AZERBAIJAN TAKES FIRST STEP TOWARDS IMPROVING

C O N F I D E N T I A L SECTION 01 OF 03 BAKU 000573 SIPDIS SIPDIS E.O. 12958: DECL: 05/09/2017 TAGS: ECON ETRD EINV PGOV AJ SUBJECT: AZERBAIJAN TAKES FIRST STEP TOWARDS IMPROVING BUSINESS ENVIRONMENT Classified By: AMBASSADOR ANNE E. DERSE PER REASONS 1.4 (B,D) ¶1. (C) SUMMARY: On April 30, the Government of Azerbaijan took a first positive step to improving the business climate by instructing government ministries and agencies to review Azerbaijani regulations and laws in order to prepare a report on possible recommendations to facilitate business, including establishing a single government body to oversee and coordinate the government's efforts. The decree also ordered government agencies to prepare and submit to the President proposals to simplify procedures for the allocation of land areas, and construction licenses and permits. The World Bank and IFC assisted the GOAJ extensively with its efforts to draft the decree to improve the business operating environment. President Aliyev was reportedly not happy with Azerbaijan's 2005 World Bank "Doing Business" report ranking and ordered Economic Development Minister Babayev to prepare recommendations to improve the ranking for the 2006 report. While the IFC believes that the Presidential decree is a "good first step," it is "disappointed" that the decree dropped many of the World Bank and IFC's specific proposals to improve business in Azerbaijan, including reducing the number of permits and licenses needed to start a business. The decree will result in an improved 2006 "Doing Business" ranking for Azerbaijan but will not compare to Georgia's continued progress and ranking according to the IFC. END SUMMARY. ¶2. (SBU) On April 30, the Government of Azerbaijan (GOAJ) issued a Presidential decree instructing several ministries, including Economic Development, Taxation and Justice, to begin the review of Azerbaijani regulations and laws in order to prepare a report on possible recommendations to facilitate business and entrepreneurism. The ministries also will provide recommendations on the establishment of a single government body to coordinate the government's efforts to facilitate business. In addition, the Presidential Decree ordered government agencies to prepare and submit to the President proposals to simplify procedures for the allocation of land, construction licenses and permits. The decree indicates that the government ministries will provide their results to the President in one month. ¶3. (C) Following the publication of the World Bank's "2005 Doing Business" report in mid-2006, Economic Development Minister Babayev has been working to improve the manner in which businesses operate in Azerbaijan. President Aliyev was reportedly not happy with Azerbaijan's 2005 ranking (99 of 175) and ordered Economic Development Minister Babayev to prepare recommendations to improve the ranking for the 2006 report. President Aliyev was also reportedly angered that Georgia was the most improved country for 2005, jumping dozens of rankings. The World Bank and International Finance Corporation (IFC) assisted Minister Babayev with his proposals, which he submitted to the President's office in early 2007. According to Baku-based IFC officials, the decree will improve Azerbaijan's 2006 "Doing Business" ranking but its new ranking will not compare to Georgia's continued progress and ranking. ¶4. (C) The IFC Country Officer for Azerbaijan told EconOff that the Presidential decree was a positive move by the GOAJ and represented a "good first step" towards improving Azerbaijan's "Doing Business" ranking. She confirmed that IFC planned to provide additional assistance to the government ministries tasked with creating a single body to coordinate the GOAJ's efforts to facilitate business. She speculated that either the Ministry of Taxation or Ministry of Justice would serve as the single point for business facilitation since both ministries are already active in the initial stages for business registration. ¶5. (C) Pressed further on the content of the Presidential decree, the IFC representative said that the decree was "disappointing" and that the original version had contained many more concrete proposals to improve business in Azerbaijan, including reducing the number of permits and licenses needed to start a business. She told EconOff that the watered down decree had been a "battle" to get through the President's office. She further said that the portion of the decree regarding the land, real estate and construction was worrisome and speculated that it probably was designed by Minister of Emergency Situations Heydarov, whose ministry officially and unofficially controls large pieces of land in Baku and has already taken over control over the construction licensing process. She added that the decree had disappointed IFC officials in Washington, who upon seeing the decree's text asked the IFC Baku office to forward the decree text in its entirety and not a "press summary." BAKU 00000573 002 OF 003 ¶6. (C) In a previous meeting with the Ambassador on April 19, the local World Bank chief said that the GOAJ's progress in improving its "Doing Business" ranking "was not good news" since the President's office had struck many of the Ministry of Economic Development suggestions on improving business facilitation, including removing numerous license requirements. The World Bank chief and lead economist also briefed on the Bank's efforts to assist the GOAJ with its budget process and its macroeconomic framework for 2008. The World Bank representatives noted the positive effects resulting from the increasing collaboration between government ministries. They told the Ambassador that the World Bank had invited experts from Chile, a country with a commodity driven economy and revenue fluctuations, to make a presentation on developing a macroeconomic framework. The World Bank representatives stated that Finance Minister Sharifov understood the importance of a "linked approach" in economic decision-making and that public expectations for improved living standards were growing. There appears to be a growing "realism" among senior ministers that government spending needs to be tapered. The World Bank representatives noted the need for a top-class expert to talk with the President regarding economic policy, noting the example of Michael Porter's successful consultations with the Government of Kazakhstan. Regarding the 2008 budget, the World Bank speculated that there could be a 20 to 30 percent increase in spending, adding that Finance Minister Sharifov was looking for slower public expenditure growth. ¶7. (C) COMMENT: The Presidential decree is a positive first step towards improving Azerbaijan's difficult business operating environment. Any efforts by the GOAJ to simplify and streamline licenses and permits should have a beneficial effect for many businesses, including small and medium enterprises. The true benefits from the decree will be measured once the ministries present their findings on next steps to the President. END COMMENT. ¶8. (U) Begin text of Presidential Decree. DECREE OF THE PRESIDENT OF THE REPUBLIC OF AZERBAIJAN ON SOME ACTIONS CONCERNING DEVELOPMENT OF ENTREPRENEURSHIP IN THE REPUBLIC OF AZERBAIJAN Sustainable development of entrepreneurship actions in the Republic of Azerbaijan is one of important elements of economic policy of state. State has consistently implemented in this direction complex actions covering development of state-entrepreneur relations, improvement of legislation and administrative procedures, removal of illegal interferences and artificial obstacles, formation of mechanisms of state support to entrepreneurship, education and doing various services. It has resulted in formation of entrepreneurs section in Azerbaijan, significant increase in role of private sector in development of economy, creation of productive environment for entrepreneurship in economic actions spheres, liberalization of legislative rules, improvement of financial-credit supply, reduction in tax load of entrepreneurs, interferences in their actions, improvement of system of protection of their rights, expansion of international links of businessmen and possession of other achievements. Assurance of sustainable economic development has set new duties in field of support to entrepreneurship. Fulfillment of these duties demands removal of some problems existing in business environment. Because procedures of starting existing multistory business, complicated permissions system demand long term and cause bureaucratic obstacles. To remove given negative cases, rapidly develop entrepreneurship in the country and form more effective business environment, I decree: ¶1. The Cabinet of the Republic of Azerbaijan shall be assigned within one (1) month: 1.1. with Justice Ministry of the Republic of Azerbaijan, Economic Development Ministry of the Republic of Azerbaijan, Taxes Ministry of the Republic of Azerbaijan, Labor and Population's Social Protection Ministry of the Republic of Azerbaijan, State Social Protection Fund of the Republic of Azerbaijan and State Statistics Committee of the Republic of Azerbaijan to prepare and submit to the President of the Republic of Azerbaijan its proposals on arranging activity of subjects of entrepreneurship actions according to 'one BAKU 00000573 003 OF 003 window' (the sole registration body) principle by application of the united coding; 1.2. with respective executive power bodies to prepare and submit to the President of the Republic of Azerbaijan its proposals on simplification of procedures for allocation of land areas, licensing construction (reconstruction and restoration) works, also making of construction passports, expertise of construction and minimizing durations for it; 1.3. to submit to the President of the Republic of Azerbaijan its proposals on unification of valid legislative acts to this Decree; 1.4. to solve within its authorities other issues arisen from this Decree. ¶2. This Decree comes into force from the day of publication. Ilham Aliyev, President of the Republic of Azerbaijan. Baku City, April 30, 2007. End Text. DERSE