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ECONOMIC SCIENCES
UDC: 339.9
Akhundova Aytakin Gasan Doctor of philosophy (Ph. D) lecturer of the Department of World Economy, Baku State University, Azerbaijan DOI: 10.24412/2520-6990-2021-20107-32-35 THE ROLE OF FOREIGN ECONOMIC ACTIVITY IN THE DEVELOPMENT OF THE NATIONAL
ECONOMY OF AZERBAIJAN
Abstract
After gaining political independence on October 18, 1991, one of the priorities and main tasks for the economic growth of Azerbaijan was the establishment offoreign economic relations in the proper directions. The implementation of economic reforms has intensified in the country. The establishment of industrial and social infrastructure has begun, transport communications have been formed, new technologies have been obtained, the training of qualified personnel for the branches of the national economy has been implemented, and the list of countries exporting Azerbaijani products has expanded. In this regard, the article examines the role of Azerbaijan's foreign economic activity as one of the crucial factors affecting the sustainable development of the national economy. The foreign trade turnover of the Republic of Azerbaijan, its main trading partners, the structure of goods and services of export and import have been revealed. Also, the article identifies current trends in Azerbaijan's foreign trade and priority areas of development of the economy of Azerbaijan
Keywords: foreign economic activity, national economy, foreign trade turnover, trade relations.
Once one of the founders of the Azerbaijan Democratic Republic, which existed from 1918 to 1920 and fell under the pressure of the Bolsheviks and the XI Red Army, Mammad Amin Rasulzade wrote: "The day will come when the sun of freedom will rise again over the Motherland."
After the loss of the ADR's independence in 1920, all economic relations were a monopoly of the Soviet Union. The migration of production factors was closed and unilateral. Thus, after gaining political independence on October 18, 1991, one of the priority directions and main tasks for the growth of the state economy was the establishment of foreign economic relations.
The implementation of economic reforms has increased in the country. The establishment of industrial and social infrastructure has begun, transport communications have been formed, new technologies have been acquired, training of qualified personnel for the sectors of the national economy has been implemented, and the list of exporting countries of Azerbaijani products has expanded. Generally, the necessary steps have been taken and considerable results have been achieved in the reformation of the socio-economic sphere of the country under the requirements of the world market.
The Azerbaijan Republic is a country in the Trans-caucasian region in western Asia with a territory of 86.6 thousand km2 and over 10 million population [1]. Under the Constitution of the country, adopted on November 12, 1995, the Azerbaijan state is a democratic, legal, secular, unitary republic [2]. It is an industrial and agrarian country with a highly developed industry and diversified agriculture.
On September 20, 1994, the Contract of the Century was signed, which became the decisive turning point in the history of the economic development of our country. The Contract of the Century was an international agreement worth $ 7.4 billion, signed between
Azerbaijan and 13 major foreign companies (Amoco, BP, McDermott, UNOCAL, SOCAR, LUKOIL, Statoil, TPAO, Pennzoil, Ramco, Delta) from 8 countries (Azerbaijan, the United States, Great Britain, Russia, Turkey, Norway, and Saudi Arabia) for the development of three oil and gas fields in the Caspian Sea: Azeri, Chirag, Gunashli (ACG), oil production from which began in 1997 [3, p.534].
The Contract of the Century has become a grand political and economic achievement of Azerbaijan in the XXI century. Because of this contract, Azerbaijan earned the right to use the resources of the Caspian Sea for the first time after gaining independence. After the conclusion of the agreement in London in 1999 on the establishment of an international consortium for the construction of the Baku-Tbilisi-Ceyhan oil pipeline, through which the republic transfers its oil to the world market, President of Azerbaijan Heydar Aliyev said: "It is not oil that will flow through this oil pipeline, but politics" [4, 217].
Since the date of signature of this contract, the implementation of joint oil and gas, and transport projects has started, which today serve as a guarantee of energy security and economic stability of Azerbaijan. And starting from 1996, the country began to show a quite stable positive trend of economic growth, with the largest GDP growth in the republic recorded in 2006 -34.5%.
On September 14, 2017, 9 oil companies from 8 countries signed an updated ACG contract in Baku, which had become one of the unique events in the global oil industry. "Azeri-Chirag-Gunashli" is the largest oil field being developed in the Caspian Sea, with an area of 432 km2. The contract is aimed at extracting 500 million tons of oil or more from the block of fields, the term of which expires in 2050 [5].
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The contract was signed by the heads of BP, SOCAR, Chevron, Statoil, ExxonMobil, TPAO, Ito-chu, and others. The share of the Azerbaijan state oil company is now 25% instead of 11.6%. Furthermore, foreign investors will pay Azerbaijan $ 3.6 billion in the form of various bonuses, and the share of profitable oil will be 75% [5].
Currently, Azerbaijani oil is supplied to 33 countries of the world - to Southeast Asia, Europe, South, and North America, through the Baku-Tbilisi-Ceyhan (BTC) and Baku-Supsa oil pipelines. However, the leading role in exports belongs to the BTC pipeline, launched in June 2006. The largest consumers of Azerbaijan's oil and gas are Turkey, India, and China. And in 2020, the export of Azerbaijani gas to Europe has started [6]. It can be argued that the last 20 years are the golden ages of the oil and gas industry in Azerbaijan.
At the same time, Azerbaijan, having a favorable geographical potential, has huge transit opportunities and occupies a leading place in the development and implementation of major infrastructure programs, both regional and international Transport corridors running from East to West and from North to South pass through Azerbaijan, which transforms the country into a profitable logistics center, from the point of view of strategic importance, connecting the main trade routes between the West, East, and South.
Therefore, in 2017, the construction of the Baku-Tbilisi-Kars railway line was completed, which was launched in February 2007. This project, as the restoration of the historical Great Silk Road, will only contribute to the even greater importance of Azerbaijan as a transit country in the transportation of goods between the countries of Europe and Asia. At the same time, the implementation of the North-South transport corridor project continues, which will become a link for connecting the railways of Iran, Azerbaijan and Russia [7].
Thus, the expansion of transport communications will further strengthen the country's attractiveness for foreign investors.
If at the beginning of the XX century Azerbaijan has only exported fish, caviar, oil, and silk only to neighboring countries, now the republic has economic relations with many countries of the world. According to the State Customs Committee of the Republic of Azerbaijan, Azerbaijan has foreign economic and trade relations with 183 world countries. Also, the country's economic opportunities, raw materials and mineral resources, favorable economic and geographical location further contribute to the increase in cooperation.
The passive foreign trade balance has declined in recent times because of the increase in trade relations, both with neighboring countries and foreign countries. The majority of foreign economic relations, including imports and exports, fall to the share of non-CIS countries. Among these countries are Iran, Turkey, the United Arab Emirates, Germany, the United Kingdom, the United States, Sweden, Switzerland, Italy, France, etc.
The oil and gas sector accounts for 86.5% of the republic's exports to foreign countries. The main export positions of Azerbaijan are also electricity (0.4%), vegetables and fruits (4%), tea, vegetable and animal oils,
sugar, alcoholic and non-alcoholic beverages, plastics and products made from it, cotton, cotton fiber, cotton yarn, ferrous metals, aluminum and products made from it, etc. [8].
In return, the country imports food products (15.2% - meat, milk, grain, butter, sugar, rice, tea, citrus fruits), tobacco and tobacco products (0.8%), plastics and products made from them (3.2%), automobiles, electrical equipment and industrial equipment (23.6%), metal and forest materials (10%), light industry goods (cloth, clothing, shoes - 1.9%), household goods, pharmaceuticals (2.2%), firewood and wood products (2.4%), ferrous metals and products made from them (8.8%), vehicles and spare parts (14.4%), furniture (0.7%) and others (24.2%) [9]. The CIS countries account for 30-40% of Azerbaijan's foreign trade turnover, including imports and exports. Among these countries, Russia, Georgia, Ukraine, Kazakhstan, Turkmenistan, and Belarus take a leading position [10].
Other types of foreign economic relations of the republic include financial and credit, research, tourism, cooperation in the material and production sector.
It should be noted that in recent years, most of the enterprises in the republic are being reorganized, joint ventures are being formed. Thus, for the development of tea production, joint ventures were established with the companies Beta, Sara of Turkey, and Intersun of the United Arab Emirates on the basis of tea factories in Baku, Lankaran, and Masally. To reorganize the canneries of Khachmaz, Masally, and Guba, equipment was purchased from the Swedish company Tetra-Pak.
According to the agreement concluded between the companies "Reynolds" of the USA, "Star" of Turkey, and Baku International Tobacco, a joint venture was established. Furthermore, in Absheron, two US factories for the production of soft drinks - "Coca-Cola" and "Pepsi-Cola" are operated.
At the end of 2019, the foundation was laid for several Azerbaijani-Russian enterprises - the «Газ» plant, the «Пеноплэкс» plant for insulation products, the Helicopter Repair Service Center, as well as the opening of the «Р-Фарм» joint pharmaceutical plant [11].
What does cooperation with foreign countries give Azerbaijan? It gives our republic the advantages for the comprehensive development of the national economy.
One of the crucial ways to involve the country in foreign trade relations is the introduction of the customs tariff, the law on which came into force in 1995, and in 1997 the Customs Code (CC) of the Republic of Azer-baij an was adopted. In 2013, Azerbaij an adopted a new law "On Customs Tariff", consisting of 14 sections, 61 chapters, and 450 articles, which is the fundamental law on legal support for customs authorities in the Republic of Azerbaijan and the main instrument for the state regulation of the foreign market and protection of the country's economy from the negative effects of external competition [12].
Already at the beginning of the XXI century, Azerbaijan has become one of the rapidly developing CIS countries from an economic point of view. Thus, in the world ranking of Global Competitiveness Index, compiled annually by the WEF, Azerbaijan in 2019
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grew by 11 steps, taking 58th place in the ranking among 141 states. It ranked 3rd in terms of "Burden of government regulation", 5th in terms of "Government's responsiveness to change", 8th in terms of "Time to start a business", and 10th in "Government long-term vision". In addition, while initially ranked 64th in the Global Competitiveness Report released by the World Economic Forum in 2006-2007, Azerbaijan rose to 35th among 137 countries in 2017-2018 (13).
What gives Azerbaijan an increase in its position in the Competitiveness Ranking? The improvement in the Competitiveness Ranking has a positive impact on the conditions of long-term lending to Azerbaijan by foreign investors. In particular, the total volume of foreign investments invested in the Azerbaijani economy in 2020 amounted to $10 billion.
Over the past few years, Azerbaijan has taken serious steps to improve the business environment to attract foreign investment, i.e. the formation and development of the national economy of Azerbaijan largely depend on its sustainable development, one of the main factors of which is the investment flow.
Therefore, Azerbaijan has twice taken the leading position in the Doing Business 2009 and Doing Business 2019 reports, and in the Doing Business 2020 report, was named one of the 20 most reformist countries. Experts agree that the Doing Business report is of exceptional importance in terms of attracting foreign investors to the country [14].
The key investors in the Azerbaijani economy are such foreign countries as the United Kingdom, Turkey, Malaysia, Italy, Switzerland, Iran, the CIS countries, Japan, the United States, etc.
At the conference dedicated to the results of the first year of implementation of the "The State Program on socio-economic development of the regions of the Republic of Azerbaijan in 2019-2023", the President of Azerbaijan noted: "Azerbaijan is a very attractive country for both foreign and local investors. Part of these investments is government investments. And this is obvious because government investment still plays a significant role in the growth of the economy. Particularly, when you consider that there is still a lot of work to be done with infrastructure projects. Therefore, state, local and foreign companies have invested $13.5 billion in our country. I think this is a very good result" [15].
Also, the EU is considered to be the largest investor in the Azerbaijani economy and its main trading partner. Azerbaijan's relations with the EU were developed within the framework of the TACIS, TRACECA, Eastern Partnership, and other programs. Such cooperation is, first of all, stimulated by Azerbaijan's favorable geographical position, the availability of vast hydrocarbon reserves, and the country's active participation in the development of energy, transport, and, in the future, telecommunications corridors. The EU accounts for 48.6% of the country's total trade turnover. The European Union is also the largest consumer of Azerbaijani oil. Financial support to Azerbaijani companies over the past years has amounted to 222 million euros [16].
Azerbaijan's foreign trade turnover, according to the State Customs Committee of the Republic of Azerbaijan, amounted to $24.4 billion in 2020 (a decline of 26.5% compared to 2019). At the same time, exports for the reporting period amounted to $ 13.7 billion (a decline of 30%), imports - $10.7 billion. Azerbaijan's foreign exchange reserves in 2020 amounted to $52 billion. This year, the tax and customs authorities transferred 1 billion manats to the treasury in excess of the plan [8].
In 2020, Italy once again became the largest trading partner of Azerbaijan. The President of Azerbaijan, speaking in Rome on February 20, 2020, noted that "...Italy is not only our number one trading partner but also one of our closest partners in Europe. In connection with the practical realization of projects, I can say that only for the energy sector of Azerbaijan and energy projects financed outside of Azerbaijan, Italian companies have signed contracts worth about $ 10 billion. In the non-oil sector, this figure is approximately $ 700 million. Yes, I agree that there is a big imbalance in our trade turnover. However, we should also know that this is mainly because of our oil export to Italy. Hence, we are interested in diversifying our exports [17].
Besides, currently among the priority directions of cooperation between Azerbaijan and Italy are such directions as oil and petroleum products, transport, tourism, agriculture (especially in the field of viticulture), pharmaceuticals, medicine, and the humanitarian sphere. Also, Italy ranks first among European countries in terms of the number of students from Azerbaijan, which is another sphere for future cooperation.
The top five trade partners of Azerbaijan for 2020 include also Turkey - 10.8%, Russia - 8.4%, China -6.2% and the U.S. - 4.2% [18].
During the last 16 years (i.e., since 2004), Azerbaijan's economy has grown 3.4 times, which is a good indicator in the world, the volume of agricultural production has increased 2 times, foreign trade turnover-6.4 times, including exports-7.6 times, foreign exchange reserves-27 times, the poverty level has decreased from 50% to 4.8%, 33 power plants with a total generation volume of more than 3 thousand megawatts have been built [15].
Nonetheless, today Azerbaijan is not complacent. Being a country that is rapidly developing the oil and gas industry, the country is exploring other development goals outside the oil sector, trying to take a worthy place in the world economic system. Among the spheres that are currently regarded as a priority in the republic, agriculture, the ICT, transport, space industry, tourism, and education sectors are in the first place.
Furthermore, the country is undergoing economic reforms to increase the volume of GDP and industrial production, and work is underway to eliminate poverty and unemployment issues. The examples of this are the 201 policy documents adopted over the past 15 years, including 12 concepts, 12 national strategies, 12 strategic roadmaps, 94 state programs, 23 action plans, 17 national plans, and programs, etc.which is a definite indicator of Azerbaijan's sustainable economic growth [19]. This is a clear indicator of the sustainable economic growth of Azerbaijan.
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References:
1. https://azru.org/azerbajdzhan-obshhie-svedeniya/ - Azerbaijan: general information
2. https://azerbaijan.az/ru/information/105 - The Constitution of the Republic of Azerbaijan
3. Mirishly F. R. World economy. Textbook for university students. - M.: CJSC "Book and Business", 2015, p., 692
4. Irada Guseynova. Heydar Aliyev-from a political leader to a national leader. Baku, "Tahsil", 2005, p. 504
5. http://cbc.az/ru/v_story/video1525954528-The "Contract of the Century" was a proof of the great strategy of Heydar Aliyev (27.08.2020)
6. https://interfax.az/view/777131- "Contract of the Century" - 25 years: past, present, future (09.09.2019)
7. https://ru.president.az/azerbaijan/silkroad-Res-toration of the Great Silk Road.
8. http ://interfax.az/view/824559-Azerbaij an's foreign trade surplus decreased by almost 50% in 2020
9. https://ru.oxu.az/economy/326665-The main positions of Azerbaijani exports and imports were noted
10. https://azerbaijans.com/content_461_ru.html-Internal and external economic relations.
11. https://ru.axar.az/news/politika/432825.html-2019: main phenomena in Azerbaijan
12. Law of the Republic of Azerbaijan No. 687-IVQ of June 13, 2013 "On Customs Tariff" (with amendments and additions as of 09.04.2019)
13. https://interfax.az/view/780306- Azerbaijan has advanced to 11 positions in the WEF Competitiveness ranking (09.10.2019)
14.https://report.az/ru/biznes/investicionnaya-sreda-v-azerbaydzhane-vozmozhnosti-dostizheniya-nedosta/- Investment environment in Azerbaijan: opportunities, achievements, drawbacks (06.02.2020)
15. https://ru.president.az/articles/35693- Ilham Aliyev took part in the conference devoted to the results of the first year of the "The State Program on socioeconomic development of the regions of the Republic of Azerbaijan in 2019-2023" (03.02.2020).
16.https ://1news.az/news/vostochnomu-partnerstvu-evrosoyuza-10-let-chto-izmenilos-dlya-azerbaydzhana- The Eastern Partnership of the European Union is 10 years old: what has changed for Azer-baijan?(13.05.2019)
17. https ://apa. az/ru/xeber/vneshnyaya-politika-azerbaydjana/- The President of Azerbaijan had a working dinner with the heads of the largest companies in Italy
18. https://www.trend.az/business/fi-nance/3224120.html- TOP-5 trade partners of Azerbaijan
19.https://1news.az/news/vysokie-reytingi-azerbaydzhana-v-otchetah-mezhdunarodnyh-struktur-pomogayut-privlekat-v-stranu-investicii-Azerbaijan's high ratings in the reports of international organizations help attract investment to the country.
y^K: 338.22
Olesya Perepechko Mariya Poliektova
Graduate School of Industrial Economics, Peter the Great St. Petersburg Polytechnic University, Saint-
Petersburg, Russia
VALUATION OF AN ECONOMIC ENTITY AS THE METHOD OF ENSURING ECONOMIC STABILITY IN M&A (MERGER AND ACQUISITION) TRANSACTIONS
Abstract
In the article, the application of the assessment of an economic entity in the execution of M&A transactions in the context of modern risks. A scheme for conducting a check before appraising the value of the company is proposed so that the appraisal of the market value is not in vain.
Key words: merger and acquisition transactions, evaluation of a company's market value, M&A market in the time of the COVID-19 pandemic, risks in M&A transactions, approaches and methods of assessment of company's market value.
Statement of the problem in general form and substantiation of its urgency. Over the last years, a considerable increase of merger and acquisition transactions is observed. Primarily, it is associated with the fact that large companies more and more actively extend their shares of the market on account of M&A transactions. Secondly, many companies become bankrupt or at the stage of extended period of losses due to the current epidemiologic situation in the world; this is why company executives hoping to salvage their companies and "keep the companies afloat" resort to M&A
transactions. It is often very difficult for business owners to establish the value of a transaction as the likelihood of risks occurring is very high at the moment of making a M&A transaction and after concluding it, and for this reason it is necessary to minimize and remove risks in time. It becomes more difficult for parties of a transaction to establish the market value of a transaction and also to provide economic stability independently. In contrast to the increasing number of M&A transactions, it becomes more topical to apply appraisal approaches and methods to business valuation. The problem of establishing the business value is
