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High-Level Forum on Economic Diversification in Azerbaijan

This presentation highlights the need for economic diversification in Azerbaijan and explores opportunities and implications for the country. It emphasizes the importance of private sector-led growth and discusses success stories and key shifts in the global economy. The World Bank Group's assistance in areas like investment climate and competition policy is also mentioned.

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High-Level Forum on Economic Diversification in Azerbaijan

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  1. High-Level Forum on Economic Diversification in Azerbaijan Baku, March 6, 2019 Wolfgang Fengler Lead Economist Finance, Competitiveness & Innovation

  2. Main Messages • Success stories are different in their endowments but similar in how they managed their economies: connected to the world, stable macro, high savings & investment, market economies, strong institutions. • Azerbaijan needs to rebalance towards non-commodity exports. Successful economies invest in people. • Private sector-led growth will allow Azerbaijan to take advantage of new opportunities: Asia’s rapidly rising middle class, BRI, and technological breakthroughs. • The World Bank Group can help with: Investment Climate, competition policy, financial sector deepening. • There is only one economics but many recipes for successful development: Many different countries have achieved high growth and rapid development over a sustained period of time. 2

  3. Success stories and Azerbaijan’s position

  4. Economic success stories of the last 50 years

  5. These success stories have five similarities

  6. Similarities and differences with small and medium resource rich success stories

  7. Similarities and differences with medium size resource rich success stories

  8. An economy out of balance

  9. Rebalancing the economy

  10. Big shifts and their impact on Azerbaijan

  11. BIG SHIFTS WILL AFFECT AZERBAIJAN • ASIA’S RISING MIDDLE CLASS • BELT AND ROAD INITIATIVE (BRI) • TECHNOLOGICAL BREAKTHROUGHS • STRUCTURALLY DECLINING ENERGY PRICES

  12. One additional billion people will enter the global middle class by 2025: 87% will come from Asia

  13. Opportunity cost: Asia’s rapidly rising middle class could serve as a large market for Azerbaijan’s diversified goods and services

  14. Renewable Energy is Disrupting Fossil Fuels Faster Than Ever 2015

  15. Driverless transport will reshape transport corridors Title of Presentation

  16. Opportunities and implications for Azerbaijan

  17. Value Chain Upgrading – Azerbaijan would benefit from positioning itself on the higher end of the value chain (Petrochemicals) Stage 1: Fuels Production Stage 1: Fuels Production Stage 2: Downstream Integration • Stage 3: • Crude-to-Chemicals Conversion CRUDE OIL CHEMICALS Korea, Japan Turkey, Iran, India, UAE Thailand Azerbaijan Turkmenistan Saudi Arabia China, USA

  18. Time to reenergize the Financial Sector Sharp contraction of bank lending in 2016-2018 (both in private and state banks) Tight fiscal policy (as an important source of subsidized financing and capital investments for SOEs and private sector) Source: CBAR bulletin, December 2018

  19. Increasing productivity through competition and market reforms • Azerbaijan’s average entry density in the private, formal sector during the 2006-2016 period has been low and below of what would be expected in an economy of its size. This translates to low competitive pressure in the local economy. Intensity of local competition (Score from 1 to 7 (best), 2017) Ranked 106 out of 138 countries Source: Global Competitiveness Report, World Economic Forum (2017-2018)

  20. Business risks are seen to be related to week competitive environment Business risks related to weak competition policies by component, January 2018 Source: EIU Risk Tracker

  21. Education – California: The world’s most successful Petro state Alma mater of many Nobel laureates, responsible for breakthrough scientific discoveries. The world’s largest mining college in early 1900. Investment in Education/Universities Instrumental in the rise of the Silicon Valley as the world’s high-tech hub. Early graduates popularized petroleum geology theories.

  22. World Bank Support

  23. Proposal for Azerbaijan 23

  24. Thank youContact: wfengler@worldbank.org

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