Opening speech by Ilham Aliyev at the meeting of the Cabinet of Ministers

10 october 2012, 18:40

- The country's economy is developing successfully and the results of nine months clearly confirm this again. All our macroeconomic indicators are on a high level, in nine months our economy grew by 1.1 per cent. But our non-oil economy grew by 10.3 per cent. This is the most important indicator of recent months and years because our goal is to develop the country's economy in a diversified manner. Of course, the development of the non-oil economy will enable Azerbaijan to significantly reduce its dependence on the oil and gas factor in the future.

Landscaping and creative work is ongoing in all our regions. New industrial enterprises are emerging. I am sure that our non-oil economy will remain at a high level until the end of the year. At the same time, it will enable us to successfully continue the policy of diversification in the economic sphere next year too.

In the first nine months, a total of 16 billion dollars was invested in the country's economy. This is a very big number. It is much bigger than last year. If we take into account the fact that investments of approximately this level are made in the economy every year, we can see how much is invested in the Azerbaijani economy. Most of this investments is domestic – about 70 per cent. The rest is made up of foreign investment. I believe that this is the best balance. Our economy is attractive to foreign investors. At the same time, domestic investment primarily indicates that the state is pursuing a very successful investment policy. Because the vast majority of domestic investment is made by the state. At the same time, the private sector has also been successfully involved in these investment projects. The private sector – both local and the foreign business community – has a lot of confidence in the Azerbaijani economy. If it were not for this confidence, then, of course, so much investment would not be made.

I can say that, in general, the private sector retains a large share in the gross domestic product. According to the latest information, 83 per cent of the country's economy is formed in the private sector. This, in turn, indicates that the principles of the market economy are fully embedded in Azerbaijan.

Agriculture has grown by 6.3 per cent. This is also an excellent indicator. I will express my views about that later. But I want to say from the very beginning that this area, as ever, remains a priority area and we should pay even more attention to it in the future. I am very glad that the instructions I gave some time ago are being fulfilled. Agricultural development will enable us to become less dependent on imports. At the same time, the creation of jobs and the launch of industrial enterprises in our districts are directly linked to the development of agriculture. Therefore, I believe that the 6.3-per-cent growth is a very good indicator. We must strive to maintain this high pace in the future too.

Since the beginning of this year, the strategic currency reserves of the country have increased by almost $5 billion and currently stand at $45 billion. I can say that this is a very large figure by global standards. Azerbaijan is among the countries that have large currency reserves. By the size of its territory and the country’s population, I think, if we calculate our foreign exchange reserves per capita, we are in one of the leading positions in the world. It is a very gratifying fact that despite the implementation of major investment projects by the state, our strategic currency reserves are not reducing. On the contrary, they are increasing. We must strive to ensure that we do not fall below a certain level in the years ahead. Because this is our backup source. At the same time, despite the fact that the global financial recession has led to a reduction of interest rates which prevents us from receiving large enough profits from the management of these funds, we are studying new ways of managing our currency reserves. Thus, I am sure that the profit margin of our resources will be at an even higher level.

All of these indicators suggest that development in the economic area has been very rapid. Of course, this development leads to a better quality of people’s lives. In nine months, population incomes grew by 12 per cent, while inflation was only 1.5 per cent. As you can see, the difference between inflation and the monetary incomes of the population is 10 per cent, and I think that by these indicators Azerbaijan is in one of the leading places in the world. All our economic initiatives and our economic strategy as a whole are aimed at improving the well-being of the people of Azerbaijan. We have made great strides in this direction and these figures are a logical result of the work done.

The situation with industrial production is not encouraging enough. I want to express my thoughts about this in a little more detail so that the Azerbaijani public is also aware of the situation. This is not the first time when we have voiced some rather unpleasant figures regarding industrial production at a meeting of the Cabinet of Ministers. Every quarter, every year, in particular for the past few years, the total industrial production in Azerbaijan has been declining. Earlier, we simply stated this as a statistical indicator. But we practically did not go into explaining this was happening. It was believed that this is a temporary process, a temporary problem, that this problem would be resolved, that industrial production would not only stop declining, but would also start growing soon. But the figures for nine months show that total industrial production in Azerbaijan has dropped by 3.5 per cent, while our non-oil industry grew by 7.7 per cent. On the one hand, this is a logical result of the reforms we have carried out in the economic and industrial spheres. Because our country is underground an extensive process of industrialization. A few years ago, I gave specific instructions on this issue and we are seeing great results of those instructions. The fact that our non-oil industry grew by 7.7 per cent is a great achievement.

But the reduction of the oil industry troubles us more, of course. This process, the decline observed in this industry, the recession is directly related to the decline in oil production. And here we have to divide the issue into two parts. Because oil production in Azerbaijan is handled by the State Oil Company of Azerbaijan. On the basis of the agreement signed on the fields of Azeri and Chirag in 1994, an international consortium, the Azerbaijan International Operating Company, was set up and the Azerbaijan International Operating Company was the operator. At subsequent stages, there was a process of merger between companies that were members of the consortium, which is why operatorship was entrusted to bp. From that time to the present day, major successes have been attained in the realization of our oil strategy.

We are justly proud of our oil strategy. Because the successful economic development of Azerbaijan, its growing political clout and active participation in global developments are directly related to our country’s economic potential. And the economic opportunities have been provided to us by our oil strategy. And it is true that, unlike some other countries, we have effectively used these opportunities by channeling the oil capital into the development of the non-oil sector. Thus, the implementation of infrastructure projects and other economic reforms have actually enabled us to proudly tell our people about today's reality. But due to the serious mistakes committed by the consortium, oil production from the fields of Azeri and Chirag has started to dramatically decrease in recent years. This is not the first year when oil production has dropped. Of course, people working in the oil industry, oil experts will know that every oil field has a certain life. Production increases, reaches a peak, then remains stable for some years, but then starts declining. So this process is well known to any oil expert. But this is not to say that we have reached a peak which is, of course, as they say, followed by a decline. The point is that the forecasts made are not being fulfilled. I can also say that the agreement for the fields of Azeri and Chirag was signed on production sharing terms. Initially, production sharing was somewhat different. In those early stages, the share of foreign investors was bigger – about 75 to 25 per cent in favor of the foreigners, so to speak. After they recovered their investment, the sharing began to change – at the level of 50 to 50 per cent. In mid-2008, taking into account the profitability of Azeri and Chirag and the terms of the contract, production sharing terms changed in favor of Azerbaijan. And now, from mid-2008 to the present day, it is 75 to 25 per cent. So 75 per cent of the profit oil is Azerbaijan’s. I want to say again that after production sharing conditions changed on the basis of the contract, oil production from Azeri and Chirag began to decline for some reason.

I want to add specific figures to my words. In 2009, the forecast we received for production from the fields of Azeri and Chirag was 46.8 million tons. And in fact, oil was produced at the level of 40.3 million tons. In 2010, the forecast was 42.1 million tons, but 40.6 million tons were actually produced. In 2006, the forecast was 40.2 million, while actual production was 36 million. In 2012, the forecast is 35.6 million tons. Given the current production, it can be assumed that bp will be unable to produce more than 33 million tons of oil from Azeri and Chirag by the end of the year.

By summing up all these figures, taking the price of oil of $100, although it was even higher in those years, and making some calculations, we can see that Azerbaijan has under-received $8.1 billion dollars in revenue. This is a reality. Small statistics reflects reality. Therefore, oil production reducing year after year, month after month and quarter after quarter is the logical result of this situation.

I can also say, and I have already talked about this, that major investments were made in the oil fields of Azeri and Chirag. For this we are grateful to all the investors. I repeat that this investment enabled Azerbaijan to become one of the fastest growing countries in the world today. But I want the public to know that this investment was not a charity project. This is a purely business project. I want to give you some more figures. From the beginning to the present day, the bp-led consortium has invested $28.7 billion in the oil fields of Azeri and Chirag. To date, the consortium has received revenue of $73 billion. So a large profit has been made. Of course, this profit was made possible under the contract. Of course, Azerbaijan has also received a large profit. Much of our foreign reserves, which now stand at $45 billion, is made up of the Oil Fund resources. So much money has been spent over the last 12 years. The State Oil Fund was established in late 1999 – in December. The main source of the funds invested in the economy from that time to the present day, the investment made in infrastructure projects, the construction of schools and roads, landscaping – all this is our oil industry. Therefore, this is a purely commercial project. I think that all the promises and forecasts must be fulfilled. I should note that this unexpected decline is the result of serious mistakes committed by bp, the company leading the consortium that operates Azeri and Chirag fields. We have cooperated with bp for many years. We have always supported its activity, supported it in its most difficult days. We expected an adequate approach. These erroneous forecasts are unacceptable. The false promises given to the State Oil Company are unacceptable. In a world of business, business of such level, such an attitude is out of place, it is impossible.

We have always been fair to all our partners – both in politics and in the economy. We have always kept our word. We expect the same attitude. I think that very significant changes should be made over this issue. Why do I disclose information related to this issue today? Because last month bp gave me an official word that all these negative phenomena would be eliminated in a short time. All the mistakes were admitted. It was recognized that the situation was not very encouraging.

I was promised that very significant changes would be made in a short time, that the work program would be amended, that specific measures would be taken to maintain production at a stable level and, most importantly, that those who have committed these blunders would be replaced. But from that time to the present day – it has been almost a month – I do not see the implementation of these promises. On the contrary, I think there is a process of buying time. So I think this is totally unacceptable. The state oil company has been instructed to raise this issue in an official manner and take necessary action.

The investors who are can’t perform their duties and fulfill the terms of the contract should draw conclusions, strict measures should be and will be taken.

Thus, if we don’t take into consideration these unpleasant events in the economic sphere, the overall situation is very positive. The economic reforms carried out in our country are highly valued by international financial institutions. Last quarter, one of the most respected economic structures of the world – the Davos Economic Forum, published an updated ranking of countries, and Azerbaijan is in 46th place in that ranking. We are in first place in the CIS and in 46th in the world. Compared to last year, we have moved nine steps higher. In other words, this shows that Azerbaijan’s economic development and progress are connected with economic reforms. This report also contained a rating of macroeconomic situation. In terms of macroeconomic stability Azerbaijan is in 18th place in the world. So I think there is no need to explain what it means to be in 18th place in the world in this area. The main rating agencies which are now reducing the credit ratings of developed European countries are raising the credit rating of Azerbaijan. Fitch, Standard & Poor's and Moody's, i.e. the three major rating agencies, have upgraded our credit rating, and this has been possible as a result of the work done, the reforms. So this process of economic development is such that this development and progress can be seen firsthand. At the same time, they are reflected in the statistics.

Let me reiterate that in other areas too, in the area of addressing social issues, there are also great results. As you know, the process of repayment of compensations for the deposits remaining from the Soviet era has begun. Of all the CIS countries it is in Azerbaijan that these funds will be provided in the shortest possible time and at the highest interest rate. This also shows how extensive our social policies are.

The average monthly wage and the average pension have been increased and this figure is also among the highest in the CIS.

For comparison, this calculation is often made in US dollars. In Azerbaijan, for instance, the average wage is 500 dollars and the average pension is 190 dollars. This is rapid growth, but we can not be content with that. Although it is possible to make comparisons and show off our success, I believe that even greater success will be achieved in this area in the coming years.

This is a steady process, pensions and wages are rising from year to year. At present, pensions in Azerbaijan account for 40 per cent of the wage, which is at the level of criteria of developed European countries.

Things in the regions are going very well. My trips to the regions give me the opportunity both to get acquainted with the situation on the ground and provide additional guidance and further funding. All our regions are experiencing recovery and development, are implementing infrastructure projects and creating new jobs. Since the beginning of this year 94,000 jobs were created, of which 73,000 are permanent ones. Since the start of the program on the socioeconomic development of the regions in 2004, a total of 1.1 million jobs have been created, including 800,000 permanent ones.

I repeat that major progress has been made in all other areas, in the field of construction, landscaping, creation of the social infrastructure. During the year we have built 188 schools and additional school buildings, 103 schools have been renovated.

This process has assumed wide proportions both in Baku and in the regions. As for Baku schools, by the start of the next school year there will not be a single school in unsafe condition. Besides, there will not be a single school left without renovation. A lot of work is being done in this direction in the regions. Most likely, it will take a little more time to fully address this issue in the regions.

Our sportsmen delighted us last quarter. Azerbaijan has demonstrated great results at the Olympic and Paralympic Games.

Our Olympians reached 30th place in the world. For the number of medals they finished in 24th and for their value in 30th place in the world. Among European countries they finished in 15th and among Muslim states in 3rd place. We have won 10 medals – two gold, two silver and six bronze. It is a great and historic victory. Our Paralympians managed to take 27th place.

They have won 12 medals, of which four are gold. So I repeat, this has both delighted and inspired us. At the same time, it demonstrates the strength of our country and the potential of our youth.

Because sport is an integral part of each country’s life, a very important factor. The development of sport demonstrates the overall development of the country. Usually sport grows rapidly in economically strong and politically stable countries. The development of sport requires public funds, state support, the training process should be conducted at a high level, infrastructure projects are necessary. In Azerbaijan, there are 35 regional Olympic centers and about 10 more Olympic sport centers are under construction.

In other words, the past quarter and the first nine months of this year have been successful for the economy on all fronts. Major successes have been made in the international arena. We actively participate in the meetings of the UN Security Council and demonstrate our principled position.

When we became a member of the Security Council in October last year – about a year ago – I said in my address to the nation that we would defend justice and international law in this organization. And, as always, we keep our word. Our position is viewed with great sympathy and great respect. Because, I want to say again, we defend justice and international law. At the same time, the support we were given during the vote already manifests itself in other formats. As you know, Azerbaijan’s candidacy was supported by 155 countries. During a recent summit of the Non-Aligned Movement, 120 countries adopted a resolution on the settlement of the Armenian-Azerbaijani Nagorno-Karabakh conflict only and only within the territorial integrity of countries. This is yet another diplomatic success and yet another defeat of Armenia. Because 120 countries make up the majority of the world community. There are a little more than 200 countries in the world. Of them, 120 support our territorial integrity and see a settlement only on the basis of these principles. If we take into account the decisions and declarations of the NATO Chicago summit – of course, NATO members cannot be members of the Non-Aligned Movement – it was also publicly stressed there that the Armenian-Azerbaijani Nagorno-Karabakh conflict must be resolved on the basis of the principle of territorial integrity. This is also another defeat of Armenia and another success of ours. That is, three quarters of the world community see a solution to the problem based on the principle of territorial integrity. Of course, this is a very fair position, there can be no other position, no other options to address the issue.

As to the principles of self-determination of nations, the Armenians are trying to mislead the international community. The decisions and declarations I have mentioned destroy this false propaganda. The principles of self-determination of peoples should be provided within the territorial integrity of countries. This is exactly how the issue is defined in the documents of the Helsinki Final Act. Therefore, all these diplomatic successes, political victories and our ultimate victory over Armenia further inspire us and bring us closer to the settlement of the issue.

We have to become and are becoming even stronger. We are strengthening our international standing and enjoying great support in the world. At a recent opening of the Azerbaijani Diplomatic Academy and the meeting with the ambassadors of our country abroad, I broadly outlined my strategic views on foreign policy and do not want to repeat anything now. I want to say the following: we are now acquiring new partners in the world and seeing that there is a great interest in Azerbaijan on the continents that are non-traditional for us. In particular, in Latin America. We, too, are establishing very close ties with the countries of Latin America. And we see that these ties are very sincere and are based on mutual respect, mutual interest and friendship. It is on these principles that the relations with each country should be based. We have repeatedly stated this. I have repeatedly said that Azerbaijan recognizes only equal relationship. If someone thinks that they can impose their will on us, they are mistaken. We recognize only the principles of equality, mutual interest and non-interference in each other's affairs. It is on the basis of these principles that we are building close relations with countries of Latin America. And I think that this is a very promising direction both for our foreign policy and for addressing economic issues. The foreign political sector and the agencies dealing with economic issues have received appropriate instructions that we need to further improve the relations with countries of Latin America. Of course, we have friendly relations with our traditional partners. Naturally, these relationships will be continued.