approaches. Therefore, “ASAN” will expand, and you may actually advise what services could be added to its scope. This is our brand – Made in Azerbaijan. I am glad that we can already be proud of our intellectual products.

Corruption is one of the most serious problems we are facing. Reforms are aimed to significantly reduce corruption. Unfortunately, administrative measures and penalties do not produce the desired effect. They have a temporary effect, because time passes and other people come. And this is repeated. What should we do? To do this, we need to use institutional measures to restrict, to make it impossible. Just as we did in “ASAN xidmət”, we need to do in other sectors. Therefore, the fight against corruption will be continued, and we will narrow the possibilities. We will successfully fight against this evil. We will also stand up against bureaucracy, which is also part of this. Bureaucracy is linked to corruption, because some civil servants use bureaucratic obstacles to achieve their goals and complicate the work ofENTREPRENEURS  and other people. They are doing it for their own interests.

I want to declare that we intend to launch a large-scale privatization program. It has already been announced. The Government is currently working on a number of sectors. I hope that by new approaches and reforms we can make Azerbaijan very attractive for foreign companies. These, it seems to me, are the main issues.

Thank you for your comments. I am sure we will meet again and make such meetings regular. No-one of you has criticized our government, and this surprises me. You were very considerate. Thank you for that. Nevertheless, I can’t leave without criticism. So I want to criticize you. This relates to gender inequality. The Chamber has only two women. I hope we will see more business women at the next meeting. Thank you very much. I wish you great success.