러시아ㆍ유라시아

Modernization and diversification are two issues of vital relevance to the sustainable economic development of Azerbaijan. Azerbaijan’s economic diversification and modernization away from dependence on oil and gas is a priority of the Government of Azerbaijan (GoA). President of Azerbaijan Ilham Aliyev emphasized that the country has to shift focus from natural recourses to human capital. ICT, tourism, logistics, transport, food processing, petrochemical industry are just some of the priority fields the government plans to develop. Non-oil growth has been the main driver of Azerbaijan’s Gross Domestic Product (GDP) over 2011-2012 despite shrinking oil output. In 2003-2011, the average real growth rate of GDP was 14.2%, and particularly, in the non-oil sector, it was 10.7%. It indicates that the efforts of the GoA to diversify its economy are bearing fruit. Non-oil activity (GDP less oil and gas production) still accounted for lion share of growth, contributing 52.2 per cent of GDP in 2011, up from 48 per cent in 2008.

However as IMF states the non-oil output primarily driven by the construction and services sectors has become considerably dependent on public spending. Enabling the implementation of the new customs code and the finalization of the WTO accession, strengthening the financial infrastructure, including by deepening financial intermediation and developing capital markets, along with improvements in governance, and easing of barriers for competition will be key to opening up new markets and developing a new growth strategy with less dependence from oil. Thus non-oil primary balance (in percent of non-oil GDP) will decrease to more secure level.

Why doesn't resource-based approach give sustainable competitive advantage to economies? Grant R. (1991) and some other researchers argue that the sustainable competitive advantage results from the inimitability, rarity, and non-tradability of intangible resources. So "karaoke capitalism" encourages business to generate originals rather than cover versions. Innovation is a single way that leads to competitive advantage in the market. Economic Darwinism proves the importance of innovation-backed development as a single way for survival. Darwinian selection explains how individuals with behavior yielding lowest payoff (because of lagging in knowledge creation) are replaced by individuals with arbitrary behavior. On the other hand mutation makes clear the probability that the current behavior might be replaced by an arbitrary behavior. The race over creation of knowledge impacts on Darwinian selection and mutation as well.  Innovation drivers exploit new market opportunities and implement new technologies to deliver successful products and services. Innovation leaders know that assets are created with intelligence.

Modernization is considered as a key force in economic growth. In the most fundamental sense, there are only two ways of increasing the output of the economy: (1) you can increase the number of inputs that go into the productive process, or (2) if you are clever, you can think of new ways in which you can get more output from the same number of inputs.

Today, Azerbaijan is one of the leading economies globally with respect to economic growth indicators. One of the important indicators of development in Azerbaijan is the growth of attracted investment and diversification of the FDI portfolio. Azerbaijan has an excellent record of working with international technology-based investors, particularly, in oil and gas industries. Thanks to strong leadership and sound policy-making in the field of modernization, Azerbaijan has managed to double its economic potential and to keep the high pace of development over the past 5 years. A further deepening of the modernization of economy paved the way for a sustainable development.

A raft of government reforms and funding programs have been implemented to create a truly innovation friendly environment; chief among these are improved credit and loan provision, gradual reduction of tax rates, protection of investments, easing business start-up procedures, major public investment expansion measures, increasing investment on ICT and others. Most of the mentioned reforms were made possible within the State Programs adopted by the Government of Azerbaijan. The current economic climate requires multiplying the efforts through such measures in order to jump-start the economy and to meet both today and tomorrow’s economic challenges.

Many researchers argue that innovation and export positively reinforce each other in a dynamic virtuous circle, and they identify and describe the process through which this complementarity relationship takes place. Therefore export might promote Azerbaijani firms' based on the principle of learning by doing, and thus enhance innovation performance. On the other hand, innovation leads firms to increase exports, improve the quality, and as a result increase the sales. Taking into account that the Government of Azerbaijan tries to reach 1000 US dollar non-oil export volume per capita in 2020, virtuous circle grounding on the relationship between innovation and export could be successfully implemented. Co-practice (interrelations between innovation and export) could increase the level of absorptive capacity of Azerbaijani export companies, thus impact the creation and sustenance of its competitive advantage.

Resource-rich countries like Azerbaijan should tradeoff between autarkic (self-sufficient) and export-oriented models. Favoring to the first way leads us to a curse rather than a blessing. In order to avoid the curse of resources, country like Azerbaijan should tend to export-oriented development. For example, Auty R. M. (1995)  considers, that despite its more favorable resource endowment, Brazil's per capita GNP has grown at half that of South Korea since the late 1960s, its life expectancy is five years less and its per capita income is barely two-thirds that of South Korea. The fastest development of resource-deficient South Korea, Japan, and other nations is an inevitable consequence of innovation-lead and export-oriented model.

Development Concept “Azerbaijan – 2020: The Vision of the Future” indicates that the modernization of the oil-gas and petrochemical sectors, diversification and development of the non-oil industry, broader use of alternative and renewable energy, agricultural development and food security, development of trade and service sectors, modernization of foreign trade and investment will be among top priorities. The goal is to achieve 7 per cent growth in the average annual non-oil GDP in Azerbaijan. The government of Azerbaijan intends to create favorable conditions for the functioning of a knowledge-based economy.

Any resource-rich country like Azerbaijan trying to diversify its economy faces usual challenges. The high level of return on capital in the specific sectors causes resources like capital and labor to drift away from manufacturing sectors towards non-tradable. Appreciation of the national currency leads to the decrease of the net export, so hurting the tradable sector. This de-industrialization is known as “Dutch disease”. Innovative development will allow Azerbaijan to bypass “Dutch disease”. The conclusion that we can draw from this is that having the technology and managerial expertise is crucially important for modernization and diversification of economy.

Diversification is not more than a good idea in oil-reach country like Azerbaijan, but it is also a new reality linked to modernization. The target of the economic policy carried out in Azerbaijan on diversification is to increase the   share of non-oil sector in GDP to more than 70 percent in 2016.

Diversification of economy has five dimensions in Azerbaijan: diversification of GDP mainly focusing on non-oil sector, diversification of export upgrading the share of the innovative-led goods and services, diversification of partners relying on developed economies, diversification of institutional endowments including natural capital, physical capital, human capital and institutional capital, and diversification of economy over the regions.

There are plenty of researches that prove the plausibility of the hypothesis linking export diversification and growth. The growth rate of the non-oil export outpaces the growth rate of the non-oil sector in Azerbaijan. It proves the pro-export nature of the non-oil development. Although the non-oil export increased by 2.1 times between 2005-2011 years, the export diversification remains challenge. As hydrocarbons consist of more than 90 percent of the export, the concentration ratio of export is very high in Azerbaijan. Since State Oil Company of Azerbaijan (SOCAR) and Azerbaijan International Oil Consortium (AIOC) are main exporters Herfindahl-Hirschman Index indicates high market concentration in Azerbaijan. Thus export diversification will lead Azerbaijan to perfect competition too.

The success stories of East Asian “Tigers” evidence export promotion and outward orientation. In these countries diversification efforts capitalized on the abundant labor supply and were based on the export of high volume manufactures. Since Azerbaijan is heavily dependent on oil exports, a key challenge is to avoid dependence on oil in export revenues and stabilize export earnings. At this end Azerbaijan can draw lessons from the experience of China, India and other East Asian “Tigers”.  The success story of high performing Asian economies that experienced substantial increases in exports, and specially exports of manufactures goods, and high growth rates of their GDP over many decades has prompted many analysts to view export development and diversification as the new engine of growth. Because export diversification is associated with long-run growth and technology spillovers that raise productivity and income. The focus on exports was a common characteristic in countries that have diversified successfully. Azerbaijan strives to the sustainable long term export growth in the level of horizontal (e.g. adding new petrochemical products on existing oil and gas dominance), and vertical (e.g. move from raw oil and gas to higher value added industrial products and services) diversification.

One of indicators of the diversification in Azerbaijani economy is the evidence of increasing amount of taxes from non-oil sector. Non-oil sector tax revenues in Azerbaijani state budget will rise by 15 per cent in 2013. The non-oil sector will ensure transferring 3,760 million AZN to the state budget, which exceeds the same figure by 59 percent in 2011. 70 percent of investments, in other words 12.6 billion out of 18 billion US dollar will be directed to non-oil sector in 2013. Refining industry, construction, trade and services are financed well by the commercial banks of Azerbaijan.  Government of Azerbaijan actively supports the private sector with the assistance of the National Fund for Entrepreneurship Support.  About 270 million USD of preferential credits have been granted by the fund to more than 2,327 investment projects in 2012. Directions of use of the finance of the National Fund for Entrepreneurship Support (NFES) coincide with the purpose of the government to diversify economy. 

The Government of Azerbaijan strives to push economy forward based on innovation, creativity and high value sources of growth, like some kind of services (tourism, transport, logistics etc.) in which Azerbaijan has strong advantages. As land-locked country Azerbaijan needs to develop fields, like services which are not subject to the trade barriers that physical exports have to overcome. The services sector assumes an increasing share of GDP as the economy matures, as is evident in the case of developed countries. Even success story in case of emerging economy like India proves that industrialization is not the only reasonable way to rapid economic development. For example, unlike Chine, India relies on service sector in its booming economy. Azerbaijan strives towards to become a developed country, so greater stress has to be focused on the development of the services sector, along with some non-oil manufacturing sectors. Thus investment in service sector outpaces other fields. Investments in the services sector in 2011 totalled 5.5 billion AZN in Azerbaijan. Therfore service sector becomes the prime engine of non-oil growth.
 
Azerbaijan might extract a useful lesson from South Korean experience between 1950-1980. Chung Y. (2007) shows that investment in South Korea was carried out by both the public and private sectors but, unlike the situation in many developed economies of the West, the volume of public investment in the country has been relatively large and the government has played an active, positive, and critical role in the nation’s investment. Like its neighboring northeast Asian countries, South Korean government did not hesitate to use public enterprises, most direct and interventionist tool, as a way to direct the nation’s resources toward investment. In the early years, the government believed that it was essential to invest in public enterprises and operate them itself, since capital-poor private entrepreneurs lacked the wherewithal or expertise, or both, as well as the experience, to launch the critical industries thought to be necessary for economic growth and the nation’s well-being. Like South Korea at the first stage of economic rise in Azerbaijan the initial orientation was investment in labor-intensive fields, in which Azerbaijan has competitive advantages. But, when the low-value-added and labor-intensive industrial structure faced increasing competition, economy reacted to the problem by investing in high-value-added and capital-intensive industries in non-oil sector. On the other hand, openness to technologically intensive FDI in the field of oil and gas empowered export growth and mechanism for technological upgrading. Thus Baku, the capital of Azerbaijan, has kept its status as Oil Academy. 

Resource-rich countries, like Chile, Indonesia and Malaysia have done well in terms of diversification, but find difficulties in escaping the middle-income trap. To some extent their achievements, to attain developed manufacturing and service sectors, could be success story for Azerbaijan. After Malaysia, Azerbaijan strives to become the second predominantly Muslim and resource-rich country which has succeeded through something other than the utilization of natural resources. At the same time Azerbaijan should look forward to countries which passed the threshold to become high-income economies, like South Korea.