About the Reasons that Azerbaijanis Live “Not Like in Dubai”

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http://www.turan.az/-Azerbaijani tourists visit the Arab oil-exporting countries, see the life of the local population there and ask the question: why are the citizens of Azerbaijan, also an oil-exporting country, so poor? The average salary in Azerbaijan is about 600 manats, which is $ 352. Construction workers in Dubai receive about as much monthly. And citizens of the UAE and other Arab countries may never work at all, living in state-donated two-story villas with paid utility bills.To the question of Turan why it happened, the candidate of economic sciences Shahmar Agabalayev answers.

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-Why don’t we live like in Dubai?

– The question of life in the Arab monarchies is often asked by society when it is necessary to show how inefficient government management is in our country. People can be understood, because with the same territory and population in Azerbaijan and the UAE, their economic indicators vary greatly, despite the fact that our countries are rich in oil.

First, we consider some qualitative indicators of the economy, and then touch on the causes of our poverty. While the Emirates produces 2.97 times more oil per capita than ours, then their GDP is 3.9 times higher and their national income is 10 times higher. There is a clear discrepancy between these indicators. In the UAE, the standard of living is much higher than in Azerbaijan. This can only happen with good governance. But why is this happening? There are historical and subjective reasons.

Unlike us, the UAE from 1820 until independence in 1971 was a British colony. And around this historical period, we were part of the Russian Empire. Great Britain has always been ahead of RI in the level of development of both the political and economic systems of the state. Consequently, in contact with a more advanced system, the Arabs possessed better management skills. In the Emirates, unlike us, there was no socialist development period, and they were not isolated from the world economy. In addition, the UK did not create various problems for its former colonies, nor did it hinder the development of the UAE. This is not an accident, since there are many successful countries among the English colonies. Arab countries initially had advantages that we did not have.

But the difference in the living standards of Arabs and Azerbaijanis would never have been so noticeable if our government had not made a number of mistakes. After oil revenues comparable to the financial tsunami, our state leaders came to the conclusion that with sufficient resources they will be able to develop the country on their own, without integration processes. In some parts of the political and economic elite, there was such a vision that we have a small market, and the open door policy will increase the number of international players in our market, and this will negatively affect the development of local business. Under the pretext of protecting the domestic market, the country did not join the WTO, did not sign an associate membership agreement with the EU, and limited the access of large world banks to our market. We have a visa regime with EU countries, which is not understood even in Turkey. High customs duties do not contribute to the development of re-export, which the Emirates are famous for and which is a feature of small markets. Isolation is the main brake on the development of any economy.

To make it clear to readers, consider a specific example. In the early 2000s, for unknown reasons, the HSBC English Bank left our market. In the world banking rating, this bank takes 7th place. There were accumulated 45 percent of foreign currency deposits of the republic. After its departure, not a single large Western bank was present in our market. Left without competitors, and distributing deposits among themselves, our banks boosted credit interest to the maximum, earning super-profits. But despite this, after 2014, the banking system of Azerbaijan crumbled like a house of cards. Our banks, boiled in their own juice, remained on the periphery of the global banking field, which negatively affected the level of management development. Without competition, management becomes blind. Therefore, they did not notice the danger in time and could not find a way out of the crisis. The lack of competition gives rise to monopoly, which causes corruption. Together, they are pulling our economy down like fetters.

Unlike the Emirates, we have a mismatch between the costs of human capital in comparison with the costs of infrastructure projects. It also annoys society.

What is the success of oil contracts? The fact that they use advanced technologies plus world-class management and special conditions for doing business. We need to achieve this approach for any sector of the economy, but for this we need to change the conceptual approach to integration issues.

The Emirates, despite their large oil revenues, pursued an open door policy. And the result is obvious. In the structure of the UAE, the non-oil sector accounts for 60 percent, and 49.8 percent of these are services. Re-export (resale of goods manufactured in other countries) is $ 130 billion. This is 2 times more than the oil export of the Emirates, and five times more than our entire export. In a year, the UAE receives 15 million tourists and serves 50 million transit countries. In my opinion, these numbers are enough to show the advantage of an open door policy.

There are no examples in the world when a country has been successful in an isolated state. But there are examples when countries — the USSR — collapsed from this. And the success of China – the largest economy in the world – is due to the openness of its economy.

– Is the “gas crisis” in Iran a consequence of the country’s isolation caused by US sanctions? Can you compare the situation in Iran with Azerbaijan?

– It is wrong to project the situation in Iran on our realities. There, people are tired of the theocratic regime and want to replace it, and therefore they are so sharply protesting against price increases. Now there the demand for political change is ahead of the need for economic reform. By the way, economic problems are the result of the isolation of the Iranian economy.

Our situation is completely different. Azerbaijan has a secular political system, so people are more interested in changing the economic policy of the government. Consider the price of gasoline with us and try to evaluate this indicator in comparison with other countries. The average world price for gasoline is $ 1.10. We have a liter of cheap gasoline sold at $ 0.47, in Turkmenistan – 43, in Kazakhstan – 0.48, in Russia – 0.68, in Belarus – 0.71, and in the US – 0.71 dollars. Azerbaijan is among the ten countries with low gasoline prices. Comparing prices with CIS oil producing countries, we see that our tariff is approximately at the same level with Turkmenistan and Kazakhstan, but cheaper by 45 percent than in Russia. But as a consumer, we are interested if there is a reserve for reducing the cost of gasoline. To do this, you need to know the structure of the cost of gasoline. But I could not find this data in relation to SOCAR in the open press. Therefore, we will approach this issue from a different perspective. The price of gasoline is determined by the following costs:

Oil cost;

Delivery to the refinery;

Processing costs;

Retail expenses;

Various taxes.

The cost of our oil, according to SOCAR, is $ 11.6, while in Russia this figure is $ 25. It turns out that our oil is 2.2 times cheaper than Russian. Further: the distance between Russian refineries and fields, unlike us, is very large. We actually do not have the cost of shipping oil. Our oil is considered to be the best in the world in quality, so we produce more gasoline from one unit of raw materials than in the Russian Federation. Based on these figures, we can conclude that our government has a reserve for lowering gas prices. But this, rather, is not allowed to be done by the tax burden, since the main burden of the budget, as we know, is borne by the oil sector. Therefore, in order to reduce the value of oil revenues in the economy of Azerbaijan, the non-oil sector must develop, and as a result, the tax base will expand. Then you can reduce the price due to tax cuts. And for this it is necessary to implement what we talked about above.

In this context, the US example is also interesting. There, the price of delivering oil to the refinery is very high, which amounts to 50 percent of the price of gasoline. But the low tax burden (20 -25%) and high-tech processing methods (480 ml of gasoline per liter of oil, 3 times higher than in Russia) keep the price of gasoline at the level of Russia, despite the fact that the USA has very high salaries. This is a result of the fact that America’s budget is not dependent on oil.

 – What will happen to us when the oil era ends?

– Nothing wrong. Most developed countries are not oil states. The example of the former Soviet republics of Estonia and Georgia says that you can live without oil.

Georgia has an open door policy. Having lost the largest Russian market for its products, Georgia has brought the Domestic National Income Per Capita indicator to $ 4,130 and is ahead of us in this indicator. Without an oil pillow, brains work more sharply. And this is the main wealth of man. Therefore, I am optimistic in this matter.

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