AZERBAIJAN: PRESIDENT HIGHLIGHTS ECONOMIC

C O N F I D E N T I A L BAKU 001624

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E.O. 12958: DECL: 11/03/2016
TAGS: ECON PREL EAGR EAID AJ
SUBJECT: AZERBAIJAN: PRESIDENT HIGHLIGHTS ECONOMIC
SUCCESSES IN RUN UP TO PRESIDENTIAL ELECTIONS IN 2008

Classified By: AMBASSADOR ANNE E. DERSE, PER REASONS 1.4 (B,D)


1. (C) SUMMARY: With Presidential elections only two years
away, President Aliyev already is highlighting his economic
progress during his presidency. In a series of public
addresses during a recent trip to Azerbaijan's regions,
President Aliyev highlighted the country's economic
development during his administration and announced new
infrastructure projects. Aliyev stressed his government's
short-term and long-term economic strategic planning, noting
that a key government objective is to ensure widespread
development, including development of the non-oil sector. He
said the GOAJ has developed "the outlines" of a new long-term
development strategy. As in previous economic speeches,
President Aliyev attributed the growth in employment and the
creation of 500,000 new jobs to his economic policy. Aliyev
called for the further development of the agricultural sector
in order to become "self sufficient." Over the past six
months, the GOAJ also has directed spending on new
infrastructure projects, such as new "international"
airports in Ganja and Lankaran, financing for the
Kars-Akhalkalai-Baku railroad and a new Baku ring road. Many
of the current economic decisions and new project
announcements are directed towards the rapid development and
modernization of the country. END SUMMARY.

PRESIDENT TOUTS ECONOMIC SUCCESSES
--------------


2. (SBU) In recent public remarks during regional trips
within Azerbaijan, President Aliyev announced that
Azerbaijan's economic growth, projected to be 32 percent in
2006, is "unrivaled" and that over the past three years "more
than 500,000 new jobs have been created." (As part of his
2003 presidential campaign, Aliyev pledged to create 600,000
jobs.) As in 2005, Azerbaijan is expected to have the
fastest growing economy in the world. Thanks to its energy
sector, gross domestic product in 2006 will again likely grow
at more than 30 percent. President Aliyev stated that the
government's key objective is to ensure widespread
development of the country, including the non-oil sector.
Aliyev stressed that since his election in 2003 more than 700
schools have been built. He said that two regional health
centers have been established, and promised that regional
health centers will be opened in every region of the country.


3. (SBU) President Aliyev also commented on Azerbaijan's
economic strategy policy, adding that it is "being prepared
for the short-term and long-term." Among the short-term
projects, President Aliyev highlighted the construction of
electric power stations, credits and assistance to
entrepreneurs, and energy pipeline projects to bring natural
gas to rural areas. Aliyev stated that the GOAJ "has paid
great attention to the development of entrepreneurialism and
had spent more than USD 200 million to achieve a greater
level of entrepreneurialism." Regarding the government's
long-term economic policy strategy, Aliyev stated that the
GOAJ "is working on a policy and the outlines are already
beginning to emerge."


4. (SBU) President Aliyev stated that Azerbaijan would
develop its agricultural sector in order to become "self
sufficient," adding that Azerbaijan currently imports a large
part of its food stuffs. Aliyev claimed that rural
agricultural production has "grown recently," an assertion
supported by the Minister of Agriculture Abbasov who told the
Ambassador October 11 that the agriculture sector grew 4.5
percent and that after the harvest period its growth would
reach between 7 and 8 percent. Many international economic
observers note, however, that the agricultural sector in the
first nine months of 2006 has experienced zero growth, and
may have actually contracted. Anecdotal evidence indicates
that many of Azerbaijan's rural residents are relocating to
Baku where paying jobs are more abundant, especially in the
fast growing construction sector.

INCREASED ECONOMIC ACTIVITY
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5. (SBU) Over the past six months, the GOAJ has ramped up its
capital expenditure spending and announcements of new
infrastructure projects. While in Azerbaijan's second
largest city Ganja on October 31, President Aliyev announced
plans to construct a new airport, noting that the airport
would be "the impetus to development of the whole region." A
new "international" airport is to be under construction in
Lankaran, the local governor told the Ambassador (septel)
Aliyev also cited the many road infrastructure projects
currently under way in the regions, including in the Ganja
region. On November 1, Azerbaijan announced that it would
finance half of the costs of the 105 km Kars-Akhalkalai-Baku
railroad, a project valued at approximately USD 425 million.
The GOAJ also announced plans to increase the minimum wage in
January and July 2007 at a cost of approximately USD 300
million. On November 1, the Ministry of Transportation
announced the USD 51 million contract awarded to a Turkish
construction company for the construction of a new "Baku
Circular Route 1."

POLITICALLY DRIVEN ECONOMIC POLICY
--------------


6. (C) With the Presidential elections still two years away,
President Aliyev is highlighting his economic progress during
his presidency. The GOAJ has often cited the increase in job
growth without supporting documentation or proof, and
unemployment remains a real problem for a population that is
struggling against higher prices. The unofficial
unemployment rate is approximately 35 to 45 percent and
inflation in 2006 is predicted to be between 15 and 20
percent. Many of the current economic decisions and new
project announcements are directed towards the rapid
development and modernization of the country. Azerbaijan's
economy remains heavily dominated by the energy sector. GOAJ
efforts to diversify the economy and develop the non-oil
sector are essential, but difficult. The GOAJ, as it seeks
to diversify and develop the economy, it faces a major policy
challenge in balancing the acknowledged need for rapid social
and economic development, reinforced by electoral
imperatives, with the need to maintain macroeconomic
stability.
DERSE