Business Outlook LQb$]HUEDLMDQ - Deloitte

Business Outlook LQb$]HUEDLMDQ Deloitte CIS Research Center 2017

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Contents $]HUEDLMDQLQbȴJXUHV 0DFURHFRQRPLFRXWORRN *'3LQȵDWLRQFXUUHQF\UDWHHWF

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Contacts

02

22

Business Outlook in Azerbaijan – 2017

ΖQWURGXFWLRQ :HDUHSOHDVHGWRSUHVHQWWKHȴUVWHGLWLRQ RIb%XVLQHVV2XWORRNLQ$]HUEDLMDQWKH'HORLWWH 5HVHDUFKb&HQWUHȇVbPDFURHFRQRPLFMRXUQDO :HIRFXVRQWKHFXUUHQWWUHQGVLQ$]HUEDLMDQȇV HFRQRP\bDQGSUHVHQWRXUNH\UHVHDUFKȴQGLQJV Nuran Kerimov Managing Partner 'HORLWWHb$]HUEDLMDQ

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03

Business Outlook in Azerbaijan – 2017 _$]HUEDLMDQLQbȴJXUHV

Azerbaijan LQbȴJXUHV

04


Key macroeconomic indicators 105.8

93.9

85.0

76.1

73.6

60.4

54.4

59.0

58.2

54.7

52.1

42.5

35.6

40.1

28.4

18.7

12.5

Fact

GDP growth rate, % (constant price): Fact 2013

2014

2015

2016

2017*

2021*

2012

10.2

26.4

34.5

25.0

10.8

9.3

5.0

0.1

2.2

5.8

2.0

1.1

-3.1

-1.0

2019*

2011

11.2

2018*

2010

1.8

2009

2.6

2008

2.1 2.5

2007

1.8 2.3

2006

1.9 2.0

2005

2020*

EIU forecast

-1.0

2004

8.5

GDP, bln manat (current price) EIU forecast

2003

7.1

Gross domestic product, 2003–2021

IMF forecast

ΖQ6HSWHPEHUWKH(FRQRPLVWΖQWHOOLJHQFH8QLW(Ζ8 IRUHFDVWHG DQbHFRQRPLFFRQWUDFWLRQRILQFDXVHGE\WLJKWȴVFDODQGPRQHWDU\ SROLF\ORZSULYDWHFRQVXPSWLRQDQGGHFOLQLQJRLOSURGXFWLRQRZLQJ WRbWKHbH[LVWLQJDJHLQJZHOOVDQGWKHORZHUSURGXFWLYLW\RIQHZZHOOV

Source: Historical data – UN statistics, State Statistical Committee of the Republic of Azerbaijan *Forecast – Economist Intelligence Unit (EIU), ΖQWHUQDWLRQDOb0RQHWDU\)XQGΖ0)

Brent oil and natural gas price

7.0

7.3

98.0 64.0

80.5

97.3 54.2

60.0

61.5

62.9

64.5

52.1

50.8

53.1

52.9

55.5

51.6

51.4

51.5

Brent oil, US$/barrel Fact WB forecast

46.4

EIU forecast ECB forecast

2.7 3.7

Natural gas, US$/mmBtu 2021*

3.9 2020*

3.6

3.4

2019*

3.5

2018*

3.0 3.2 2017*

2016

2.6

2015

4.2

2014

3.8

2013

2.9

2012

4.1

2011

4.3

2010

4.2

2009

8.9

2008

2007

9.3

75.2

2006

6.3

2005

5.5

2004

38.5

2003

28.8

55.2

66.0

112.1 111.5 108.3

55.0

Fact WB forecast EIU forecast

Source: Historical data – Finam Holdings *Forecast – EIU, World Bank (WB), European Central Bank (ECB)

“A decrease in 2016 GDP was expected. The oil and gas sector still accounts for the biggest share of Azerbaijan’s GDP, and oil export revenue represents most of the total export revenue. In addition, many non-oil sectors directly depend on the oil revenues. Non-oil GDP strongly depends on the allocation of funds from the state budget in this regard. Therefore, WKHbIDOObLQbZRUOGRLOSULFHVKDVD΍HFWHGDQGFRQWLQXHVWRD΍HFWWKHYDOXHRI$]HUEDLMDQȇV HFRQRP\$VDUHVXOWLWV*'3VWDUWHGWRGURSSUDFWLFDOO\IURPWKHȴUVWPRQWKRIȋ 9XJDU%D\UDPRYb Chairman of the Center of Economic and Social Development

05


Key macroeconomic indicators Structure of goods export 2016, (mln US$)

9,139 Total

223

156

2015

2014

2013

2.4% 3.0% 100%

33

Chemicals

36

1.7%

278

87.1% 5.8% 41

526

45

2012

2011

2010

2009

2008

2004

2007

2003

50

28

2006

31

2005

30

48

Agricultural products

45

44

7,956

55

Petroleum products

56

2016

54

Other

Dynamics of oil and gas sector share in total GDP, (%)

0LQLQJDQGTXDUU\LQJLQFORLODQGJDV

18,520

Construction

6,394

Trade, repair of transport means

6,152

Net taxes on product and import

4,591

Transport and storage

4,102

$JULFXOWXUHIRUHVWU\DQGȴVKLQJ

3,370

Manufacturing

3,120

Financial and insurance activities

1,598

Other

12,546

6RXUFH6WDWH6WDWLVWLFDO&RPPLWWHHRIWKH5HSXEOLFRI$]HUEDLMDQb

06

Metals

2016 GDP structure, (mln Azerbaijani manat)


Key macroeconomic indicators

741

748

756

764

771

824

835

844

873

871

916

1,020

1,013

908

Oil production, CVEDUUHOVGD\ Fact

445

EIU forecast Brent oil price, US$/barrel

312

309

648

839

Oil production and Brent oil price

Fact

2020*

2021*

112.1 111.5 108.3 97.3

2019*

80.5

2018*

2010

64.0

2017*

2009

98.0

2016

2008

75.2

2015

2007

66.0

2014

2006

55.2

2013

2005

38.5

2012

2004

28.8

2011

2003

EIU forecast

54.2

46.4

52.1

50.8

53.1

52.9

55.5

2LORXWSXWLVIRUHFDVWHGWRGHFOLQHLQȂ5LVNVDUHRULHQWHGWRbWKHbGRZQVLGH DVVWDELOL]DWLRQRISURGXFWLRQZLOObEHOLPLWHGE\bZHDNbLQYHVWPHQW

6RXUFH+LVWRULFDOGDWDȂ(Ζ8)LQDPb+ROGLQJV *Forecast – EIU

Source: EIU

38.7

29.6

29.4

29.0

29.6

29.5

26.9

25.8

26.3

23.7

23.4

Natural gas production and price

Fact

17.0

IMF forecast Natural gas price, US$/mmBtu

9.1

5.7

5.0

5.1

Gas production, bln cubic meters

Fact

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017*

2018*

EIU forecast

5.5

6.3

9.3

7.0

7.3

8.9

4.2

4.3

4.1

2.9

3.8

4.2

2.6

2.7

3.2

3.4

6RXUFH+LVWRULFDOGDWDȂ6WDWH2LO&RPSDQ\RIWKH$]HUEDLMDQ 5HSXEOLF62&$5 7KH2[IRUGΖQVWLWXWHIRU(QHUJ\6WXGLHV Finam Holdings *Forecast – IMF, EIU

“2017 is an important year for BP and for the Shah Deniz II project, which is already around 90% complete. We have planned a series of key completion milestones IRUbWKLVb\HDU:HbDUHbFRPPLWWHGWRDFKLHYLQJDOORIWKHVH PLOHVWRQHVRQVFKHGXOHWRbPDNHb%3ȇVbWKbDQQLYHUVDU\ FHOHEUDWLRQVLQ$]HUEDLMDQDELJVXFFHVVȋ (ZDQ'UXPPRQGb Vice President of BP’s Azerbaijan-Georgia-Turkey projects

7KH6KDK'HQL]LVRQHRIWKHZRUOGȇVODUJHVWJDVFRQGHQVDWHȴHOGVORFDWHG RQbWKHVKHOIRIWKH&DVSLDQ6HDNPVRXWKHDVWRI%DNX7KHȴUVWVWDJHEHJDQ RSHUDWLRQVLQDQGFXUUHQWO\KDVWKHFDSDFLW\WRSURGXFHDURXQGELOOLRQ FXELFPHWHUVRIJDVSHUDQQXPEFPD DQGDSSUR[LPDWHO\EDUUHOVDbGD\ RIFRQGHQVDWH6KDK'HQL]6WDJHΖΖLVDJLDQWSURMHFWWKDWZLOODGGDIXUWKHU bELOOLRQFXELFPHWHUVSHUDQQXPEFPD Source: British Petroleum

07


Key macroeconomic indicators Price indices of consumer goods and paid services rendered to population 20.8 16.7

6.7

5.2

5.6

4.6

4.9

9.5

5.0

6.5

4.0

4.0

Price indices, % Fact EIU forecast

12.4

9.6 5.7

8.3

2.2

12.6

IMF forecast

7.9 2.4 4.0

2021*

2020*

2019*

2018*

2017*

2016

2015

2013

2012

2011

2014

1.4

1.1

2010

2009

2008

2007

2006

2005

2004

2003

1.5

$FFRUGLQJWRWKH6WDWH6WDWLVWLFV &RPPLWWHHDYHUDJHDQQXDOLQȵDWLRQ VWRRGbDWbbRYHUb-DQȂ$XJ

Source: Historical data – State Statistical Committee RIbWKHb5HSXEOLFRI$]HUEDLMDQ *Forecast – EIU, IMF

5HȴQDQFLQJUDWH 15.00

7.00

5.25

4.75

3.00

01/01/2011

01/01/2012

01/01/2013

Source: Central Bank of the Republic of Azerbaijan

3.50

01/01/2014

01/01/2015

3.00

01/01/2016

2Q6HSWHPEHUWKH0DQDJHPHQW%RDUGRIWKH&HQWUDO%DQN RIbWKHb5HSXEOLFRI$]HUEDLMDQPDGHWKHGHFLVLRQWROHDYHWKHUHȴQDQFLQJUDWH DQGRWKHUSDUDPHWHUVRIWKHLQWHUHVWUDWHFRUULGRUXQFKDQJHGWKHUHȴQDQFLQJ UDWHLVWKHFRUULGRUȵRRULVDQGWKHFRUULGRUFHLOLQJLV 7KH0DQDJHPHQW%RDUGRIWKH&HQWUDO%DQNRI$]HUEDLMDQZLOOQH[WKROG DQbLQWHUHVWUDWHPHHWLQJRQ1RYHPEHU Source: Central Bank of the Republic of Azerbaijan

08

01/01/2017


1.63

1.67

1.71

1.75

1.60

Currency rate, USD vs. Azerbaijani manat

1.72


Annual average FXUUHQF\UDWH

2021*

2020*

0.79 2012

2019*

0.79 2011

2018*

0.80 2010

2017*

0.80 2009

EIU forecast

2016

0.82 2008

2015

0.86 2007

0.78

0.89 2006

2014

0.95 2005

0.78

0.98 2004

2013

0.98 2003

1.03

Fact

7KHODXQFKRI6KDK'HQL]ΖΖZLOOERRVWH[SRUWHDUQLQJVKRZHYHUJDVSULFHV DUHbSURMHFWHGWRUHPDLQUHODWLYHO\ORZDQGRLOSULFHVDUHH[SHFWHGWRUHPDLQ EURDGO\ȵDW7KH(Ζ8IRUHFDVWVDPRGHVWDSSUHFLDWLRQRIWKHPDQDWDJDLQVW WKHbGROODURIDERXWSHU\HDULQȂ

Source: Historical data – Central Bank RIbWKHb5HSXEOLFbRIb$]HUEDLMDQ *Forecast – EIU

Source: EIU

EUR and USD vs. Azerbaijani manat, Jul 2015–Sep 2017 Average 9m 2017 USD 1.73 EUR 1.93

Average 2016 USD 1.60 EUR 1.77

EUR USD

Average 2015 USD 1.03 EUR 1.14

01/07/2015

01/10/2015

01/01/2016

01/04/2016

01/07/2016

01/10/2016

01/01/2017

01/04/2017

01/07/2017

01/10/2017


09



17.0 17.9

17.5 17.7

17.2 17.8

18.4 18.7

19.5 19.1

17.3 17.1

Budget expenditures, bln manat

11.4 11.8

10.3 10.6

Budget revenues, bln manat

6.0 6.1

GHȴFLWSURȴFLW as a share of GDP

*Forecast – EIU

-0.4 -1.3

2016

2015

-1.2

2017*

-0.5

2014

2010


0.6

0.3

2013

-0.9

2011

-0.7

2009

0.6

2012

0.2

2008

2006

-0.7

-0.2

2007

3.9 3.8

2.1 2.1

0.5

2005

1.5 1.5 -0.2

2004

-0.1

2003

1.2 1.2

10.8 10.7

15.7 15.4

Budget of the Republic of Azerbaijan

ΖQ6HSWHPEHUWKH(Ζ8IRUHFDVWVbDQbHFRQRPLFFRQWUDFWLRQ RIbLQbFDXVHGE\bWLJKWbȴVFDODQGPRQHWDU\SROLF\ORZbSULYDWH FRQVXPSWLRQDQGbGHFOLQLQJRLObSURGXFWLRQRZLQJWRWKHH[LVWLQJ DJHLQJbZHOOVbDQGbWKHORZHUSURGXFWLYLW\RIbQHZZHOOV

Yield on Azerbaijan's Tbills (%) 19.5

20 15 10 5 0

5.5

01/02/2016

01/05/2016

01/08/2016


10

01/11/2016

01/02/2017

01/05/2017

01/08/2017


Key macroeconomic indicators General government gross debt (percentage of GDP)

36.1

40.1

43.8

47.4

51.2

54.7

58.3 Fact IMF estimation IMF forecast EIU estimation

6RXUFH+LVWRULFDOGDWDȂ7KH0LQLVWU\RI)LQDQFH RIbWKHb5HSXEOLFbRI$]HUEDLMDQ Estimation and *Forecast – EIU, IMF

“The increase in government debt correlates ZLWKbWKHbVWHSVWDNHQWRLPSURYHWKHȴQDQFLDOVLWXDWLRQ RIbWKHbΖQWHUQDWLRQDO%DQNRI$]HUEDLMDQΖWVGHEW ZLOObSDVVbWRWKHJRYHUQPHQWDQGWKHJRYHUQPHQW ZLOObLVVXHb(XURERQGVLQRUGHUWRSD\WKLVGHEW )RUbWKDWbUHDVRQWKHbXSSHUOLPLWRIH[WHUQDOERUURZLQJ ZRXOGLQFUHDVHE\bELOOLRQPDQDWV:HKDYHWRGRWKLV 7KLV%DQNLVDOVRDbVWDWHEDQNDQGWKHSUHVLGHQWJDYH WKHRUGHUWRSULYDWL]HLW:HQHHGWRLPSURYHLWVbȴQDQFLDO situation before we can privatize it. Azerbaijan’s government debt can hardly be considered big. “ Vahid Akhmedov 0HPEHUbRIWKH0LOOL0DMOLV'HSXW\&KDLUPDQ of Milli Majlis's Committee on Economic Policy, DQGb0HPEHURI3DUOLDPHQW

37.9

2021*

20.4

41.8

2020*

19.8

45.3

2019*

2014

2013

16.0

49.5

2018*

13.6

2016

11.4

2015

9.9

2012

2008

11.1

2011

6.9

11.8

2010

8.6

2009

10.2

2007

2005

2004

2003

13.3

48.8

2017*

39.2

20.2

2006

21.8

28.3

EIU forecast

ΖQ0D\WKHVWDWHFRQWUROOHGΖQWHUQDWLRQDO %DQNRIb$]HUEDLMDQΖ%$ WKHFRXQWU\ȇVODUJHVW EDQNDQQRXQFHGDIRUHLJQGHEWUHVWUXFWXULQJ SODQ$VbSDUWbRIbWKHUHVWUXFWXULQJRQ6HSWHPEHU WKHb0LQLVWU\RI)LQDQFHLVVXHGVHYHQ(XURERQGV ZRUWKbDWRWDORI86EOQZLWKPDWXULWLHV UDQJLQJIURPHQGWRDQGWKHΖ%$ LVVXHGbDb86bEOQbVHYHQ\HDU(XURERQG Source: EIU

11



9.71

9.59

9.48

2012

2013

2014

2015

2016

4.76

2011

4.67

2010

4.52

2009

4.60

9.36

9.24 4.45

9.11 4.38

9.00 4.33

8.90 4.27

8.78 2008

4.16 2007

4.11 2006

4.06 2005

4.02 2004

9.2

8.0

7.3

6.6

6.3

5.9

5.7

5.6

5.4

5.2

5.0

4.9

5.0

5.0

Distribution of employed population by economic activity (‘000s of people) $JULFXOWXUHIRUHVWU\DQGȴVKLQJ

1,730

Trade, repair of transport means

700

Education

375

Construction

344

Public administration and defence

285

Manufacturing

242

Mining

38

Other

1,046

Source: State Statistical Committee of the Republic of Azerbaijan

12

Population, mln of people (PSOR\PHQW mln of people

2003

3.97

4.22

8.67

8.55

8.45

8.35

8.27

Population and employment

8QHPSOR\PHQW rate, %


Tourism Number of accommodated persons in hotels by purpose of travel, (`000s persons)

4%

70%

171,000 -REV

2I*'3

7KHGLUHFWFRQWULEXWLRQRI7UDYHO Tourism to GDP was AZN2,285.3 mln (US$1,437.3 mln), 4.1% of total

600

*URZWK

ΖQ7UDYHO 7RXULVP GLUHFWO\VXSSRUWHGMREV bRIbWRWDOHPSOR\PHQW

*** Total growth over 2011–2016

Recreation Treatment

500

Business

400

Other tourism purpose

300 200

Arrivals for the other purpose

100

2016

2015

2014

2013

2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

0

Source: State Statistical Committee of the Republic of Azerbaijan, :RUOGb7UDYHO 7RXULVP&RXQFLO

ȊΖQ-DQXDU\Ȃ$XJXVWWKHLQFUHDVHLQWKHbQXPEHU RIbWRXULVWVZDVPLOOLRQSHRSOH DQGbWKLVbLVbDbSRVLWLYHWUHQGȋ “During the reporting period, the volume of transactions carried out by foreign citizens also increased by 97%, DQGSXUFKDVHVZHUHPDGHIRU$=1 7KLVbLVbDOPRVWbDWZRIROGLQFUHDVHDQGDUHDO FRQWULEXWLRQbWRWKHHFRQRP\RIWKHFRXQWU\ȋ Abulfas Garayev Minister of Culture and Tourism of Azerbaijan

13


Sport news F1 and UEFA Champions League

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17

Business Outlook in Azerbaijan – 2017 | Azerbaijani business environment

Strategies rating

Ongoing cost control

2.8

ΖQFUHDVLQJFDVKȵRZ

2.5

Cost cutting

2.5

5HGXFLQJFXUUHQF\ULVNV

2.4

Increasing production

2.4

Digitalising business functions

2.3

Developing the business WKURXJKbRUJDQLFJURZWK

2.3

5HGXFLQJȴQDQFLDOULVNV

2.3

Investing in human resources

2.2

Launching new products/ services on the market

2.1

Expanding into new markets

2.0

Increasing capex

1.9

Raising capital from external sources

1.6

Top-3 strategies

Respondents were asked to evaluate the priority of the strategies >RQbWKHVFDOHRIWR@ ΖPSURYLQJRSHUDWLRQDOSHUIRUPDQFH LVbDbKLJKSULRULW\IRU$]HUEDLMDQLFRPSDQLHV FRVWFRQWURODQGRSWLPL]DWLRQDVZHOODV LQFUHDVLQJFDVKȵRZDUHLQGHPDQG

Current approach to capex Respondents were asked about their current approach to capex 0DLQWHQDQFHPRGHUDWH FDSH[bLQbH[SDQVLRQ

45%

Massive expansion capex

21%

Minimal maintenance capex just to keep the existing assets operational

21%

We are shutting down VRPHbRIbRXUbIDFLOLWLHV

18

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13% FSI companies are more often shutting down some of facilities (43%) than companies from other sectors

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Revenue (in AZN)

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Expectations

Share of respondents

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Operating expenses (in AZN)

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Expectations

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Expectations


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19


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Cost of capital (in AZN)

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Expectations


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Expectations


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Average wages (in AZN)

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Expectations


20

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About respondents Company's annual gross revenue in 2016

8%

Total number of permanent employees

50,000–250,000 AZN 17%

13%

1mln–5mln AZN

25%

Over 5 mln AZN

Less than 50 50–200 200–500 500–2,000

21%

More than 2,000 17%

75% 25%

Companies by industry Financial services

29%

(QHUJ\DQGUHVRXUFHV

25%

Manufacturing

13%

Other

33% Retail services Travel Agriculture Construction Transportation

21

Business Outlook in Azerbaijan – 2017

Contacts

22

Nuran Kerimov Managing Partner 'HORLWWH$]HUEDLMDQ QNHULPRY#GHORLWWHD]

Joe Pacelli 3DUWQHU+HDG RIb%XVLQHVVb'HYHORSPHQW 'HORLWWH&Ζ6 MSDFHOOL#GHORLWWHUX

Petr Sergutin Senior Manager, )LQDQFLDOb$GYLVRU\ 'HORLWWH$]HUEDLMDQ SHVHUJXWLQ#GHORLWWHD]

-DODO+DMLED\RY Senior Manager, 5LVNb$GYLVRU\ 'HORLWWH$]HUEDLMDQ MKDMLED\RY#GHORLWWHD]

Lora Zemlyanskaya Research Centre Leader 'HORLWWH&Ζ6 O]HPO\DQVND\D#GHORLWWHUX

Mikhail Gordeev Senior Research Specialist 'HORLWWH&Ζ6 PJRUGHHY#GHORLWWHUX

Brochure / report title goes here | Section title goes here

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