IS THERE FAVORABLE INVESTMENT ENVIRONMENT IN AZERBAIJAN?
QASİM discussed statement of US Department of State.
"Center for Civil Development – Globalizing Azerbaijan” (QASIM) had put last week for discussion latest statement of US Department of State related to investment environment in Azerbaijan for 2006 in its traditional “Saturday Club” with participation of popular country economists.
Lets’ remind that it was noted in statement that conflict with Armenia created serious difficulties in development of the Azerbaijani economy. It is informed that though it was expected that GDP in Azerbaijan would grow over 30% in 2006, Azerbaijan does not use stimulated tools for attraction of foreign investments to other areas, except Production Share.
It is informed at the same time that one of basic factors making obstacles to the economical development of Azerbaijan is the corruption. This is one of factors preventing attraction of investments and it shows itself especially in the non-energy sector. But anticorruption laws and resolutions are not being implemented effectively and though a new law was introduced since January 2005, Azerbaijan could not gain important achievements in the execution of this law yet.
QASİM, taking into account the international significance of the statement had opened a discussion in its Saturday Club on questions “is there favorable investment environment in Azerbaijan?. What can be done for promotion of investments? What kinds of privileges are applied for promotion of foreign investments?
Prof Zahid Mammadov, doctor of economic sciences Akbar Eldaroglu, chairman of the economical research Center, economist- expert Qubad İbadoglu, head of economic department of QASİM, member of Board Rashadat Akhundov, doctor of sciences Shahin Ahmedoglu, representative of the Businessmen council, economist scientist Shamil Karamov, representative of the economy department of "Hefte ichi" newspaper & etc. joined the event. Besides, doctoral degree candidate of Istanbul University Ilkin Rzayev, Natiq Sabiroğlu Bahruz Mammadli had joined them via internet from Turkey to submit their researches connected to present theme.
After the opening speech of co-chairman of the QASİM Anar Asadbeyli Doctor of Economic Sciences of the Istanbul University Ilkin Rzayev had delivered his research to the attention of participants. I.Rzayev had diverted the attention to draft of AR Law, which was brought to discussion on May 17, 2001 at constant commission of Milli Mejlis Mays on the economical politics “On Promotion of Investments” but which was later disappeared: "It was expected that privileges that may be applied for 12 years in spheres of profit tax, road tax, social payments, as well as electric energy and transport charges will be introduced. It was also noted in the document that these privileges would not be addressed to companies engaged in oil and gas sector, finance, banking and insurance sectors, too. The bill also included exemption of investors from payments to Social Protection Fund and Employment Fund as well as customs duties
As privileges were dependent on volume of investments, so conception of some normative limits likes “minimum investment volume” was also included in the bill. This figure would be specified relevant executive body to government program in appropriate way. According to bill, profits tax is differentiated depending on the volume of the investment. So, if volume of the investment is 10 times more than “minimum investment volume” the tax base would have been reduced for 35% during 5 years, if volume of the investment is 10-30 times more than “minimum investment volume” the tax base would % for 12 years, and so on. Let us note for comparison that "minimum investment volume" applied in the Turkey for some period had been defined as minimum 50 thousands USD for each partner in the foreign investments.
While preparing a bill “On Promotion of Investments” it is necessary to benefit from experience of the some countries. Because whatever we offer as privilege creates additional alternative for foreign investors compared to offers of other countries. Therefore our offers must be more attractive. For instance, it is emphasized that investor did not pay profits tax in first ten years in general in Malaysia. Naturally, it may be understood as extreme concession at the first glance. But practice shows that for building of medium range industry first 2-3 years are spent for investments. Establishment works with loss for next 3-5 next years, that is, it is engaged in deduction of previous losses from primary profits and actually does not pay taxes during first 8-10 years.
But in 1980-es state had allotted a land area for investors in Irish Republic and even had given buildings for areas of industry, which it wanted to develop. At result of such steps despite the number of the population of Irish Republic is 3 millions the volume of FDI-s was in 1995 40 billions, in 2000 137 billions, in 2002 168 billions and in 2003 it was 193 billions USD.
Unfortunately rather than developing of that project, no news were heard about it later”
Candidate of Doctoral degree of Istanbul University Natiq Sabiroglu had a speech on ways of promotion of foreign investments informed about prevailing of money and tax promotions in the world. But as money promotion does not lead to result, being open for misuse and speculations, so interest in tax promotions gradually rises. Natiq Sabiroglu further presented a table which reflects tax promotions and types in world countries and told that in developing countries tax promotions are mainly directed for realization of basic objectives: 1. Raising of the regional investments; 2. Raising of the Sector investments; 3. Performance raising; 4. Technology transfer.
"While defining promotion policy quantity criteria (stable and changeable capital volumes, number of staff etc) along with quality criteria (using of advanced technology) must be taken into account, too. Indirectly the promotion system should be mastered in form that can cover high technology, in which the country feels a need” – said Natiq Sabiroglu and shares his views on most important steps that are to be made initially for application of tax promotions in Azerbaijan.
But other candidate of doctoral degree of Istanbul University Bahruz Mammadli had directed his speech to another interesting point. As per his opinion, "it is very difficult to judge on economic development of any country simply viewing its investments volume. . Investment is very broad conception. It depends on which investment we talk: about on portfolio investment, speculative investment, direct investment, domestic or foreign investment? And being a country we may involve in country such investment in wrong areas, which may lead to regress of the country instead of development. For instance, volume of speculative investment in one county can so exaggerated that such situation may push the county towards serious crisis. From other hand the form of entry in country is also very important, too. Is it new investment or acquiring of local company by foreign through privatization?”
Further B.Mammadli informed the participants on definite indicators from the "Doing Business" report of the World Bank that according to this report, "Azerbaijan occupies the 98th place among 155 countries for easiness of the business environment. But Azerbaijan occupies 96th place in indicators for starting business and 139th place for getting license for business.
Other participants who took part in the discussion have expressed their views both on speeches and on theme. But economist expert Qubad İbadoğlu presented a table compiled by famous journal "Forbes" to the discussion. According to this table Azerbaijan occupies 122nd place among 135 suitable countries from point of view of investing capital. But Estonia occupies 8th, Latvia 22nd and Armenia 72nd place among republics of former USSR.
It was also emphasized at discussions that creation of free economical zones can be one of the ways out in country, too. But there was somebody who objected it: "It would b better to create free knowledge zones based on high technologies".
After listening other speeches on the theme, the final onion was to redevelop the law “On Investments” by studying the global experience deeply.
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