Dutch Disease in Azerbaijan

Azerbaijan has reached a new level in order to be a country with high economic growth.

The country's economic policy has contributed to a significant increase in volume over the past decade. The economy has formed to increase the social welfare of the population and the modernization of the entire socio-economic infrastructure. Thus, after the independence,

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Azerbaijan had an independent formula for the important tasks of Azerbaijan. World economy based on effective integration, modern market principles and rich stocks have laid the basis for many years of experience in hydrocarbon production and processing oil development in Azerbaijan. The processing industry and petrochemicals in the country have had favorable climatic conditions and vast fertile soils, especially since ancient times. The order of resources contributing to the development of agriculture and tourism and its positive geographical position has been on the rise with the participation of Azerbaijan in the international transit system. Thus, there was a deficiency in the Azerbaijani economy at first. Necessary economic reforms, legal basis and state regulatory legislative decisions have been implemented to make significant qualitative changes in the country's economy.⁵⁷

It is impossible not to draw attention to the importance of the deformations in the structure with the sector, especially the imbalances in the economy, Dutch Disease. The Dutch Disease negative impact is affected by the strengthening of the real exchange rate of the national currency.

The reasons for economic development resulting from a boom in a separate sector of the economy can be completely different. It has made possible the discovery of the export prices or mineral deposits of extraction industries most often associated with growth. Overvaluation of the currency is also harmful in the long run. It affects the economic growth and macroeconomic stability of the country. Thus, the rate of increase in exports from fishing is challenging and has led to some deformations in this sector. As a result, the structure of the national economy of the Netherlands comes to mind as the rate of decline in exports of finished goods in the country. Speaking generally for the country's economy, the fight against the consequences of the Dutch Disease can be done in two ways:

- Limiting the income growth of the extractable sector or exceptions or directing super profits.

For example, a special institution dealing with the accumulation of received funds. The implementation of oil and gas contracts is considered as the State. Oil Fund of the Azerbaijan Republic Effective management of oil revenues and protection of these funds for future generations.

57 Devrim, F., and Gurbanov, A. (2009). The effect of fiscal policies applied in Azerbaijan in the globalization process on income distribution, Unpublished Doctorate Thesis, DEU Institute of Social Sciences, İzmir.

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- Manufacturing development and general cautionary safeguards (tariff policy to subsidize export production, investment in education and knowledge-intensive industries)

But speaking of the implementation of tariffs, the increase in imports, as a rule, leads to an increase in local prices. If the country is a member of international trade organizations, the customs administrations have been limited to introduce high tariffs. It leads to retail measures of other states. After all, there may be problems with Dutch Disease. Only making decisions with appropriate macroeconomic policies and the need for transparency in cash flow, corruption and applying environmental standards can produce good results.⁵⁸ Dynamic reproductive processes of external and internal factors affected by the sectoral structure of the economy and changes between sectors; utilization efficiency raw material resources, production devices; The functioning of the service sector, transport, the labor market and employment directly raises. This means reaching the goal consistently. Economic growth is required to balance the structure of all sectors.⁵⁹

3.3.1 Macroeconomic Effects of Dutch Diseases on the Economy of Azerbaijan

Azerbaijan's economic policy and development process are the conditions that ensure that Azerbaijan does not stop the country's path to sustainable economic development. However, the socio-economic results are planned to continue and to be improved further. Transformative provisions and modernization have increased the economic potential in practice, increased foreign economic activities. One of the studies emphasizing the foreign economic policy is the foreign economic relations of the Azerbaijan Republic are in integration with the global economy.

Azerbaijan explains in detail the state and characteristics of the economy of the USSR.

Azerbaijan's foreign economic relations with foreign countries have taken into account Azerbaijan's legal framework.⁶⁰

The Republic of Azerbaijan has achieved success before, at the same time it has increased its economic performance. For this reason, since 2004, the country has regularly carried out various

58 Erdil, N. O. (2009). Systems analysis of electronic health record adoption in the US healthcare system.

State University of New York at Binghamton

59 Alkan, H. (2010). The Azerbaijani paradox: political system and foreign policy in Azerbaijan under cross-pressures. International Strategic Research Organization, 36.

60 Ahundzade, N. (2009). Effects of fiscal policies on foreign direct investment in Azerbaijan, Unpublished Doctorate Thesis, DEÜ Institute of Social Sciences, İzmir.

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programs aimed at improving socio-economic development. Moreover, under Ilham Aliyev, Azerbaijan not only strengthened its position, became a serious oil supplier, but also as a gas producer after the start of a large gas quota, the Shah Deniz deposit inaugurated in 2006. In the country as big as we can talk about the value of gas projects, a new economic policy direction has been created and a gas strategy designed for a long time has been made. Thus, special attention is paid to the development of promising developments in agriculture, industry, tourism and other industries and technology to promote state development and the non-oil sector of the republic.

Industries, especially information and communication technologies, innovative regions and technology parks are considered. It has been necessary to create the most favorable conditions for the functioning of the Azerbaijan republic, to encourage investments in foreign companies in the republic, to invest and support the economy.⁶¹

Azerbaijan nearly doubled its GDP per capita growth in 2006. The oil boom in Azerbaijan, which brings the country to world leaders in terms of economic development, does not pose a threat in terms of macroeconomic stability and structural balance. This was stated in a report published on 3 August by experts from the European Bank for Reconstruction and Development on the development of a new cooperation strategy with Azerbaijan. The share of the oil sector in GDP has reached 54% in industrial production.⁶² Macroeconomic stability is also affected, and inflation was 11.4% at the end of 2006 and more than 16% at the end of March 2007. Thus, the annual growth of the real effective exchange rate of the manat in 2009 and the decline in the competitiveness of the non-oil economy was at the level of 10%, which raised concerns about the Dutch disease. Monopolies continue to suppress the competitive environment, and cases of state intervention in investment processes in the non-oil sector negatively affect investor confidence.

As one of the consequences, the level of foreign investment in this sector remains low. At the same time, work has been started to update the strategy for Azerbaijan, which will cover the years

2007-61 Canar, B. (2012). Relations of the Russian Federation with Azerbaijan. Çankırı Karatekin University Journal of FEAS, 2 (1), 21-38.

62 Hacısalihoğlu, F. (2012). National historiography in Azerbaijan. History Studies, V. 4, 173-194

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2010. Proposals for this document accepted by 2 September and then submitted to the Board of Directors for approval. ⁶³

Focusing on economic cooperation with Azerbaijan, the European Bank almost completely rejected the fulfillment of its political mandate. The main priorities of the bank for the next three years are to include various sectors of the economy in the reform process by working with private companies and government institutions, to establish dialogue with the state to improve the business environment, to support the corporate sector, to work with investors, to work to improve the non-oil economy, including agriculture.⁶⁴ Foreign investment in the non-oil sector of the Azerbaijani economy remains the exception to this rule. Azerbaijan State Statistics Committee stated that, according to the results of the first half of 2018, 6.331 billion manats were invested in the development of the economic and social sphere of Azerbaijan from all financial resources, 14.1%

lower than the same indicator of 2017.

The peak of investments by foreign investors (within the framework of the second phase of the Shah Deniz gas and concentration area, as well as the expansion of the infrastructure of the South Caucasus pipeline in Azerbaijan) is lagging behind. Given the development of the Azeri-Chirag-Guneshli fields under a new contract, as well as the promising structures in the Azerbaijani sector of the Caspian Sea, large-scale foreigners will remain in the republic. However, it is an investment in the oil and gas industry. Meanwhile, domestic investment was 54.3% and foreign investment was 45.7% in the first half of the year. For comparison, in January-June 2018, 60%

was responsible for foreign investment and only 40% was domestic sources. Thus, foreign investment in the first half of 2018 decreased 1.39 billion manats, or 32.5%, to only 2.89 billion manats. It is well known that foreigners are reluctant to invest in the non-oil sector in developing countries. Owners of foreign capital are afraid to burn themselves in the non-oil sectors and, accordingly, the local business community must become the core of the development of the non-energy sector of the Azerbaijani economy. Therefore, creating favorable conditions for local entrepreneurs and potential investors and businesses is essential. However, this required

63 Mamedov, Z. F., and Zeynalov, V. (2011). The structure, characteristics and problems of the

Azerbaijani banking sector in the global financial crisis environment. Public Administration Journal, 44 (3), 173-203.

64 Rustamov, E. (2018). Principles of evolutionary modernization of economies in transition. Economics, (7), 85-96.

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government support in the form of access to concessional finance and ongoing measures to improve the business climate in the country. The most important aspect of the Dutch Disease is that it slows down the development of the non-oil sector. The situation in Azerbaijan has been completely different and the growth of the non-oil sector has made it clear. First you have to wait for a massive influx of Petro dollars and then be sure. A. Amiraslanov also stated that the fair division of oil revenues (does not mean that the oil dollar is divided among all inhabitants of Azerbaijan). It is much more important to channel these revenues to solve social problems. Some tax can be reduced due to oil revenues. It has been necessary to improve the business environment, including preferential financing of production projects, reduction of taxes, thus broadening the tax base and increasing the volume of tax collection. But at the expense of these budgetary funds, all problems of a social nature are solved. Petro Dollar should be directed to the development of the economy, especially private entrepreneurship, and to the solution of all other problems at the expense of a general economic recovery. Dutch Disease impedes the development of the non-oil sector. In Azerbaijan, the non-oil sector grew by 12%.⁶⁵

3.3.2 Policies and Perspectives Applied Against the Dutch Disease in Azerbaijan

Although the Dutch disease is a complex macroeconomic phenomenon, all of these create dependence on oil resources due to many factors not found in ordinary people under the disease in Azerbaijan. Also when we look at economic issues, even as a result of a well-thought-out policy, we can prevent the Dutch disease in the economy. At that time, its psychological and social elements began to show itself. The most obvious and simplest manifestation of this is the confidence that all questions and problems can be resolved at the expense of a single component.

In the case of Azerbaijan, such a component is increasingly the availability of financial resources.

That is, it is believed that everything will be resolved very simply and quickly, at the expense of cash flows entering the country. It is important to note here that the growing economy and financial base are the most important and irreplaceable aspects of the development of any system. In addition, the basis for solving key problems must be provided.⁶⁶ There should be the same solutions in education and defense issues. Scholarship, for example, is a good opportunity, but the student must learn himself. Military equipment itself does not win a war. Otherwise, Saudi Arabia,

65 Alexeev, M., and Weber, S. (Eds.). (2013). The Oxford handbook of the Russian economy. Oxford University Press.

66 Alexeev, M, and Conrad, R. (2005). The Elusive Curse of Oil/SAN Working Papers Seriesi, No 7.

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with its oil reserves, would have the strongest army, the most educated population, and would have to be a very popular country in the world public, buying all Western politicians and media.

Periodically, it is possible that politicians and journalists were bribed, but it was not possible to rise above a certain level.⁶⁷ Azerbaijan's neighbors in the Caucasus are Chechens who achieved incredible military success against Russian troops, and decided that all problems could be solved by force. Seeing that it helped the Chechen people endure unbearable suffering, some leaders embraced an extreme version of the religion. At the same time, the belief gradually began to return itself to righteousness and impunity. The point is not exactly what element has led to a certain level of socio-psychological Dutch Disease, but that society ceases to recognize the multilateral nature and complexity of the modern world system.⁶⁸ Such a simplification is not necessary for the Azerbaijani economy. Modern Azerbaijan has literally achieved a lot due to its richness, realism and talent of its people. Fortunately, Azerbaijani society has always been distinguished by its diversity and openness. In fact, it is necessary to be in moderation in everything since then. For example, extremes such as fanatic religiosity or aggressive atheism cause society to weaken. The same is true of radical nationalism, or to ignore its people. One of these mistakes is overconfidence rather than periodic self-righteous doubts. Not so long ago, the question remained open whether Azerbaijan will remain an independent country. The question today is - what country will we leave for future generations? If the economic Dutch disease can be prevented, we must protect ourselves from other viruses.⁶⁹

3.4 The Effective Use of Non-oil Export Potential in the Development of The National