SOFAZ reveals its plans for 2017

By Azernews

By Nigar Abbasova

Azerbaijan's sovereign wealth fund SOFAZ, which accumulates and manages revenues of the country coming from the implementation of oil and gas agreements has revealed the plan of its activity for the next year.

SOFAZ head Shahmar Movsumov told Trend that the Fund will continue to participate in currency auctions in 2017, as manat bonds are envisaged in the Fund’s budget, adding that a big part of SOFAZ’s budget accounts for manat expenditures, particularly for transfers to the state budget.

Main revenues of the institution are being received in foreign currency, particularly in the US dollar, therefore, to implement its commitments the Fund converts the currency obtained from transactions into manat. He clarified that the Fund implements even currency sales through auctions organized by the Central Bank of Azerbaijan (CBA), to prevent a negative impact of large-scale sales of currency on the market and for timely implementation of budget commitments. 

Over 11 months of 2016, SOFAZ sold funds worth $4.6 billion through currency auctions. SOFAZ’s transfers to the budget are planned at the level of 7.615 billion manats ($4.321 billion) in 2016 and 6.1 billion manats ($3.46 billion) in 2017.

He went on saying that in early 2017, the Fund will define a new asset portfolio manager, adding that in the long-term investment period, the Fund will aim to achieve a balanced global portfolio by means of increasing the share of risky assets. The Fund plans to increase the volume of financial instruments promising high income in the long-term perspective.

Movsumov said that the Fund will also continue the activity on the implementation of the Extractive Industries Transparency Initiative (EITI). Azerbaijan, joining EITI in 2003, received the "2009 EITI Award" for its commitment to EITI principles and criteria and achievements in its implementation.  In April 2015, Azerbaijan’s EITI status was downgraded from “compliant” to “candidate”. The Candidate status was maintained in the 35th EITI Board Meeting held in Astana, Kazakhstan on October 24-26, 2016. The EITI Board agreed that Azerbaijan had made meaningful progress with implementing the EITI Standard with considerable improvements across several requirements compared to the first Validation in 2015. The government of Azerbaijan will prepare a new plan of corrective measures by the next EITI meeting, which is scheduled for March 8-9, 2017.  

Activities in 2016

Commenting on the activity of the Fund in 2016, Movsumov said that it may be assessed as successful, underlining that the role of the Fund in supporting Azerbaijan’s financial stability significantly increased in the conditions of low oil prices, the decrease in state revenues from oil sales and drop in the oil sector.

"In 2016, SOFAZ carried out timely transfers to the state budget and also continued financing important infrastructure and social projects, for example, a project on improvement of social conditions for IDPs, a project on reconstruction of the Samur-Absheron irrigation system and a project on construction of the Baku-Tbilisi-Kars railway," Movsumov said.

Besides, the fund also financed Azerbaijan’s share in the Southern Gas Corridor project, as well as the construction of the STAR oil refinery in Turkey. In addition, the Fund continued financing the state program on education abroad.

Movsumov noted that in late 2015, changes were made to the investment policy of SOFAZ. As a result, the balance of risks and return changed in favor of more profitable financial instruments, which is a part of a long-term process of building a balanced investment portfolio.

“The permitted share of investment in real estate doubled (from 5 to 10 percent). As a result of these changes, this year the share of direct investment in real estate, as well as investment via real estate funds increased. In 2016, the purchase of Palazzo Turati office building in Milan was completed. A big amount of investment was put in real estate funds and investment was also put in private equity funds. The portion of funds that can be invested in stocks also increased," SOFAZ head said.

 Total revenues of the Fund are expected to stand at $5.8 billion in 2016 instead of the forecasted $2.8 billion. The revision of the forecast is linked to the fact that initially the budget of the Fund was based on the oil price standing at a low level.

“In early 2016, the budget of the Fund was based on oil price standing at $25 per barrel. The average oil price stabilized during the year and exceeded the level of $42 per barrel. Therefore, the revenue of SOFAZ is expected to exceed the forecast significantly,” Movsumov clarified, adding that depending on the rate differences which may arise as a result of changes in exchange rates of currencies included in the investment portfolio, the Fund’s USD assets may increase or decrease at the end of 2016 in line with the volume of the rate difference.

The Fund plans to increase its assets by $1 billion in 2017. Assets of the Fund as of October 1 stood at $35.82 billion, with some $33.95 billion accounting for the investment portfolio and 1.87 billion falling to a share of manat account.

Also, in 2016, the Fund managed to enter the top five of the most transparent sovereign wealth funds of the world. SOFAZ ranked the fourth among 60 sovereign wealth funds with overall score of 92 out of 100 in the fourth edition of Sovereign Wealth Fund Transparency and Accountability scoreboard published in October 2016.

Being a special purpose state organization primary objectives of SOFAZ are to help maintain macroeconomic stability in the country and to generate wealth for present and future generations.