Resource information
Azerbaijan's early transition to an
independent, market-based economy has been tumultuous,
entailing significant economic costs, and social impacts.
Yet, unlike many transition economies, sound economic
reforms since 1995, have enabled the country to achieve
macroeconomic stability, and resume growth. Notwithstanding,
the impact on poverty reduction has been modest,
particularly in the case of the urban poor who did not
benefit from land reform. To this end, the Government is
committed to a poverty reduction program, through
macroeconomic and structural reforms, to alleviate poverty
and improve living conditions. This report looks at the role
of trade and investment in reducing poverty, taking into
account the fact that the oil sector, expected to be the
primary driver of growth, accounts for 75 percent of the
total increase in real output. Although projected growth in
the non-oil sectors is 6.3 percent, and while relatively
slow compared to the expected rapid growth in the oil
sector, it would be a significant improvement over the
average 3.8 percent growth rate achieved between 1995 and
2001. This base case growth scenario would reduce the
incidence of poverty from 50 percent, to 30 percent, and
would reduce the share of those in extreme poverty from 17
percent, to 7 percent by 2010. The report stipulates the
exchange rate does not appear to hamper competitiveness, but
remains a future challenge. Given the fact that private
sector is liquidity constrained (the capital market is
underdeveloped), fiscal policy will provide main policies to
manage the oil windfall successfully, as well as
accumulating the excess oil revenues in the Oil fund abroad,
providing a fiscal sterilization, thus avoiding excessive
real exchange rate appreciation. This study is a diagnostic
of the non-oil trade and investment environment in
Azerbaijan. Its primary objective is to define a strategy
for enhancing competitiveness at the macro- and
micro-levels, and increase trade and inward investment in
the non-oil sector to assist in poverty reduction efforts.
The strategy implements one of the key objectives of the
Government's program, i.e., enabling income generating
opportunities, and jobs in the non-oil sector. The
analytical approach includes such program; and various
strategies and analyses of the Government, donors,
international financial institutions, private sector groups,
and NGOs; relevant analyses of the Bank and International
Monetary Fund (IMF); as well as three assessments conducted
for this report: an analysis of administrative barriers to
inward investment; an evaluation of trade policy and market
access agreements of Azerbaijan, including issues related to
the World Trade Organization (WTO) accession; and, a pilot
study of the potential for a fruit and vegetable processing cluster.
