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

CHAPTER III: LITERATURE REVIEW IN THE CONTEXT OF DUTCH DISEASE,

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

The key step in the way of getting rid of Dutch syndrome, based on the oil sector in Azerbaijan, was the transformation of the non-oil sector into the country's priority economy. The Republic of Azerbaijan has a wide range of potential opportunities for the development of the non-oil sector. It is through the use of these opportunities that it is possible to prevent dependence on

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imports in the domestic market and to have a comparative advantage in foreign markets for a number of products. In terms of priority areas of the non-oil sector in Azerbaijan, it is possible to develop the processing industry, agriculture, construction, tourism, telecommunications systems, communications, as well as light industry at a high level. Azerbaijan's investment programs and economic potential are not only based on gas and oil. Thus, we can say that another factor in the progress of our country is the work done to develop the non-oil sector. Diversifying and increasing this efficiency is, first of all, a sign of the enormity of the development trajectory. It is in this context that a more than twofold decline in the price of oil on the international market should give impetus to the rapid growth of the non-oil sector. The non-oil sector consists of 6 main areas: social services and trade, construction, telecommunications and communications, transport, non-oil industry and agriculture. The regulation of these areas is carried out through the legislative acts adopted and implemented by the state. The main purpose of non-oil production is to provide the country with the necessary industrial goods, as well as to develop a strong export potential, increase the country's foreign exchange earnings and support the development of entrepreneurship.

The Action Plan to stimulate the export of non-oil products for 2011-2013, approved by the Order of the Cabinet of Ministers of the Republic of Azerbaijan dated February 8, 2011, includes the following:

 Creating a more fertile environment in the field of foreign trade, as well as improving the areas of state regulation in this area and the development of a new draft law;

 Improvement of customs legislation and simplification of export processes, preparation of amendments and additions to relevant normative legal acts;

 Improving the activities of the Export and Investment Promotion Fund in Azerbaijan based on best international practices;

 Development of mechanisms for crediting the production process of products for export;

 Improving the mechanism of insurance of exports of services and products;

 Motivation of production and export of raw materials and semi-finished products exported from the country to the state of finished product;

 Establishment of free zones (free port zones, border trade zones, etc.) and industrial zones (industrial clusters);

Many important events included in this document have been organized and implemented.

Legislative bases have been created to attract foreign investments to the country, to encourage

investors to bring large capital to the country's economy, and a great deal of work has been done to develop entrepreneurship and the business environment. The country's laws on investment activity and protection of foreign investments have been adopted. According to these laws, the state guarantees the regulation of investment activities, protection of investments, takes comprehensive measures to improve the investment climate, develops and implements mechanisms, regulates and maintains the stability of investment activities, protects the rights of investors and acts as an organizer of other important events. . The improved and amended Law on Protection of Foreign Investments defines the mechanisms of state protection of investors who have invested in the country's economy, and state control over the implementation of the terms of contracts concluded with national entities in the field of investment attraction.

One of the important goals of the Republic of Azerbaijan is to stop dependence on oil and ensure the economic development of agriculture. The development of agriculture in our country affects the reduction of poverty in the regions. The agricultural sector has its own characteristics and is appropriate in terms of credit efficiency. For the Republic of Azerbaijan, this sector is directly strategically important and promising. This is also mentioned in government documents.

There are other arguments for the importance of supporting the credit sector in this sector. First of all, agriculture is a low-level business sector, and in this regard, farmers in developed countries benefit from strong government support. Second, farmers' incomes also depend on climatic conditions. Additional funds are needed to continue operations in adverse weather conditions.

Given the important role of food security in agriculture, it is important to address this issue.

The Republic of Azerbaijan also supports farmers explicitly (50% of fuel and fertilizer costs are covered by the state) and implicitly (exemption from all taxes except land tax). However, the amount of this support is very small compared to the support of the European Union and the United States. It is clear that, first of all, in these countries, these subsidies account for a very small part of state budget expenditures. Second, the existence of other specific costs of the newly independent Republic of Azerbaijan (reconstruction of market infrastructure, restructuring and other costs) does not allow for large grants in other areas in the form of subsidies. However, it should be noted that the productivity rate of this sector is small (the agricultural sector in the US and EU countries is 2-5% of GDP), and high profitability should not be expected from this sector.

The main focus should be on areas with high profitability in the current situation, and to support targeted areas of the agricultural sector at the expense of profits from these areas. Work is being

done in a number of areas to increase investment in agriculture. Summarizing these, it can be said that the important goal of each country's investment strategy in agriculture is to produce quality and competitive products. At present, our country is in a position to increase the current efficiency of the agricultural sector and maintain competitiveness. Azerbaijan supports leasing for agricultural development, and the allocation of loans to specialized agricultural sectors plays an important role in improving the investment climate. To increase the role of agriculture in international trade, its long-term development must be based on four key factors.

 Determining the investment rate of products produced in the country;

 compliance of agricultural products with world standards and high competitiveness;

 determination of the structure of products exported to the international market;

 meeting the needs of the country through its own production.

One of the credit mechanisms of agriculture is that entrepreneurs obtain mortgage loans by securing land or real estate. Mortgage loans are an important part of investment loans and play an important role in the production of agricultural products. Mortgage loans are the main source of investment resources in agriculture in many countries around the world. One of the important opportunities for attracting loans in the field of agriculture of the Republic of Azerbaijan is to ensure the development of mortgage loans in the regions. The increase in mortgage loans in the regions creates a favorable environment for the development of the land market in the regions. The main reason for the development of agriculture in the regions of Azerbaijan is its specialization in the development of agriculture and processing industry in the regions. The movement of investment activities in agriculture and other related sectors of the economy, which is a political and important sector of the economy, creates important conditions for the implementation of large-scale reproduction and increase the production process. If we compare the data of the State Statistics Committee on GDP over the past 10 years, we can see that the share of the oil and gas sector in the volume of GDP, starting from 2011, began to gradually decline, and the non-oil sector, on the contrary, increased.

Table 12. Gross domestic product in the oil and non-oil sectors of the economy, in current prices, million manats

Year Oil and Gas Sector

Non-oil sector Net taxes on products and

The State Statistical Committee of Azerbaijan Republic, https://www.stat.gov.az/

Table 13. GDP growth index compared to the previous year in percent Year Oil and Gas

Sector

Non-oil sector Net taxes on products and

The State Statistical Committee of Azerbaijan Republic, https://www.stat.gov.az/

As can be seen from the above analysis of the state of the economy over the past 10 years, the fall in oil prices on the world market, its dependence on raw materials, served as an impetus for the development of the non-oil sector. That is why most of the investments gradually began to be directed to the non-oil sector, because the dynamics of real production growth in this sector largely depends on attracting investments, changes in domestic demand, as well as structural and institutional changes in the country. Starting from 2007-2008, the number of deposits in the non-oil sector began to increase.

Summing up the analysis of the state of the economy of Azerbaijan, in particular the non-oil sector, one can come to the conclusion that the real growth of production in the non-non-oil sector was characterized by relatively weak development rates in the economy of Azerbaijan. Due to significant transfers of oil revenues to the state budget in the early stages of the oil industry, especially during the oil boom, Azerbaijan mismanaged oil revenues and could not avoid the Dutch syndrome. However, one should also take into account the fact that almost all resource countries to one degree or another have ever been struck by the Dutch disease and suffered deformations in the sectoral structure of the economy. It is also an indisputable fact that the changes that have occurred in the sectoral structure of the economy are primarily reflected in the structure of GDP in the form of changes in the shares of various spheres. However, the successful policy of economic diversification carried out in Azerbaijan contributed to a decrease in the share of the oil sector in GDP. It is noteworthy that growth in the non-oil sector of Azerbaijan began to be observed precisely in the difficult years for the country in 2015-2016. This means that the government is clearly aware that the development of the non-oil sector should become the main priority of the state economic policy.

Azerbaijani economy needs to reduce its dependence on oil, and for this, it first of all needs to develop a strategy for economic diversification, develop sustainable mechanisms for the development of the non-oil sector and conduct a well-thought-out fiscal policy. Updating the structure of the national economy is possible through a greater improvement in the business environment, the application of new policies within the medium-term spending strategy, the rehabilitation of the financial banking system and the improvement of monetary policy through a floating exchange rate regime, as well as through the expansion of opportunities to enter foreign markets. To this end, the government has already adopted various kinds of programs, carried out measures and signed decrees, which will be discussed below.

The main priority sectors in the development of the non-oil sector in Azerbaijan are tourism, information and communication technologies, transport, processing of agricultural products and energy. International financial institutions emphasize the importance of the agricultural and tourism industries. So, slightly more than one third of the employed population (44%) of the republic work in these areas.

It is no coincidence that one of the main directions of the strategy of the President of Azerbaijan to diversify the economy is the development of the agricultural sector. Considering that about 1.5 million citizens of the country work in the agricultural sector, as well as in terms of developing the non-oil sector and reducing unemployment and poverty, the development of this sector is of particular importance. Also, the development of the agricultural sector has a leading role in government programs for poverty reduction and socio-economic development.

Implementation of such programs as the State Program for the Socio-Economic Development of the Regions of the Republic of Azerbaijan (2004-2008; 2009-2013, 2014-2018), as well as providing material and technical assistance to farmers, developing entrepreneurship, concessional lending from the National Fund for the Support of Entrepreneurship (NFES) under the government of the Republic of Azerbaijan, the implementation of infrastructure projects in the regions ensured an increase in the share of local products in the consumption of the population.

The state program on reliable food supply of the population of the Republic of Azerbaijan in 2008-2015 was also aimed at eliminating unemployment in the regions and ensuring food security. The solution of these problems is the main direction of the strategy for the development of the agricultural sector and is closely related to it.

Without government assistance, it would have been impossible to make a breakthrough in this area. Taking this into account, the President of the Republic of Azerbaijan issued an order in 2004 to establish Agroleasing OJSC, which was entrusted with bringing into the country and bringing to the manufacturer of mineral fertilizers, technological equipment, pedigree cattle, seedlings, wheat and corn, etc. As part of the implementation of the State Program on Reliable Food Supply of the Population for 2008-2015, measures were taken to create new capacities for processing and storing agricultural products, state support for farms, the use of intensive methods in animal husbandry, crop production, and significant volumes of land reclamation and irrigation work.

In 2016, at the expense of the National Fund for Entrepreneurship Support, more than two hundred million manats of soft loans were issued to approximately two and a half thousand business entities. During 2017, 94 enterprises in the field of production and processing, financed by the fund, were put into operation, of which eighty-four belong to the agro-industrial complex, including 15 poultry, 7 livestock enterprises, 4 meat processing enterprises, 11 complexes for procurement, storage and sales of agricultural products, 9 greenhouses, 11 bakeries, 7 vineyards, 5 fruit and vegetable processing enterprises, 2 grain-growing enterprises. Agroleasing delivered over 1,500 units of agricultural machinery and equipment, leased to farmers on preferential terms.

According to the decision taken by the relevant state commission, in 2017, over one and a half thousand agricultural producers were allocated subsidies in the amount of 45 million manats.

During 2012, up to 165,000 meters of collector and drainage networks and more than 209,000 meters of irrigation canals were built and reconstructed on agricultural land. Along with this, the construction of the Shamkir reservoir, the Upper Mil channel, and the Takhtakerpun reservoir was continued. Today most of them are already functioning successfully. The Samur-Absheron Canal was reconstructed.⁷⁰ The State Program for the Development of Viticulture in Azerbaijan in 2012-2020 is coming to an end very soon. The development of cotton growing, silkworm growing, tobacco growing, and hazelnut growing also has a great potential for export.

The development of this sector will have a positive impact on the urbanization process.

Employment of the population in the regions, rural areas, improvement of the living standards of people will be ensured. Also, over the past 5-6 years, the government has been carrying out a number of measures aimed at developing and transforming the tourism sector into one of the leading sectors of the national economy. The government is quite clearly aware that this requires the adoption of a set of measures to improve the activities of companies involved in this area, and mainly to improve the level of services provided and the professionalism of working personnel.

Also, in order to develop tourism, legislation and standards in this area should be improved. Taking the necessary measures to fully use the tourism potential of the Caspian Sea is a component of the successful development of this area. Stimulating tourism activities in the regions, strengthening outreach activities through the creation of appropriate tourist routes are also key to success. It should also be taken into account that in 2017, the protection of socially sensitive segments of the population was strengthened (an increase in pensions and social benefits, targeted social

70 The State Statistical Committee of Azerbaijan Republic, https://www.stat.gov.az/

assistance, monthly food allowances for internally displaced persons, etc.), as well as an increase in wages of 10%. Payments of employees of budgetary organizations (working in the field of science, education, health care, culture, sports, agriculture and civilians who are not civil servants).

In order to strengthen depositors' confidence in the banking system, a state guarantee was given to return deposits at the level of 100 percent.

Also, in 2017, significant reforms were carried out, the goals of which were the modernization and diversification of the national economy through the prevailing development of the non-oil sector, improvement of the market mechanism, state support for entrepreneurship and private business. Thus, in accordance with the Decree No. 1897 of the Main Directions of the Strategic Roadmap for the National Economy and the Main Sectors of the National Economy, approved by the President of the Republic of Azerbaijan dated March 16, 2016 No. 1897, a total of 12 strategic roadmaps for the national economy and 11 sectors of the economy were prepared.

The Strategic Roadmap for the perspective of the national economy covers the short, medium and long term, consists of a strategy and plan for economic development until 2020, a long-term view for the period up to 2025 and a target view for the period beyond 2025.⁷¹

Strategic roadmaps for the national economy and main sectors of the economy will ensure the growth of the competitiveness of domestic production. Responding to global challenges and as a result of attracting investments, developing a free business environment, entering markets and human capital, Azerbaijan will strengthen its position in the world economy and enter the group of high-income countries. To this end, within the framework of the prospects for the national economy, four strategic goals were selected. As a result of the implementation of these goals and strategic roadmaps for 11 sectors, sustainable economic development will be possible by balancing the real and financial sectors. In accordance with the first strategic goal, fiscal stability will be ensured in Azerbaijan and monetary policy will be based on a floating rate regime. Tidying fiscal and monetary policies will ensure macroeconomic stability. The second goal in the perspective of the national economy is to increase the rationality in the activities of legal entities, the controlling

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