ECONOMIC GROWTH 


Objective

Current Situation

Program Focus

Successes

Program Activities

Assessments and other Publications

List of Activities

OBJECTIVE

Accelerated Growth and Development of Private Small and Medium Enterprises in Targeted Areas

Growing businesses in the non-oil and gas sectors is key for Azerbaijan’s long-term economic growth. These Azeri women are working in a tea factory supported by USAID’s Farmer to Farmer project. Farmer to farmer project is providing technical assistance to the factory in new technologies for packing and labeling of tea.

USAID’s economic activities are designed to impact Azerbaijan’s long-term economic development. Key focus areas include public expenditure management, banking reform and supervision, energy, agriculture and agribusiness. The program aims to improve fiscal policy and governance, increase agricultural productivity and strengthen the financial sector’s contribution to economic growth. Significantly, a new collaboration with the government assures USAID a role in ensuring greater transparency over the government’s investment of its oil wealth.

CURRENT SITUATION

Azerbaijan shares many similar challenges as other former Soviet states in the transition to a market economy. However, the country’s oil resources complicate the government of Azerbaijan’s task in managing its resources; while at the same time provide the possibility of a quicker and smoother transition to long-term successful economic development. The government’s challenge at the macroeconomic level is to manage Azerbaijan’s economy by making needed infrastructure and social investments while preventing the economy from overheating as a result of its incoming oil revenue; inflation and spiraling interest rates are major concerns. At the microeconomic level, there are significant impediments stifling growth opportunities for small- and medium-sized businesses. 

Current woes stem from a number of systemic, protracted issues including slow and ineffective implementation of legislated policies and an uneven application of the rule of law regarding land ownership and contracts.  Cumbersome and unfair practices related to business registration have further aggravated the situation.  Scarce foreign direct investment outside of the energy sector and the capital Baku has left the regions stagnated.  The banking sector remains underdeveloped and a lack of banking services in rural communities has added to the regions’ slow economic growth. With an estimated 29% of the population living below the poverty line it is clear that more work needs to be done to ensure more citizens benefit from the country’s oil wealth.

Since 2002 USAID has been able to work directly with the government with the lifting of Section 907 restrictions under the Freedom Support Act. Since this time, USAID has worked intensively to support the government’s development of the State Program on Poverty Reduction and Economic Development.

USAID has made significant investment in the agricultural and agribusiness sector to ensure this critical segment of society receives the appropriate inputs, technology, information and training to be competitive in world markets and be provided with sustainable job opportunities.

PROGRAM FOCUS

• Strengthen the financial sector’s contribution to economic growth

• Improve fiscal policy and governance

• Micro finance


SUCCESSES

- Created 100-member Agro-Input Dealers Association providing fertilizer, seeds, and consulting services to 40,000 farmers and increased sales by more than $11 million.

- Significant farm level production gains and increased regional exports; potato yields per hectare have doubled in a year.

- Business and Development Resource Centers opened in each of the nine economic regions.

- Assisted local business to identify $150,000 in new investments, and through trade shows and fairs have helped sell approximately $450,000 in processed foods and services.

- Created over 3400 new jobs supporting cottage industries and 850 jobs in the SME sector.

- One client raised the quality of its juice production and sold $80,000 to a new buyer in Russia.

- Instituted a successful “Buy Azeri” campaign that is recognized throughout the country.

- Introduced first residential mortgage loan product in Azerbaijan.

PROGRAM ACTIVITIES

Strengthen the Financial Sector’s Contribution to Economic Growth

BANKING SECTOR REFORM

USAID implementing partner Bank World is successfully working to reform and restructure the National Bank of Azerbaijan's banking supervision capacity. Focus areas include improving on-site supervision, on and off site inspections, human resource capacity and introducing international accounting standards.

USAID has been providing assistance to develop lending institutions that service small businesses and entrepreneurs, which are currently underserved by the commercial banking sector. Since 1998, the USAID-supported initiatives of FINCA International, Shorebank and ACDI/VOCA have cumulatively disbursed over $40 million to target market segments, in both urban and rural Azerbaijan. These activities have operated with a very impressive rate of repayment, demonstrating the viability of commercial lending to clients who have to date been largely neglected by commercial banks.

USAID will continue to support the growth of non-bank lending through collaboration with the Azerbaijan Micro-Finance Association (AMFA) on the development of training opportunities for AMFA member institutions and of legislation to regularize and facilitate the growth of this sub-segment of the financial sector.

More than 170 cabinet ministry staff expanded the skills and knowledge through USAID's Public Investment Policy.

IMPROVE FISCAL POLICY AND GOVERNANCE

In March 2005, USAID implementing partner Development Alternatives Inc (DAI) began a new three-year project, the “Public Investment and Policy Project,” to build capacity in the Ministry of Economic Development and other key ministries by providing technical assistance and training to enhance strategic planning and management of the Azerbaijani government’s public investment program. The improved criteria for the selection of investments will bring the public investment program into greater alignment with the government of Azerbaijan’s developmental priorities, especially the Poverty Reduction Strategy.

MICROFINANCE

With the World Bank, USAID implementing partner Carana is providing assistance to automate the Central Treasury and 85 regional offices with a state-of-the art information management system that will improve efficiency and accountability in the management of public expenditures by improving cash management, forecasting, fiscal reporting and expenditure review.

Potato farmers find new buyers, plant better seeds, and boost sales. One of the Elvin 2 company’s farmers displays a potato greenhouse near Jalilabad, Azerbaijan.

To stimulate community level agribusiness development, USAID implementing partner International Rescue Committee (IRC) is working on a  three year project, “Agricultural Business Assistance and Development.” Business Development Resource Centers have been opened in each of Azerbaijan’s nine economic regions. The Centers serve as the focal point for micro and small enterprise development by assisting members to establish market linkages, offer training and technical assistance, link rural business to markets and other economic opportunities, and provide grants to community organizations for viable income generating activities.

Thanks to the American people, through USAID Azerbaijani women apply innovative technology to package glasses of pomegranate juice.

USAID supports increasing rural incomes through its Rural Enterprise Competitiveness Program implemented by The Pragma Corporation. By enhancing and strengthening free market orientation through a variety of activities aimed at promoting entrepreneurial business skills, the four-year project will foster quality standards, collect and disseminate useful data on agricultural production, market conditions, and trade opportunities, and provide management training.

Project Harmony, and its Junior Achievement Azerbaijan project, has worked with the Ministry of Education and private donors since 2000 to introduce modern economics curricula to targeted Azerbaijani high school students to foster future business leaders and entrepreneurs. The project's overwhelming success is demonstrated by its expansion to more than 80 schools in Baku and the regions and the strong leadership forged between the project and the Ministry of Education that has allowed Junior Achievement's curricula in business and economics to replace that of the Ministry's. To date, nearly 120 teachers schooled in the Economics Education Program have taught the Junior Achievement curriculum to over 20,000 10th and 11th grade students.
  

ASSESSMENT AND OTHER PUBLICATIONS

Assessment of Azerbaijan Banking System        [1.37 MB]

Regional Credit Assessment Project in Azerbaijan        [35 KB]


LIST OF ACTIVITIES

• Trade and Ýnvestment Reform Support Program
• Treasury Information Management Systems
• Azerbaijan Public Investment Policy Project
• Focus on Results: Enhancing Capacity Across Sectors in Transition (FORECAST)
• Small & Medium Enterprise Support thru Financial Sector Development
• Financial Sector Stability Program