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Azerbaijan’s geo-economic expansion prospects: Conventional or emerging markets?

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In the background of global geo-economic shifting, nation states confront significant challenges in terms of appropriate positioning. In case of Azerbaijan, these challenges are also related to regional geopolitical imbalances as well as structural problems existing in the national economy.

Throughout its independence, Azerbaijan has pursued the way to formulate its foreign economic relations through maximizing its economic benefits in the context of achieving relevance to its national interests. Indeed, country’s geographical location and economic strength gained thanks to oil boom gave birth to the possibility of formulation of Azerbaijan as a regional geo-economic pivot.

Azerbaijan iscurrently conducting multi-vectorial geo-economic development strategy in order to maximize its geographic advantages as well as maintaining better positioning in the framework of massive realignments observing in global economic architecture.Looking through of the policy frameworks which encapsulate country’s medium and long-term economic vision, it becomes obvious that Azerbaijan will continue to adjust these strategies to the “new game rules” of geo-economic shifting.

However, it should also be mentioned that in some cases, Azerbaijan’s geographic location takes part as an impediment rather than advantage.Referring to conventional understanding of the concept of “space”, Azerbaijan has only limited number of spaces in which geo-economic sustainability can be realized. However, shifting from geopoliticsrelying on the dominance over geographic basins to the geo-economics which relying on controlling financial and trade flows creates an excellent opportunity for Azerbaijan to tackle with this problem. In this regard, it should be emphasized that successful realization of trade-logistics and energy transport projects in recent years have created a sound ground to continue geo-economic expansion in the new stage of economic development. But the question currently standing in front of this expansion strategy is that which markets or “geo-economic spaces” should be main target?

Assessment of trans-regional projects initiated or supported by Azerbaijan during last two decades indicate that these initiatives are mainly directed to mitigate EU’s dependence on several routes or building an appropriate infrastructure to bolster these countries’ trade relations with Central Asian countries. This factor was strategically and economically beneficial for Azerbaijan in terms of getting better access to European markets and eliminating infrastructural backwardness inherited from Soviets. However, as aforementioned, current realignments in geo-economic landscape make it necessity to add new directions and quality features to the geo-economic expansion strategy of the country.

In this regard, Strategic Road Map for the perspectives of the national economy which approved by President Ilham Aliyev in late 2016 can be accepted as a reliable guide to find answer to the question put above. It is not secret that in recent years, we are observing geo-economic shifting from Euro-Atlantic region to the Asia-Pasific. This shifting is gradual and time-consuming process and cannot be constrained only by Chinese economic expansion or South Korean success story.

According to the World Bank, over the next three years the $75 trillion global economy will expand by more than $6.5 trillion in size. It is also estimated that China and India will be among Top 3 contributors to real GDP growth predicted for 2018-2020 while Turkey, Indonesia, South Korea and Japan will be also among major contributors.Furthermore, emerging and developing Asia seems will be achieved to quadruple its share in global GDP based on PPP during 1980-2020.

In the light of these figures, it can be put forward that Azerbaijan can take more benefits through getting better access to these emerging Asian markets. Furthermore, taking into consideration country’s medium and long-term economic vision in which acceleration of joining to global value chains has been mentioned as one of the strategic targets,integration to these markets promise more economic gains. The scale of these gains will not be constrained only in the framework of monetary or financial units. Particularly, significant progress achieved in realization of North-South and East-West transport corridors in recent years, additionally much brighter prospective transport projects which are expected to be realizedin the near future will lead to increase Azerbaijan’s geo-economic importance. This achievement can be accepted as a result of continuous efforts made by Azerbaijan during last two decades. As mentioned by President Aliyev, situated between Europe and Asia, Azerbaijan will continue to use wisely its geographical location to become one of the leading transportation hubs in Eurasia. Pursuant to his opinions, it is highly predictable that Azerbaijan geo-economic expansion will continue in accordance with regional and global economic landscape movements.

Getting efficient positioning in regional integration movements which dominantly shaping under priority of national interests is one of the key directions of Azerbaijan’s geo-economic expansion strategy.In this regard, preserving independence in integration processes is one of the significant imperatives in Azerbaijan’s foreign economic and trade relations.It is worth to mention that Azerbaijan, unlike to some of other region countries, still preserves independence in making choices regarding with integration movements. Therefore, Azerbaijan’s current stance lets us put forward the idea that consistence of joining to such type of integration movements with the country’s strategic foreign and domestic economic targets is more deterministic imperative rather than nominal participation.This hypothesisalso involves some insights regarding with the issue that in which direction geo-economic expansion ought to be continued in the following years.

On the macroeconomic and foreign trade perspective, it is worth to emphasize that Azerbaijan has achieved significant growth rates during 2004-2014. After some adverse effects of oil price crunch after 2014 Azerbaijan economy is currently in the process of adjusting new equilibrium points.This process is conducting not only through improving macroeconomic indicators, but also through making changes in geographic orientation of the country’s foreign trade relations. According to the official figures, the share of Asian markets is averagely 38% in exports and 39% in imports. However, analyzing of commodity structure of this trade turnover exhibits that in exports low value-added commodities dominate while in imports particularly medium and high value added ones take the lion share. This structure of trade relations with Asian countries brings forth some challenges in terms of diversifying commodity structure of exports as well as increasing turnover with these emerging economies. Therefore, in the context of geo-economic expansion, it would be more reasonable for Azerbaijan to pay much attention to join global value chains appearing in these markets. Additionally, thanks to already finished and prospective  trade-logistics and transportation projects, Azerbaijan’s opportunities to benefit from new trade reality which involves geographical fragmentation of production is increasing. This new reality offers to accelerate diversification of economy with limited resources avoiding from conventional barriers existing in small economies such as Azerbaijan.

Finally, Azerbaijan seems very determined to become a geo-economic pivot in its region relying on its comprehensive and continuous development strategies and rising international economic competitiveness which achieved during recent years. This deterministic stance will continue through shifting beyond a new quality stage of geo-economic expansion in the era of formulation multipolar global economic order. This shifting additionally requires revision of geographic expansion postulates of the country’s geo-economic development strategies. The characteristics of this revisionwill be determined by systemic realignments in the global economy.

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Economy

Côte d’Ivoire: Robust growth under the looming threat of climate change impacts

MD Staff

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According to the Economic Update for Côte d’Ivoire, published today, the short- and medium-term outlook for the Ivorian economy remains positive. The economy is expected to maintain a steady trajectory, with GDP growth of 7 to 7.5% in the coming years. Titled “So Tomorrow Never Dies: Côte d’Ivoire and Climate Change,” the report highlights the urgent need to implement measures to ensure that climate change impacts do not imperil this economic progress and plunge millions of Ivorians into poverty.

“The solid performance of the Ivorian economy, which registered growth of almost 8% in 2017, is essentially due to the agricultural sector, which experienced positive climate conditions. The economy also benefited from a period of calm after the political and social instability of the first half of 2017 and from more favorable conditions on international markets,” said Jacques Morisset, Program Leader for Côte d’Ivoire and Lead Author of the report. “The Government also successfully managed its accounts, with a lower-than-expected deficit of 4.2% of GDP, while continuing its ambitious investment policy, partly financed by a judicious debt policy on financial markets.

However, the report notes that private sector activity slowed in 2017 compared with 2016 and especially 2015, which may curb the pace of growth of the Ivorian economy in the coming years. Against the backdrop of fiscal adjustment projected for 2018 and 2019, it is critical that the private sector remain dynamic and become the main driver of growth. This is particularly important in light of the uncertainty associated with the upcoming elections in 2020, which could prompt investors to adopt a wait-and-see approach.

As economic growth in Côte d’Ivoire relies in part on use of its natural resource base, the authors of the report devote a chapter to the impact of climate change on the economy. They raise an alarming point: the stock of natural resources is believed to have diminished by 26% between 1990 and 2014. Several visible phenomena attest to this degradation, such as deforestation, the depletion of water reserves, and coastal erosion. According to the Intergovernmental Panel on Climate Change (IPCC), climate change could reduce GDP across Africa by 2% to 4% by 2040 and by 10% to 25% by 2100. For Côte d’Ivoire, this would correspond to a loss of some CFAF 380 billion to 770 billion in 2040.

This report sounds an alarm in order to spark a rapid and collective wake-up call,” said Pierre Laporte, World Bank Country Director for Côte d’Ivoire. “Combating climate change will require prompt decisions and must become a priority for the country to maintain accelerated and sustainable growth over time.”

The report pays special attention to coastal erosion and to the cocoa sector, which represents one third of the country’s exports and directly affects over 5 million people. With 566 km of coast, Côte d’Ivoire now boasts a coastal population of almost 7.5 million people, who produce close to 80% of the national GDP. Two thirds of this coast is affected by coastal erosion, with severe consequences for the communities and the country’s economy.

The Ivorian Government, which is already aware of this challenge and has prepared a strategy to confront it, must expedite its implementation. This would have the two-fold effect of developing a “green” economy and creating new jobs.

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A future of work based on sustainable production and employment

Simel Esim

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On the first Saturday of July each year, the international community celebrates the International Day of Cooperatives. This year’s theme, Sustainable consumption and production of goods and services is timely, as the ILO works towards a future of work that is based on sustainable production and employment models.

As head of the ILO’s Cooperative Unit, I have witnessed firsthand the positive impact of cooperatives’ commitment to sustainable consumption and production.

In Northern Sri Lanka, for instance, after years of civil war, I saw how cooperatives helped build the resilience of local communities.

A rapid assessment at the start of the ILO’s Local Empowerment through Economic Development project (LEED) indicated that cooperatives were the only “stable” structures present in Northern Sri Lanka before, during, and after the conflict. Since 2010, the project has been supporting agriculture and fishery cooperatives by securing fair trade certification for their products and helping them establish market links.

I’ve also listened to inspiring stories from other parts of the world of how cooperatives have joined forces to contribute to sustainable consumption, production and decent work – often through cooperative-to-cooperative trade.

Some of these stories were shared at a recent meeting in Geneva of cooperative and ethical trade movements.

We heard how Kenyan producer cooperatives’ coffee has found its way on the shelves of Coop Denmark and how biological pineapples from a Togolese youth cooperative are being sold in retail cooperatives across Italy. We heard how consumer cooperatives in East Asia have developed organic and ecolabel products, while educating their members about the working conditions of producers and workers, as well as on reducing food waste and plastic consumption. We also shared ILO experiences in supporting constituents in the field.

The emerging consensus from the meeting was that cooperative-to-cooperative trade can help lower the costs of trade, while ensuring fairer prices and better incomes for cooperative members and their communities. Opportunities exist not only in agricultural supply chains, but also in ready-made garments and other sectors.

Cooperatives at both ends of the supply chain have been joining forces to shorten value chains, improve product traceability and adopt environmentally-friendly practices. At the ILO we have been working with our constituents to improve the social and environmental footprint of cooperatives around the world.

As the ILO continues to promote a future of work that is based on sustainable production and employment models, a priority for us in the coming years is to facilitate the development of linkages between ILO constituents and cooperatives. The aim is to encourage joint action towards responsible production and consumption practices, the advancement of green and circular economies and the promotion of decent work across supply chains.

Source: ILO

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Economy

Mongolia’s Growth Prospects Remain Positive but More Efficient Public Investment Needed

MD Staff

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Mongolia’s economic performance has improved dramatically with GDP growth increasing from 1.2 percent in 2016 to 5.1 percent in 2017 and 6.1 percent in the first quarter of 2018. While short- and medium-term economic prospects remain positive, Mongolia faces core structural vulnerabilities that hinder its potential, according to Mongolia Economic Update, the latest World Bank report on Mongolia’s economy launched here today. The report also highlights the importance of improving efficiency of its public investment programs given extensive consequences from the overambitious and unrealistic investment programs implemented in the past.

“Last year was a good year for Mongolia with favorable commodities prices and the successful implementation of the government’s economic recovery program,” said Dr. Jean-Pascal N. Nganou, World Bank Senior Economist for Mongolia and Team Leader of the report. “This resulted in improved fiscal and external balances, triggering a slight decline of the country’s public debt.

The recovery is expected to accelerate with a GDP growth rate averaging more than 6 percent between 2019 and 2020, driven by large foreign direct investments in mining. Other than agriculture, which was severely affected by harsh weather conditions during the winter, most major sectors including manufacturing, trade, and transport are expected to expand significantly. On the back of increasing exports and higher commodity prices, economic growth will continue to have a strong positive impact on government revenue, contributing to the reduction of the fiscal deficit.

The unemployment rate dropped to 7.3 percent in the last quarter of 2017, compared to 8.6 percent a year earlier. Still, it increased to 9.7 percent in the first quarter of this year, reflecting Mongolia’s highly seasonal employment patterns due to difficult working conditions in the winter, especially in construction, agriculture, and mining.

The report highlights possible short- and medium-term risks including political risks, regional instability, climate shocks, and natural disasters. The most critical risk identified is a sudden relaxation of the government’s commitment to full implementation of its economic adjustment program supported by development partners.

In addition, the economy remains vulnerable to fluctuations in global commodity prices and a productivity gap. The best long-term protection against these two vulnerabilities is the diversification of the Mongolian economy.

To create a strong buffer against economic vulnerabilities, the government and donors should give a high priority to economic diversification that helps counter the ups and downs of the mining sector. Investing in human capital and strengthening the country’s institutions are the best way to support diversification, together with sound investments in crucial infrastructure,” said James Anderson, World Bank Country Manager for Mongolia.

The report takes a closer look at public investment programs implemented over the past five years, which surged until 2015, contributing to large increases in public finance deficits and the public debt. Mongolia needs to review and reshape its public investment policies and decision-making processes to improve efficiency of public spending, including clear project selection and prioritization criteria, as well as proper maintenance of existing assets.

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