Economic transformation hinges on foreign investment

By Rufat Atakishi Guliyev,
PH.D in Economics,
Assistant Professor

The successful transformation of Azerbaijan economics into a market-driven economy will largely depend on the nation’s ability to attract foreign investments. In those countries with transitional economies similar to Azerbaijan’s, the attraction of foreign investments depends on creating an efficient economy.

In the case of Azerbaijan, Azeris have taken a different economic route from that of other former USSR Republics. By creating a highly efficient investment policy, Azerbaijan has become one of the economic leaders among the Commonwealth of Independent States countries.

Turkey takes first place in the amount of capital investment in our national economy; second place goes to Great Britain, and third place to the United States. The specific gravity of joint-ventures and wholly foreign-owned firms was characterized by ever increasing rates between 1992 and 1997. But the increasing velocity of total investments (in USD) was reduced in 1998 and decreased again by as much as 17.6 percent in 1999.

In 1998 foreign investments consisted of 76 percent of the total investments made in the country. On the other hand, internal investments were increased by 8.8 percent in comparison with 1998.

As seen from the analysis of foreign investments during the period 1994-1999, about 64 percent of the foreign capital invested in the Azeri economy was directed towards the oil sector; while less than a third went into the non-petrol sector. During this period, the share of internal investments in the oil sector was 41 percent; while the portion in the construction sector was 29 percent. On the other hand, fewer changes were observed in the inter-areas investment structures in 1999.

As to the structure of foreign investment by countries, the most important change was that foreign investment entering from the US was reduced to $250 million, while investment entering from Turkey was reduced to $101 million.

Within recent years, investment amounting to $2 billion was expected in connection with oil prospecting and reconnaissance of new wells. This has to accelerate direct investment flow to the real economic sectors.

In connection to this, a special program was drawn up under the guidance of the Azeri President, Heydar Aliyev, and was carried out with success. For example, we can cite the rapid grown of production of the joint-stock company European Tobacco-Baku, founded on the basis of Baku Tobacco Enterprises Group, which has played an important part in the overall economy of Azerbaijan.

European Tobacco, Inc. tendered its bid to form a joint-venture company to be called "European Tobacco-Baku" and won its bid. Today, it owns 92.5 percent of the company’s shares.

Today European Tobacco markets its products in 35 countries around the world, including seven countries where its cigarettes-producing factories are located. These factories produce more than 23 cigarette brands, including such well known cigarettes as Business Club, Senator, Mirage, General, Premium, Ambassador, Vigor, New Freedom, American Dream, and Diamonds.

Currently, European Tobacco-Baku is proud to be the single greatest capital foreign investor in the non-oil sector of Azerbaijan. More than $60 million has been directed to the modernization of old equipment and the purchasing of new facilities for its factory

The production capacity of European Tobacco-Baku’s factory consists of between 10 and 11 billion pieces annually. In particular, some 7.2 billion filter cigarettes were manufactured, valued at 339.7 billion manats.

Cigarettes amounting to $1.83 million were exported to foreign countries in 2000. Within only9 months of 2001, exports were $7.6 million.

It should be noted that more than 106 billion manats went to the state budget and the funds out of the budget (including the debts of former Baku Tobacco Enterprises up to 01.10.2001). According to the financial record as of September 2001, the joint-stock company European Tobacco-Baku is the largest single taxpayer among all firms involved in the non-oil sector.

More than 700 employees work in the European Tobacco-Baku factory, with an average salary of 430,000 manats. With the application of the newest management technologies, the efficiency of its labor force has been
greatly increased.

What’s more, the intensive utilization of raw materials produced domestically – namely ‘Samsun’ and ‘Imunniy’ tobacco – led to the opening of even more new employment opportunities for Azeri workers across different regions of the Republic.

During the year 2001, some 2000 tons of tobacco from Gabala TFF and 160 tons from Zagatala TFF were planted and harvested. The main part of the tobacco fermented in the Gabala Tobacco Fermentation Factory is grown in Gabala and Gakh districts and the remaining part in Zagatala, Masalli, Lerik. Jalilabad and Yardimli districts.

According to industry experts, some 20,000 families were employed full time or part time in the growing of tobacco within the last few years, thus playing an important part in decreasing unemployment levels.

Within the last few years, activity at the factory has been intensified and this has been duly noted in the country’s mass media. In fact, the prestigious publication Consulting & Business presented the "UGUR-2000 Award" to
European Tobacco-Baku for investment successes in 2000.

The Azeri newspaper Zerkalo also awarded me, as the chairman of the Board of the Joint Stock Company European Tobacco-Baku with the title of "The Most Successful Businessman of the Year" for the firm’s economic results in the year 2000.

As can be seen from all the facts stated here, the attraction of foreign investments in the tobacco processing industry has proved a highly crucial role in the overall development of the national economy of Azerbaijan. This is a fact that we at European Tobacco-Baku are justly proud about.