Azerbaijan Country Presentation

Basics

Establishment: 28 May 1918

Independence: 18 October 1991

Area: 86.6 thsd km2

Population: 9.48 million

Official Language: Azerbaijani

Government system: Presidential Republic

Membership in: UN, Council of

Europe, OSCE, Non-Aligned

Movement, OIC

Highlights:

1st democratic republic in the Islamic world

1st Opera in the Islamic world

Women voting right in 1918

(while in Italy - 1946; Switzerland - 1971; France – 1944)

Currency: Manat: 1 AZN = 1.27 USD

1.01 EUR

Characteristics of economy

ECONOMIC STABILITY

FAVOURABLE BUSINESS AND INVESTMENT

CLIMATE

PRIVATE SECTOR

CLEAR VISION FOR FUTURE

Economic stability: Macroeconomy

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

7.3 8.713.2

21

33.1

48.944.3

52.9

66 68.773.6Nominal GDP, bln USD

2nd fastest growing economy among

179 countries for GDP per capita growth in

2001-2010

Source: The Economist

8th among 148 countries in terms of

stability of macroeconomic environment

Source: World Economic Forum

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

1.62 2.04 2.4 4.47.4

18.56 20.3

29.1

40

4650

Strategic currency reserves, bln USD

Economic stability: Diversification

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Non-oil Oil

Structure of GDP

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 20130

2

4

6

8

10

12

14

16

1814.9

13.6

8.3

11.9

11.4

15.9

3.2

7.99.4 9.7

10

Non-oil GDP growth, %

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

0.3 0.50.8

1.3

2.4

3.53

4.6 4.5

5.75.3

Foreign investments in non-oil sectors, bln. USD

Diversification of economy and

development of non-oil sectors are

key strategic priority

of economic policy

Economic stability: Competitiveness

GLOBAL COMPETITIVENESS REPORT 2014-2015

Kyrgyzstan

Armenia

Moldova

Ukraine

Georgia

Russia

Kazakhstan

Malta

Turkey

Poland

Latvia

Lithuania

Azerbaijan

Spain

Estonia

108

85

82

76

69

53

50

47

45

43

42

41

38

35

29 The report assesses the ability of countries to provide high levels of prosperity to their citizens. This in turn depends on how productively a country uses available resources. Therefore, the Global Competitiveness Index measures the set of institutions, policies, and factors that set the sustainable current and medium-term levels of economic prosperity.

1st among CIS countries (6 times running), 38th among 144 countries

Other indicators (place among 144):

Inflation – 1st

Macroeconomic environment – 9th

Government budget balance – 15th General government debt – 12th Labour market efficiency – 33rd Capacity for innovation – 43rd

Technological readiness – 56th

Business enabling environment

Reformist business environment

Firm legal basis and continuous improvement of

business legislation

Top-reformer of business regulations according to Doing Business Report

2009

Decrease of red tape, simplifying business

permitting and licensing systems

One-stop-shop for business

registration

One of the easiest start-up procedures in the world

2 days for business registration

Internet registration of individual entrepreneurs

and local commercial legal entities

Competitive tax system

E-filing and e-paymentCorporate tax – 20%;

VAT – 18%;Simplified tax – 4% and 2%

No agriculture taxTax holidays for residents of industrial and high-tech

parks

User-friendly government

services

428 e-services by state authorities

Web portal on business permissions and licenses (www.icazeler.gov.az) and

B2B facilitation (www.b2b.az)

One-stop-shop services by ASAN Service Centers

(State Agency for Public Service and Social

Innovations)

Business enabling environment

WB Doing Business Report 2014

15th among the 50 economies narrowing the distance to frontier the most since 2005. The distance to frontier measure shows how far on average an economy is from the best performance achieved by any economy on each Doing Business indicator since 2005.

Economy Rank

Georgia 8

Kazakhstan 50

Bulgaria 58

Italy 65

Turkey 69

Azerbaijan 70

Romania 73

Czech Republic 75

Croatia 89

Russia 92

Ukraine 112

70th among 189 countries

Some sub-indicators:

Starting a business– 10th

Registering property – 13th Investor protection – 22nd Enforcing contracts – 28th Getting credit – 55th

In Global Competitiveness Index 2013-2014 (rank/148):

Hiring and firing practices – 8th Burden of government regulation – 21st Strength of investor protection – 25th

Liberal investment climate

Welcoming policy National regime for foreign investors

No restrictions for any type of foreign

investment

Incentives for foreign investors

Guarantees

Guarantee against adverse changes in the

legislation, nationalisation and

requisition

No discrimination policy

Guarantee of compensation of

damages and repatriation of profits

Sophisticated legal base

Law on Investment Activity and Law on

Protection of Foreign Investments

Party to New York (1958) and Washington

(1965) Conventions

46 bilateral investment treaties

45 double taxation treaty

Institutional support

Azerbaijan Export and Investment Promotion

Foundation (AZPROMO)

Azerbaijan Investment Company

National Fund for support of

Entrepreneurship

Liberal investment climate

Total Investments

172.4 bln USD

Domestic88.7 bln USD

Foreign 83.7 bln USD

Non-oil sector

64%

Oil sector

36%

1995-2013

Food industry/agriculture

Climatic zones/types – 9 out of 11 existing in the world and fertile land

Largest employer with up to 40% of employed workforce

Tax breaks and subsidies

Strong comparative advantage in exporting fresh fruits and vegetables

Import substitution and export orientation

Access to the regional markets: FTAs with the CIS countries

Focus on productivity, competitiveness and marketing

Tourism

Unique geografic and climatic conditions

In 2013 number of tourists increased by 3.9 times in comparison with 2003

World Tourism Organisation: Azerbaijan is top 2nd in terms of the growth of tourist inflow in percentage ratio (+27% in 2012)

Tourism related expenditures of foreingers: in 2003 - $0.577 bln and in 2013 increased by 2.8 times up to $1.6 bln.

Focus on establishment of modern tourism infrastructure, restoration of historical, cultural and natural sites and marketing

Potential for the development of almost all types of tourism

The largest project: winter-summer tourism complex in Shahdag – to be completed in 2016 and able to welcome 10 000 tourists

ICT

Average annual growth rate at 20-25% in the last 10 years

80% of income in ICT belongs to private sector, while mobile telephony and IT are completely private

Around 2.5 bln USD invested in ICT in the last 10 years, 72% of which accounts for private sector and foreign investments

70% of population uses internet, 50% uses broadband internet

Space industry started with the launch of the first national satellite in February, 2013

First among CIS States on share of internet users according to the WEF Global Information Technology Report 2013

Recent projects: High technologies park, ICT Development Fund, IT University

Industry

Share in GDP: 46.3%

Intensive industrialization policy: increase of 262% since 2005

Investment (2013): total $9.5 bln – 53.4% foreign, 46.6% domestic

Priorities on heavy industry, mechanical engineering, agroindustry, construction materials, chemicals, alternative energy, light industry

Establishment of industrial parks: chemicals, waste recycling

Focus on establishing supply chains and clusters as a driving force for industrial development

New industrial parks to be established

Special zones

Total area: about 300 ha

Administration:“Sumgait Chemical Industrial Park” LLC under management of Ministry of Economy and Industry

Priority products: chemicals used in agriculture, construction, packaging and automotive industries

Infrastructure: All utilities are provided by plug-and-play concept

Tax holidays (corporate, property and land taxes and VAT on imported equipment) for 7 years

Key advantage: Availability of in-door raw materials, increasing domestic demand and close proximity to regional markets

Sumgait Chemical Industrial Park (SCIP)

Special zones

Balakhani Eco-Industrial Park

Total area: 7 ha

Administration: “Tamiz Sheher” OJSC under management of Ministry of Economy and Industry

Priority areas: Recycling of plastics, tire/rubber, electronics, accumulators, non-ferrous metals, cabels and specific types of domestic waste

Infrastructure: Offices, training centers, laboratory, All utilities are provided by plug-and-play concept

Tax holidays (corporate, property and land taxes and VAT on imported equipment) for 7 years

Key advantage: Proximity to city waste landfill site, Material Recovery (waste sorting) Facility and modern Waste-to-Energy Plant

Azerbaijan Investment Company

Supporting Non-Oil Sector Development

ABOUT AIC

“Azerbaijan Investment Company” OJSC (AIC) is a state owned equity fund, established by the Presidential Decree on the 30th of March 2006

AIC serves the purpose of developing non-oil sector of the national economy via termed equity injections

Supervisory Board is the supreme governing body of AIC

Supporting non-oil sector development via termed equity investments in commercially viable projects and investment funds

Attraction of local and foreign investments into the economy of Azerbaijan

Increase market value and competitiveness of investee companies by integrating new technologies and know-how, and promoting modernization and innovation

Support development of capital markets in Azerbaijan

OBJECTIVES

KEY INVESTMENT

PRINCIPLESInvestments in all sectors excluding oil and gas industry

Investments into brownfield or greenfield projects

Minority shareholding in the invested projects

Competitive products

IFRS compliance

Independently audited financial statements

Corporate governance best practices

Board member at investee companies

INVESTMENT

CRITERIA

Divestment via IPOs

Sale to third-party strategic acquirers

Sale to existing shareholders

EXIT STRATEGYSubject to terms of shareholders’ agreement AIC may choose from the following exit strategies:

PORTFOLIO

DISTRIBUTION6.80%

13.90%

4.10%

75.20%

Sub - Funds - 6.80%

Agriculture - 13.90%

Food Processing - 4.10%

Industry - 75.20%

Azerbaijan Investment Company

37 Khojali Ave. Baku, Azerbaijan AZ1025TEL: (+99412) 488 8010FAX: (+99412) 488 8012

info@aic.azwww.aic.az