Modern Business in Azerbaijan

ECONOMY OF AZERBAIJAN TODAY

Read about the Azerbaijan economy today, while gaining and awareness of the key statistics, policies and agreements in place. Learn more about the oil and gas industries, as well as the other important sectors driving the modern global economy.

Gross Domestic Product – (GDP)

Since Independence

Following the implementation of stringent fiscal and monetary policies and structural reforms, Azerbaijan saw a resulting decade of massively accelerated economic growth since independence from Soviet rule. 

In October 2006 it saw a 34.3% increase in GDP from the date of independence. Despite the government’s high spend on infrastructure and social sector during this time, budget balances have been prudent with the average budget deficit of less than 1%.

As a result, in 2006, Azerbaijan managed to reach an international credit rating of B. Debt:GDP and debt:revenue ratio were also low and estimated at around 10% and 43% respectively. Foreign currency reserves stood at US$1.5 billion, and there were additional US$ 1.6 billion in the State Oil Fund as of September 2006. Foreign direct investments reached US$1.3 billion.

Current GDP

The Current Gross Domestic Product (GDP) in Azerbaijan, as recorded by the World Bank Group was worth $75.2 billion in 2014. This represents 0.12 percent of the world economy.

GDP in Azerbaijan averaged $23.16 Billion from 1990 until 2014, reaching an all-time high of $75.2 Billion in 2014 and a record low of $3.05 Billion in 1995. In contrast, the growth rate of the country’s GDP from 2015 to 2016 was recorded as 1%. This was considerably lower when compared to previous years: For example at its highest point in the decade from 2006, where in total Azerbaijan’s GDP had risen by 40%.

This low growth rate can be considered likely a result in the reduction of oil prices globally, which has led to a growing economic crisis, in several countries with strong oil export. The current economic difficulties in Russia can also be seen as possibly accountable for neighbouring Azerbaijan’s lowering GDP since the countries share such a strong trade link. Notably, oil and gas trade in Azerbaijan accounts for 95% of export and 75% of government revenue.

Currency

The main currency used in Azerbaijan is the Azerbaijani Manat (AZN). However American dollars (USD) are also used liberally in many cities. Therefore, it is easy and convenient to exchange USD for Manat while in the country.

Manat is not currently easy to source in the UK, therefore if planning a trip to Azerbaijan; Pound sterling should be exchanged to USD. While most UK bank cards are accepted in ATM machines and shops / restaurants in Baku and other main cities; however cash is more widely accepted everywhere.

As of November 2016 exchange rates of Manat to British Pound are as follows:

1 Azerbaijan Manat = 0.47 British Pound

The Manat has depleted astonishingly in value in the past year, in comparison to the pound – from a high of 1 Azerbaijan Manat = 0.88 British Pound in 2015.

November 2016 exchange rates of Manat to US Dollars are as follows:

1 Azerbaijan Manat =  0.58 US Dollar

Employment

Unemployment

According to the State Statistical Committee of Azerbaijan, unemployment rates have steadily been reducing over the last 15 years. Incredibly low, un-employment has reduced from 11.8% in 2001 to 6.6 % in 2006, to only 4% in 2014.

Minimum Wage 

The Central Bank of Azerbaijan has also recorded huge rises in minimum wage over the past 10 years. In 2015, reaching an all time high of 131 AZN/Month, in comparison to only 5.50 AZN/Month in 2002.

Retirement 

Retirement age for Azerbaijani Men is 63 years, for women it is 60 years. This has been unchanged since 2010.

Taxation

Personal tax arrangements have continuously been improved over the course of the last 15 years to lessen tax payments for those of low-income in the country. Income tax rates now vary from 14% to 35% depending on the income received.

In 2001, total government revenue came to an estimated 21.4% of GDP, while total expenditures, including net lending, amounted to only 20%. This produced a positive fiscal balance equal to 1.4% of GDP.

Personal taxation

Income tax rates in Azerbaijan now range from c. 14% to 35%.

Corporate tax

Rates from 2005 had been set 24%. Revising depreciation in tax from corporate assets has been beneficial to investors in oil and gas exploration and high-tech equipment. Corporate tax has most recently been lowered to 22%.

Value-Added-Tax (VAT)

Was reduced from 20% to 18% in 2001, while the property tax was raised from 0.5% to 1% of assessed value. Value Added Tax rate is similarly to 2001, 18%.

Tax Depreciation rates

Are 10% a year for buildings, 25% a year for equipment and computers, 25% for geological and exploratory costs, and 20% a year for all other assets. Furthermore, accelerated depreciation is allowed for capital spending allocated for production purposes at twice the standard rates.

Included in this are expenditures on the building of those facilities that are to be used in the actual manufacture of goods. This probably explains the increased building rates in Baku, the capital city of Azerbaijan, over the past ten years. As such, building and construction have played an important role in employment and income in Azerbaijan.

Employment Taxes

Payroll taxes paid by the employer amount to 32%, 30% going to the Social Protection Fund, and 2% going to the Employment Fund.

For more information on the most up to date tax structures within Azerbaijan, please visit: www.taxes.gov.az
Prosperity in Azerbaijan

Global Trade

Exports

As Reported by the Central Bank of Azerbaijan, at the height of export prosperity in 2008, national exports were registered at US $9,996,038 thousand. This represents a massive increase over the previous years, and it is noteworthy that the turnover was dominated by the oil sector.

More recently it has hit its lowest point in nearly 10 years, currently recorded at below US $3,646,206 thousand. Above all, export is dominated by the Oil and Gas sector in Azerbaijan, accounting for 95% of trade. Other export items from Azerbaijan include foodstuff, chemicals, metals, general and transport equipment.

Imports

Imports, meanwhile, have decreased steadily during 2015 with the first quarter of 2015 accounting for US $2,600,000, to only US $2,100,000 in the fourth quarter of the year. This differs dramatically from previous years, with a high point of import recorded of over US $3,100,000 in 2013.

Azerbaijan mostly imports passenger cars, wheat, cigarettes, pharmaceutical products, converters, sugar and machines. Azerbaijan’s main import partners are Turkey, Russia, Germany, the United Kingdom, the United States and Italy.

Liberalisation

Azerbaijan is actively working towards the WTO accession, as a result it has taken a number of steps to liberalise the international trade regime. For example, average import tariff is 5.7% which is far below the international average.

Azerbaijan trades freely in all major foreign currencies. Hence, there are no limitations on foreign capital participation in the banking sector. However, Export and Import to and from Azerbaijan is largely made in USD to simplify its global trade.

For more information please visit www.az-customs.net and www.azstat.org.

Oil and Gas Sector

Azerbaijan is the oldest oil producer in the world. The country’s strategy for economic growth is based on successful development of its vast oil and natural gas resources and through effective management of the resulting revenue stream.

In a speech to the general assembly of the  UN in 2014, the Azerbaijan Foreign Minister said:

‘Azerbaijan [has] established itself as a reliable supplier of energy in the global market. A ground-breaking ceremony had recently been held launching the Southern Gas Corridor, which would allow Europe to receive gas from a completely new resource base in Azerbaijan. The country had also initiated a trans-Eurasian information super highway to provide ICT services to the region.’

SOCAR

The oil output of Azerbaijan for the first three quarters of 2005 stood at about 33 m tonnes (640,000 barrels/day). The State Oil Company of Azerbaijan (SOCAR) is the government-owned entity responsible for all aspects of exploration and development related to oil and gas fields both onshore and offshore. The largest hydrocarbon structures are located offshore in the Caspian Sea and account for most of the country’s current petroleum production.

(For more information on SOCAR, oil and gas projects and statistics, please visit the following websites: www.socar.gov.az and www.azstat.org).

International Links

To date, Azerbaijan has signed over 20 major production sharing agreements with some 30 companies from 15 countries. Furthermore, the main production surge in the next decade is expected to come from the three-phase development of the offshore Azeri, Chirag, and deep water Gunashli (ACG) mega-structure (contains more than 5.4bn barrels of recoverable oil). The ACG is developed by the international consortium known as the Azerbaijan International Operating Company (AIOC).

The domestic oil and gas industry is connected with international markets through a number of oil and gas export pipelines:

1. Baku-Tbilisi-Cheyhan (Turkish Mediterranean Port) oil pipeline

2. Baku-Novorossiysk (Russian Black Sea Port) oil pipeline

3. Baku-Tbilisi- Supsa (Georgian Black Sea Port) oil pipeline

4. South Caucasus (Baku-Tbilisi-Erzurum) gas pipeline.

(for more information please visit: www.caspiandevelopmentandexport.com)

State Oil Fund

On 29 December, 1999 the late president Mr Heydar Aliyev established a State Oil Fund in order to efficiently manage oil revenues of the country. According to the Oil Fund estimates, between 2006 and 2024, Azerbaijan is expected to receive between US $73bn and US$143bn (based on oil price of US$30 or US$45 a barrel) of oil revenues.

As such, the main purpose of the Fund consists in channeling proceeds from oil and related industries to areas that require additional funds. These include those which address the needs of refugees and internally displaced persons, education, poverty reduction, rural living standards etc.

(for more information please visit www.oilfund.az)

EITI

Azerbaijan joined the British Prime Minster’s Extractive Industries Transparency Initiative (EITI) on June 17, 2003 at the International Conference on EITI in London. While declaring its support of EITI, Azernaijan also become a pilot country for its implementation.

The EITI supports improved governance in resource-rich countries through the full publication and verification of company payments and government revenues from oil, gas and mining. Since joining, Azerbaijan has made substantial progress in implementation of EITI. Following the election of President Ilham Aliyev of 13 November 2003 the National Committee on EITI was established. On November 24, 2004 the Committee introduced the world’s first EITI implementation mechanism

(for more information please visit: www.oilfund.az).

Port Baku Mall Commerce and Trade

Priorities for a non-oil sector development

The Government is currently focusing on regional integration, development of the non-oil economy, alleviation of poverty and above all, the improvement of living standards.

National Programmes

The State Programme on Socio-Economic Development of the Regions was adopted in 2004. It envisages a range of policy measures and investment projects directed at achieving more balanced regional development. It has so far resulted in more than 300,000 new jobs.

The 2nd State Poverty Reduction Programme for 2006-2015 sets out key strategic directions for achieving its aim of poverty reduction and economic development. Poverty dropped by an estimated 15% during 2003-2005 as a result of the first Programme.

The State Programme on Small and Medium Enterprises (SME) development, adopted by the President of Azerbaijan in 2003, focuses on improvement of regulatory systems and legal infrastructure for SMEs, as well as the development of human resources, new financial instruments and creation of more business opportunities in the regions.

The Export Promotion Fund has been established to support exports of private and state-owned enterprises from non-oil sectors. The Fund’s primary mission includes identifying and prioritising export opportunities and furthermore, supporting their implementation. The Fund is also responsible for the export marketing strategy.

Azerbaijan adopted new mortgage legislation at the end of 2005. The government also established a Mortgage Fund in December 2005 to address residential property finance requirements.

The government established Azerbaijan State Investment Company March 2006 in order to promote the non-oil sector development. The company will be taking equities in local companies to boost their activities as well as in infrastructure projects.

The Entrepreneurs Council was established under the auspices of the President of Azerbaijan to raise the Government awareness of the SME sector problems. Relevant Azerbaijani ministries, local and foreign businesses and international organisations are represented in the Council that meets on a semi-annual basis. First, through identification of problems experienced by entrepreneurs, the Council then contributes towards the development of an appropriate economic strategy.

For more information on the above visit www.economy.gov.az

Starting a Business in Azerbaijan

Due to the establishment of The Entrepreneurs Council of Azerbaijan it has now become easier to begin an enterprise in Azerbaijan. If you are thinking of setting up a business within Azerbaijan, you should complete the following two steps:

1 – Obtain electronic signature for online registration from the ministry of Communications and Information Technologies – An electronic signature is a pre-requisite to online registration.  The Ministry of Taxes Certificate Services and Ministry of Information Technology will issue the required n electronic signature. However, it will only take 24 hours to receive your electronic signature. Currently, it will cost c. AZN 36 to purchase for individuals who are not Azerbaijani citizens and AZN 72 for legal entities.

2 – Complete online registration; obtain TIN number and register for VAT from The Ministry of Taxes – You can register your business online. The Ministry has exempted online registration from the state fee and is therefore completely free. The registration has to be completed in 2 days and application is made through the Ministry of Tax’s web page. The Ministry typically respects this time limit in practice. The Ministry will send the Registration of Incorporation to you by email. If you require one, you can also obtain a hard copy from the Tax Office. Importantly, having a registration number is sufficient to start trading.

You will require the following to set up your business:

  • Standard application form
  • Founding documents – the charter of the entity approved by the founder or your legal representative, minutes of the foundation meeting;
  • Resolution of establishment
  • If the founder is an individual – copy of your identity card
  • A document confirming the legal address of the entity

For e-registration, however, only the charter has to be attached to the electronic application.

Regional economic cooperation

TRACECA  

Azerbaijan is the strategic country of the TRACECA transport corridor, which connects Europe to Asia through Caucasus. The project has been on-going since mid 1990s under the EU umbrella and supports a number of developments in transport infrastructure.

Economic Cooperation Organisation (ECO) 

Azerbaijan joined The Economic Cooperation Organisation (ECO) in 1992. The organisation was established in 1985 to support multi-dimensional regional cooperation and sustained socio-economic growth among the member states.

Azerbaijan hosted the 9th ECO summit in 2006 where the Baku Declaration was adopted. The declaration acknowledged the achievements of the Organisation and outlined the framework for future cooperation, in particular in the areas of new and renewable energy, transport and communications, agriculture as well as the establishment of free trade areas in the ECO region.

Black Sea Economic Cooperation 

Azerbaijan is one of the twelve member states of the Organisation of the Black Sea Economic Cooperation, established in 1998. The organisation supports macroeconomic and financial reforms and development programs in the region. Through this, it aids the transition to a market economy and further global trade.

European Neighbourhood Policy 

Azerbaijan has recently joined the European Neighbourhood Policy. It is certainly highly committed to the implementation of the ENP Action Plan aimed, primarily, at Azerbaijan’s integration into EU community, by strengthening policy dialogue and deepening trade and economic relations.

(For more information visit: ec.europa.eu).

Others

Azerbaijan is also a member of other regional cooperation organisations such as the UN Special Programme for the Economies of Central Asia (SPECA), Central Asia Regional Cooperation (CAREC) Programme and Georgia-Ukraine-Azerbaijan-Moldova (GUAM) Organisation for Democracy and Economic Development.

(For more information visit: doingbusiness.org )

Tourism

In the past years Azerbaijan has greatly increased its potential for global access and furthermore, as a unique tourism destination. With general annual tourism coming from primarily Russia and Turkey, in addition to other countries in close proximity, Azerbaijan has gradually been placing itself on the world map. It is finally beginning to appeal more to western travellers as well. 

Tourist arrivals in Azerbaijan reached an all time high of 23,440 in 2012 and a record low of 10,605 in 2013. The State Statistical Committee of the Republic of Azerbaijan has provided these figures (see below).

International Events

Azerbaijan has seen host to various international tourist events such as the European Song contest in 2008 and the first European games in 2015. Likewise, football has played a role in attracting the UK audience, with Tottenham Hotspur playing Qarabag in the Europa league in 2015. Baku is also due to host the 2016 Grand Prix in Baku.

Baku has hosted many events in new structures designed for accommodating international audiences. The Crystal Hall for example was purpose-built to the cost of $350 million USD to facilitate the Eurovision Song Contest. The Hall has gone on to host a number of other international acts including big names such as Rhianna, Jennifer Lopez and Shakira.

Notable Attractions

As Azerbaijan lays claim to having 9 different climate zones across its regions and consequently it offers a wide variety of attractions. The country is also the home to a very popular ski resort: Shahdagh Resort. The resort is on Mount Shahdagh, a peak of the Greater Caucasus range, in the Qusar region of Azerbaijan. This lies close to the Russian boarder and thus attracts many Russian tourists. The elevation of the peak is 4,243 metres above the sea level and Prehistoric cave dwellings have been discovered at the base of the mountain indicating habitation for over 9,000 years – another popular reason for holidaying on the mountain. See our tourism and visit pages for more attractions.

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