Competitiveness as a Strategy for Poverty Reduction
The productive job creation and decent working conditions is
the best way to reduce poverty and improve quality of life. These could
be achieved through raising enterprise productivity leading to higher
competitiveness at home and globally. It is also the best approach in
implementing the State Program on Poverty Reduction and Economic Development
and to attract foreign and local investments.
Despite the fast economic growth (9 - 10%) during the last few years
and growth of income per head by 19.6% during 2004, about half of 8.3
million people of Azerbaijan still lives below the poverty line. The
main reason of poverty is the low rate of productive job creation in
this country. Unemployment is still high (between 12 - 14% by different
estimations). In rural areas an unemployment rate is far above the average.
An urban unemployment is particularly high among young people under
the age of 35, and among women it is much higher than among the men.
Though population in Azerbaijan is well educated, with literacy rates
of 98%, since independence the educational system has been deprived
of resources and the general standard of education has visibly declined.
Public expenditures on education are only 3.2% of GDP. There is mismatch
between the educational and skills structure with the labour market
demands as a result of weak links between educational and employment
policies as well as low contribution into training by employers. This
problem is aggravated by about a million of refugees and internally
displaced people. There are some cultural problems among employees and
even employers, which used to rely on the state support and for many
of them it is difficult to adjust to the situation when your income
and consumption depend upon your own productivity and efficiency. Productivity
culture and work ethics are still poor.
There are some serious infrastructural problems preventing productivity
growth. The transport and communications is in a poor state. Much of
the railways track and rolling stock is in need of repair or replacement.
Despite some success in developing the cross Caucasus routes, the most
of the 25,000 km roads are poorly maintained. The same situations with
Baku port facilities. Telecommunications infrastructure is still inadequate
mainly as a result of legal, regulatory and institutional obstacles
and limited competition allowed by government. The state Aztelecom has
a monopoly on fixed line. Internet usage is heavily concentrated in
a few urban centres, where the majority of better educated people live.
The production and refining of oil and gas forms the bedrock of the
economy, but the country growing export is still marginal comparing
with the Middle East countries. Though the country is self-sufficient
in electricity, generating technology is obsolete and in need for replacement.
As to productivity of energy utilization, the country remains highly
energy-inefficient. For some industrial consumers the electricity is
free or heavily subsidized. And while energy supply to Baku and the
surrounding areas tends to be good, the politically less important countryside
suffers from frequent energy shortages.
The massive direct foreign investments into gas and oil sector have
changed significantly the economic structure. In 2004, industry contributed
more than 38% of GDP, agriculture - 13%, and construction - 11.4%. The
oil and gas account for about 57% of industrial output. A dual economy
has therefore emerged, made up of a fast-growing hydrocarbons sector
with associated construction and service sector, and inefficient non-oil
sector that suffers from chronic underinvestment.
The agricultural sector is the largest employer in the country (about
40% of the total employees) and is, after the oil sector, the largest
exporter. However, despite of it annual growth of 5 - 6 %, it does not
support country food needs and is heavily reliant on government subsidies.
Land privatization has led to the predominance of small holdings, losing
potential of economy of scale (the average size of private farms is
under 4 ha). Its share of GDP has shrunk steadily to 13% in 2004 from
25% in 1992. The technology in this sector is obsolete. For SMEs in
agribusiness it is very difficult to access the credit facilities, there
is high corruption among public administration responsible for issuing
licenses and permissions for different products.
The banking system in Azerbaijan consists of 46 banks, which number
is too high for this small economy. This system is still weak and money
supply small and heavily dollarised. The security markets are still
undeveloped and could not represent a good source to raise the money
for business development. The credit conditions for small and micro-enterprises
are not acceptable and banks do not play serious role in SMEs development.
There are regional disproportions in economic development, which concentrated
mostly in Baku and Apsheron peninsula with the main oil fields. Economic
activities are depressed in a several regions, including Nahichevan,
which is heavily subsidised by the state. Most services are provided
in Baku area; whereas rural services are generally poor to sustain any
diversify the service sector provision. There is lack of training facilities
in the regions, particularly for entrepreneurial and management development.
This country has excellent opportunities for tourism development due
to its history and geography, including warm sea, mountainous resorts,
mineral springs and medical mud recreation centres. However, tourism
is still undeveloped, given high cost of travelling to Azerbaijan and
poor quality of tourism infrastructure and services
The state measures in economic restructuring have led to the fast private
sector expansion and entrepreneurship development. At the beginning
of 2005, the non-state sector contributed more than 73% of GDP, about
70% of employment and 40% of the budget receipts. The highest level
of privatization is in agriculture (99.7%), trade (97.9%) and construction
(93.3%); and the lowest level is in industry (only 55.7%). The position
of entrepreneurs in the society are firmly established and accepted
as a leading force. The government is implementing the State Program
of the Small and Medium Enterprise Development (2002 - 2005), The Council
of Entrepreneurs at the President was set up, unfortunately without
invitation to participate in it the ASK, which is the most representative
organization of employers in Azerbaijan recognised by the ILO and others
international organizations.
Although small SME privatization is almost complete, there has been
only limited progress in the sale of large-scale enterprises. The greatest
obstacles in privatizing large enterprises have been poor governance
and corruption, protection of both public and private monopoly. There
are also structural problems with the revenue collection (only about
15% of GDP), and oil sector responsible for up to 40% of all budget
revenue. As a result, the budget is vulnerable to oil price fluctuations.
There are problems in tax collection owing to distortionary provisions
and through failure to implement tax laws, weak administration and corrupt
practices.
The ASK is in the best position among other NGOs to take the lead in
promoting productivity and competitiveness in this country. It was set
up in 1999 to protect rights of entrepreneurs and their property, to
assist in strengthening the market development, to provide advisory
services to entrepreneurs in improving their business effectiveness
and efficiency as well as to government agencies in making the environment
more friendly to the business, thus contributing to the country economic
and social development. The ASK has certain institutional capacities
in promoting productivity and the will in developing them further to
strengthen the value of their services to constituents and their image
in general. It has good working relationships with the government and
trade unions to develop tripartite partnership in implementing this
goal.
