Vugar Bayramov, Center for Economic and Social Development (cesd), Azerbaijan Public Administration Reforms in resource rich Azerbaijan in context of usage of oil money; Lessons from Norway and Kazakhstan



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Vugar Bayramov,

Center for Economic and Social Development (CESD),

Azerbaijan

Public Administration Reforms in resource rich Azerbaijan in context of usage of oil money; Lessons from Norway and Kazakhstan

Shirin Mirzeyev 76 "a"/33,

Baku, Az1002,

AZERBAIJAN

Phone; (99412) 4954248

Fax (99412) 4373240

Email; cesd.az@gmail.com

cesd@aztelekom.net

URL; www.cesd.az



Public Administration Reforms in resource rich Azerbaijan in context of usage of oil money; Lessons from Norway and Kazakhstan

Abstract

The economic life of Azerbaijan is closely tied to oil. This study claims that the advantage of possessing oil can quickly be spoiled if the revenues are merely spent to satisfy short-term interests. However, if managed wisely, e.g. through proper defining and prioritising the long-term interests of the entire society owning the resources, having oil can be extremely beneficial. Proper resource management ensures that the benefits are cumulative, sustainable and consistent. But if these interests are not well-defined, agreed upon, and followed through, then the resources run the risk of being squandered to serve short-term and small group interests only. zerbaijan is getting daily $ 50 million from oil sale now and the amount is expected to reach $ 90 million by the end of 2008. It means the country with 8 million populations will get about $ 30 billion money each year only from oil sale.

The main question of the paper is whether Norway model is applied in usage of oil revenues in Azerbaijan? If so, why there is no economic efficiency in Public Administration Reforms in the country and if not, whether it is possible to apply it in Azerbaijan context? And what Kazakhstan experience offers related to the public administration reforms in terms of usage of oil money.

Within the theoretical framework I will look different papers associated to the PA in oil countries. John Wakeman-Linn, Paul Mathieu and Bert van Selm conclude efficiency of PA in oil countries depends how oil funds are managed. The claimed that oil funds improve coordination between monetary and fiscal policy and that they function best when they can be separated from the state budget (Sterilization Policy). Yelena Kalyuzhnova sees the role of an oil fund “as formalising – or giving institutional focus to – a set of fiscal rules” (Stabilization- Fiscal Policy) Jeffrey Davis, Rolando Ossowski, James Daniel and Steven Barnett justify oil funds on political economy grounds: “Such funds may help the government to resist spending pressures if there are constraints on borrowing. These may reflect explicit fiscal rules or may arise from political difficulties in issuing debt.” (Policy among sterilization and stabilization)

The paper analyses different scenarios of using the oil money and advocates for a strategy that would involve the following steps:

• oil rent money needs to be isolated from the economy and collected in an Oil Fund

• the Fund should select the most efficient strategy

• the Fund’s resources should initially be invested abroad only

• a diversification plan needs to be prepared

• ethical principles need to be outlined

• the correlation of the percentage share of funds needs to be determined

• the relationship between the risk, expected return, number of investments and overall Fund resources needs to be determined

• principles need to be developed for future possibilities for investing in the domestic business sector

The study claims that the main challenge for Azerbaijan is to develop the non-oil sector to ensure that the economy continues to grow on a sustainable path after the oil boom, meeting both short-term expectations and longer-term demands. Key objectives include:

• developing income-generating opportunities

• creating new employment opportunities in the non-oil sector

• building up small- and medium-sized entrepreneurship

The paper concludes that the efficiency gap in the management of oil money in Azerbaijan is enormous. Improvements need to be made in the oil money accumulation, saving and spending processes in order for this short-term national resource to better serve the long-term development needs of the nation. The necessary changes include redefining and streamlining the Oil Fund in parallel with improvements in budgetary and public investment work.

The government has an opportunity to use the money effectively or invest this new-found wealth in development programs that will provide lasting benefit to citizens’ social welfare, economic growth, security, and overall quality of life. On the other hand, the oil reserves, the centuries’ reserves now turned into liquid assets and mainly into cash bear in itself also the risks of inefficiency and even of the misuse due to lack of institutional capacity and of traditions of bottom-up control and participation as a legacy of the centralized economy. Now, the government, aware that the flow of oil revenues has a finite life expectancy, must implement a long-term macroeconomic strategy, fiscal rule and implementation mechanisms that ensures that the oil money is saved in a most efficient way, and the benefits of the investments address high priority needs, are highly integrated, and are sustainable.

The risk is that oil money if not well administered, does not fully benefit the economy; it may get partially lost due to inefficiencies in the system and management, or may even be harmful for the sustainable development of the economy and society. This is a well-known phenomenon with developing countries rich of oil resources, and there is a rich vocabulary, including “the resource curse”, “Dutch Disease”, “the paradox of plenty” and other notorious terms recently coined by economists and other social scientists to denote the possible hazardous effects from oil money in the economy. There are many ways of how the oil money can destabilize the economy, and can be described using economic theories. Many remedies however fail, or cannot be implemented at all, due to the lack of institutional capacity, traditions of bottom-up control and system of checks and balances. The legacy of centralized economy does not help much develop these important prerequisites of reforming the public resource management. The oil, however, gets extracted and exported meanwhile, making the attention on this bottleneck of development not only important, but also urgent. The political and societal dimensions of development should therefore get the earliest and utmost attention of both the government and the public in large. The oil economy, on the other hand, may encourage the rent-seeking behavior, that cause difficulties for political and societal reforms, and link therefore the vicious cycle.

The way out can be the government’s and overall citizens’ appreciation the finite life expectancy of oil revenues, and collaboration to prepare and implement multidimensional remedy plan that would include developing strategy, awareness, participation, legal basis and institutional capacity and framework. This can be the sure way towards the practices of using the oil money responsibly and effectively, to ensure so that this wealth provides lasting benefit to social welfare and security, economic growth, and overall quality of life. This would help the development of platform where the government and overall citizens present mutual interests to ensure that the oil money is managed in a most efficient way, and the used of it address high priority needs and are highly integrated and sustainable. Azerbaijan is now free to run and decide on its own economy, but the Soviet legacy does not provide strong institutional and legal framework and traditions for public expenditure management, public policy formulation and public participation and accountability. The flush of oil money, being accompanied with early formulations of these elements of modern state, provides therefore the economy not only with opportunities but also with risks. Exporting the oil does not necessarily make the overall society richer than before, but simply turns the non-liquid assets into cash. Cashing the all generations’ reserves should also put a heavy duty on the current generation with a heavy emphasis on efficient and transparent administration of public resources.

INTRODUCTION


The Azerbaijani economy is dominated by natural resource-based revenues which have risen in spectacular ways in the past few years. However, the non-oil sector of the economy remains undeveloped and fragile. Total public spending grew rapidly raising wage and input costs and heightening inflationary expectations, and underscoring the fragile competitive climate facing economic agents in non-natural resource sectors of the Azeri economy. And Azerbaijan has experienced a massive increase in public investment expenditures over the past few years with capital spending increasing by approximately 1200% in 2003-2008. This increase in capital expenditures has not been matched by an improvement in the rigor and transparency with which public investment programs and projects are developed and approved.

Currently the State Oil Fund of Azerbaijan (SOFAZ) is not performing well its central objective - preserving oil money to future generations – due to the external pressures. It is difficult to protect the money from consumption appetite. The followings are the transfers from SOFAZ to the State Budget: US $686 million in 2007, to US $4.713 billion in 2008, to US $6.125 billion in 2009 and US $6.125 billion planned in 2010. The exisiting policy framework and executiuon have clearly failed and new one need to be designed and implemented to ensure the efficient and ethical management of the oil money.

The global crisis affected Azerbaijan’s economy through lower oil prices and declining external demand. The financial sector has remained relatively unscathed because of limited exposure to the international credit markets, although credit growth has recently slowed. The National Bank has tightened regulatory requirements for banks and took measures to support liquidity in the financial sector. This, along with stronger banking supervision and better portfolio and risk management skills by banks, is important to secure financial sector stability. In 2009, the total GOA expenditures that in 2008 still showed an increase of 62%, decreased with 4%. This reduction and the global slowdown that showed a decline in food and commodity prices provided Azerbaijan with the benefit of a decreasing inflation from 21% in October 2008 to 5% in May this year.

However, since January 2009, when the world price for oil hit bottom, oil prices are raising again, it these projections might increase. The financial sector has remained relatively unscathed because of limited exposure to international credit markets, although credit growth slowed. The National Bank tightened regulatory requirements for banks and took measures to support liquidity in the financial sector. This, along with stronger banking supervision and better portfolio and risk management skills by banks, is important to secure financial sector stability. A new “one-stop shop” for business registration and fewer licensing requirements have improved the business environment. Sustained efforts to fight corruption and break up monopolies are essential for the development of the non-oil sector and for achieving sustainable long-term growth.

Inflation was high reaching 19.5% in December 2007. The global slowdown reduced the high inflation that afflicted the economy since 2005. A sharp decline in international food and commodity prices reduced it to 1.4% at end-February 2009.

Poverty in Azerbaijan is decreasing; the GoA reports a poverty decrease in households living below the poverty level from 46.7% in 2002 to 15.8% in 2007. Also in term of income distribution Azerbaijan scorers relatively well; its gini ratio is 0.365 which is 54th in the world. The economic outlook remains benign, but is sensitive to the unstable external environment and performance of the oil sector. However, now oil prices increasing again, the financial future is improving. The government has adopted a more moderate pace of fiscal expansion than before. While this was 81% in 2008, in the 2009 budget the expansion was reduced till 14%.



Main findings and key recommendations;

The economic life of Azerbaijan is closely tied to oil. This study claims that the advantage of possessing oil can quickly be spoiled if the resources are merely spent to satisfy short-term interests. However, if managed wisely, e.g. through proper defining and prioritising the long-term interests of the entire society owning the resources, having oil can be extremely beneficial. Proper resource management ensures that the benefits are cumulative, sustainable and consistent. But if these interests are not well-defined, agreed upon, and followed through, then the resources run the risk of being squandered to serve short-term and small group interests only.

The paper analyses different scenarios of using the oil money and advocates for a strategy that would involve the following steps:

  • oil rent money needs to be isolated from the economy and collected in an Oil Fund

  • the Fund should select the most efficient strategy

  • the Fund’s resources should initially be invested abroad only

  • a diversification plan needs to be prepared

  • ethical principles need to be outlined

  • the correlation of the percentage share of funds needs to be determined

  • the relationship between the risk, expected return, number of investments and overall Fund resources needs to be determined

  • principles need to be developed for future possibilities for investing in the domestic business sector

The study claims that the main challenge for Azerbaijan is to develop the non-oil sector to ensure that the economy continues to grow on a sustainable path after the oil boom, meeting both short-term expectations and longer-term demands.

The paper concludes that the efficiency gap in the management of oil money in Azerbaijan is enormous. Improvements need to be made in the oil money accumulation, saving and spending processes in order for this short-term national resource to better serve the long-term development needs of the nation. The necessary changes include redefining and streamlining the Oil Fund in parallel with improvements in budgetary and public investment work.

The recommended improvements regarding the development of the institutional and legal framework will address and make the implementation of the proposed financial strategy for the Oil Fund possible. This will include the development of instructions, guidelines and standards for portfolio investments as well as the rules and standards for transfers from the Fund to the state budget and other domestic public and private uses. The recommended institutional and legal improvements are on the other hand based on the existing situation and current practices, and have political feasibility implications for the suggested changes, which are more extensively discussed in the analysis section of this paper.  


Azerbaijan is rich in mineral resources, mainly oil and gas. Our country is in the midst of an oil boom brought on by the development of its vast hydrocarbon resources in the Caspian Sea region. Oil revenues are expected to peak in 2011. The country’s oil and gas revenues are forecasted to be $200 billion until 2024. The State Oil Fund of Azerbaijan (SOFAZ), created to invest the revenues garnered from the country’s extensive oil reserves, is predicted to explode to over $50 billion by 2014. Azerbaijan also expects to boost natural gas production and export starting from 2010. The country has proven natural gas reserves of roughly 2 trillion cubic meters. So, in near- and medium-term perspective, oil and gas revenues will be averaged at 10 billions of dollars.

Azerbaijan has an Oil Fund (SOFAZ) in which oil revenues are deposited, so the lion’s share of responsibility for administering oil income falls on the managing of the Oil Fund resources. If Azerbaijan’s oil advantage is to benefit not only this generation but also posterity, the Fund needs to be rescued from popular programmes. As in every issue concerning the nation’s future, society’s long-term interests need to be prioritised in order to prevent short-term or small group interests from taking over the Fund’s resources. But first, those long-term interests need to be identified, and then a mechanism for adhering to them needs to be created and implemented.

The Fund was created eight years ago and serves to separate oil revenues from the rest of the economy. However, clearer resource management principles are needed to ensure that the Fund is operated in a way that will maximise the benefit to the overall economy. Money from the Fund is currently being spent with no strategy or criteria to measure the effectiveness of the spending decisions against alternative ways of using the Fund.

Our lives would be different without oil. Oil affects and changes our priorities as well as others’ priorities concerning us. And we would run our economy differently if we did not have oil resources to rely upon. However, as a short-term and finite resource, oil cannot be part of our national values and long-term interests, which should ideally be permanent. That leaves room for oil to serve as a temporary instrument only. Oil is short-term, but the Fund is long-term, and the effective management of the Fund should not depend on oil, but behave as if there were no oil at all. Norway’s Pension Fund is analogous to Azerbaijan’s Oil Fund and could serve as an example of successful management. Oil revenues are isolated from Norwegian society, or, put another way, society is isolated from the oil revenues almost as if the sector did not exist. The strategy of the Oil Fund needs to be at least as efficient. That strategy must flow from the purpose and mission of the Fund. If Azerbaijan wants to ensure an intergenerational balance or save money for the future, then it must resist short-term or any other non-productive programmes and save the maximum amount, which should include at least all of the oil money. By at least we mean that the Fund may also generate additional money and that money can be partially accumulated in the Fund.

If the economy can survive without the Oil Fund, then it should be even more robust with assistance coming from the Fund. However, popular programmes must not be allowed to eat the seed corn.

The main strategic issues regarding the Oil Fund are whether to transfer the revenues to the state budget or not, and how to invest the money that remains in the Fund. The principles of modern finance can be applied to help identify the best investment strategy. Diversification is the rule of thumb for lessening risk: investing the oil wealth among a wide range of allocations diversified across many levels (countries, industries, businesses, etc.) may guarantee high returns with lower risk. An index fund, which ensures that the investment in each company is proportional to its market value, can be used as an instrument for diversifying. But diversification only works well with a realistic and prudent approach to every investment decision. Expert advice and some scepticism are necessary, and the pitfalls of the underlying risk lurking behind seemingly high returns need to be carefully analysed. Decisions should not be guided by intuition or astrology. By the same token, non-transparent management is likely to lead to self-satisfying behaviour and inefficient investment decisions. For the management of a public fund such as the Oil Fund, a methodology needs to be prepared in which investment decisions will take into account not only the risks and returns from investments, but also brokerage and investment charges. Higher investment options are often described as a trade-off between a good dinner and a good night’s sleep. This is to say that a large number of riskier investments could indeed increase the overall return for an investment portfolio, but then the group responsible for investments needs to have permanent control and keep track of ups and downs in order to be able to change investment decisions in a timely manner. However, a good night’s sleep can be guaranteed with government bonds; although these yield lower returns, they are often inflation indexed and entail lower risk.

Meral Karan provides information on how Oil Fund (SOFAZ) resources should be used by the state agencies and treats the Fund as a secondary state budget. However, this approach conflicts with the mission and purpose of the Fund and will not provide the expected benefits.1

Let us look at and compare the international experience first. The table below compares the growth of expenditures in several countries. “After the boom” is a relative term, since the countries on the list still produce oil. In addition, “boom” refers here to the rise in production but not to the production itself.

Norway’s economy is widely considered to be the most successful in translating its oil money into sustainable development of the country. The Norwegian government’s determination to spend its oil revenues wisely is considered the key to the country’s economic success as well as its ability to overcome the pitfalls associated with the oil boom.

To manage its oil wealth, Norway established the Petroleum Fund (the prototype of Azerbaijan’s Oil Fund), where it accumulated all of its oil money. This money then was transferred into bonds and corporate equities to generate a more stable flow of income that was not dependent on the current rate of oil production in the country. Later, the Fund’s functions were integrated with the national insurance scheme, and the fund continued to function under the name of the Pension Fund. The strategy of isolating the economy from oil money did not change, however. The amount of money the government may withdraw from the Fund for budgetary purposes is again not a function of the country’s current oil production, but of the growth rate of the Fund apart from current oil revenues. However, there were cases when the non-oil deficit of the budget was over the estimated annual non-oil growth of the Fund.2

Ulrich F.W. Ernst characterises Norway’s strategy in managing the oil revenues as follows:3

1. The Norwegian economy is isolated from oil revenues; fund reserves are entirely invested abroad.

The exchange rate between the krone (local currency) and other European currencies is kept stable through economic rather than monetary policies.

The name of the fund has been changed to better reflect its image and mission.

However, there is some emerging sensitivity to “domestic” arguments, since the amount of capital flowing out of the country is increasing while the fund continues to grow. The fund is becoming the largest single-managed fund in the world.

2. Investments are made in both fixed income and equity instruments – since 1998, up to 50% of the total reserves have been permitted to be invested in stock markets (foreign only). Now the investments in foreign markets have reached a level of approximately 40 percent.

The issue is to determine whether a 50% ceiling and the current 40% of investments in the equity market is sufficient or too large. This is more a debate over how much risk can be afforded versus the expected returns.

Now the fund is spreading investments across industries and regions to diversify in an effort to reduce risk. And the management guidelines now limit the fund’s investments to 5 percent of the capital of any given company (the limit was 3% before 2007). The fund’s exposure in the companies in which it has invested now averages 0.3 percent.

3. Ethical issues are intertwined with the investments. Efforts must be made to avoid conflicts of interest and to make the fund’s allocations internationally responsible. The fund should not invest in businesses involved in non-peaceful or environmentally bad practices.

If these ethical standards were to be applied in Azerbaijan, some countries, businesses and particular companies would have to be stricken from the list of the investment options for SOFAZ.

Yelena Kalyuzhnova focuses more on the stabilising role of oil funds, and thus provides analyses and recommendations on how to protect the economy from sharp changes in oil prices.4

She sees the role of an oil fund “as formalising – or giving institutional focus to – a set of fiscal rules”. She also evaluates the effectiveness of the fund as deriving from this role, i.e. how it is reflected in the policy rules, and how market expectations buffer the economy from price shocks. She admits that “history provides many illustrations, where stabilisation policies relating to commodities collapsed with the rapid exhaustion of finance”. She further argues that the stabilising approach should be pragmatic and that there is no universal set of management techniques to make that function optimal.

John Wakeman-Linn, Paul Mathieu and Bert van Selm conclude that oil funds improve coordination between monetary and fiscal policy and that they function best when they can be separated from the state budget (and thus cannot be easily deployed by state agencies). The authors dismiss the necessity of a stabilisation function for oil funds, arguing that “Shortfalls in state budget must be made up through changes/improvements in the state budget”.5

Jeffrey Davis, Rolando Ossowski, James Daniel and Steven Barnett justify oil funds on political economy grounds: “Such funds may help the government to resist spending pressures if there are constraints on borrowing. These may reflect explicit fiscal rules or may arise from political difficulties in issuing debt.”6

In addition, the revenue from deploying nonrenewable resources represents a depletion of wealth that could be saved for the future generations. It is also not sustainable for the long-term, and in that respect it differs from other revenue types.

Public Administration Reforms in Azerbaijan

The absence of cohesive coalitions working for regional and international cooperation limits the effectiveness of civil society’s lobbying and advocacy around accountability of governments and international agencies. According to the CIVICUS report, Azerbaijani CSOs are characterised as “inefficient in achieving their purposes, particularly in increasing their members’ access to financial resources and in providing technical and informational support of their activities. Perhaps one of the most serious challenges facing Azerbaijani civil society is the extremely low level of cooperation between CSOs and among CSOs in different sectors, as well as their weak international linkages” (R. Sattarov et al: Civil Society In Azerbaijan: Challenges And Opportunities in Transition - CIVICUS Civil Society Index Report for Azerbaijan, 2007).

Across the country, central and local governments restrict core civil society freedoms of association, assembly and expression through repressive legislation and ideological dominance. Even though the country constitutions and other major legal acts provide for the freedoms for civil society and citizen participation, the mechanisms for the realisation of these freedoms are missing or very basic and unusable. In the country, civil society remains weak, with not much influence on public policy or opinion. Partially as a legacy of the old Soviet regime, the concept of citizenship -- including the responsibility of constituent involvement -- has yet to take root among much of the population and therefore lacks the concept of political will. As for the socio-cultural context, there are “relatively low levels of interpersonal trust and public spiritedness, representing significant socio-cultural and psychological barriers to the development of a vibrant civil society” (R. Sattarov, 2007).

Although Azeri civil societies exist in quite restrictive environments, there are some windows of opportunity for civil society advocacy. A vibrant civil society can play a significant role in the fight against corruption, legitimizing political leadership and counter- balancing recidivism. On the other hand, a weak civil society may also undermine reform, failing to provide leadership for the role it must play in strengthening the reformers' position (V. Bayramov: Ending Dependency: How is Oil Revenues effectively used in Azerbaijan, Baku, 2009, p.77, the report is available at www.cesd.az ).

According to the Law on Civil Service in Azerbaijan, the civil service is based on the principles of the rule of law, separation of powers among legislative, executive and judicial branches, oversight over and accountability of government institutions and civil servants; transparency and fair competition in civil service recruitment, equality and meritocracy in eligibility for government positions, equality of civil servants irrespective of their race, ethnic, language, sex, religion, social origin, family or social status. The right of civil servants to professional development is guaranteed by Article 21 of the Law on Civil Service. Article 24 of the same law stipulates that civil servants pursuing and succeeding in professional development and dedication to their duties shall be distinguished by awards (Order “For Service to the Country” and Medal “For Civil Service Distinction”. Also, the attestation process (a 5-year review cycle of all staff) prescribes the consideration of civil servants’ training needs. The Academy of Public administration has operated under the president’s authority since 2000. Capacity building measures to improve management skills are envisaged, including a system which will allow senior civil service employees to gain work experience in the private sector (UN: Public Administration Country Profile in Azerbaijan, New York, 2007).
Although The Civil Service Commission under the President of the Republic of Azerbaijan was established in 2005 there are gaps in public administration reforms in Azerbaijan. According to its statute, the Commission is a central executive agency that arranges enforcement of the statutory legal acts passed in the Republic of Azerbaijan in the civil service field, provides implementation of the policy stipulated by legislation of the Republic of Azerbaijan in the field of recruitment in civil service on the competitive basis, professional development of civil servants, their certification and social protection as well as other issues related to the civil service. Financing of the Commission’s activity is carried out at the expense of the state budget of the Republic of Azerbaijan as well as other sources not prohibited by legislation. It is mentioned here that the total number of civil servants is 27300 from them 27,9 % of civil servants are women and 57 % of civil servants aged between 35-54 years old.
International organizations and local think tanks still play significant role for holding trainings civil servants in Azerbaijan. The Lithuanian Institute of Public Administration implemented project titled “Training for HR managers from Azerbaijan” with support of

the International Cooperation Agency of Germany (GTZ - AZ). Project purpose was to provide HR managers from public bodies of Azerbaijan with theoretical and practical knowledge about modern management of human resources (for more information, please visit http://www.livadis.lt/_en/index.php?content_id=16&menu_id=0). 



Center for Economic and Social Development (CESD), leading economic think tank in Azerbaijan, has recently held Training for Trainers (ToT) for Civil Society Organizations leaders, on the 8 subsequent topics. The ToT was a 5 day intensive training led by an international trainer and was effective to equip 10-15 prospective local trainers with the skills, tools and creative techniques to deliver the project’s future interactive open training events in a way that makes learning enjoyable and effective. This served to strengthen the capacity of civil society organisations and local authorities as a pre-condition for a more equitable, open and democratic society through support to their “own initiatives”. The ToT was aimed at CSO leaders and members of the partner organisation as well as other civil society actors in Azerbaijan, who are interested in developing their skills and understanding effective training for CSOs and play an active role within the project. It also provided the local trainers with an introductory understanding of the theory and practice of civil society strengthening, organisational development and capacity building:


  1. Understanding Civil Society and Setting Up of CSOs: At the end of the course participants were able to: Build an understanding of CSOs and organisational development; Identify organisational strengths and weaknesses in relation to other actors in society; Develop awareness of an organisation’s existing and potential role in strengthening the civil society sector; and Increase understanding of how different sectors in society relate to each other and for what purpose.



  1. Project Design and Management: At the end of the course participants were able to: Understand projects within a broader strategic framework; Understand and be able to use tools and approaches for developing project concepts as appropriate for their organisation; and Prepare better proposal documents.



  1. Strategic Visioning and Planning in CSOs: At the end of the course participants were able to: Define different ways of thinking creatively and strategically; Explain different approaches to strategic and creative thinking; Apply tools in strategic and creative thinking; Understand and appreciate environmental context for strategy development; Apply models and tools in strategic planning.



  1. Managing Staff and Volunteers in CSOs: At the end of the course participants were able to: Provide an overview on the strategic approach to recruiting and managing volunteers and staff; Introduce the key elements of a volunteer recruitment and retention strategy; Share ‘good practice’ in people management; Exchange experiences and concerns regarding volunteer and staff management.



  1. Fundraising for CSOs: At the end of the course participants were able to: Provide an overview on the fundraising issues and approaches; Conduct fundraising planning; Share top tips in fundraising and examples of successful fundraising strategies; Explore the funding environment in Azerbaijan, including the availability of funding from international and local sources.



  1. Communication and Outreach for CSOs: At the end of the course participants were able to: Understand the importance of communication for CSOs; Develop skills for communicating with main target groups; Understand the main communication channels and activities; Understand the function of public relations in CSOs; Prepare sponsorship packages, media kits, press releases; Develop an understanding of brand building and branding; Establish image and reputation for their CSOs.



  1. Advocacy and Campaigning in Civil Society: At the end of the course participants were able to: Analyse the policy-making dynamics and be able to identify appropriate ‘levers of influence’; Understand the role of research and evidence in campaigning; Understand the various stages of the advocacy planning cycle; Lobby decision makers and relate to the media with more confidence; Embed monitoring and evaluating systems and procedures within advocacy programmes.



  1. Networking and Relationship Building: At the end of the course participants were able to: Discuss the importance of working together within the Azerbaijani context; Review types and models of partnerships, including social partnerships; Explore the development of networking; Look at the existing debates around partnerships and networking; Discuss potential benefits, limits and limitations of relationships; Consider issues of accountability and shared governance; Unpack the dynamics of power within relationships; and Understand the link between successful relationships and a strong civil society in Azerbaijan.

CESD tried to involve more people in ToT within Azeri civil society are filled with the knowledge and capacity to communicate effectively with others and transfer knowledge about capacity building to CSOs and local authorities. The trainers improved their skill sets and be equipped to design training sessions and create an effective learning environment; understand and manage different training strategies and learning styles; use appropriate presentation and facilitation skills; use of a range of participatory training methods, including visual aids, drama, forum theatre, role plays, etc.; and evaluate training courses.

Within the another program titled as “Sector Policy Convergences in Trade and Cross-Border Cooperation in Azerbaijan to EU Eastern Partnership Initiative” implemented by CESD, the center experts supported capacity building in Azerbaijan towards EaP principles and priorities of better economic integration with the EU and increased mobility and contacts between people through sectoral policy convergence with EU in trade and cross-border cooperation.



    CESD developed staff needs analysis and training needs analysis in Azeri government, train relevant ministries/state agencies to ensure policy ownership, to improve public administration skills vital for the gradual sector policy convergences in trade and cross-border cooperation, and to ensure the sustainability of the process. Those trainings also assisted know-how transfer with respect to the above objectives to government officials and local staff, including development of the capacity for the follow-up regulatory needs assessment and regulatory impact analyses.



Along that series of seminars and training have been held by CESD on necessary sector policy convergence (approximation/harmonization with EU regulations and practices), for civil servants capacity building with emphasis on methodology, formulation, decision making process, implementation, control and evaluation of public policies. They also included policy debates and roundtable discussions with representatives of second target groups (civil society) to raise important problems and jointly discuss them. The subjects included EaP and EU policies and programs in Azerbaijan and the region; EU system and criteria of the European Integration; instruments for cooperation; ongoing issues; each of the priority sectors as a focus of policy reforms towards sector policy convergence; harmonization with EU laws and policies; public administration capacity building in respective areas, including the regulatory needs assessment, and regulatory impact assessment. Participants were selected form respective state agencies to ensure sustainability of project outputs and to implement the skills obtained and carry forward to others in their offices. The following is preliminary agenda for each of priority sector:

  • EU and Azeri trade policies; comparative analysis;

  • Internal borders of EU: ongoing process of integration;

  • Two sides of the medal - integration and delimitation of frontiers;

  • Importance to determine the product country of origin;

  • Application of tariff and non-tariff instruments of trade regulation, the statistics of international trade;

  • WTO Agreement on Rules of Origin and Kyoto Convention;

  • EU's support to ensure the border security; export opportunities for Azerbaijan; Azerbaijan towards European Integration.



Based above mentioned facts, we can conclude that in spite of the fact Public Administration Reforms implemented in Azerbaijan, there are further needs to set up trainings for civil servants,

Unlike some government bodies, international organizations including UNDP are very active on this sphere. For this purpose UNDP has been implementing “Good Governance through civil service reforms: Implementing MDG 9” project where the overall objective is to operationalize the commitment of the Government of Azerbaijan to “Good Governance” and public sector reform. Role of local think tanks in providing trainings for civil servants has been dramatically increased recent years. The CESD very often organize trainings for Civil Society Organizations leaders meanwhile the center train also civil servants from both central and local government bodies.



Main findings of the research

The efficiency gap in the management of oil money in Azerbaijan is enormous. Improvements need to be made in the oil money accumulation, saving and spending processes so that this short-term national resource can better serve the long-term development needs of the nation. The necessary changes include redefining and streamlining the Oil Fund in parallel with improvements in budgetary and public investment work.  

Sustainable long-term development needs to be a major focus and the only criterion for the use of oil money, as with any public resource. The short-term availability of this resource, however, makes the issue more subtle and brings additional concerns. The need for sustainable long-term development makes the macroeconomic concerns a priority. This is to say that the nation’s strategy for the use of oil money needs to focus on the long-term growth of GDP, fiscal stability and independence, and monetary concerns in order to avoid inflation, account for the capacity of the public sector and prevent the creation of an environment conducive to corruption. The strategy must clearly delineate the share and dynamics of national consumption, public investments, government expenditures and trade with other countries with the hydrocarbon resources deducted and oil money added to the national assets. A good strategy will measure and use the oil money not for separate consumption expenditures or investment projects, but in line with all public spending, while accumulating and saving that oil money separately.

The traditional literature suggests that the budgets in oil-producing countries depend on the oil prices on the international market. The Oil Fund thus needs to include a stabilisation function, i.e. a way to bridge budget deficiencies in recession years. This paper argues and takes as a basis for further analysis that (1) it is not the oil price but overall oil revenues that matter (the latter includes many other factors, including the amount of oil production) for the decisions between the budget and the Fund, and (2) it is not the budget but the overall income that depends on oil revenues; due to political processes and decisions, the budget is often linked to short-time oil revenues. The Fund could eliminate that link and allow the budget to rely on long-term and secure incomes.

Stabilisation should not protect the economy from fluctuations in oil prices but be negatively linked to the overall revenues. It should link budget transfers to the spending capacity of the government (i.e. how much of government expenditures reach beneficiaries, generate benefits and translate into sustainable development).


Macroeconomic development strategies flow into the financial strategy of the Oil Fund as an institution that accumulates and saves money. Once the extent of the application of oil money (i.e. what exactly needs to be accumulated in the Fund) is determined to reflect the nation’s the most pressing long-term interests, then strategies for portfolio investments, transfers to the state budget and public investment projects (if the strategy finds it appropriate) must be adopted and implemented.

A strategy is important for creating the rules for the effective management of the Fund. Having these strict rules is no less important for saving the nation’s resources from short-term and populist programmes, as they are for stemming corruption. And the presence of clear efficiency criteria and strict rules along with civil society development facilitates transparency in the management of the Fund. Reciprocally, that transparency becomes a guarantee of the effective management of the Fund and the growth of society’s wealth, and thus increases the sense of ownership and the level


General and specific recommendations

The following is the list of recommendations by this paper for the management of oil money in Azerbaijan:



  • The amount of transfers from the Fund into the State Budget in any year, shouldn’t be above the Fund’s average (calculated for the several past years) portfolio profits that will additionally account the fluctuations, population change (that would change the Fund’s assets per capita) and the inflation and the overall depreciation the Fund’s assets in all invested currencies.

  • The diversification principle need to be prepared to illustrate the ceilings expressed in percentages of the Fund’s resources can be allocated in each country, in each currency, each type of the business, and each company, as well as ceilings expressed in percentages of the invested company’s assets.

  • The ethical standards need to be prepared to outline the countries, the businesses and the companies to be excluded from the list of potential investment allocations.

  • Principles need to be developed for the future possibilities in investing in the domestic business sector, in the form of the separate bank that would expect the return for the Fund form the investing in the local business higher than from the investment abroad.

  • Develop a long-term, diversified investment strategy. With a longer-term spending policy in place, SOFAZ can then shift its investments to a longer-term horizon and be able to diversify from the highly liquid but low-yield investments it made in 2001.

  • The allocation report needs to be prepared for the every portfolio investment by the Fund. The report will replace the feasibility study, as a justification of selection based on transparent criteria and methodology, as well as the appraisal document that would explain why the selection is made vis-à-vis with other possible allocations.

  • Clarify the SOFAZ mission and objectives. The decree establishing the Oil Fund explains that it can be used for the “socio-economic progress of the country” and for “solving the most important national problems.” Detail mission and objectives are recommended to be settled on.

  • The regular (at least, annual) evaluation of the Fund’s management needs to be conducted where the Fund’s performance (profit, risks, ethical standards and administrative management) will be evaluated against the allocation reports prepared, and the average expectations in the market.

  • The standards (financial and ethical) and administrative principles (such as preparation of the allocation report and appraisal, and evaluation principles) need to be developed based on the recommendations here and/or of different expert groups.

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Meral Karan




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