AZERBAIJAN DOING BUSINESS EASIER; TRANSPARENCY NOT

C O N F I D E N T I A L SECTION 01 OF 02 BAKU 001239

SIPDIS

SIPDIS

E.O. 12958: DECL: 10/05/2017
TAGS: ECON EFIN PREL KCOR EAID AJ
SUBJECT: AZERBAIJAN DOING BUSINESS EASIER; TRANSPARENCY NOT
BETTER

REF: (A) BAKU 714 (B) BAKU 573

Classified By: Ambassador Anne E. Derse per 1.4 (B,D).


1. (C) SUMMARY: Azerbaijan's ranking in the 2008 World
Bank/IFC "Doing Business" report improved five positions, to
96 of 178, due primarily to the April 2007 Presidential
decree instructing government ministries and agencies to
develop a plan to improve the business climate, including
developing a one-stop-shop for business registration. At an
October 8 briefing, World Bank Doing Business Director Simeon
Djankov said that Azerbaijan's improved ranking was primarily
due to its efforts to streamline business registration; he
urged the GOAJ to further accelerate reforms in licensing
requirements and customs and investor rights reforms, and
noted that the GOAJ ranking could improve 20-30 places if it
moved aggressively in these key business environment areas
over the next year. Minister of Economic Development
Babayev, who co-chaired the briefing with Djankov, noted that
Azerbaijan was in the top 25 list of Doing Business
reformers. Separately, Azerbaijan's ranking in this year's
Transparency International Corruption Perceptions Index,
deteriorated as Azerbaijan fell to 150th of 180.
Presidential Legal Advisor Fuad Alasgarov, the driving force
behind many of the GOAJ's anti-corruption efforts, expressed
bitter disappointment with Azerbaijan's drop in the ranking.
These two rankings illustrate the challenges of doing
business in Azerbaijan, and the positive results that can be
achieved when the GOAJ exercises serious political will. END
SUMMARY.

AZERBAIJAN IMPROVES IN DOING BUSINESS REPORT
--------------


2. (SBU) The 2008 World Bank/IFC "Doing Business" report
ranks Azerbaijan at 96 (out of 178),an improvement of five
positions compared to last year's ranking when taking into
account that two countries were added to the ranking in 2008.
Azerbaijan's improvement is primarily due to the April 2007
Presidential decree instructing government ministries and
agencies to develop a plan to improve the business climate,
including developing a one-stop-shop for business
registration (REFTELS). Azerbaijan showed large improvement
in the "starting a business" category, while in the other
categories showed only minor improvement or deterioration.


3. (SBU) The Director of the Doing Business Program, Simeon
Djankov, presented the results of the 2008 Doing Business
Survey at an October 8 press event co-chaired by Minister of
Economic Development Heydar Babaev. Djankov emphasized the
improvements that Azerbaijan had begun to make in business
registration (where the average time required to register a
company had been cut in half, to approximately 30 days) and
streamlining measures in the tax regime. He also emphasized
the importance of continuing to further accelerate progress
in these areas and noted that the GOAJ hopes to introduce
further streamlining reforms designed to reduce business
registration time to 10 days or less over the next year.


4. (SBU) Djankov said the GOAJ needs to focus more
intensively on critical enabling environment areas where
Azerbaijan's relative performance is poor. Specifically, he
identified reductions in the the number of steps and the time
and cost required to comply with licensing requirements as
key next steps, adding that the World Bank hopes the GOAJ
will adopt one stop shop-based regulatory reforms for
licensing by the end of this year. (According to the IFC
Country Representative, in the next few weeks, the GOAJ
likely will announce that the Ministry of Taxation will
assume responsibilities for business registration and overall
business facilitation.) Djankov also emphasized the
importance of accelerating reforms improving investor rights
protections, and streamlining onerous and costly customs
procedures.


5. (SBU) Minister Babayev emphasized the GOAJ's commitment
to facilitate time-effective progress on these issues; and
specifically identified customs and investor rights reform as
vital to the GOAJ's efforts to accelerate the WTO accession
process. Babayev noted that Azerbaijan was in the top 25
list of "Doing Business" reformers for 2008 (12th). Djankov
emphasized that most countries in the region with high
rankings began their reforms a decade or more ago (with the
exception of Georgia, which started them about four years
ago); and was quite upbeat upbeat overall about prospective
improvements in Azerbaijan's position over the next two
years. Djankov speculated that Azerbaijan could improve by
20 or 30 places next year if the GOAJ moves ahead
aggressively in the registration/licensing, customs, and

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investor protection areas, areas that in his view all are
achievable in relation to reforms being planned. (USAID is
supporting these efforts through its new Trade and Investment
Climate assistance program.)


6. (C) Djankov commented privately to the Ambassador and
USAID that the World Bank would be discussing with the GOAJ a
strategy to focus tighter attention on these issues by
raising Minister Babayev's status to that of Deputy Prime
Minister for Reform, to provide MED both the authority and
the oversight required to compel other line ministries to
undertake reform. Djankov noted that a number of countries
have created separate ministers or ministries for promoting
reform. This has been effective when the reform
minister/ministry has the authority to compel action from
line ministries, not simply "coordinate" among them.
According to Djankov, the World Bank team planned to raise
this in its October 8 meeting with President Aliyev. Djankov
urged that the U.S. and other bilateral partners support with
the President the idea of creating a reform "Super"
minister/ministry.

AZERBAIJAN'S TRANSPARENCY INTERNATIONAL RANKING
-------------- --


7. (C) Of the 180 countries ranked by Transparency
International in its annual Corruption Perceptions Index,
Azerbaijan failed to improve over last year's score and fell
to 150th position with a score of 2.1. Azerbaijan shares the
150th position with Nigeria, Belarus, Republic of Congo,
Liberia, Kazakhstan and Kyrgyzstan. According to the local
Transparency International representative, judicial
corruption and lack of independence are the key problem areas
for the GOAJ. Azerbaijan continues to struggle with its
efforts to combat official and unofficial corruption.


8. (C) In a meeting with Emboffs prior to the release of the
TI rankings, Presidential Legal Advisor Fuad Alasgarov, who
is the driving force behind many of the GOAJ's
anti-corruption efforts, expressed bitter disappointment with
Azerbaijan's drop in the ranking. Noting that the GOAJ had
worked closely with TI to host a large regional
anti-corruption conference, and that Azerbaijan was one of
the few countries to allow TI offices to operate freely in
the regions, Alasgarov said he could not understand how
Azerbaijan's corruption index had fallen. He speculated that
TI's new methodology could have something to do with it.
Emboffs reminded Alasgarov that anecdotal reports of
corruption from both local and foreign businesses had
increased over the last year, a point the Ambassador also
makes regularly to the President.

COMMENT
--------------


9. (C) These two rankings illustrate the many challenges of
doing business and the positive results that can be achieved
when the GOAJ exercises serious political will. Rankled by
Azerbaijan's poor performance in the 2006 Doing Business
ranking, President Aliyev instructed Minister of Economic
Babayev to take steps to address these problems; faced with
significant pressure from the President, Babayev and the MED
worked with the World Bank to make relatively quick progress.
While World Bank officials have admitted privately that the
pace of reform is slower than they would have liked
(reftels),GOAJ reforms in the business registration process
are nonetheless signficant and hopefully will be replicated
in other key business environment areas. The challenge, of
course, is to energize the same degree of political will in
the politically sensitive area of anti-corruption, where
senior GOAJ officials' personal interests are affected by
reform. Azerbaijan's slightly improved ranking in the "Doing
Business" report was deserved and hopefully will serve as a
carrot for the GOAJ to continue its efforts to improve the
business and investment climate. As the local World Bank
representative noted, "For Azerbaijan, it will be a marathon,
not a sprint, but at least they are now running."
Azerbaijan's effort to implement many of its commitments to
fight corruption, however, have been lacking and the GOAJ
will need to reinvigorate its efforts in order to change its
dismal ranking.
DERSE