US State Department considers Azerbaijan should use incentives to develop non-oil sector

The statement says that a long running and unresolved conflict with Armenia over Nagorno Karabakh has left Azerbaijan with approximately 800,000 refugees and internally displaced persons (IDPs) and the problem of refugees and IDPs constitutes an enormous burden on economic and democratic development. However, as a result of the state policy aimed at poverty reduction and regional development pursued in Azerbaijan in 2005, the country has achieved high macroeconomic indicators. As a continuation of this process in 2006, Gross Domestic Product (GDP) is forecasted to be as high as 30% this year. In addition, the Baku-Tbilisi-Ceyhan pipeline project, which will significantly stimulate general development of the country, is planned to be completed in 2006.

The statement notes that the government of Azerbaijan officially welcomes foreign direct investment, realizing that it plays a vital role in development of the countrys economy. The Law on Protection of Foreign Investments permits foreign direct investment (FDI) in any activity open to a national investor unless prohibited by law. Prohibited areas include those relating to national security and defense.

It is also said that under Azerbaijani law, foreign investors may participate in the Azerbaijani market through joint ventures with local companies, establishment of subsidiaries wholly owned by foreign investors, and representative offices and branches of foreign legal entities.

The section "Performance Requirements and Incentives" of the statement says that Azerbaijan has not yet developed effective incentives to attract foreign investment, other than the incentives provided by Production Sharing Agreements in the oil and gas sector, APA informs.

Another section in the statement is about corruption. This section states that corruption is a significant deterrent to investment in Azerbaijan, especially in the non-energy sector. Laws and regulations that exist to combat corruption have not been effectively enforced. A new anti-corruption law came into force in January 2005. However, Azerbaijan made little progress on implementation of this law in 2005.