Caspian Energy (CE): Azerbaijan has been the ADB’s shareholder since 1999. Is the Bank pleased with the partnership relations with Azerbaijan? How fruitful, effective and promising are they?
Wencai Zhang, Vice-President (Operations 1) of the Asian Development Bank (ADB):
In the last 17 years since Azerbaijan joined ADB, we have been working together very closely, and we enjoyed a very good partnership. I met the President of Azerbaijan, talked to the government leaders, Azerbaijan really appreciates ADB’s contribution right to the country and we in our turn are satisfied with our contribution to the economy of the country. Azerbaijan received about $2.8 billion of financial support, including a technical assistance. We support not only domestic projects, but also transnational projects linking neighboring countries, such as the Central Asia transport corridor project. These projects will help the country to build connectivity, integration with other regional economies. At the country level, we have done a lot of projects and we also support private sector development. We support energy sector reforms, and through investments into the transport sector we also lend support to the reform of the transport sector.
CE: In his interview with Caspian Energy EBRD President Mr. Chakrabarti has told our journal that the countries of the region trade more with the external countries rather than with each other. Do you support his opinion? Which projects do you think can lead to these positive processes and what role do you assign to ADB in this process?
Wencai Zhang: I think he is right. Central Asian and West Asia countries, including the countries of the Caucasus need to increase interregional trade investment. These countries have a relatively narrow economic base, they rely on a few sectors: some commodities, some mineral products, or some agricultural products, etc. Therefore their economy is very vulnerable to commodity price volatilities, vulnerable to the external demand. If you don’t have demand from your trading partners, the country will suffer most likely. It is the reason why many countries, including Azerbaijan, try to diversify the economy. I think that if the economy of countries becomes diversified in the coming years, then they will be able to increase the volume of the mutual trade and investment. Country like Azerbaijan can now export a lot of their products to Europe and maybe to the Middle East, but the volume of export to the neighboring countries is very low. It is the situation for now. But in the coming years they can increase export to the neighbor countries and also import from the neighbor countries. If the economy is not diversified, it strongly limits mutual trade. Many countries of the region have the similar economic structure. In order to expand a regional trade, it is necessary to ensure complementarity of the regional economies.
CE: What is the role of ADB in these processes?
Wencai Zhang: We certainly intend to support the infrastructure development, and of course in the future we also would like to lend support to structural reforms and diversification efforts. I have already mentioned about labor skills improvement, business environment improvement. I mentioned about our support to the financial sector, capital market development. We contribute to the private sector development in the region, in countries like Azerbaijan. The growth of projects in the private sector will let you see more manufacturing activities in near future, and maybe even in the agricultural sector.
CE: Which kind of manufacturing activities are of interest to ADB?
Wencai Zhang: It may be manufacturing, IT technology, agro-industry production and food processing industry. The country can also use own resources in attempt to develop certain industries such as processing of mineral raw materials, mining or chemical industries, which are already developing in Azerbaijan. I think there will be more cooperation along the Silk Way Road and integration in the Central and Western Asia. We will also witness the increase of the number of transport, trade and economic corridors. It will happen in coming years. I am confident that many countries of the region can play a role of a gateway between Asia and Europe. I think that you can also develop that kind of cross-border transport, cargo, a logistics services. So there is a great potential for the coming years.
The government will certainly have to attract more private sector investments …
CE: Do you think that the economy of Azerbaijan is in need of broader market liberalization than it has now? What will be the size of investments of ADB in perspective?
Wencai Zhang: I think that the dependence of the country on the oil-gas sector is still high because of the structural issues facing the country. The point is that how the country will carry out diversification of the national economy. Even after this hard period is over, how will you carry out further diversification of your economy in the medium and long-term? I think that in coming years the government will certainly have to attract more private sector investments. Of course, the government can continue to provide public sector investment for some big and certain projects. But at the same time the country needs to mobilize more private sector money. For this purpose it is necessary to improve the business environment and doing business conditions in the country. You need to deal with the regulatory and institutional framework. You need to reform the sectors, including the power sector reform. If energy sector does not offer a reasonable price, the private sector will not wish to invest into the sector. The country also has to build a very good infrastructure in regions. It involves road, power industry, urban water and sanitation. Azerbaijan should also develop its financial sector. No private company will come here if there is no good and reliable enough financial sector. Apart from this, you also need to develop human resources. It is the reason why ADB works with the government to support what we call Technical and Vocational Education and Training programme (TVET). We want to support government to improve the labor skills. The workforce can provide the skills that the market is really in need of. We can do a lot together. The government needs to improve the governance, conduct institutional reforms and fight against corruption. These are important areas. Therefore, we would like to support government reforms, macro level policy reform and also structural reforms.
We can help the country to develop a national market of obligations…
CE: Does ADB plan to participate in privatization?
Wencai Zhang: Yes of course. I know that the government certainly has some plan for the energy sector as well because they already unbundled some parts of the sector. I think for the generation and distribution maybe there is the potential for the private sector to do more. But the transmission is normally operated by the state. I talked to the Chairman of Power Distribution Company and I asked whether he finds it possible to expand the role of the private sector in order to create natural market mechanisms of electricity distribution. So, certainly we see that in the coming years the private sector can play more roles in generation and also distribution.
CE: You mentioned about insufficient development of the financial sector. Does ADB plan to take part in privatization of the Azerbaijani banks?
Wencai Zhang: So far we have not had such practice in Azerbaijan. We mainly provide loans for financing of the local banks. We had equity investment in other countries. Therefore, in future we may consider this kind of equity investments in local banks. There are opportunities for that. I also talked to the Minister of Finance and wondered if Azerbaijan would like ADB to issue bonds in the local currency. We issued lari bonds in Georgia last year and the year before the last year. Perhaps, now it is not the right time to issue bonds in local currency – in manat. But we may consider such bond issuance in future. We can help the country to develop the national bond market.
Thank you for the interview