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Privatization experience

Privatization experience in Azerbaijan

Haydar Aliyev has built the future development of Azerbaijan on the basis of systems relating with democratic and secular values. Strategic line has been established under the leadership of the great leader for deciding and developing newly restored national economy of our country on the basis of effective economic system, as well as private property, free entrepreneurship and healthy competition principles. Achieving this goal consistent and systematic economic reform programs of the government were required to establish. That is why transition from the closed economic system which used to be a part of the centralized economy to the totally development and sovereign state economy – national economy should be provided, simultaneously transition issue from the administrative methods prevailing in the management of economy to the self-regulating free market relations should be solved.
Transition to free economic relations based on private property, free entrepreneurship and healthy competition made necessary radical modification of property relations and liberalization of the economy. Privatization had become a topical issue while 95 percent of the property is controlled by the state. In other words, enterprises, agriculture structures and production objects constituted initial cores of the country economy were state-owned and in this situation provision of stabilization, liberalization and development in the economy directly depended on privatization of these enterprises as soon as possible.
Privatization of the property prompted with pre-privatization economic situation, general socio-economic indicators and decay trends. At that time the efficient management of state enterprises and maintenance of financial-economic indicators at least as a previous level were impossible due to violation of economic activity mechanisms and management systems, complete paralysis of economic relations inter-republics and enterprises. From this point of view it was impossible to maintain the jobs of employees working in the enterprises and to prevent employment problems. Simultaneously, suspension of investments to the enterprises by the state, lack of working capitals of the enterprises established serious negative manifestations in their economic activity as a economic management factor. Loss of markets, inaccessibility of raw materials and resources have bankrupted existing the state enterprises.
All similar trends of decay were repeated in the macroeconomic indicators of the country. Uncontrolling of inflation, the continued decline of gross domestic product (GDP) volume, dynamics of industrial and agricultural products on the descending line, a sharp decline of domestic and foreign trade turnover, in addition to these cases, unemployment and employment problems deepened to the crisis. From 1991 to 1996 – till the reforms start GDP, industrial and agricultural products, cargo turnover in transport, retail goods turnover, investments, the capacity of import and export turnovers decreased 20-25 percent annually compared to the previous year. All these economic and social factors, as well as the need for the formation of a strong national economy were dictated to give property from the state control to more effective property owners.
For many years, privatization of property, enterprises and objects based on established state property form has been a key ingredient of the state programs covering radical market reforms. Since its first day the privatization has approached the main means of economic development in the form of unified state policy by Azerbaijan government and the measures in this sphere have been implemented in a coordinated manner. Based on economic efficiency and social justice the task of privatization was putted on the institutions of implementing privatization by state at all stages. Generally, the main reasons of privatization programs adopted in Azerbaijan are further development and revival of economy, establishment of market economy system and the basic conditions for normal functioning. Specific purposes are the liberalization of the economy, the development of private owners’ class and free entrepreneurship, establishment of effective property structure as a key criterion of growth of production efficiency and national income, restructuring of economy, increasing of economic efficiency on the basis of anti-monopoly and forming a competitive environment, involvement investments, including foreign investments to the enterprises, improvement people’s living standarts and social welfare.
At the same time, international experience indicates that privatization has other purposes (transferring extra income to state budget getting from privatization, establishment of stock market, activation of the securities institute, reconstruction and rehabilitation of the state enterprises, involving investors having the skills and capabilities to apply new management methods know how in agriculture) implemented and carrying out privatization in some countries too.
Achieving the goals of privatization depends on the implementation model. Therefore the privatization experiences of some countries, including Eastern and Central Europe, Russia, Kazakhstan, the Baltic countries have been learned and the experiences have been taken into account in the prepared programs. Mixed model of privatization have accepted based on analyses in our country and decided to give a part of state property to the members of labour collective–citizens free of charge.
Taking into consideration the above-mentioned objectives and principles, the regulative-legal and organizational bases of privatization were established in Azerbaijan. Simultaneously, a number of ministries, state committees, concerns and companies have been cancelled according to president's decrees and orders since 1996, their subordinate enterprises and objects have been declared available for privatization, thus, the condition has been formed for implementation of privatization faster and more flexible. As a united state policy, privatization of enterprises has been implemented in various ministries and head offices in a coordinated manner.
Generally, the main goal of this stage was to provide transition of the state from the planned economy to the market economy, to form entrepreneurship sector, to involve a large mass of population to this process. In this regard, privatization of mostly trade, public catering and service sectors has been provided.
Privatization process has covered larger and leading areas as transport and communication, construction, chemistry, poultry, winery and other sectors.
Mainly small objects through discounted sale way to employees, medium and large enterprises through auctions and more important enterprises through investments have been privatized.
Since the beginning of privatization about 47 thousand small state enterprises and objects, non-residential area, unfinished buildings and vehicles relating with industry, trade, transport, communication and other sectors have been privatized, nearly 1,600 medium and large enterprises has turned into a joint-stock company (JSC) and their shares have been sold in check and cash auctions.
In the privatization process more than a thousand 250 shareholders own shares and a section of owners have been formed covering more than 520 thousand of people. In total, more than 1.2 million people have been benefited from the privatization in one or another form.
As a result of the privatization through investment tenders which also involved local and foreign investors about 1.1 billion manats investments have been put into country’s economy, the production volume has been increased to 1.5 billion manats.
Privatization has been played a significant role in ensuring employment of population. According to reports, more than 300 thousand of workplace have been established in the privatized enterprices.
All of the above has led to an increase the economic potential of the Republic of Azerbaijan, the formation of competitive environment, restructuring of many of the state-owned enterprises,b application of new equipment and technologies, as well as the modern management practices in the enterprises. As a result, the share of private sector in GDP has reached 84 percent.
As a result of carried out privatization, a successful activity of trade and services, poultry, wine, flour production areas, hotels, mobile communications, construction and building materials sectors of the country have been provided completely and in the agricultural sector through the the private sector the successful operation of a number of areas have been provided.
As an example, "Garadagh Cement" (Holcim (Azerbaijan)), "Bakelectrogaynag" (Baku Steel Company), "Siyazan Broiler", "Beer" (Baku Castel Beer, now Baltika Baku), "Gabala Wine", "Davachi Broiler" "Gilazi Poultry", "Baku-Tobacco" (European Tobacco-Baku), "Azenco", "Azyolmas", "Baku Yoltexnikatəmir" (Manifacture of paints), "Khanlar Agroindustry", "Ganja Sharab-2", "Baku Champagne Wines "," Baku Sharab-2 "," Baku Grain", "Baku Liquid Transformers", "Sabunchu Nitrogen-Oxygen"," Azermashavadanlig "," Garadagh Rubber Mixture "(Glass container products)," Neftchala iodine-Bromide " "Ganja instrument-making plant", "Sumgait Industrial Production", "The therapeutic and Diagnostic center of the Republic", “Household Fuel Gas”, “Azermetbuatyayımı”, “Baku Agırlashdırıcılar”, “Azerbaijan hotels” (“Hilton" hotel), “Moscow hotels” (“Flame Towers”), "Hyatt Regency" (“Hyatt Regency-Nakhcivan), Bilgah sanatorium "Jumeirah Bilgah" hotel and hundreds of other such enterprises can be mentioned. However, it can be mentioned the privatization of the mobile operators, "Azercell" and state shares of "Bakcell" in joint ventures, "Capital Bank" the country's second largest bank. In the areas of a number of enterprises a large projects have been carried out on urban planning, renovation works, also the parks have been established and the buildings have been built. As well as the privatization has been influenced the expansion of local production, and ensuring the competitive production of goods and food security of the country.
100 thousand people are working in these enterprises that hold key places in the domestic production of country in the spheres of construction, grain processing, bakery, winery, poultry, service sectors, hospitality.
As a result of implementation process of large-scale privatization measures, the members of labor collectives of enterprises and other citizens have turned into property owners and shareholders of other enterprises. Currently, hundreds of thousands of shareholders possess shares of different OJSCs. They participate in the process of corporative management and make profits depending on results of OJSCs activity.
Market relations have fully formed as a result of privatization of state enterprises in the light and food processing industries produced trade, service, construction and consumer goods, meeting local demands by producers have been provided, modern technologies, equipment and management experience have been involved to this sphere. As a result, the state has released from economic concerns engaged seriously and in some cases faced in problem areas a few years ago, all functions were transferred to more prompt and efficient owner structures than the state.
In some cases investors change activity profile of privatized enterprises in accordance with market requirements due to the loss of export markets and establish the new competitive manufacturing and service sectors. "Goychay-Weaver" ("AzNar" juice factory), "Masalli-Canning" ("Embawood" furniture factory), "Ganja Wood Processing" (production of water meters with "Absheron" brand), "Zagatala-Tobacco" (nut processing area) joint-stock companies can be indicated as an example.
Nowadays President Ilham Aliyev tasked about preparing a large privatization program and involving investments in this sphere. The measures in this direction have already begun – economic analyzes are carried out and the orders are prepared related with establishing new areas to privatization. This process is intended to involve local and foreign investors. The main goal is reducing budget burden and increasing budget revenues. Simultaneously, the main priority is reconstruction of the enterprises to be privatized, job availability, provision of domestic demand and production of goods with export capacity. In this regard, a foreign experience is also reviewed. The negotiations to involve international consultant companies and experts have already begun. At the same time, the works are done in negotiating with the big financial institutions and funds, strategic investors to involve foreign investors to privatization.
At the same time for involving foreign investors to privatisation, the negotiations on the large financial institutions and funds, strategic investors are continued.
Furthermore, applying more rational and optimal methods in privatization and reviewing these methods are considered. Mainly privatization method through investment tenders will be given preference in this situation. In this case, the individual approaches will be applied for every enterprise. The offers will be introduced to the foreign investors relating with the investment projects over the enterprises will be privatized, job availabilities, as well as economic activity of the enterprises.
Generally, the State Committee on Property Issues implements the measures to provide the transparency in privatisation and informs the society regularly. The implementation form and rule of agitation measures in privatisation have been illustrated in “II Programme of Privatization of State Property”. According to Article 17 of the Programme, the society is informed about the essence, goals and duties of privatization, protection of rights of shareholders and labor collectives of enterprises, competitions and their place, time, joint-stock companies and enterprises, as well as the auctions, competitions and their results through as mass media “Mulkiyyət” newspaper and official webpage of the Committee. Relevant announcements are published and indicated on the official website 30 days prior to the auction or tenders designated for state property privatisation. The results of auctions and tenders are published within 15 days from the day of completation of auctions and tenders. The information about land area, characteristics of the building, sale method, capacity of shares, face value, products and labor collective are reflected in the announcements of the enterprise or joint-stock company available for auction. The data as the address of enterprise, the amount of funds to be paid to the state budget, amount and type of sold shares, accounting rule are illustrated in results. Economic, technical and financial-economic indicators of enterprises, as well as annual reports are published on “Mulkiyyət” newspaper.
Since 2012 electronic services have been applied in state property privatization. 8 out of 31 electronic services of the Committee relates with the participation in auctions. These services include the sale of shares of joint-stock companies, small and medium enterprises, vechiles on the state balance, sale of confiscated properties, acceptance of appeals to participate in auctions related with the preferential sale to labor collective. Such services are presented to citizens and other users within e-services portal of the Committee or “e-government” portal.
Till now the privatisation has been implemented in accordance with I and II State Programmes of state property privatization and the law adjusted this area. The main goal was transformation of state property to private property which achieved. Currently, more than 80 percent of the share of private sector in GDP is evidence of the fact.

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