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The global financial crisis and the resulting sharp drop in oil prices have emphasised the need for greater economic diversification. Measures to improve the business environment through fighting corruption and breaking up monopolies are essential for the sustained development of the non-oil sector. The National Bank of Azerbaijan has tightened banks’ regulatory requirements and undertaken timely measures to provide liquidity. In addition, improvements in the portfolio and risk management skills of banks are needed to ensure financial sector stability in the long run. Lower oil prices and the ensuing fall in fiscal revenues have further underlined the need to improve investment efficiency in the public sector. This requires the successful implementation of the recently established rules for the selection, execution, monitoring and auditing of public investment projects.
Business environment and competition
While Azerbaijan’s participation in the European Neighbourhood Policy (ENP) and Eastern Partnership programmes helps bring country’s laws and regulations in line with European standards, effectiveness of government institutions and enforcement of competition policy remain a challenge. Corruption and tax regulations
In 2009 the President of Azerbaijan issued a decree on strengthening the fight against corruption, which focuses on defining the rules, regulations and legislation. In addition, a Corruption Fight Department was established to deal with corruption in tax administration.
The tax code has also been amended to help development of small and medium-sized enterprises (SME). Changes include reductions in personal income tax rate, corporate profit tax rate and individual entrepreneurs income tax rate.
Infrastructure - Power sector
The state-owned power company, Azerenerji, remains the dominant utility in the power sector and continues to be subsidised by the government. Work has started on the rehabilitation of the power sector infrastructure as well as on plans to increase electricity production. However, little progress has been made with unbundling the sector over the past year.
Improving road infrastructure remains an important priority for the government, and public investment in the sector has increased significantly over the past years. To increase efficiency and quality of procurement, execution, monitoring and auditing of the public investment projects, the President has issued a decree to improve relevant regulations.
In July 2009 the President issued a decree to transform the state-owned railway monopoly. The new wholly state-owned joint-stock company intends to commercialise its activities and will prepare the future privatisation of a number of railway services.
While the fixed-line telecommunication market continues to be dominated by state-owned company, Aztelecom, competition in the mobile telephone market has increased.
The direct impact of the global financial crisis on the Azerbaijani banking sector has been relatively modest because of its limited integration with international financial markets. The National Bank of Azerbaijan (NBA) provided liquidity support to solvent banks and took measures to contain rapid growth in the first half of 2008, which have contributed to banks’ resilience. Even though banks’ loan portfolios have been shrinking since the beginning of 2009, a reversal has been seen since June.
Last updated 21 April 2010