Country risk reference rating: Level 6 (6/9)
Country Risk Outlook: Stable
Economic and trade risks
In 2012, Azerbaijan’s nominal GDP was US$67.33 billion, per capita GDP was US$7,442, the real economic growth rate was 2.2%, and the inflation rate reached 1.1%. Azerbaijan is an upper-middle-income country in Eastern Europe and Central Asia. The petroleum industry is the pillar industry of the national economy, while the machine manufacturing industry and light industry are relatively backward. The total economic scale is small, but the degree of openness is relatively high, and it is particularly dependent on external markets, especially the European market. In order to reduce the risks of a single economic structure and a single market, the government vigorously promotes an economic diversification strategy. However, due to lack of funds and outdated infrastructure, it is difficult to achieve it in the short term.
As a CIS country, Azerbaijan is one of the countries that has successfully transformed its economy after the collapse of the Soviet Union. The development of the oil and gas industry has played a vital role in contributing to economic growth rate. The petroleum industry accounts for more than 50% of GDP, and exports of petroleum and petroleum products account for more than 90% of total exports. In 2012, as the global economic crisis continued and world energy prices slowly fluctuated and increased, the government began to implement the policy of diversified development of the national economy and took some measures to develop the economy and improve people’s livelihood. From January to August 2013, the country’s real GDP increased by 5.2% year-on-year. The government forecasts real economic growth for the year of 5.3%. According to official data, the inflation rate in 2012 was only 1.1%, a new low in recent years.
Investment risk
Azerbaijan is in the process of economic transformation. The World Bank’s “Business Environment Report 2013” shows that in 2013, Azerbaijan ranked 67th in the World Bank’s 2013 Ease of Doing Business Index ranking of 185 economies. Dropped one spot from 2012’s 66th place. Among the 10 indicators, 6 have retreated and only one has improved. However, in the World Economic Forum’s “Global Competitiveness Report 2013~2014”, Azerbaijan ranked 39th among the 148 most competitive countries and regions in the world, an increase of 7 places from the previous year.
Azerbaijan has taken some measures to curb bureaucracy and corruption, but these problems still affect the improvement of the business environment. Small and medium-sized enterprises, in particular, are most severely affected by such problems. In the non-oil industry, corruption and bribery are rife, and it is difficult for foreign companies to enter the market.
Legal risks
Azerbaijan’s trade-related laws mainly include the General Principles of Tariffs, the Foreign Exchange Regulation Law, the Anti-Monopoly Business Law, and the Measures for Issuing Business Licenses for Certain Business Activities. A free trade system is implemented, so economic entities and natural persons have the right to engage in import and export trade. Under current law, the VAT rate for imported goods is 18% of the customs-declared value. Tariff rates range from 0 to 15% (for example, the import tariff for textile goods is 15%; the import tariff for railway locomotives is 0.5%).
Azerbaijan attaches great importance to environmental protection. Current laws stipulate that new industrial and construction projects must conduct environmental protection demonstrations and obtain approval from the corresponding competent authorities before commencing construction. In the event of environmental pollution, punitive measures such as fines, rectification, and shutdown will be implemented in accordance with relevant regulations.
Overall risk
The political situation in Azerbaijan is relatively stable, the ruling party’s position is stable, and the current president successfully won the presidential election. The turmoil in the Middle East and North Africa currently has a limited impact on Azerbaijan, but the Nagorno-Karabakh issue, the biggest threat to the country’s national security, is difficult to resolve in the short term.
The country’s economic development is in its infancy, domestic regulations are imperfect, content is frequently revised, individual companies and individuals have poor creditworthiness, and the financial system is relatively closed.
Sino-Arab trade relations are good, but most of the companies that trade with China are small businesses engaged in importing, with limited strength and low credibility. Disputes caused by this often occur. In the process of investment, trade, project contracting and labor cooperation in Azerbaijan, Chinese companies must pay special attention to prior investigation, analysis, and risk assessment to effectively protect their own interests.
Based on the analysis and assessment of the current overall situation, Azerbaijan’s national risk reference rating is 6 (6/9), with a high national risk level and a stable national risk outlook.
(Issuing agency: China Export and Credit Insurance Corporation)
