MIKAYIL JABBAROV Deputy Minister of Economic Development	SHAHMAR MOVSUMOV Executive Director Sofaz

ince 1996, Azerbaijan has posted strong economic growth. With liquidity in the banking system and a stable macroeconomic framework, policymakers are looking to strike a balance between the oil and non-oil sectors. They are fully aware of the challenge posed by Dutch disease as only 1 percent of jobs created are tied to the oil sector. Channeling money into IT, manufacturing plants, telecoms and agricultural projects is vital for long-term sustainable growth.

“Today the economy rests on oil, and oil is a non-renewable resource so sooner or later it will disappear,” says Heydar Babayev, Minister of Economic Development. Thus far only Baku and the Absheron Peninsula have benefited from the oil windfall, and now is time to create jobs in rural areas too. Officially, there are ten disfavored regions attempting to climb out of poverty, seven of which are mostly agricultural. A State Program on Social and Economic Development of the Regions is helping to jumpstart new businesses. In 2006, Mr. Babayev’s ministry implemented hard infrastructure projects in the region worth $450 million.

Developing physical infrastructure and co-financing SMEs are two of the preferred formulas. The state program has already led to the creation of 5,500 enterprises, including 400 processing plants, 771 construction firms and 490 agricultural projects. Examples include the Star LTD factory, producing television sets in Shamakhy, and the Oka car assembly plant in Nakhicevan. The objective is to channel oil money and foreign investment to help transform Azerbaijan into a liberal market economy. By 2015, the poverty level will drop by one-half.

With 76 percent of the economy in private hands, manufacturing and services are beginning to play a more active role. The banking system compares favorably with standards in south central Europe. “Just 15 years ago we didn’t even have a private sector. This reflects real structural changes,” says Deputy Minister of Economic Development Mikayil Jabbarov.

Investing in transport infrastructure is also a priority for a country that has always been a junction between Europe and Asia. The opening of the BTC pipeline can help spin off other transit options. “Transportation brings trade and since Baku is on the Caspian Sea, our location will also attract tourists,” says Mr. Jabbarov. “The challenge is to transform oil revenue into human capital.”

The State Oil Fund of Azerbaijan (Sofaz), created in 1999, will play a key role to manage efficiently oil revenues. Sofaz collects all oil income tied to production sharing agreements (PSAs) in the Caspian and allocates funds to support infrastructure, education, power plants and logistics facilities.

“We have two main missions: manage our assets to guarantee macroeconomic stability, and manage our investments to diversify the economy and generate employment for future generations. We have to make the oil money last forever,” says Shahmar Movsumov, Executive Director of Sofaz. The 31-year-old Harvard graduate is conscious of the pivotal role Sofaz can play in investment policies and the day-to-day economy: “Our reserves total $1.6 billion today and will reach $10 billion by 2008. Can you imagine all that money going into a small economy like ours?”.