Dear members,Welcome to another edition of IMPACT Azerbaijan magazine! Since, the next Formula 1 Azerbaijan Grand Prix and UEFA Europa League Final are approaching, we all already feel the atmosphere of tourism; thus, decided to dedicate this edition for achievements and further development of tourism in Azerbaijan. Definitely, tourism industry has its valuable part in macroeconomic indicators and can be considered a driving factor of the economy. Herein, concerted efforts of the Government and businesses are needed to address

changing dynamics of this industry. Within AmCham Travel, Tourism and Hospitality (THT) Committee, the members made a huge contribution to the 2018 edition of AmCham White Paper. We hope that the addressed issues will find its gate for further development of tourism sector in Azerbaijan. I am happy to witness successful and sustainable process of implementing the Strategic Road Map for development of specialized tourism industry in Azerbaijan, encompassing supply of high quality and competitive tourism services, shaping tourism practices in line with national values, attracting new investment projects, etc. It should be mentioned that we keep on enjoying fruitful cooperation with the State Tourism Agency and are happy to contribute further.Herein, Azerbaijan's tourism industry is transforming into a dynamically developing area with investment – attractive business climate, a place where many important international projects are implemented. We wish best of luck to Baku in hosting Formula 1 Azerbaijan Grand Prix and UEFA Europa League Final.

Best regards,Natavan Mammadova

Dear friends, dear members,Welcome to the next edition of IMPACT Azerbaijan magazine! Tourism is an exciting area, which we can observe and enjoy. The last 3 years have been quite remarkable in tourism dynamism of Azerbaijan. Tourism friendly legislation and newly established tourist destinations played a key role in this journey. Business community, as well as the government received fruits from inflow of tourists. The recent massive wave also created lessons learned on providing better services, tour management, strengthening institutions of local tourist companies, diversification of tourist sources, etc.

Within this edition, you will be able to read interesting interviews and articles from the experts. Also, using this opportunity I would like to thank for our advertisers - Azerfon, Turkish Airlines, BP, Procter & Gamble. Enjoy reading!

Sincerely,Aykhan Nasibli

A Word From Executive Director of AmCham

Editor’s Comment

Credits

AmCham Executive Director:

Natavan Mammadova

Editor:

Aykhan Nasibli

Articles contributed by:

Fidan Sadikhli

Farid Isayev

Ashraf Hajiyev

Gumru Eyvazova

Gunel Sadiyeva

Ilaha Amirbayova

Chimnaz Gasimova

Nazrin Guluzade

Seymur Niftaliyev

Advertisers:

BP

Azerfon

Turkish Airlines

P&G

Iteca Caspian

Publisher:

American Chamber of Commerce

in Azerbaijan

Tel: (+994 12) 497 13 33

Fax: (+994 12) 497 10 91

www.amcham.az

www.impact.az

Advertising opportunities:

Please contact the Editor at

editor@amchamaz.org

The articles in IMPACT Azerbaijan

express the opinions of the authors and

do not necessarily reflect the position of

the American Chamber of Commerce in

Azerbaijan

Issue 33

contents

2 Issue 33

CORPORATE TRAVELLERS CANMODIFY THEIR BOOKINGSAT NO EXTRA COST

To become a member and start receiving benefits of Turkish Airlines Corporate Club please visit: corporateclub.turkishairlines.com

Turkish Airlines Corporate Club rates allowmembers to reebok or reroute their tickets to suit theirever-changing business schedules and allow them to savea great deal of money.

IN FOCUS

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39

Committee Highlights

AmCham Legal Update

32Business Events

34Amcham Members’ Luncheon

30About Us

AMCHAM AZERBAIJAN

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More Foreign Tourists ThroughExpansion of Public-PrivateBusiness Cooperation

Everyone has to be Conscious withImportance of Developing Tourism

10Sustainable Tourism: Call forPublic-Private Partnerships

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Public-Private Partnership - anAlternative Investment Mechanism

Human Capital is Paramountto Building and Developing aSuccessful Tourism Industry

14New Lease of Life For Azerbaijan’sTourism

Inbound and Outbound TourismPractices and Preferences

Historical and Modern Aspects ofTourism in Azerbaijan

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Special interview withMr. Fuad NaghiyevChairman, State Tourism Agency

MEMBER CONTRIBUTION25

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The Laffer Curve:the Case of Azerbaijan

Public Private Partnership: AlternativeWay of Attracting Private Sector toInfrastructure Projects in Azerbaijan

Nazrin Guluzade

Seymur NiftaliyevLaw Practice Manager, KPMG Azerbaijan

Gunel Sadiyeva, Ilaha AmirbayovaPwC Azerbaijan

Chimnaz GasimovaHead of People Advisory Services, EY Azerbaijan

Farid IsayevHead of Tax & Legal, KPMG in Azerbaijan

Ashraf Hajiyev, Research Director and Partner,SIAR Research and Consulting Group

Gumru EyvazovaLegal and External Affairs Executive,British American Tobacco

Fidan Sadikhli, Senior consultant at Cleantech andSustaianbility services, EY Azerbaijan

Special interview with Dr. Aytan AliyevaCo-founder, Alliance for Advancement of Tourism and National Cuisine, Owner Representative, HAZZ Hotel, Baku

CORPORATE TRAVELLERS CANMODIFY THEIR BOOKINGSAT NO EXTRA COST

To become a member and start receiving benefits of Turkish Airlines Corporate Club please visit: corporateclub.turkishairlines.com

Turkish Airlines Corporate Club rates allowmembers to reebok or reroute their tickets to suit theirever-changing business schedules and allow them to savea great deal of money.

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Mr. Naghiyev, let’s speak about tourism development in the country - in previous years, now and in the upcoming five years. What progress do you observe and what your expectation is?In the past couple of years, the state pays great attention to development of tourism. Multifaceted activities have been carried out to ensure growth in tourism and substantial steps have been taken to increase the share of tourism-generated revenues in the country’s economy and GDP. As known, licensing in this field was cancelled in 2015 to support development of private business. Subsequently, the incoming tourism in Azerbaijan began to grow and today, more than 2,000 individual entrepreneurs and legal entities are engaged in the tourism sector.It is needless to say that one of the latest essential events in

the tourism sector was the establishment of the State Tourism Agency, pursuant to the Decree on Some Measures Aimed at the Improvement of the State Management in Culture and Tourism of the President of the Republic of Azerbaijan, dated April 20, 2018.In the near future, the Agency will work to develop a new tourism policy, involve all members of the tourism industry into the process, improve research and statistics for longer-term development, train staff, effectively make an effective use of up-to-date advocacy tools, and make a maximum use of innovations and modern technologies in tourism. Our goal is to attract more foreign tourists to the country through expansion of public-private business cooperation, preparation and implementation of new development plans for infrastructure projects and, most importantly, by increasing the tourist satisfaction rate. Of course, there are constraints and issues that need to be tackled. The activities are already underway in this regard. We try to solve all the problems optimally by getting all stakeholders engaged into the process.Tourism should contribute to the income of the country and population. Based on our forecasts, tourism share in GDP will make up about 10% in the next decade. First of all, it is necessary to review and systematize the work done in previous years, and to work efficiently on interaction between state bodies, businesses and public institutions.All of our activities are aimed at achieving the goals and objectives set out in the Strategic Road Map on Development of Specialized Tourism Industry in the Republic of Azerbaijan, approved by the head of the state at the end of 2016. The most important task for the near future is to increase the number of tourist influx to the country by two times by 2023 and introduce Azerbaijan as a popular regional and global tourism destination.An example of the measures taken in this regard are the reorganization of the tourism brand of Azerbaijan, preparation of the “Take another look” slogan and presentation of the new brand at the World Travel Market exhibition in London.

More Foreign Tourists Through Expansion of Public-Private Business Cooperation

Special interview with Mr. Fuad Naghiyev

Chairman, State Tourism Agency

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The number of foreigners visiting the country increases year by year. Thus, more foreigners are coming to Azerbaijan and the number of tourists in 2018 has grown by 5.7% as compared to the year 2017.It is well known that in the last few years the country saw an inflow of tourists from the Middle East, which is good, nevertheless, we are in search of new markets. For this purpose, tourism resident missions have been established in a number of regions and countries. Since the end of 2018, we have tourism resident mission offices in Moscow, Russia; Dubai, UAE; Riyadh, Saudi Arabia’ Mumbai, India; Beijing, China and Frankfurt, Germany. In near future we plan to open tourism resident mission offices in Great Britain, France, Iran and South Korea.

Historical buildings, state of the art constructions, infrastructure… What else needs to be done to transform Azerbaijan into a tourism country?Indeed, there are broad opportunities to turn Azerbaijan into a tourism country. The combination of history and modernity, rich culture, developed tourism infrastructure, traditions, delicious cuisine, beautiful nature, and other similar factors include Azerbaijan into the list of countries attractive for the tourists to visit.However, just attracting tourists to the country is not enough. You need to produce a good impression, and make them wish visiting over and over. In line with the concept of our new tourism brand, our goal is to make the tourists visiting the country come back and visit again and again.At present, one of the key issues of the State Tourism Agency is to raise awareness of the tourism potential of our country. Large-scale marketing activities and advocacy to achieve this goal have been launched.Nevertheless, along with all the work done, the most important goal is to improve the service quality. Travel agencies, hotel industry representatives, restaurant staff, guides, taxi drivers – everyone within direct or indirect contact with tourists should demonstrate a high standard of service.

Increasing the level of the service rendered to tourists, making tourists happy with our country once leaving should be in the interest of everyone working in the field of tourism. Anyone who works in this area should realize his/her role in the tourism growth and the responsibilities he/she holds.

One of the main attractions for tourists are the reserves. What steps are taken in this regard?Currently, there are 7 reserves under the State Tourism Agency: “Yanardag” State Historical-Cultural and Natural Reserve, “Ateshgah Temple” State Historical-Architectural Reserve, “Basgal” State Historical-Culture Reserve, “Khinalig” State Historical-Architectural and Ethnography Reserve, “Lahij” State Historical-Cultural Reserve, “Yukhari Bash” State Historical- Architectural and “Kish” State Historical-Architectural Reserve.In July 2018, Presidential Reserve Fund allocated funds for the reconstruction of the “Yanardag” Reserve. The purpose is to bring the “Yanardag” State Historical-Cultural and Natural Reserve in line with international standards and to create a modern tourism infrastructure in the reserve. Activities have already been launched and their completion is scheduled for May 2019.In addition, early in October, Mr. President issued an order to the State Tourism Agency to prepare and submit proposals on a draft concept paper and action plan with a detailed inquiry into the current situation of “Basgal” State Historical-Culture Reserve, as well as regarding the long term preservation, conservation and restoration of the reserve.The reconstruction works will be carried out next for the “Yukhari Bash” State Historical-Architectural Reserve. Stock-taking of historical and cultural monuments located in the territory of the Reserve will be ensured, a single database drafted, a draft concept for long-term conservation, restoration and purposeful use of these monuments will be prepared.Our experts are now getting familiar with the current situation in the other four reserves, where large-scale works are being carried out. Among the main goals, is protection of the historical and cultural heritage of these territories to make the area more attractive for tourists, as well as for ourselves.Establishment of Centre for Reserve Management under the

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State Tourism Agency, pursuant to the Presidential Decree, is an indicator of the complex approach to these issues.There is a need to improve the management system in this area and implement a unified management system in order to ensure conservation and preservation of cultural heritage, efficient use of tourism potential, as well as to promote public-private partnerships, reduce the dependence of reserves on the state budget and achieve sustainable development. State reserves under the State Tourism Agency of the Republic of Azerbaijan are one of the rare examples of Azerbaijan’s historical and cultural heritage. It assumes great importance to protect and safeguard this legacy and to pass it on intact to future generations.

Service and staff training in tourism. Is it satisfying? What has been done on staff preparation and what is planned?As I mentioned above, qualified, self-employed workforce is the most important participants of the tourism industry. These people are the ones who promote the development of this industry. We are aware of the deficiencies in this area. Necessary efforts are being taken to eliminate these constraints. It goes without saying, that educational institutions play a crucial role in this. Herein, activities of Azerbaijan Tourism and Management University, Baku Tourism Vocational School and Mingachevir Tourism College under the State Tourism Agency are of particular importance. The development of tourism education directly impacts development of local tourism workforce in the country, including preparation of staff for the hotel business and enhancement of service quality.At present these educational institutions are able to meet only a part of the market’s requirements. Reforms are planned to increase efficiency in the tourism education and bring them to international educational standards. We suppose that business circles are also interested in this process and we will cooperate with the business sector in this area. But first, we need to improve our existing potential.

What is your stance on cooperation with business associations?The State Tourism Agency is interested in developing fruitful relations with business associations, based on public and private business cooperation.

In this area, we stand for a healthy competition environment. This is crucial in raising the efficiency of interaction among all structures, optimal pricing policies and improving service quality. We support public initiatives and believe that public control and co-operation are very important for the market.An example of this is Azerbaijan Hotel Association established last year. The Association operates with support of the State Tourism Agency and Azerbaijan Tourism Board, which aim to develop the hotel industry in the country. It is expected that this organization will become a member of Hotrec - Hospitality Europe and will have access to study of international experience in the future.Moreover, the activity of the Azerbaijan Guides Association, which is to be established soon, is particularly relevant. We will assist the Association in training and certification of guides. The need for delivery of more professional information about Azerbaijan, about the history and culture of our country to tourists further increases the necessity of finding a joint solution to this issue. Establishment of this Association will help to give a legal status to the tourist guide profession.

Biography of our guestMr. Fuad Naghiyev is the Chairman of the State Tourism Agency. He was promoted to this post in 2018 from his position of a director of the National Tourism Promotion Bureau under the Ministry of Culture and Tourism that he held since February, 2017. Before this appointment, he worked as an assistant minister at the same Ministry and had the “1st degree of Public Servant” in 2014-2017. In 2010- 2014, he worked as a senior consultant of the Ministry the Legal Department and was awarded “2nd degree of Public Servant”; His previous experience was in the private sector: from 2007 to 2009 he was employed as an executive director in Baku Demir-Beton-8 Company, from 2006 to 2009 as a director of Pasha Inshaat, from 2004 to 2006 he was a branch director at the Airport Gate Business Aviation Company.Mr. Naghiyev studied at the School of Law of Baku State University and continued his education as a post-degree student at the Institute of Philosophy and Law of the Azerbaijan National Academy of Science in 1997-2000. He holds a PhD degree in Law.

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hour before a take-off, we were told that Ben Gurion Airport administration refused to accept planes arriving on behalf of “Transaero” to Israel (for the reasons not related to our work).Long story short, we managed to solve the problem and fly via Sofia next day. The trip went extremely well, everyone was very happy and satisfied. It was a nice success story as a name of my first travel company: Success Tour. Later I moved to Baku and joined the Ministry of Foreign Affairs of Azerbaijan. I worked also at UNESCO and UNICEF.My return to tourism was purely accidental. In 2007 my friend who had a hotel asked me for a help. Within one month, despite the seasonal challenges, we improved hotel’s performance. Since then I am in a tourism industry.

Tell us about your trips to the USATraveling has always been my passion! I visited US twice and by twist of fate, both trips turned out to be business ones in tourism. In 2010, after a competitive selection, I won the right to join SABIT (Special American Business Internship Training) program launched in 1990 by the International Trade Association of the US Department of Commerce. The program’s goal is to promote economic restructuring of the CIS countries. Within 3 weeks, we studied the hospitality industry in the USA, visited different public and non-governmental organizations, associations and educational institutions, exhibition centers,

Good morning. Please tell us about yourself and your first experience in the field of tourism.I was born in Moscow and graduated from Moscow State University with Ph.D. I am a philosopher not only by education, but also deep in my heart. I tried myself in different sectors. I started my own business – a travel company back in 1995 in Moscow. With my class girlfriend. The first ever tour we organized turned out to be quite interesting. I knew little about this business, but this was not a barrier for us to dive in. Soon we got a request from a group of well-established men to arrange a tour to Israel. So, just imagine, we got 160 tourists who turned out to be employees of Moscow Duma, Russian Foreign Ministry, members of the State Duma, the State orchestra. We needed to organize a pilgrimage, a separate one for each denomination. Thus, we had to find separate buses, routes and entertainment programs.Despite the serious challenges with flight tickets availability at Transaero, 160 hotel rooms for 3 separate pilgrimage trips and concerts, we managed to succeed. I have always been blessed with good friends. On the day of departure, just an

Everyone has to be Conscious with Importance of Developing Tourism

Special interview with Dr. Aytan AliyevaCo-founder, Alliance for Advancement of Tourism and National Cuisine, Owner Representative, HAZZ Hotel, Baku

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convention centers, museums, etc. Overall, we visited 5 states and more than 60 hand-picked hotels and lodging facilities of different styles, levels and specializations, including the legendary Waldrof Astoria and The Hay-Adams, as well as entertainment parks, Disneyland! We also met with the representatives of Congress and the US Department of State, as well as hospitality and tourism marketing experts. We studied and discussed wide range of operational and commercial business problems and issues, best practices and case studies. General Managers, marketing & sales representatives, restaurateurs, food & beverage experts, suppliers, event organizers, lawyers, financiers, coaches, consultants, and new IT products developers shared their valuable experiences with us with great pleasure.Upon my return, on my initiative, in 2011, with a huge help of Ed Kastli, VP International Sales, AHLA (American Hotel & Lodging Association), a memorandum of cooperation was signed between AHLEI (a century long American Hotel & Lodging Educational Institute) and AZTA (Azerbaijan Tourism Association supported by the Ministry of Culture and Tourism). I was then the Executive Director of AZTA. We organized a number of training sessions for certified hospital trainers (CHT) for future trainings in Baku. There were lots of people willing to receive this prestigious international certificate, but only 5 turned out to pass the exam. We also conducted trainings for teachers of the Tourism University.Then for several years, we have been actively promoting trainings in our market, distributing information, offering an excellent academic course, developed by US experts and scientists at the Tourism University. But, unfortunately, we could not advance much further as the market was not ready for these products. The market is not yet interested. Sadly, business owners, managers, seemed to be not ready to develop the staff, invest in vocational education. Brand hotels were not interested in AHLEI our products as each of them

owned training courses developed by their own team. Local owners of small and medium-sized hotels were not interested in developing their staff due to high turnover. As an employee resigned the owners looked at it as a financial loss. That said, I never give up and keep talking about AHLEI trainings as they are a truly unique product, updated annually. The organization itself is one of the most prestigious and respected in this field in the United States. My dream is to conduct a series of trainings throughout the country, to upgrade the level of hotel employees, especially in the regions. This definitely requires financing. A successful example is a cascade of the AHLEI trainings in Egypt: with the government and international organizations’ support within 8 years more than 200,000 persons have been trained in the industry. Our service industry is rather poor; it has to be substantially developed, if we, as a country, aspire to attract different niches of tourism segments, enhance variety and diversification within the industry.The American school of hospitality is exemplary, both in high level of service, the use of the latest technology and innovative marketing solutions. Today more and more people in Azerbaijan gradually understand the need for capacity building and self-development. In the US I witnessed the very high level of professionalism, service quality, cooperation and communication between the companies. Every state has an Association of American Hotels. I was pleasantly surprised of the strength and effective support extended to hotels by the Association. The Institute of Tourism in US has an interesting experience – the one we definitely need to adapt. I would very much like Azerbaijan to adapt the experience of Metrix to have daily statistics on the hotels, by city and region. The use of similar practice will help us raise the level of our tourism to a higher one.My second trip to the United States was last year under the International Visitor Leadership Program (IVLP). This trip was about Sustainable Tourism (sustainable tourism is the tourism that satisfies all existing needs, but at the same time it develops in a way to provide future generations with similar opportunities). This is fundamentally a different program by its content and objectives. While SABIT was aimed at developing business knowledge to improve the operational and commercial efficiency in the hotel industry, IVLP was about discussing issues related to the development of a global approach, strategic thinking at the national level, the search for new opportunities and ways to develop sustainable tourism as an important sector in the development of the economy of any country, in general, on the ways to improve cooperation between government organizations responsible for the development of tourism and market players, etc.

What are the main challenges for tourists in Azerbaijan and how can we tackle them?Our country started taking steps in the field of tourism more than 20 years ago. All this happened gradually and step-by-step. New hotels were built, the existing tourism zones were reshaped. We have to understand that first of all we need to change the mindset of people who hosts the guests.

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As a result, attitude will change. This is the most important aspect, I would say, extremely important. Yes, we are warm, welcoming and hospitable nation, but this is not a magic pill. Our country has a huge potential for the development of tourism, but for this we need to develop different specializations: hospitality industry standards and service quality, taxi service, gastronomy and cooking, art, cultural program, festivals, fairs, theater, museums, recreation sites, beaches, pilgrimage sites, hunting, medical tourism, climbing, camping, hiking, trekking, agro-tourism, etc. We made a serious progress, no doubt about it, of course, but we need to move forward without losing pace. I would like to see Baku as an interesting destination for a tourist with different interests and hobbies: it is vitally important to diversify the “landscape” of our tourism attractiveness, so that the tourists from all walks can enjoy the trip and wish to return. It is extremely important to encourage visitors to return. It also contributes to sustainability as we will not depend only on a certain type of tourist with all their pros and cons. We need creative programs, innovative approaches, tailored inspiring projects. How can we promote our tourism internationally?We need to take a sober look at our strengths and weaknesses. Systematically work on improvement and more intelligent, subtle approaches. It is necessary to focus on what and how we promote. It is clear that you cannot sell everything at once. Therefore, we must define our global concept of tourism development, our focus areas, nuances, and marketing, find our niche audience, new directions/markets.

I believe that recently established Azerbaijan Tourism Agency will face these challenges. They are promoting our country abroad. Gastronomy is also gaining momentum. Moreover, promoting this type of tourism will not solely attract tourists, but advertise our products abroad. After all, we have very tasty products, and most importantly - organic ones, which is becoming more and more difficult to find all over the world! Lessons learned from other countries.There are so many successful examples. We need to develop vocational education to have more competent staff and experts, there is a serious lack of talent market at all levels of management. This is a key question. Based on my US experience I believe it worth opening Ranger and Guide schools for children in Azerbaijan. This will help to develop ecotourism and sustainability. It will open new opportunities for locals in the regions where the school operates. It will encourage them to study more and know better their land. In the USA, children are taken to hotels to generate interest in the industry, as well as to project on their potential careers if they are to choose tourism. We should create a centralized tourism information system which will include hotels, travel agencies, and transport companies. They will be able to file their applications, and generate income through mutual interaction and cooperation. Tell us about your organization...I am a co-founder of a NGO to advance gastro-tourism and national cuisine. The organization was founded in 2016 with a goal of promotion of the national cuisine. Last year we held the first Congress of Chefs of Azerbaijan with more than three hundred chefs. These days we are working on launching another big event in May - a Chef’s Cup Championship with an international jury at the World Food Azerbaijan 2019 Expo. We will have 27 international judges and plan to build 8 kitchen stations. The project promises to be quite interesting. We are supported by the Azerbaijan Tourism Agency.

Biography of our guestDr. Ayten Aliyeva carries wide and rich experience in tourism industry. Currently, she is co-founder of Alliance for Advancement of Tourism and National Cuisine, co-founder of «DASSEL» Kids Educational Center for Development of Emotional Intelligence, as well as Owner Representative of HAZZ Hotel, Baku. Ayten had an opportunity to visit US turism programs twice - Specia American Business Internship Training in 2010 and international Visitor Leadership Program in 2019. Previously, Mrs. Aliyeva was Executive Director of Azerbaijan Tourism Association (2014-2016), General Manager of Sea Breeze Hotel (2012-2013) and various other position with a public and private sectors. Ayten Aliyeva received PhD and Master degrees on Philosophy Faculty, Moscow State University named after M.Lomonosov. She carried professional membership with International Women Community (IWC) of Azerbaijan, Member of Skal International Baku Office (International Association of Travel and Tourism Professionals).

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Over the last decade, the travel and tourism sector in Azerbaijan has witnessed significant growth, stemming from the need to diversify the country’s economy. Consequently, it has brought about the transformation of tourism into one of the major drivers of social and economic development in the country. Fidan Sadikhli, Senior Consultant at the Cleantech and Sustainability Services department of EY in Azerbaijan, takes a look at evident pros and possible cons of expanding the tourism sector and the need for public-private partnerships to enhance sustainable development of tourism.

Overview These days, tourism is considered as one of the primary sectors in international trade. It is also becoming an increasingly important source for economic growth in developing countries. Expansion of the tourism sector brings employment opportunities, gender equality, protection and the promotion of natural and cultural heritage. In 2017, the travel and tourism sector accounted for almost 10.4% of global GDP, while it provided 9.9% of total employment – more than 313 million jobs globally. The data for 2018 is still being ascertained, but these figures were expected to grow and reach 11.7% of global GDP and 11.6% of total employment, respectively.In the last few years, Azerbaijan has been attracting an increasing number of foreign travelers from around the world. The country boasts stunning landscapes and natural beauty, a historic and cultural heritage, a dynamic culture and exceptional culinary traditions – it has plenty to offer to a wide range of international visitors. The Travel & Tourism Council says that in 2017 the tourism sector’s overall contribution to the country’s GDP amounted to $ 5,601.0 million, accounting for 14.6% of the total. It has also led to the creation of 611,000 jobs – just over 13% of the total employment figure. These impressive indicators suggest that tourism has become one of the leading non-energy sectors in the country’s economy and has made a noticeable positive impact on social and economic development.

Fig.1: % Share of Total GDP in the World and Azerbaijan

Flipside of the coin The economic benefits of these latest developments are evident. But there may be a downside to this success story. Rapid expansion of tourism and an influx of visitors – both regional and international – can cause undesirable social and environmental effects. These may potentially include ecological challenges, such as an increase in waste products and subsequent damage to wildlife, as well as a disruption

Sustainable Tourism: Call for Public-Private Partnerships

Fidan SadikhliSenior consultant at Cleantech and Sustaianbility services,EY Azerbaijan

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transport, but also by the functioning of tourism facilities, such as hotels.

2. Private sector participants are responsible for inefficient consumption of both renewable and non-renewable resources. For example, the generation of excessive food waste is one of the major inefficiencies that hotels are responsible for. The contamination of land, air and water resources, including the irresponsible solid and liquid waste disposal practices by tourism-related business and tourists themselves, causes the deterioration of national resources. Uncontrolled consumption and poor behavior affect the environment negatively, but also account for economic losses. According to the United Nations Food and Agriculture Organization (FAO), nearly 1.3 billion tons of food production is effectively lost and disposed of per year – this staggering figure equals more than 100 billion dollars wasted by hotels around the globe.

3. Uncontrolled tourism can have negative impacts on the fabric of local society, through restricting access to land and resources, as well as leading to an increase in crime, sexual exploitation and threats to social and cultural traditions and values.

Impacts associated with the private sectorThe accommodation industry includes both the traditional commercial sector (hotels, resorts, hostels and holiday homes), as well as an ever-increasing private accommodation sector (new platforms, such as Airbnb, various house-sharing platforms and services). Overall, this vast network is responsible for 1% of global GHG emissions and represents 20% of tourism’s entire carbon emissions, mainly through heating, air-conditioning and other trade-related operations.It is now clear that standard practical impact mitigation strategies, such as the re-use of bathroom towels or mass installation of energy-saving light bulbs, are simply not sufficient, and therefore much more needs to be done. For instance, there is a growing need for sustainable building design practices (architecture) and improved air conditioning systems (eco-friendly maintenance). Some countries are studying options to localize renewable energy production. Many hotel chains have started taking more radical steps to reduce their footprint and operate more responsibly. For instance, in 2013, Nailcote Hall Hotel in Warwickshire in Great Britain made a sizeable investment in what are known as green utilities and became one of the most eco-friendly hotels in the UK. What the Nailcote did was quite brilliant: it installed ACM’s Bio2Fuel system that transforms the hotel’s food waste into bio-fuel by burning the waste in a biomass boiler that produces energy to heat the water in the hotel’s swimming pool. This system saves the hotel around £ 5,000 per year in electricity bills. Just as importantly, the process reduces actual volumes of disposable waste by 75%. This effectively means far less waste being thrown away, which, in turn, decreases greenhouse gas emission.

to the cultural setup of a region. Therefore, all the possible risks ought to be foreseen and taken into account. Moreover, proper safeguards and investments should be in place in order to expand the tourism market without putting pressure on biodiversity and those ecosystems that are vital for the livelihood of the local communities.

Case studies from around the world conclude unequivocally: effective management of the tourism sector is only possible through close interaction and collaboration between both private and public sectors. This is the only viable way to ensure that social and economic benefits of the expansion of tourism are enhanced, while negative ramifications are thoroughly assessed and managed at all levels.So, what can possibly go wrong and why do we need to fret about any undesirable effects? To understand these potential challenges and ramifications, we only need to cite just a few kinds of negative impact that can threaten local communities:1. Tourism is a significant contributor to climate change,

accounting for approximately 5% of global CO2 emissions in 2017. These are generated mainly by various types of

Fig.2: Performance KPIs of the Private Sector

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Sustainable Tourism and AzerbaijanThe importance of tourism and its huge potential contribution has in the last decade led to its inclusion in various national development strategies and, also, in the global development agenda. It has been recognized by the United Nations (UN) as one of the ten sectors to drive the change towards a Green Economy and was included in the Rio+20 Outcome Document as one of the sectors capable of making a significant contribution to the three dimensions of sustainable development. As I have pointed out, given its nature and impact, tourism is tied up with other industries and impacts overall economic and social development.In order to manage the growth of the tourism sector effectively, the most progressive policymakers focus on the achievement of Sustainable Development Goals (SDGs) – the blueprint prepared by the UN to achieve a better and more sustainable future for all. It calls for integration of the basic principles of sustainable tourism into legislative, regulatory and institutional systems. Sustainable tourism is not an idealistic concept. In other words, it is a set of conditions that the tourism sector ought to meet as a whole. The United Nations World Tourism Organization defines this term as “a tourism that takes full account of its current and future economic, social and environmental impacts, addressing the needs of visitors, the industry, the environment and host communities”. According to the UNDP analysis compiled on the basis of 64 Voluntary National Reports (VNR), tourism is most often linked with the following Sustainable Development Goals:SDG8 (Decent Work and Economic Growth) – Tourism, as a service industry, is one of the top four export earners globally, currently providing one in ten jobs worldwide. Decent work opportunities in tourism, particularly for youth and women, and policies that favor better diversification through tourism value chains, can enhance tourism’s positive social and economic impacts. For instance, France in its VNR said that sustainable tourism, together with the creation of business and a circular economy, is one of the priority drivers of growth in the country.SDG10 (Responsible Consumption and Production) – There is a growing need for the tourism sector to adopt sustainable consumption and production (SCP) approaches, accelerating the shift towards sustainability. Tools to monitor sustainable development impacts for tourism, including for energy, water, waste, biodiversity and job creation, will result in enhanced economic, social and environmental outcomes.SDG 17 (Partnership for Goals) – Due to its cross-sectoral nature, tourism has the ability to strengthen public-private partnerships and engage multiple stakeholders – international, national, regional and local – to work together to achieve the SDGs and other common goals. Public policy and innovative financing are key to achieving the 2030 Agenda. Slovenia, for instance, supports environmental infrastructure projects in partner countries, especially in the Western Balkans, helping to build and improve tourism infrastructure in the mountain regions.In the meantime, the government of Azerbaijan clearly indicated its commitment to sustainable development by

ratifying the Paris Agreement and establishing the National Coordination Council on Sustainable Development in 2016. Given the growing importance of the tourism industry for the country’s development, as well as the government’s pledge to diversify its economy away from a dependence on oil and gas, sustainable tourism should become an interesting field for involved parties and stakeholders to explore.Azerbaijan’s Ministry of Culture and Tourism has already begun putting into practice its tourism development strategy for years 2016-2025. This includes four main directions: an improvement of the institutional basis, the advancement of infrastructural development, diversification of tourism experience, and the enhancement of professional standards in marketing and communication. This strategy also provides recommendations on what needs to be done in order for the country to achieve these goals. Moreover, in 2018 a specialized government body – the State Tourism Agency – was established to oversee the implementation of policy recommendations and ensure effective management of the industry. Azerbaijan has also partnered with UNDP to pursue various joint projects to assist its industry-related educational establishments, such as the Azerbaijan Tourism University, and also ran a pilot project aimed at graduates at one of the tourism-related vocational schools.

Public-Private Partnerships (PPP)However, it’s not just government agencies and international bodies that need to be active in this field. The private sector should be educated about its pivotal role in ensuring the three main pillars of social and economic growth: a well-functioning society, a healthy environment and a stable economy. Businesses should also be made aware of their responsibility to sustain and protect eco-systems in which they operate, and not just generate profit.Historically, private companies have been reluctant to engage in public policy development and implementation due to costs that may imply a lack of awareness. However, PPP stimulates the share of knowledge, expertise and capital between two important players, as well as stimulating institutional, regulatory and legislative development. It is widely recognized around the world that PPP will bring about positive changes to private companies, tourists, local communities and industry as a whole.

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Author’s biographyMs. Fidan Sadikhli is a senior consultant at Cleantech and Sustainability services in EY Azerbaijan. She holds a bachelor’s degree with distinction in Business Administration from Azerbaijan State Oil and Industry University, and an MSc in Management for Business Excellence from the University of Warwick, UK. Fidan has expert knowledge in sustainability strategic advisory, environmental and social impact assessment, sustainability reporting assurance and advisory.

The roles of public and private organizations in PPP are briefly summarized in Table 1. This can serve as general guidelines for local organizations and help all involved parties with implementing SDGs in a more effective manner.

Table 1: UNWTO Tourism Highlights 2018

Stakeholder Type Role in Delivering Sustainable Tourism

National GovernmentTourism MinistryOther ministriesTourism agenciesOther government delivery agenciesResource management bodie

• Implementing regulations and strategies to support the development of sustainable tourism – development management, environmental protection and heritage conservation • Developing the infrastructure in a more sustainable manner – ports, roads, waste management and the potable water supply • Investing in marketing and promoting tourism destinations• Establishing tourism development agencies, protected areas and institutions to manage them, as well as taxation benefits to encourage environmental best practice

Private sector businessesTourism trade associationsNational and local tourism service providers. e.g.hotel businessesTour operators – interna-tional and domesticSuppliers to the sector, e.g. food producersInvestors – international and domestic

• Adopting environmentally sound technologies • Implementing polluter pays principles • Financing protected areas • Encouraging destinations to support environmental protection and measures • Promoting projects which are compatible with and support local cultures • Facilitating local small and medium-sized enterprises, which encourages local entrepreneurship • Supporting industry awards for best sustainability performance • Encouraging innovation in processes and management through adopting new technology

committed to the SDGs.Development of tourism can influence a country on many different levels – the environment, ecosystem, economy, society and culture can all be affected, and not always in a positive manner. If managed well, tourism will boost economic growth. Otherwise, it might undermine economic and social development, and – in the worst-case scenario – have a devastating impact on the nation’s natural resources.

References1. World Travel and Tourism Council, Economic Impact

2018, Azerbaijan2. World Travel and Tourism Council, Economic Impact

2018, World3. Tourism4SDGS Platform: http://tourism4sdgs.org/

tourism-for-sdgs/tourism-and-sdgs/4. Sustainable Tourism for Development Guidebook, World

Tourism Organization 5. Azerbaijan Economic Reforms Review, July 2017, Center

of Analysis of Economic Reforms and Communication6. Public/ Private Partnerships for Sustainable Tourism,

Asia Pacific Economic Cooperation7. Save Food: Global Initiative on Food Loss and Waste

Reduction, Food and Agriculture Organization of the United Nations, http://www.fao.org/save-food/resources/keyfindings/en/

Food for thoughtAlthough many reforms have been introduced for the tourism sector in our country, their effective implementation and achievement of the desired results are only possible if all parties involved – government agencies, policymakers, NGOs, and, most importantly, private companies – work together and support each other’s efforts to bring about sustainable development. Private individuals and companies should understand their role and responsibilities and interact both with each other and government agencies to ensure they all work for the same goals and objectives through PPP. Such partnerships are the most viable way to stay true and

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Historic overviewAzerbaijan is a country located at the crossroads between East and West with its capital Baku having modern infrastructure and ancient rich historical sites and with regions encompassing fascinating nature and national parks. Despite seemingly advantageous geographical location, rich historical heritage (with some sites proudly forming part of UNESCO’s World Heritage List) and favorable climate conditions, Azerbaijan’s tourism industry has arguably underachieved over the years. While oil & gas industry firmly remaining the locomotive of country’s economy for decades, the other industries have witnessed mixed success.The implementation of the State Program “On the development of tourism in the Republic of Azerbaijan in 2002 – 2005”, approved by the Decree of the President of the Republic of Azerbaijan No. 1029, dated 27 August, 2002, was aimed at creating favorable conditions for the development of tourism and lay foundation for the country’s integration into global tourism market. While the results of the said State Program are open for interpretation, it was evident that measures for the promotion and stimulation of tourism required continuous and consistent state support. Hence, as a continuation of this policy, State Program “On the development of tourism in the Republic of Azerbaijan in 2010 – 2014” was approved by the Decree of the President of the Republic of Azerbaijan No. 838, dated 6 April 2010. Decree No. 838 was promptly followed by the announcement of 2011 as “The year of Tourism”.1 It was projected that by marking the year as one devoted to tourism, this shall facilitate the promotion of natural sites, as well as cultural-historical heritage of the country, while also ensuring the efficient use of tourism resources.

Strategic RoadmapThe decline in oil prices on global markets starting from 2014, warranted complex preventive measures to ensure the stability of national economy, and equally important- supply of hard currencies into it. To embark on this mission, a Strategic Roadmap covering the perspectives of national economy and comprising strategic roadmaps on 11 economic sectors, consisting of 12 documents was approved by the President of the Republic of Azerbaijan on December 06, 2016. Amongst 1. Decree of the President of the Republic of Azerbaijan No. 1320, dated 15 February 2011

the approved roadmaps, one envisioned the development of specialized tourism industry in Azerbaijan. The roadmap for tourism targeted 3 timeline milestones in prioritizing the implementation of goals: strategy and action plan until 2020, strategic vision until 2025 and aspirational vision for post 2025. The goals were identified as the following:• realization of Baku’s full tourism potential by attracting

more international visitors;• creation of favorable environment for the development

tourism across the country;• development of regional tourism sub-sectors for domestic

and regional tourists• creation of national tourism quality system to increase

tourists’ satisfaction.

New identityState policy and regulation over Azerbaijan’s tourism industry has been implemented through various types of executive bodies over the years, yet all shared the common feature- tourism has never been the sole focus of such bodies. At different times tourism regulation was within the competence of Ministry of Youth, Sport and Tourism of the Republic of Azerbaijan, later Ministry of Culture and Tourism. Yet with the increased state support to the tourism sector and following the approval of Strategic Roadmap, administrative autonomy and a new cluster of tourism oriented resources was rapidly becoming a necessity not a luxury.Azerbaijan State Tourism Agency was established on the basis of former Ministry of Culture and Tourism in April 2018 by the relevant executive order of the President of Azerbaijan. It was the start of maiden voyage of Azerbaijan’s tourism regulator under its own distinct identity. State Tourism Agency was promptly equipped with a number of sub-divisions, entities and assets (such as national parks) to support its extended mandate. Among those, one can highlight the Azerbaijan Tourism Board.Azerbaijan Tourism Board (ATB) is a statutory board operating by the State Tourism Agency. It was tasked to increase

New Lease of Life For Azerbaijan’s Tourism

Farid IsayevHead of Tax & Legal,KPMG in Azerbaijan

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awareness about Azerbaijan as a tourism destination and with strengthening the country’s competitiveness in the global tourism market by developing and maintaining a powerful brand both domestically and internationally.Launched as an independent, public-private partnership ATB undertakes marketing, promotion and positioning of Azerbaijan in hope to make tourism the leading economic sector of Azerbaijan.In November 2018, at the World Travel Market the Azerbaijan Tourism Board launched its ‘Take another look’ marketing campaign as part of a new strategy to rebrand the country and to increase inbound tourism by 2023. The birth of a distinct tourism brand peculiar to Azerbaijan was another cornerstone in the new identity of country’s tourism. These days, high-profile sporting events such as Formula 1 Azerbaijan Grand Prix and UEFA Europe League Final in 2019 raise the brand’s influence worldwide. Recent successful negotiations with Formula One Management Group ensured that Formula 1 Azerbaijan Grand Prix will remain on the F1 calendar until at least 2023. By adding football matches that Baku was awarded to host at UEFA Euro 2020 championship, Azerbaijan ensured recognized international sporting events with loyal fan base that will provide continuous influx of tourists for years to come.

Global trendsAccording to the World Tourism Organization (UNWTO), international tourist arrivals (overnight visitors) worldwide increased 6% in 2018 to 1.4 billion, based on data reported by destinations around the world.2 Middle East (+10%) and Africa (+7%) led growth, while arrivals to Asia and the Pacific and Europe (both +6%) increased in line with the world average. The Americas saw growth of 3%. Overall results were driven by a favorable economic environment and strong outbound demand from major source markets.Among the world’s top ten spenders, the Russian Federation (+16%), France (+10%) and Australia (+9%) reported the strongest increase in outbound expenditure in the first nine to eleven months of 2018. The United States (+7%) and the Republic of Korea (+6%) also recorded solid spending figures, all of them fueling inbound growth in their respective regions and beyond.

2. UNWTO World Tourism Barometer and Statistical Annex, January 2019

Based on current trends, economic prospects and the UNWTO Confidence Index, UNWTO forecasts a growth of 3% to 4% in international tourist arrivals worldwide in 2019, more in line with the historical growth trends.A large majority of countries have dedicated tourism polices, strategies and plans for the medium to long-term. There is much similarity between countries in their tourism policy priorities, which focus on improving competitiveness, sustainability and inclusiveness, addressing seasonality of demand, and enhancing the quality and appeal of the tourism offer. The last two years have seen a growing recognition of the importance of the development, management and promotion of local destinations, supported by regional or local structures and funding, and the preparation and execution of destination management plans.The challenges and opportunities presented by recent tourism trends provide the context for the preparation, review and delivery of tourism policies and the strategic development of the sector. In turn, this requires effective governance structures that enable the planning and coordination of actions by key players and the availability of sufficient funding for their implementation. Governments have continued to engage positively in this process, recognizing the importance of the sector and its relevance to a wide economic, social and environmental agenda.Global tourism has experienced steady growth for over six decades, culminating in an estimated 1.2 billion arrivals in 2016; a figure which is forecast to rise to 1.8 billion by 2030, with international tourist arrivals in emerging economy destinations projected to grow at double the rate of that in advanced tourism economies.3 The International Air Transport Association (IATA) predicts that passenger demand over the next 20 years will be impacted by the emerging middle class in developing countries, diverging demographic outlooks, increasing liberalization of aviation markets, and climate change.4 With an ageing global population, seamless transport to and within destinations (including the challenge presented by the “first” and “last” mile – that travel from a person’s home to an airport, port or train station, and then on from their point of arrival to their destination) is a strategic issue that will increasingly need to be addressed.

3. OECD Tourism Trends and Policies Report 20184. OECD Tourism Trends and Policies Report 2018

Author’s biographyMr. Farid Isayev is director at KPMG in Azerbaijan and head of Tax & Legal practice. His previous work experience includes – commodity trader-Glencore Xtrata (London), banking and insurance sector in Azerbaijan and another Big Four firm prior to joining KPMG. Farid’s specialization areas include financial sector, M&As, PPPs, state privatizations, corporate governance and international contracts.Farid is also acting vice-president at German-Azerbaijani Foreign Chamber of Commerce and head of AmCham’s Travel, Hospitality and Tourism Committee.Mr. Isayev holds an LLB with honors in International Law from Kingston University London and Western University in Baku.

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When I got a notification that next edition of IMPACT magazine is devoted to “Achievements and Further Development of Tourism Sector in Azerbaijan”, the idea to write an article and contribute to the magazine immediately appeared on my mind, as the sector is especially interesting and rapidly developing.Being a research agency with a long experience in travel/ tourism surveys both in Azerbaijan and abroad, we ran a survey among the population of Baku. In total we surveyed 386 respondents and the confidence interval amounted to 5%, with the confidence level of 95%.

The findings of this survey were following:• 83% of respondents said that they travel at least once a

year, with 56% mentioning that they travel once a year;• 77% prefer to travel in summer;• 83% have an average travel of up to 14 days (63% in fact

mentioned a period of up to 7 days);• 83% usually travel to regions of Azerbaijan and 17%

travel abroad;• Most popular regions of Azerbaijan for traveling (among

those, who make local trips): 35% mentioned Guba, 31% Gabala, 13% Ismayilli, 13% Sheki;

• Most frequently mentioned countries (% is shown among those, who travel to other countries): 52% mentioned Turkey, 28% Georgia, 19% Russia, 18% Iran, 7% Ukraine, 4% mentioned Dubai and Germany;

• Type of preferred way of resting: 67% prefer rest at

nature, 24% like visiting historical monuments, 23% like going to the beach;

• 87% of respondents organize their trips on their own and 13% prefer doing it through travel agencies;

This is interesting and worth paying attention to the local travel agencies and other stakeholders.However, an article about tourism would only be partial without information about foreign tourists. And, thus, we continued our analysis by adding desk research part.The desk research has shown that in January-September 2018, 2,208,600 foreigners/ stateless persons visited Azerbaijan. Thus, the growth of number of arrived people amounted to 6.4 percent compared to the same period of 2017.It should be noted that while 31% percent of those, who arrived in Azerbaijan, were citizens of Russia, 20% Georgia, and 10 % Turkey. In total, more than 467 thousand people (or 21%) arrived from the countries of the Persian Gulf.And in December, 2018, The Azerbaijan Tourism Association (AzTA) announced that it is working to attract tourists from India and currently negotiating with various Indian companies in this direction. Taking this into account we thought to take a look at differences between Arab and Indian people and touristic preferences:

Inbound and Outbound Tourism Practices and Preferences

Ashraf HajiyevResearch Director and Partner,SIAR Research and Consulting Group

Arab Indian

Religion Mainly Islam Mainly Hinduism

Domi-nant language

Arabic Hindi

Food Nuts, the herbs mint and thyme, rice, milk products, such as yogurt, butter, and cream, lamb, chicken, olive oil, and grains are extensively used. Pork, blood and intoxicants are prohibited.

Herbs, spices, beans, millet, and vegetable oil are frequently used. Vegetarianism is popular. Beef is not consumed by overwhelming majority.

Holidays The two major Islamic holidays celebrated by many Arabs are Eid Al-Fitr and Eid Al-Adha; but, there are several more, including the most known in the West, Ramadan.

Many Indian people celebrate Hindu holidays which may occur during seven of the twelve months of the year. Yet, the two major holidays are Holi and Di-wali. Holi, the spring Festival of Colors, takes place in February and March (3-16 days), while Diwali takes place in September/ Octo-ber, and is known as the Festival of Lights.

What they do abroad?

Most of Arab travelers prefer to make trips with family and friends. 2-3 longer trips abroad with family are not at all unusual for them.According to IPK Inter-national, travelers from Arab countries tend to take long trips for medi-cal purposes.

According to Ahoy Matey Travel Blog, top reasons for travelling are: Rejuvenate.Spend quality time with familyTaking away from the city life.Top activities:City tours and shopping - #1 activity;Adventure travelers – mainly prefer water sports and scuba diving.The same blog states that Indians are some of the most mindful and environmentally con-scious travelers out there

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The work on attraction of foreign tourists requires hard work, and here is the list of activities that some countries do in order to increase the number of Indians visiting them:• Israel, according to Media India Group, conducts

roadshows in different cities of India. The roadshow was conducted in a networking workshop format with two destination management companies from Israel and was attended by over 100 travel agents in each city;

• Belgium, according to New Indian Express, uses Bollywood (granting easy licenses for film-shooting), beer (they even produced Indian beer) and charm of key cities (Brussels and Bruges);

• Ecuador initiated “Ecuador is Love” campaign in local digital media in India aiming at tours that would include marriages, honeymoons, silver and gold weddings, anniversaries, birthdays, farewells, among others;

Author’s biographyMr. Ashraf Hajiyev is Research Director and Partner at SIAR Research and Consulting Group. He is responsible for various research projects and development of SIAR activities in Azerbaijan, Georgia, Central Asia, Moldova, Russia and Ukraine. As Research Director, Ashraf is strongly focused on quality of research and bringing international methodologies and techniques. His experience includes retail audit, studies covering FMCG, tourism and hospitality, services, finance, construction, durables, healthcare, automotive, social and healthcare research, and other sectors. Since 2015 Ashraf has also been elected to be a country representative for ESOMAR (World Association of Research Professionals) in Azerbaijan. Mr. Hajiyev obtained BA on Economical Cybernetics from Baku State University (2001) and MA in Economics from the Central European University (2003).

Spending According to VISA’s Global Travel Intentions Study Saudi Arabia, Kuwait and UAE are in the list of “top 5 spenders by country”: people from Saudi Arabia spent USD 5,333 in their last inter-national trip, while people from Kuwait and UAE spent USD 3,143 and USD 2,722 respectively.

According to VISA’s Global Travel Intentions Study, travelers from India logged an average of 5.6 trips over the past two years, outpac-ing the 4.7 trips taken by individuals from the Asia-Pacific (APAC) region. Breaking down those headline numbers a bit, business travel marked 2.6 trips versus an average of 1.6 for the region at large.In addition, Indian travelers spent significantly more than those from the APAC region, at USD 2,334, where the latter spent USD 1,677. The future looks bright too, as Indian travelers are expected to spend 21 percent more over the next two years.

Tips As per Istizada agency, in order to attract Arab tourists, it is worth:Offering travel and city tour packages with transport and lodging for multiple people. Relevantly, multiple room reservation is important for them.Including halal options in the menu;Promoting Eid Vacation offers;Staffing the team with Arabic-speaking Travel Coordinators and Wel-come Agents.

According to the aforementioned travel blog:Indians are price-conscious about accommodation, but will spend on shopping and food, so it is worth taking it into account during preparation of tour packages;Add eco-friendly options to the package;Add options for both children and elder, since Indian like traveling with parents and children;Make sure there are restaurants that serve vegetarian and vegan food

• Malaysia, according to The Weekend Leader, is planning to tie-up with Pay-TM – a digital wallet widely used in India – to facilitate smooth transaction for Indian tourists. Also they have easy licenses for Indian travel agents, who want to set up company in Malaysia;

• UK, as per Hindustan Times, launched Experience England project, which is s pegged at creating and promoting a new England tourism experience, making it easy for customers from India, China and the GCC to visit the cities of London, Manchester and Birmingham and then go on to explore the English countryside and villages.

With hopes to see Azerbaijan among the most successful countries in the sphere of foreign tourist attraction.

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Tourism is the cultural and economic phenomenon that brings both material and moral wealth depending on the role one plays in this sector. Tourism industry is one of the main sources of income for destination countries and moral source for travelers who gain more spiritual satisfaction in exchange of the money they spend to travel.Azerbaijan is bordering the Caspian Sea to the east, Georgia and Russia to the north, Iran to the south, and Armenia to the southwest and the west played strategically important role in development of trade between the East and the West, since it is located on the Great Silk Road. Several cities of Azerbaijan were international trade Centers. Therefore, the first travels to Azerbaijan were for trade, religious and political purposes.When Azerbaijan gained its independence a lot of steps were taken within the framework of international integration, including building economic, cultural relationships with other countries. Although tourism industry was one of the main tools for integrating with the world during those period, its development lagged behind other countries. However, it should be taken into account that tourism industry of Azerbaijan is very young compared to the leading countries in the tourism market.According to the Development Concept “Azerbaijan 2020: Look into the Future”, approved by decree of the President of the Republic of Azerbaijani H.E. Ilham Aliyev in 2012, importance of tourism sector one more time was emphasized, and tourism was stated as one of the main priorities of Azerbaijan with the purpose of increasing competitive power of economy and development of non-oil sector. Several important works were carried out to promote the country and attract tourist flow, including hosting grandiose international events, visa facilitation issuance for visitors and many others. However, developing tourism sector does not solely depend on attracting tourists. Making visitors leave the country satisfied is guaranteed way of ensuring further development of the sector.Azerbaijan is one of those countries that strives to achieve sustainable tourism development, and continually tries to find its place in international tourism market. Major steps are being taken by the government towards the improvement of tourism, including being host to several international cultural

and sport events, such as European Games, Islamic Games, Formula – 1; visa facilitation issuance procedures, such as “Visa facilitation Agreement” which was signed between Azerbaijan and the European Union in November 2013 caused to double decrease of visa fee (from 70 € to 35 €) and all these steps introduce Azerbaijan to the world and promotes its tourism potential. Also, among these measures it is honourable to mention the national system on “ASAN VIZA” which was establish by the Decree of President Ilham Aliyev in 2016. According to this system, the electronic visa application procedure issued through the “ASAN VIZA” system is realized by the State Agency for Public Service and Social Innovation. The electronic visa issued within 3 working days through “ASAN VIZA” system determines the duration of stay in the country up to 30 days and the state fee is 20 USD. So, visa issuance to foreigners and stateless persons is carried out in the international airports of the Republic of Azerbaijan through the “ASAN VIZA” System electronically since May 15, 2018. However, the list of the countries eligible to get the electronic visa are determined by the same Decree.Furthermore, the favorable geographical position of Azerbaijan, its climate, rich and diverse flora and fauna, cultural and historical heritage, delicious cuisine, ancient traditions and hospitality open great opportunities for development of tourism in the country. According to the Tourism Statistics by the Ministry of Culture and Tourism of the Republic of Azerbaijan, 1.818.258 tourists arrived to Azerbaijan in 2017. According to the World Economic Forum (2017), 136 counties’ Travel and Tourism sector were evaluated under 4 categories that consist of several sub-categories which are demonstrated in the table below. As a result of these evaluations, tourism sector of Azerbaijan is ranked in the 71st place, in comparison with 2015 when Azerbaijan got 84th place. Above-mentioned facts demonstrate gradual improvement of this industry in Azerbaijan.

Historical and Modern Aspects of Tourism in Azerbaijan

Gumru EyvazovaLegal and External Affairs Executive, British American Tobacco

Author’s biographyMs. Gumru Eyvazova is a Legal and External Affairs Executive at British American Tobacco Exports B.V. Representative Office in Azerbaijan. For many years she was experienced within banking industry and worked in capacity of Head of Legal Division. She attended training related to legal management and was a Legal Consultant for 2 worldwide airline companies in Azerbaijan. She also serves as a Chair of the Board of Directors of local NGO, "Khazrim" Student-Youth Organizational Public Association.Ms. Eyvazova has graduated from the School of Public and International Affairs of ADA University (LLM, 2018), School of Law from Baku State University (LLM, 2007; BSc, 2004).

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A key motivation for governments considering public–private partnerships is the possibility of bringing in new sources of financing for funding public infrastructure. PPPs are a more common way of financing infrastructure projects worldwide, entailing fiscal obligations on the government. Fiscal obligations could arise from contractual obligations, either from making payments related to asset availability/ service delivery (direct liabilities), and/ or, in the event of fiscal risks (contingent liabilities – implicit or explicit) materializing under the PPP contracts.Contingent liabilities could be created through various forms of guarantees or compensation clauses by the government to the concessionaire (private investor). Form of guarantees contains debt / revenue / exchange rates, etc. Such guarantees could be applied in varied situations including early contract termination, renegotiation of contracts, unforeseen problems or uninsurable force majeure events.

PPP modelsTypically, the PPP can be arranged in the following ways:• Service contracts• Management contracts• Lease contracts• Build-operate-transfer / Build-operate-own / Design-

build-operate or other similar models• Concessions• Joint-ventures

Service and management contracts are most appropriate for the existing projects or for the facilities that are already built and are on the balance of the state of governed by the state. Whereas the model that are used for discrete new projects or planned infrastructures are BOT and similar models.

PPP in AzerbaijanAzerbaijani law has no comprehensive PPP law that would establish guiding principles of PPP. Instead, Azerbaijan has several legal acts and regulations that to certain extent regulate separate types of public-private partnership.The BOT model was first introduced in 2016 through the Law

IntroductionPublic-private partnership (“PPP”) is a relationship between the public and private sectors. On one side, the interests of public and private sector are so different and even sometimes conflict each other, so no partnership between them could be imagined. However, in light of economy’ change, there are many points of convergence, where the partnership between public and private sector has the right to exist.Public private partnerships (PPPs) is a governance mechanism of short and long-term agreements between the public and private sector for solving socially significant tasks on mutually beneficial terms. PPP is a partnership in the context of a public infrastructure, which is aimed to increase the contribution of the private sector in infrastructure investment, to relieve the burden of public finance and to increase efficiency in the provision of public facilities and public services. The well-regulated partnership allocates the roles between the government and the private sector, so that each of the sector may contribute its own resources and own expertise in order to effectively provide public facilities or services.There are also two other terms used for such type of activities, private sector participation and privatization.

What is the role of each sector in the PPP?By definition, there is always a public and a private component to a PPP. The form that this component takes depends on the project.The role of private sector is contribution of investment capital, their technical expertise and their time and people resources to govern the day-to-day operation of the project.The public sector’s participation can take the form of financial support, in-kind contribution, e.g. in a form of provision of land or equipment, or contingent support, such as guarantees or insurance, the level of tariffs permitted, etc. that can support the country’s PPP program or encourage the financial markets to lend into projects.1

1.https://ppp.worldbank.org/public-private-partnership/financing/government-support-subsidies - Government support in Financing PPPs

Public-Private Partnership - an Alternative Investment Mechanism

Gunel SadiyevaCorporate Tax Manager, PwC Azerbaijan

Ilaha AmirbayovaManager in Advisory Business (Consulting & Deals), PwC Azerbaijan

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on the implementation of special Financing for Investment Projects in connection with Construction and Infrastructure Facilities, adopted on 15 March 2016 (“BOT Law”).The BOT Law is a relatively new concept in Azerbaijan yet, certain projects are currently being implemented in Azerbaijan by using the BOT model. One of the current PPP project is related to the construction of dormitories for the students and the Asian Development Bank provides transaction technical assistance (TA) and project preparatory assistance.2

Existing experience with public-private partnership projects in AzerbaijanBesides the BOT model and before adopting the BOT Law, Azerbaijan has implemented several projects that by its nature are considered as PPP.One of the example is a project related to construction and operation of waste-to-energy plant, which was executed by CNIM Group. The state-owned company Tamiz Shahar JSC, which is responsible for utilization of the solid municipal waste of Baku city, awarded CNIM the design, construction and operation for 20 years of an energy recovery facility.3

One of the forms of the public-private partnership is a management contract. As an example of this type of a PPP, is management of the Central Clinic (Mərkəzi Klinik Xəstəxana) within 10 years period by the Turkish company “AY-MED Medical Yatirim Danishmanlik Ticaret”.4 Actually, PPP is often used worldwide in healthcare in three main directions: a) build or refurbish public healthcare infrastructure; b) to add or expand service delivery capacity or c) to provide a comprehensive package of infrastructure and service delivery.One more example of PPP in the form of a management contract is a contract on management of Shahdag Ski Resort signed between PGI Management and Azerbaijan`s Shahdag Winter-Summer Tourism Complex, which is part of the State Tourism Agency.5

Legal basisAdditionally, to the BOT Law, a decree the President of the Azerbaijan, dated 7 December 2016 (“BOT Order”) establishes the particularities with respect to conditions of the investment, requirements to private investors, procedure of investor’s selection process, etc.Pursuant to the BOT Law, the BOT model is a specific form of project financing, according to which investors recoup their investments expenses with regard to projects on infrastructure objects through procurement of goods/services to the customers or competent government bodies.The competent authority that is responsible for implementation of the BOT model in Azerbaijan and acts on behalf of the public sector in the PPP arrangements is the Ministry of

2. https://ap3f.adb.org/our-activities/piloting-delivery-university-students-accommodation-and-services-baku-through-public3. https://cnim.com/en/energy-recovery-azerbaijans-capital-comes-date4. Order of the President of the Republic of Azerbaijan No 704 dated 24 April 2001 http://e-qanun.az/framework/25435. https://pgimgmt.com/project/due-diligence-equipment-analysis-tender-process-and-providers-evaluation-for-shahdag-mountain-resort-azerbaidjan/

Economy of the Republic of Azerbaijan.The BOT model is applicable to construction, restoration, rebuild, repair, operation and transfer of bridges, tunnels, water warehouses, water cleansing plants – constructions, sewerage systems, and other publicly important infrastructure objects in the fields of education, health, culture, tourism, etc. in accordance with BOT agreement.Pursuant to the BOT Law and BOT Order (together “BOT legislation”), the process of cooperation between public and private sector within the BOT model is structured in the following steps:Step 1: The sectoral authority (e.g. in a project with dormitory construction – the Ministry of Education of the Republic of Azerbaijan) applies to the competent authority (the Ministry of Economy of the Republic of Azerbaijan), with a proposal, covering technical background and general definition of infrastructure and services needs and analysis of institutional options of the particular project (“Project”).Step 2: The Ministry of Economy after initial review and approval of the Project, prepares the requirements for a potential investor and announce the bidding process, which is governed by the BOT Law. The provisions of the Law of State Procurement are not applicable.Step 3: Within the bidding process the potential investor should provide a feasibility study and project estimation.Step 4: After the completion of the bidding process and selection of the investor based on the submitted documents, the selected Investor should establish a legal entity, which cannot be involved in any other activities besides governing the project (“Project Company”). Afterwards, the Ministry of Economy concludes an agreement with the selected investor (“Investor”) on implementation of the Project (“BOT Agreement”).Step 5: Maximum term of BOT agreements is 49 years. After the contract period is over, the facilities (which were build and operated by the Investor / Project Company) should be returned to the government.

Institutional conditions and managing the fiscal risksBased on the experience of some countries, the institutional capacity is a key element to organize, manage and implement a PPP process. At this time, the Government of Azerbaijan does not have a centralized PPP unit, which will be responsible for undertaking risk estimation, monitoring, managing and reporting related activities for a PPP projects.The Ministry of Economy and Small and Medium-Sized Business Development Agency (“SMBDA”) are the competent state entities that are responsible for development and implementation of PPP projects. The Ministry of Finance (MoF) plays a decisive role in managing fiscal risks arising from sovereign guarantees.As one of the ways to restrict the fiscal risks, the BOT Law prescribes the annual volume of sovereign guarantee for projects undertaken under BOT model at 10% of the project cost. In addition, the Ministry of Finance and the Ministry

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of Economy estimates annual guarantee obligations for projects undertaken through the BOT model, based on which government commitment is incorporated in budget for the respective year.Before selection of the investor for implementation of an infrastructure project, the Ministry of Economy coordinates with the Ministry of Finance to conduct a techno-economic assessment (such as pre-feasibility study, financial viability assessment and market assessment). Once the decision on implementing a project through BOT model is met, the Ministry of Economy coordinates with Ministry of Finance to prepare a draft BOT Agreement for the investment project, and they prepare implementation milestones against which success of the project are determined.In addition to the above measures, certain safeguard mechanisms are also in place to meet unforeseen eventualities. The government has established a “safeguard fund” within the state budget and the Ministry of Economy is authorized to use the safeguard fund to manage fiscal risks, e.g. in case the competent authority has provided the investor with the tariff or revenue guarantee, such guarantee to purchase goods or services or to pay the service charges on behalf of the population.In spite of the above mentioned equally important is the need to have a robust, comprehensively built oversight framework for managing PPP related fiscal risks. Based on the global experience of costly PPP failures, management of fiscal risks associated with PPP projects require a strong, effective financial oversight mechanism to be in place.

Risk allocationPursuant to the BOT Legislation, the Investor – it can be either a legal entity or an individual – is participating in the bidding process and is a party, investing funds into the project and party of the BOT Contract. What is then the role of the Project Company? As it is evident from the BOT legislation, the main purpose of establishment of a Project Company is to enable the Ministry of Economy on behalf of the Government to control and supervise the Project.Consequently, there are open questions, e.g. who is responsible for the Project’s implementation and how the risks and liabilities are allocated among the parties. If the project involves many significant risks, it is more efficient to manage it collectively, i.e. by government embracing and sharing the risks with the designer, the constructor and/or the operator/maintainer, rather than by allocating them to a particular party.

Property issuesIn some cases, the Project may require the transfer of certain facilities or land owned by the State to the private Investor for the repair purposes, rather than construction of the facilities from scratch. The BOT Legislation does not stipulate the ownership issues. Based on the Azerbaijani legislation, i.e. the Order of the President of the Republic of Azerbaijan on adoption of the State Program on Improving of Management

of State Property in the Republic of Azerbaijan, the State Property Issues Committee of the Republic of Azerbaijan is the body that acts on behalf of the State with respect to the property that is owned by the public bodies and state owned legal entities. Based on this, we may come to conclusion that the Ministry of Economy as a competent authority for the implementations of BOT projects is not eligible or authorized to transfer any state property (facilities) to a private investor based on the BOT Contract.The same situation is with respect to the land. The private Investor, investing in an infrastructure project, may want to assure his rights on certain assets and land. For the duration of the BOT Agreement, the State should remain the owner of the land, while the private Investor remains the owner of the facilities, but has the rights and obligations of an usufructuary with regard to the land on which the facilities are built.Proposed regulationsThe goal of the public sector is to provide a clear title with respect to the land and other state-owned property and scope of rights that the Investor obtains for the period of BOT Agreement. The legislation should provide a clear guidance as to who is considered as the owner of the facilities within the operation period - the Investor, State or the Project Company and if the State – which of the state authorities execute the ownership rights on behalf of the State for BOT purposes. It would be appropriate to authorize the competent authority – Ministry of Economy or established PPP unit – to act on behalf of the State with respect to the state-owned property for BOT Agreement purposes or to create simplified procedure for obtaining consent from the State Property Issues Committee.

Tax issuesThe BOT Law does not create a special tax regime that supersedes the Tax Code of the Republic of Azerbaijan, so the general rules of the statutory tax regime established by the Tax Code should be applicable to the PPP law.Balance sheet treatmentBesides the ownership issue, an open question relates to the right of allocating the facilities to its balance and calculate the depreciation charges with respect to the facilities. Following the logic of IFRS standard, assets should be reflected on the balance of that entity, which will receive the future economic benefits associated with the asset. It can be either the legal owner or the lessee within the financial lease arrangement. IFRS itself, as well as the Tax Code of the Republic of Azerbaijan provides the criteria of financial leasing and the facilities operated within BOT model will likely fall within the financial leasing, that will give the right to depreciate the assets. However, the existing “financial leasing” provisions under the Tax Code can be construed to deny taxation deductions to a tax payer.What if the party of the BOT Agreement and the entity that invests in construction or renovation of any state-owned facility is the Investor, whereas the entity that actually uses the assets/facilities in their entrepreneurship activities is a Project Company. At the balance of which entity the mentioned

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property in this situation should be reflected?The correct answer should be at the balance of the Project Company. In order to allocate the asset (facilities) to the balance sheet of the Project Company the legal basis – legislation or contractual base – is required. Due to the lack of legislative basis, the Investor should transfer the facility to the Project Company for operation and management based on an agreement. Consequently, such transfer will be viewed as taxable alienation, subject to profit tax and VAT.Transfer of assetsDuring the lifecycle of the BOT Project, the transfer of assets (not only the repaired facility) from the State to the Investor, from the Investor to the Project Company and vice versa will occur many times. Treatment of such transfer as a taxable event will create additional tax and compliance burden for all participants of the BOT Project within each of the following transactions during the entire lifecycle of the BOT Project:1. Transfer of the facilities from the State to the Investor2. Transfer of the facilities from the Investor to the Project

Company3. Return of the facilities back to the Investor4. Return of the facilities back to the State

Proposed regulationsTransfer of any property between the participants of the BOT Project should not be treated as a taxable sale for profit tax as well for VAT purposes and can be viewed as a tax neutral transaction.Dividend distributionSet-up of the Project Company is a requirement of BOT legislation. The Investor contributing funds to the Project is aiming to return its investment. In case of set-up of a Project Company, all profits generated by the Project Company during operation can be distributed to the Investor only in form of dividends, subject to withholding tax at source.Proposed regulationsThe establishment of the Project Company is a compulsory requirement of the legislation and we believe that in such case the Investor should not bear additional tax burden with respect to return of investment. In order to attract interest of private investors to the infrastructure investment, it is advisable to exempt dividend distribution from a Project Company to the Investor from the withholding tax.

ConclusionSome of the issues discussed within this article can be addressed through contractual terms, whereas some of them would need to be stipulated by law. A PPP-specific law, governing not only BOT model of PPP, but creating a legal framework could not only address the discussed issues, but also demonstrate political commitment to the PPP program. Although care is needed to avoid conflict with any other existing relevant laws.Given the potential which PPPs have for the delivery of essential public services we would like to make the following recommendations:

• Build national PPP Unit;• Address legal and tax issues, especially with respect to

the property;• Work on the balance sheet treatment;• Allocate risk between the parties;• Provide certain tax incentives in order to attract the

private sector to undertake a PPP• Develop mechanism of contingent support from the

government and financing of the BOT projects.

Authors’ biographyMs. Gunel Sadiyeva is a Corporate Tax Manager in PwC Azerbaijan. She boosts more than 9 years of experience in tax and legal advisory, including Big4 experience where she has assisted clients with complex tax and commercial matters. Gunel’s main practice areas comprise advising on issues related to international and corporate taxation, merger and acquisitions, as well as structuring of potential investments in Azerbaijan. She has a wide legal advisory experience in corporate, employment, and commercial law with companies in financial, construction, manufacturing and PSA sectors. She participated in advising and development of the project documentation and project structuring for PPP project on the basis of BOT model, negotiation with the tax authorities the tax implications and advising on tax and legal structuring of the project.Her qualifications include a Bachelor degree in Law and a Master degree in Civil and Economic Law from Baku State University in Azerbaijan. In 2011, she has obtained her LL.M in Private and Public Economic Law from the Friedrich-Schiller University in Jena, Germany. In 2016 she has achieved Advanced Diploma in International Taxation - certification indicating a high level of competence in international taxation. Gunel is also an adjunct lecturer in International Tax Law at Baku State University.

Ms. Ilaha Amirbayova is a Manager in Advisory business (Consulting & Deals) in PwC Azerbaijan. With over 8 years, she has developed a particular expertise in helping clients in public and private sector to define and implement changes of their Enterprise Content Management (ECM) system to improve their efficiency and enable them to manage their knowledge more effectively. She is also specialized in business process optimization and re-engineering, bringing the efficiency of corporate functions of the clients’ business. As well as international knowledge, Ilaha has a strong knowledge in legislation of the Republic of Azerbaijan of Clerical work and Archive and ECM. She is leading the stream of cooperation with Public sector and International Financial Institutions in PwC Azerbaijan. Prior to joining PwC Ilaha has worked over 4 years for major mobile operator in telecommunication sector in Azerbaijan, initiating and developing of methodology of document management system and build up storage and electronic archive system, taking a part on implementation of electronic document and record management system, participated in internal audit projects. Ilaha has also worked over 2 years for government and non-government organizations.

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is also imperative that member states and their local communities fully benefit from the growth of the tourism sector through meaningful, quality jobs with clear and visible career path opportunities in the sector.

Azerbaijan has made it one of its strategic goals to diversify its economy and, as part of this objective, develop its tourism industry. However commendable this intention is, it requires an integrated and multi-faceted approach. Therefore, the development of human capital should be pivotal in devising and implementing this strategy. The right people are important for the long-term expansion of the tourism sector, but they are also the key to the country’s overall economic development. In a certain sense, tourism is a unique industry, as it provides employment to people of all ages and competence levels (skills). If the country or a private company wants to offer a competitive tourism product that meets consumers’ changing needs, it needs to have the right human resources to do so. Needless to say, it’s easier said than done. There are a number of challenges that any country or company will have to consider and prepare for. Here are some of them:• Shortage of personnel, under-qualified employees and

non-competitive wages compared to other sectors – all of these combine to reduce the profit margin of tourism businesses.

• Irregular working conditions (such as variable hours) and the seasonality of this industry make jobs in tourism a less attractive option for potential applicants. All of this poses a challenge for employers, with repercussions not just for hiring but also for employee retention.

Tourism has been growing internationally for quite some time now, and is most likely to continue growing in the coming years. This of course presents a positive opportunity for countries and communities, because of expected economic benefits. However, it also presents a challenge, says Chimnaz Gasimova, the Head of People Advisory Services (PAS) at EY.Many countries which were successful in establishing themselves as popular tourist destinations made a conscious choice to use the opportunity, invest, and create quality jobs in the tourism sector. As their popularity as destinations grew, they also faced a challenge - in order to support the expected growth and maintain competitiveness the industry needed the right human capital that would be competent to meet market demands. Put simply, the quality of service in the tourism industry is mainly ensured by the quality and competence of people involved in the service.While this may sound like a fact of life and a banal premise, the need for the right people has been recognized by the industry as a whole and various international organizations as one of the most serious challenges facing international tourism. The United Nations World Tourism Organization even summarized the issue by stating that its member states need the right tourism human capital base that meets current and future market demands and, ultimately, enhances the competitiveness and sustainability of tourism destinations. It goes on to describe this capital as follows:• Abundant: the right volume of human capital available

at all skill levels and in all sub-sectors and job families of tourism.

• Highly qualified: human capital with the right type and level of education, training and experience available at all skill levels and in all sub-sectors and job families of tourism.

• Highly motivated and with the right attitude: in order to deliver exceptional experiences to visitors.

• Able to gain economic benefits from tourism: it

Human Capital is Paramount to Building and Developing a Successful Tourism Industry

Chimnaz GasimovaHead of People Advisory Services,EY Azerbaijan

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• The seasonal nature of tourism employment and its reliance on part-time workers and irregular hours makes it more difficult to ensure the availability of the right number of people at the right time.

• As the industry expands internationally, tourism has been struggling with recruitment issues for several years, and the sector’s expected growth in future will not make this task any easier.

• Attracting, training, nurturing and retaining talent is a major challenge for managers in the industry. Investing in training and keeping talented employees is a key component of success for businesses and for the entire industry.

These issues are somewhat intertwined and connected, but it only reinforces my earlier premise that human capital is paramount to building and developing a successful tourism industry in Azerbaijan. Therefore, a competent workforce is necessary because of customers’ demands, fierce competition between destinations (countries) and other dynamic market forces.As a seasoned human-resources professional, I have noted that in Azerbaijan business owners and shareholders are often conscious to recruit competent managerial staff, but the competence of the rank-and-file employees often receives less attention. This approach could be detrimental to the business and the industry in general. While no one disputes the mission and importance of senior managerial

teams, mid-level management and the general workforce should be adequately trained and retained. In the case of the tourism and hospitality industry, rank-and-file employees are most likely to be the front-line customer-service personnel. These are the people who ultimately determine how good the company’s products and services are.However, this is only a fraction of issues that may arise to haunt business owners and shareholders. We at EY People Advisory Services can help the industry to comprehend and face the issues and challenges with confidence. For us, these are not simply corporate slogans that we parrot over and over again. We do indeed strive for a better working world. For EY it means helping to solve big, complex industry issues and capitalizing on opportunities to help clients grow, optimize and protect their businesses.It is true in any industry, but even more so in the tourism and hospitality sector: it can be really hard to source, manage, motivate and retain talent while controlling costs. We help our clients harness their people agenda – the right people, with the right capabilities, in the right place, for the right cost, doing the right things.Looking at people as part of an integrated business strategy, organizations are able to gain a competitive people advantage. We work globally and collaborate to address complex issues relating to organization transformation, end-to-end employee lifecycles, effective talent deployment and mobility, gaining value from evolving and virtual workforces, and the changing role of Human Resources as a business discipline.

Author’s biographyMs. Chimnaz Gasimova is a Head of People Advisory Services in EY Azerbaijan. She is a senior level HR professional with 18 years of extensive experience in various HR domains in multinational companies operating in Oil & Gas and Banking industries. During these years Chimnaz had long term international assignments in Kazakhstan and Singapore. She is a certified coach (ACC ICF) and business trainer. Chimnaz has expert knowledge in HR Strategy; Talent Acquisition; Talent Management; Performance Management; Rewards Management; HR Projects Management; Business Process Management; Service Quality Monitoring; Payroll; Lean Six Sigma; SAP.

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The Laffer Curve1, which has been developed by economist Arthur Laffer, illustrates the correlation between tax rate and amount of tax revenue collected by government. Its main idea is that as tax rate increases, tax revenue collected by government also increases, however, in short-run. After tax rate reaches a certain point (t2 in below diagram) businesses would choose not to operate or conceal income, as everything they earn would mostly go to the government and consequently, tax revenue would decrease. In other words, when tax rate becomes too high, tax revenues fall as businesses lack the motivation to operate. Governments should set tax rate at optimal point (t1 in below diagram) – at initial stages this would decrease tax revenues, however in long term government would collect the maximum amount of tax in such circumstances.On 1 January 2019 amendments to the Tax Code of Azerbaijan came into effect. Changes affect taxation of individuals and companies to a great extent. The most positive change was decrease of tax rates levied on employment of individuals. Actually, there was a long-overdue need for such impressive jump which, in its turn, would conduce step-by-step movement of businesses out of “shadow economy”. Broadly speaking, on the one hand, these tax reforms should lead to activation

1. Arthur B.Laffer, “The Laffer Curve: Past, Present, and Future”

of entrepreneurship, stimulation of business, improvement of investment climate in Azerbaijan and on the whole, would probably spur economic growth. On the other hand, through the lens of the Laffer Curve, in long-term perspective decrease of tax rates would increase the amount of tax revenue flowing into the state budget.

Personal Income TaxNow, individuals employed in the private non-oil and gas sector whose monthly income is up to AZN 8,000 are taxed at 0%, while those with monthly income exceeding AZN 8,000 are taxed at 14%:

Monthly taxable income2 Tax rate

Up to AZN 8,000 (AZN≈$ 4,705) 0%

More than AZN 8,000 14% is applied to the part exceeding AZN 8,000

These tax rates are effective as of 1 January 2019 and shall be applied during the following 7 years. However, no changes affected taxation of individuals employed in state and oil and gas sectors who shall continue to pay PIT based on previous rates:

Monthly taxable income Tax rate

Up to AZN 2,500 (AZN ≈$ 1,470) 14%

More than AZN 2,500 AZN 350 + 25% is applied to the part exceeding AZN 2,500

2. PIT of individuals who are employed at 2 or more companies is calculated separately

The Laffer Curve: the Case of Azerbaijan

Nazrin Guluzade

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Assuredly, oil sector accounts for the lion’s share in the economy of Azerbaijan, and probably for this reason economic policy is aimed on gradual freeing of economy from oil sector-dependency, elimination of disbalance in the economy and development of non-oil sector, which is implemented also through introducing tax incentives. Thus, probably, the rationale behind provision of tax incentives to those employed in private non-oil sector is to boost the development of this sector in further years.Speaking of individuals’ employment, financial sanctions for engaging individuals for performance of any service (work) without concluding labour contract and having it in legal force considerably increased. Thus, financial sanction for such tax evasion shall be AZN 2,000 for the first time, AZN 4,000 for the second time, AZN 6,000 for the third and further times during calendar year.

Taxation of participatory interests/sharesIt is noteworthy that the term “dividend” has been expanded and in addition to net profit of the legal entity distributable between its founders (participants) or shareholders, now also includes distribution of assets generated from net profit during liquidation of legal entity, as well as regaining shares at their nominal value which increased at the expense of net profit.• Moreover, the following changes have been introduced

regarding taxation of participatory interests/shares:• Dividend income of individuals and legal entities who are

founders (participants) or shareholders of resident entities not registered for the purposes of VAT, keeping records of income and revenue in accordance with requirements of Tax Code, and whose turnover over consecutive 12 months’ period does not exceed AZN 200,000 is exempt from PIT, corporate profit tax (CPT) and simplified tax.

• 50% of income gained from alienation of participatory interest or share which was in possession of individual or legal entity for at least 3 years is exempt from PIT and CPT.

• The following are recognized as taxable profits of individuals and legal entities:

1. Difference between selling price and nominal value of participatory interests or shares in charter capital of legal entity (when participatory interests or shares are sold at a price which is higher than value of participatory interets or shares proportional to net assets of the legal entity)

2. Difference between nominal value of participatory interests or shares in charter capital of legal entity and value of participatory interests or shares proportional to net assets of the legal entity as of the effective date of sale and purchase agreement (when participatory interest or shares are sold at a price lower than value of participatory interests or shares proportional to net assets of the legal entity).

• Provision of assets, as well as financial means (except for provision/repayment of loan to the shareholder) which was obtained during activity of the entity, to shareholder for purposes other than for entrepreneurial activity, as well as repayment of shareholder’s debts to the other

parties shall be recognized as dividend payments to shareholder for tax purposes and taxed at source of payment at 10%.

Other significant changes• Direct and inderect payments made by permanent

establishments of residents and non-residents in Azerbaijan to entities incorporated in tax-advantegeous states, as well as to their branches and representative offices in other countries, and bank accounts in tax-advantegeous states are treated as income from Azerbaijan source and shall be taxed at 10%.3

• Income of legal entities engaged in manufacturing of agricultural products is exempt from CPT until 1 January 2024.

• PIT/CPT/simplified tax payable on sales made by private entrepreneurs (individuals/legal entities), carrying out trade and/or public catering in form of retail sale of goods, shall be decreased by 25%, in case performed through POS-terminals till 1 January 2022.

• Income gained by individuals as a result of write-off of tax debt to the state budget, is exempt from PIT.

• VAT exemption on sales of agricultural products by manufacturers produced by the latter has been prolonged till 1 January 2024.

• Import of vehicles operating solely with electric engine shall be VAT-exempt.

• Consumers are entitled to get refund in the amount of 15% of VAT paid by non-cash / 10% paid by cash method on trade and/or public catering goods.

• Exemption from payment of assets tax on assets used by individuals and legal entities for manufacturing agricultural products has been prolonged till 1 January 2024.

ConclusionIn conclusion, as it has been mentioned earlier in this article, on initial stages tax cuts probably may result in shortfall of tax proceeds, however over the long haul, slashed tax rates and introduced tax incentives would fairly sure incentivize businesses to grow, increase of number of jobs and finally would result in increased volume of tax receipts, which would compensate temporary shortfall caused by tax cuts. In terms of taxpayers, tax reforms would relieve tax burden of the aforesaid, and in general, would have a positive impact on economy of the country, in particular on its non-oil segment.

3. This is not applicable to the principal amount of debt repaid abroad (excluding interests) and cor-respondent accounts held by Azerbaijani banks.

Author’s biographyMs. Nazrin Guluzade started her career as tax and legal consultant at Baker Tilly, then worked for one of Big Four companies and currently is a lawyer at one of the biggest holdings in Azerbaijan. Nazrin has experience in M&As, corporate reorganization, debt restructuring, tax, securities, labour, contract and migration law.Nazrin holds LL.M with honors in Law (Commercial Law) and LL.B with honors in International Law from Baku State University.

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IntroductionWhere governments face constrained budgets and lack of infrastructure, they tend to turn to public private partnerships (PPP), which can help with bringing necessary financing and improved quality. Generally, PPPs are alternatives to public procurement, where the former uses private sector’s financing and the latter public funds.As a result of financial crises, fall of oil prices or other events and processes that result in decreasing budgets, some economies had sought other means to finance infrastructure or other projects, in order to ease the burden on their budgets. In Azerbaijan, this became more relevant after the fall in oil prices in 2014, which resulted in decreased foreign currency return in Azerbaijan. In this article, we will discuss notion of PPP in general, cover some history of PPP development, explain main models of PPPs and their benefits. In addition, this article will provide information on current legal framework on PPPs in Azerbaijan, covering main gaps and advantages that current legislation offers.

What is PPP?Although, the term PPP found wide usage in 1990s in the United Kingdom, participation of private sector in infrastructure development dates back to 18th century. For example, private participation in road development turnpike in Pennsylvania, US. However, the role of private sectors participation diminished over time and was generally limited to involvement through public procurement. Nevertheless, participation of the private sector came to spotlight in 1980s in the United States, where the Virginia state began to explore the possibility of private sector participation in highway development. There are also other examples of early PPP project in the UK, which is considered one of the pioneers of development of such partnerships.Generally, there is no single definition of PPP that is widely accepted. Below are several definitions of PPPs proposed by various scholars:

• Public-private partnerships (P3s) are contractual agreements formed between a public agency and a private sector entity that allow for greater private sector participation in the delivery and financing of transportation projects.1

• A form of structured cooperation between public and private partners in the planning/construction and/or exploitation of infrastructural facilities in which they share or reallocate risks, costs, benefits, resources, and responsibilities.2

• Contractual arrangements in which certain risks are transferred from public agencies to private firms – as a way to fund these [funding] deficits, accelerate competition, improve operating efficiencies, and reduce operating costs.3

As per World Bank’s definition, “PPPs are a mechanism for government to procure and implement public infrastructure and/or services using the resources and expertise of the private sector”.4 In simple words, under PPP private sector enters into a long term contract with the public sector, where the former undertakes to fund, build, operate (depends on the model of PPP, see below) the project (e.g. school, road, bridge, dormitory etc.), receive revenues from the project for defined period of time and transfer (depends on the model of PPP) the project to the public sector.Use of PPP can be beneficial for the parties, in case it is well-structured, analyzed and right model is selected. The main benefits of using PPPs are the following:

(a) Improving service delivery due to the merger of both public and private sectors;(b) Value for money – public-private enterprises are managed effectively;(c) Improving cost-effectiveness – due to vast experience and flexibility, public-private partnership delivers public services more cost effectively;(d) Increased investment in public infrastructure – hospitals, schools, highways, reduce government capital cost, helping embrace the gap between the need for infrastructure and financial capacity;(e) A higher level of service through innovation;(f) Reduces public sector risk – public private partnerships shift the risk from public to private, which in most cases is better managed by the private sector;(g) Deliver capital projects faster – private investors

1. Alexandru Roman, NIGP, The Institute for Public Procurement, 20152. Koppenjan, 20053. Page, Ankner, Jones & Fetterman, 20084. www.worldbank.org

Public Private Partnership: Alternative Way of Attracting Private Sector to Infrastructure Projects in Azerbaijan

Seymur NiftaliyevLaw Practice Manager,KPMG Azerbaijan

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are more flexible in nature and have greater access to financial resources from financial institution;(i) Make better use of assets – private sectors maximize fully the potential and returns in investments.

Indeed, use of PPP can be beneficial for public sector, private sector and consumer/public itself. However, the parties shall analyze the possible structures of PPP and choose the right model to proceed with.

Types of PPP modelsOver the years, a number of PPP models were developed:

Build–Operate-Transfer (BOT)Under BOT model, the private partner builds, operates and transfers the project to the public sector. Hence, the private sector is responsible for construction of the project, maintaining of the project during the term of the contract, therefore mobilization of massive investment from the private partner is required, which is to be repaid from the revenues collected from consumers/users of the infrastructure object (project). In addition, private partner is responsible for transfer of assets to the public entity (body) at the end of the operation period.

Design–Build (DB)This model is a combination of two operations in one contract. Under DB model, the contract is awarded to private partner for design and construction of the project. Generally, under public procurement, design and construction are awarded to different companies. Thus, under this PPP model the public sector saves time and cost compared to traditional procurement.

Design–Build–Finance-Maintain-Operate (DBFMO)Under DBFMO, the private sector designs, builds, finances, operates an asset, then leases it back to the government. Generally, it is a long-term lease for 20-30 years. Public sector long-term risk is reduced and the regular payments make it an attractive option to the private sector. This option can be used for prisons, schools, necessary transport stations etc.Apart from above models, there are variety of PPP structures

available, including Design-Build-Finance, Design-Build-Operate-Maintain, Build-Own-Operate and others.

PPP in AzerbaijanPPP was introduced in Azerbaijan recently. In 2016, the Law on the Implementation of Special Financing for Investment Projects in Connection with Construction and Infrastructure Facilities (“the Law”) was adopted. The PPP legislation in Azerbaijan, generally, provides mechanisms for the potential financing of the BOT model, without referring to other models. Having said that, the PPP legislation also includes Rules “On the implementation of the infrastructure projects by investors under the build-operate-transfer model, requirements to the investor, terms and conditions of the contracts and determination of the cost of goods and services produced under the investments” approved by the Presidential Decree, later in 2016. These Rules envisage more specific regulatory framework and requirements for implementation of BOT model in Azerbaijan, including the following:5

1. conditions for implementation of investment projects;2. requirements to the investors based on the type of

construction and infrastructure facilities;3. terms and conditions of agreements concluded with

investors;4. rules for the determination of costs of goods and services

produced as a result of investments.

Definition of BOT under the LawThe Law defines BOT as repayment of investment costs (including income earned) under the investment projects regarding construction and infrastructure facilities to the investor by means of purchasing goods or services by the consumer.6 Investor is responsible for the design, financing, construction (including current and capital repair, renovation and restoration), as well as operation of the BOT project.7 The Law also envisages non-exhaustive list of construction and infrastructure facilities, which may qualify for BOT financing, including, but not limited to the following:• bridges;

5. Article 4 of the Law6. Article 2.0.2 of the Law7. Article 5.1 of the Law

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• tunnels;• dormitories;• educational, health, cultural and tourism facilities;• industrial parks;• highways;• underground stations;• other projects8

The Law also limits the term of BOT agreement to 49 years, which shall be executed between the investor and public sector (Ministry of Economy of the Republic of Azerbaijan is the authorized body to execute BOT agreements, supervise PPP projects etc.).9 After expiration of the period set forth in the agreement, construction and infrastructure facilities will be transferred to the management under the Ministry of Economy, free from all debts and obligations of any kind and suitable for the intended use.10 In accordance with the Law, the facilities may be purchased from the investors prior to the expiration of the term for state needs, provided that all their costs and expected revenues from the project will be indemnified.11

Under Azerbaijani PPP legislation, BOT private partner selection process is a separate procedure and regulated under the Rules. In addition, provisions of the Law of the Republic of Azerbaijan “On State Procurement” are not applicable to the BOT projects.12

In order to look into the PPP framework more specifically, we have identified main advantageous provisions of the legislation and main gaps that should be addressed.

Main advantagesThe main advantages of PPP legislation include the following:• Public sector may provide additional guarantees to the

investor (such as, covering the budgeted payments that consumers should have paid during the operation of the BOT facility);

• The private sector is exempt from payment of state duties;

• The state provides guarantees for the liabilities of public

8. Article 3.1 of the Law9. Article 6.2 of the Law10. Article 8 of the Law11. Article 9 of the Law12. Article 13.1 of the Law

sector under the BOT agreement;• The Law “On Public Procurement” does not apply to PPP

projects.

Main gapsConsidering that the PPP itself is new to Azerbaijan and that the PPP legislative framework has been recently adopted, there are some gaps that shall be addressed in order to make PPP more popular and preferable tool for investors to be involved in infrastructure and other massive projects in Azerbaijan. The gaps include following:• The PPP legislation only recognizes BOT model. This

is one of the main issues that limits private sectors participation in the project under other PPP models. The legislation shall provide broader freedom;

• Ownership over the project during the construction and operational period is not defined. Therefore, is it not clear, whether public or private sector shall have ownership over the project;

• The role of other bodies to present public sector is defined, apart from Ministry of Economy. Hence, this can lead to procedural and bureaucratic hindrances. In addition, other state bodies that in fact orders infrastructure facility to be constructed on the private sector funds through PPP model have little impact over supervision during contract implementation term, which can result in lower quality of the project and services.

ConclusionAs seen from the above, PPPs can help governments to proceed with infrastructure and other important projects with shared responsibilities and at a minimum cost. This is also beneficial for the private sector, considering the guarantees from the public sector and shared responsibilities between the parties.The fact that Azerbaijan has introduced BOT model is a starting point to involve private sector in participation of important infrastructure projects as a stakeholder and only as a contractor. This will be also helpful to decrease budget spending on projects that can be covered by private sector, given guarantees are in place. However, in order to attract investors, we will need to improve PPP legislative framework, namely, address existing gaps, provide mechanisms for other PPP models, apart from BOT and constantly inform the private sector, whether local or international, on work being done in relation to improvement of PPP framework.

Author’s biographyMr. Seymur Niftaliyev is a Manager within Law Practice at KPMG Azerbaijan. He is currently involved in advising clients with legal assistance on corporate, M&A, banking, agricultural, FATCA/CRS, PPP, migration, contract and other areas. Seymur was also involved in development of various internal policies for leading companies, including conflict of interests, procurement and other policies.Mr. Niftaliyev holds LL.M. in International Commercial Law from City University London and Bachelor degree in International Public Law from Baku State University.

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Established in 1996, AmCham is composed of over 250 members and asso ciates active in every sector of the Azer baijani economy. We represent 80% of all foreign investment, as well as a significant portion of local investment which allows us to promote American, Azerbaijani and multinational corporations. This includes leading companies in Energy, Banking, ICT, Legislative/ Financial Consulting, Professional Ser vices, Education, Real Estate Development, Health, Transportation, Travel and Production fields. An active and positive influence in Azerbaijan, we conduct our mission with integrity and respect for the country, observing all local laws and insisting on the highest ethical standards in all relationships and transactions.

Why join?Key member benefit – best networking opportunities in Azerbaijan!

As a member of AmCham, your company has access to a vast network of business information and contacts in Azerbaijan and in the US government, as well as valuable information on US businesses across Europe through ECACC (European Council of American Chambers of Commerce) and US Chamber of Commerce.

Additional Member Benefits include:

• Annual Employee Salary Survey• Quarterly Inflation Survey• AmCham Membership Directory• AmCham Resource Library

For more detailed information please visit our website www.amcham.az

To applyTo apply for affiliation with AmCham, a candidate must submit a written application in the form adopted by the Board of Directors. Membership applications are available at the AmCham office or on our website at www.amcham.az The application form should be completed and sent to our office with the company registration certificate issued by the Ministry of Justice of Azerbaijan. A candidate meeting the objective and subjective requirements for affiliation with AmCham is accepted as either a Member or Associate upon receiving an affirmative majority vote of the Board of Directors and paying the first year’s fee for the candidate’s category of affiliation. To maintain affiliation with AmCham, Members and Associates must continue to meet our eligibility requirements, be in good standing in the community, and be current with all financial obligations to AmCham.

About UsThe American Chamber of Commerce in Azerbaijan is a private, non-profit business association supporting and promoting the interests of business in Azerbaijan.

MembershipThere are two types of affiliation with AmCham: Member and Associate.Member status includes voting privileges and eligibility for Board and committee chairmanships in addition to the privileges granted to Associates. For affiliation as a Member, a candidate must be a legal entity, registered and doing business in Azerbaijan and be in good standing in the community, as determined by the Board of Directors. A legal entity, branch or representative office of a legal entity is eligible to be affiliated with AmCham as an Associate, subject to the Board of Directors’ determination of good standing in the community. Associates are eligible to participate in various activities; receive our regular publications, including the Membership Directory, Annual National Employee Salary Survey and Quarterly Inflation Survey. Associates, however, are not entitled to vote or serve on our Board of Directors.

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The election season approached AmCham Azerbaijan! Voting for the vacant seats at the Board of Directors took place at the Annual General Meeting (AGM) of the Chamber on February 22, 2019.We had a slate of 13 candidates running for 6 vacant positions on the Board (out of 10). Through the anonymous voting process, in which authorized representatives of AmCham Member Companies in good standing took part, the following Board members were elected for a 2-year term:1. Bakhtiyar Akhundov – Vice President and Country

Manager, Chevron Khazar Ltd2. Rufat Hajialibayov – General Manager, SAP Company

in Azerbaijan3. Teymur Mahmudov – Deputy Head of Investments

Division of SOCAR, Board Director of SOCAR-PETROFAC JV

4. Ilgar Mehti – Managing Partner, Ekvita5. Nargiz Nasrullayeva-Muduroglu – Director of Business

Operations, Landmark Business Center (re-elected)6. Ilgar Veliyev – Country Managing Partner, Ernst & Young

in Azerbaijan (re-elected)

The current Board members who will remain on the Board for a second year are:1. Teyba Gouliyeva – Head of Central Asia and Caucasus

Region, Societe Generale Banking Group

2. Fariz Ismailzade – Vice Rector, ADA University3. Nuran Kerimov – Managing Partner, Deloitte Azerbaijan4. Movlan Pashayev – Managing Partner, PwC Azerbaijan

In addition, this year AmCham Azerbaijan AGM highlighted the elections of the President of the Chamber. The currently serving President, Mr. Nuran Kerimov, Managing Partner of Deloitte Azerbaijan, was re-elected the President of the Chamber for another 2-year term.

Annual General Meeting (AGM) 2019

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2nd AmCham Conference on “Ethics and Compliance in Azerbaijan”

The 2nd AmCham Conference on “Ethics and Compliance in Azerbaijan” organized by the American Chamber of Commerce in Azerbaijan (AmCham Azerbaijan) took place on January 30, 2019. The event was held with the support of BP as a Gold Sponsor as well as Equinor Azerbaijan as a Bronze Sponsor.

Delivering the opening speeches, Mrs. Natavan Mammadova, AmCham Executive Director, Mr. Nuran Kerimov, AmCham President, as well as Mr. Bakhtiyar Aslanbayli, Communications, External Affairs, Strategy & Region Vice President of BP AGT Region (concurrently as a Member of AmCham Board of Directors), emphasized the significance of raising awareness among the business community about

Business Eventsthe role of consistent compliance with laws, regulations, professional standards and ethical business behavior for strengthening the business environment in the country.The floor was passed then to Mr. Elnur Humbatov, Prosecutor of Anti-Corruption General Directorate under the Prosecutor General’s Office. He focused his address on implementation progress of anti-corruption measures undertaken by the government, the role of ASAN service for ensuring transparency, as well as general ethics and compliance related matters.The Conference highlighted two panel discussions. The first one was dedicated to the role of compliance function in strengthening corporate values beyond corruption, as well

as issues related to beyond-conventional bribery (conflict of interest, workplace harassment, respecting business partners and so forth). The second panel discussion was focused on effective third-party risk management on compliance (including risk based assessment, conducting supplier due diligence and monitoring and assurance).Conducted in an interactive discussion form, the Conference was followed by an active Q&A session.

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“Meet Your Candidate” Cocktail Reception 2019

On February 15, as a good annual tradition, AmCham “Meet Your Candidate” Cocktail Reception took place. It is an important time of the business year when AmCham community comes together to meet our candidates running for the vacant seats at AmCham Board of Directors. This year, six (6) out of ten (10) Board positions are vacant.The candidates running for the elections to AmCham Board of Directors delivered their platform speeches:1. Bakhtiyar Akhundov – Vice President and Country

Manager, Chevron Khazar Ltd2. Altug Bilgic – General Manager Russia & Central Asia,

Weir Oil & Gas3. Adrian Cernautan – Caucasus Region Manager, The

Coca-Cola Company4. Rufat Hajialibayov – General Manager, SAP Company

in Azerbaijan5. Murat Karakas – Managing Partner, KPMG in Azerbaijan6. Teymur Mahmudov – Deputy Head of Investments

Division of SOCAR, Board Director of SOCAR-PETROFAC JV

7. Viladi Maniyev – Chairman of the Board of Directors, AzInsurance OJSC

8. Ilgar Mehti – Managing Partner, Ekvita9. Nargiz Nasrullayeva-Muduroglu – Director of Business

Operations, Landmark Business Center10. Savas Uzan – Board Member, Azersun Holding11. Ilgar Veliyev – Country Managing Partner, Ernst & Young

in AzerbaijanThe elections themselves will take place at the Annual General Meeting to be held on Friday, February 22, 2019.

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January 25On January 25, AmCham Azerbaijan organized its monthly members’ luncheon. Its Guest Speaker – Mr. Anar Baghirov, Chairman of the Bar Association of the Republic of Azerbaijan – delivered a speech on the priorities of the Bar Association’s activities and its importance for maintaining the honor of the profession of law, as well as the administration of justice in the country. In addition, the Luncheon featured several member presentations. Around 100 AmCham members and partners attended the event, including representatives of diplomatic corps.Mr. Baghirov started his speech with the overview of the Decree “On additional measures aimed at the development of

the profession of law” adopted by the President of the Republic of Azerbaijan dated February 22, 2018. He particularly stressed upon its importance for supporting the profession of law in Azerbaijan, as well as advance and transformation of the judicial system in the country as a whole. He referred to the best world practices demonstrating that strong bar associations play an important role for advocating the access of citizens to high-quality legal aid, effective protection of human rights and freedoms and improving the effectiveness of the national justice system. In this respect, Mr. Baghirov touched upon the adoption of other related Azerbaijani laws and regulations in this field.Speaking on the major directions of the Azerbaijani Bar Association’s activities, he mentioned recent signing of a Memorandum on the establishment of new law-enforcement agencies associated with the establishment of ASAN service centers. He also spoke on the close cooperation between the Association and bar associations in different countries and international organizations, and at the same time expansion of the Association’s activities throughout the country with the

visits to various regions and providing pro bono legal aid to the population. Mr. Baghirov reiterated his confidence that the measures undertaken in the field of supporting the profession of law in Azerbaijan will continue at a steady pace.At the end of his speech, Mr. Baghirov expressed his gratitude for the opportunity to have a face-to-face dialogue with the business community. He specifically thanked Mr. Nuran Kerimov and Mrs. Natavan Mammadova – President and Executive Director of AmCham – for invitation and hosting the event.

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importance of looking into best practices when implementing the strategic agenda on development and sustainability of SMEs in Azerbaijan, Mr. Mammadov called upon an effective dialogue between the Agency and AmCham business community.On its part, Mrs. Konul Pasha, Head of Woman Banking at TuranBank, delivered a presentation on the bank’s corporate profile, as well as ongoing and upcoming projects. In addition, Mr. Nuran Kerimov, President of AmCham Azerbaijan, presented the 2018 edition of AmCham White Paper – the key policy document of the Chamber. In doing so, he acknowledged with special awards those members of AmCham community who has made the most outstanding contribution to its preparation process.

December 20On December 20, with the generous support of TuranBank, AmCham Azerbaijan organized its monthly members’ luncheon. The Guest Speaker – Mr. Orkhan Mammadov, Chairman of the Management Board to the Small and Medium Business Development Agency of the Republic of Azerbaijan – delivered a speech on the Government’s policy towards ensuring sustainable economic growth, the role of small and medium-sized businesses in Azerbaijan’s economic future, as well as the priority areas of the Agency’s activities aimed at supporting the SME entrepreneurship in the country.Mr. Mammadov noted that, established at the initiative of the President, H.E. Ilham Aliyev, the Agency has inaugurated a new stage in development of small and medium-sized businesses in Azerbaijan. He pointed out that the Agency’s mission covers the protection of the interests of micro, small and medium-sized entrepreneurs, coordinating the services provided to entrepreneurs and ensuring that they are delivered in a professional and efficient manner. Touching upon the

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Tax & Customs Committee MeetingOn January 29, AmCham Tax & Customs Committee hosted its first meeting for 2019. At the meeting members had an

opportunity to discuss the criteria for determination of activities in oil and gas sector and public sector for personal income tax and social contribution purposes, as well as to debate on the expected issues and problems which companies can face.

Legal & Compliance Committee MeetingOn January 8, AmCham Legal & Compliance Committee hosted its first regular meeting for 2019. This time meeting featured an interactive discussion run by its guest speaker, Ms. Patricia H. Lee, Professor of Law at Saint Louis University. Prof. Lee kindly shared her insight on Saint Louis-based and all over-U.S. entrepreneurship laws and strategies, IP, access to capital and crowdfunding, experience on supporting SMEs and the role of entrepreneurship programs and strategies in this regard.

In addition, Mr. Matin Asgar, AmCham Legal & Compliance Committee Deputy Chair, delivered a presentation covering issues about legislative and institutional reforms supporting small and medium businesses, as well as recent amendments to Tax Code bringing tax incentives to new SME categories in Azerbaijan.

Health Care & Medical Insurance Committee Meeting

On January 16, AmCham HMI Committee hosted its first meeting for 2019. The HMI Committee Chair, Ms. Lala Bilandarli opened the meeting by welcoming the Committee members.Then Ms. Bilandarli passed the floor to Ms. Nargiz Kazimova, Lawyer from Dentons. She informed about protection of personal data in Azerbaijan, as well as legislation, transboundary transmissions preservation and destruction of personal data, etc. Also, explained key points of the general legislation and Constitution of the Republic of Azerbaijan (Article 32: Right to Private Immunity), as well as updated the meeting participants on responsibility for breach of the personal information law.

Joint ICT & BFI Committees’ MeetingOn December 19, AmCham ICT & BFI Committees hosted a joint meeting.Ms. Kamilla Shahbazov, Chairperson of the Committee, opened the meeting by welcoming participants and announced the agenda. She invited the meeting’s guest speaker, Mr. Valery Tsepkalo, Founder of Belarus Hi-Tech Park, to deliver a presentation.He talked about Belarus Hi-Tech Park which was established in 2005 with an ambitious goal to increase exports to $300 million in 10 years. As a result, according to researches and

Committee Highlights

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many experts, HTP headed by Valery Tsepkalo managed to propel Belarus’ IT industry to the level of world’s leaders. EPAM, IBA, Exadel, Itransition, and other Belarusian companies are now among the world’s leading IT services providers, while products developed in Belarus, such as Viber, World of Tanks, and MSQRD changed the country’s image on the global market rapidly and enabled HTP to prove its status as one of the largest IT clusters in Central and Eastern Europe. His discussion was dedicated to how to develop start-ups, how to find investments, how to become successful & how cryptocurrency, ICOs and underlying blockchain platform can leverage your horizon and create new business opportunities.

Procurement Working Group meetingsOn February 25, AmCham Procurement Working Group meeting was held.Mr. Kanan Tabasaransky, Founder of the Smart Solutions Group, opened the meeting to thank all participants, guests and highlighted main points of the role/mission of Procurement Working Group. Then, Mr. Mirdamat Karimov, Deputy Head of Public Procurement Department, State Service for State Antimonopoly Policy and Consumer Rights Protection delivered a speech on “Overview on the newly updated Public Procurement Law”.After this, Mr. Fariz Jafarov, Director, E-Gov Development

Center talked about “Developing of E-tendering Platform for Public Procurement”. Afterwards, Mr. Pavel Borodai, CEO, Procuriosity (Ukraine) made brief introduction “Digital Transformation of Public Procurement” and informed about challenges in implementation/ using of E-Platform solution for both type of Procurement (Public and Private).Later, Mr. Alexandr Golovko, SME Banking Director, PASHA Bank was invited to present “Supply Chain Finance” and explained cash conversion cycle concept, SCF solution, “Win-Win” for Buyers and Suppliers and etc.

On December 17, the very first meeting of AmCham Procurement Working Group was held. AmCham Procurement Working Group led by Mr. Kanan Tabasaransky, Founder of the Smart Solutions Group, was established to develop a set

of sustainable procurement, supply chain and development goals among the Member Companies and to deliver right understanding of procurement and supply chain processes, as well as to provide new vision of transparency in procurement and supply chain.Mrs. Natavan Mammadova, Executive Director of AmCham Azerbaijan, opened the meeting to thank all participants, guests and passed the floor to Mr. Kanan Tabasaransky, who highlighted the purpose of the meeting and opened discussions.Panel speakers Mr. Goshgar Hasanov, CPO, Azerconnect, Mr. Tural Vazirov, CPO, PMD Projects, Ms. Parvana Piriyeva, Acting CPO, Azercell and Ms. Sabina Irzayeva, Head of Procurement, SOCAR Midstream shared market development, transparency in construction procurement, 10 practices in procurement operation to be the “best in class” organization, TCO implementation method, etc.The attendees highly praised the importance of the meeting in discussion of main challenges, problems and gaps in this sector. It was noted that this meeting can be a good platform to share and discuss problems between companies.

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Banking, Finance & Insurance Committee MeetingOn November 28, 2018 AmCham BFI Committee meeting took place. AmCham BFI Committee Deputy Chairman, Mr.

Teymur Akhundov opened the meeting and welcomed the participants. He introduced the Meeting guest speaker – Mr. Elkin Nurmammadov, Dean of the School of Business at ADA University.Mr. Nurmammadov thanked AmCham, as well as Mr. Akhundov for the invitation and delivered a presentation on “Global economic trends and their impact on financial markets”. He outlined four major issues that have to be clarified: how is the global economy doing now; what are recent developments in major economic centers of the world; what major risks to global economic outlook are; what are the policy priorities to move the global economy forward. He also highlighted 4 engines of global economy and gave possible explanations. Mr. Nurmammadov also talked about changes in oil prices and how Azerbaijan could be affected.Further, AmCham BFI Committee Deputy Chairman Mr. Teymur Akhundov raised a number of issues for discussion and participants asked their questions on this topic.

FMCG Working Group MeetingOn January 29, AmCham FMCG Working Group hosted its meeting for the members. They discussed key points of 2018 and issues for 2019. Topics as tax reforms updates track & trace, policy updates, competition law, recycling regulation – extended producer responsibility, etc. would be highlighted during the upcoming meetings. Members had a chance to share their opinion, ideas and get information on expected changes in legislation and its impact on relevant private sector players and end consumers.

Human Resources Committee MeetingsOn February 14, AmCham HR Committee’s hosted its 1st meeting in 2019. The HR Committee Chair Ms. Elnara Mammadova introduced HR Committee program and plans for the 2019.Then, Ms. Chimnaz Gasimova, Head of People Advisory Services, EY Azerbaijan delivered a presentation on the “Growing employee expectations and engagement”. She made brief introduction about EY Azerbaijan and informed about key trends impacting the people, future jobs that demand a completely new skill set, etc.After this, Ms. Shole Ekberova, HR & Admin Director, International Bank of Azerbaijan made a presentation on “Employee retention tools”. She talked about 5 reasons why employees leave the company, factors that make employees happy at work, etc.

On December 14, AmCham HR Committee hosted its last meeting for 2018. The HR Committee Chair, Mrs. Elnara Mammadova, opened the meeting and outlined the context of Agenda. She thanked all members who were actively participating in HR focus group.Then, she invited Mrs. Asiya Hagverdiyeva, Head of HR Department, Bank VTB (Azerbaijan), to deliver a presentation on the “HRs role is budget setting”. She made a brief introduction about VTB Group and informed about the structure of HR department, budgeting process, cycle, preparation, approval, evaluation, etc.After this, Mrs. Mammadova invited Mrs. Ayten Babayeva, Chartered MCIPD, and HR Professional, to make a presentation on “Global Mobility”. She talked about why global mobility important and shared common challenges and risks.Later, Mrs. Mammadova passed the floor to Mr. Ruslan Agayev and Mrs. Sabina Zeynalova to present the latest updates on “AmCham National Employee Salary Survey”. Mr. Aghayev briefed information about the improvements and explained stages of survey, statistics, and job family model. He also mentioned that due to high interest, the survey will be provided in a pdf format in a short time.

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TAX, CUSTOMS, ACCOUNTING AND FINANCE“Rules of conducting accounting in accordance with International Standards for Public Sector Accounting” have been approvedAccording to the decision of the Collegium of the Ministry of Finance of the Republic of Azerbaijan dated December 25, 2018 “Rules of conducting accounting in accordance with International Standards for Public Sector Accounting” have been approved. The Rules regulate the accounting, organization and preparation of financial statements by the following institutional structures:• Budgetary organizations;• Municipalities;• Other non-profit organizations that prepare annual

financial statements based on International Public Sector Accounting Standards;

• Public legal entities.

Approval of the Amendments to the Tax CodeAmendments to the Tax Code on the implementation of Law No. 1356-VQD dated 30 November 2018 (“the Law”) have been approved by the Decree of the President of the Republic of Azerbaijan dated 20 December 2018.The most notable changes are the following:• The maximum headcount specified for the persons

engaged in production activity and eligible to pay simplified tax was determined 10 persons instead of 5;

• The rule on carrying forward of VAT amount required from the budget to the following 3 months have been abolished and the claimed tax amounts considered to be paid no later than 4 months from the date of filing e-application;

• Instruction on separate accounting of employees involved in oil and gas and non-oil and gas sector, where different tax rates are applied, has been removed from the new wording. The criteria for oil and gas sector and non-government sector shall be determined by the Cabinet of Ministers;

• If taxpayers providing financial lease services submit information on financial lease agreement concluded with individuals until 01 January 2019 to the their registered tax authority, Article 140.1 of the Tax Code valid till 01 January 2019 shall be applied to the transaction under such agreements;

• Taxpayers who are engaged in trade activities and exercise the right to pay 6% simplified tax until 01 January 2019, shall submit information to the tax authorities with regard to the goods in their possession within 15 (fifteen) days from that date. In case submitting information with regard to the goods in the possession of the taxpayers VAT amount shall be charged against the difference between the purchase and sale price of the goods until 01 April 2019.

• Newly-added financial sanctions come into force on 01

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January 2020, with respect to agricultural producers. Other provisions of the Law became effective from 01 January 2019.

Approval of the criteria for the indication of micro, small, medium and large entrepreneurship subjectsAccording to the amendments to the Tax Code approved by the Law No. 1356-VQD dated 30 November 2018 micro and small entrepreneurship subjects will be able to benefit from a number of exemptions and incentives. The Cabinet of Ministers approved the “Criteria for the indication of micro, small, medium and large entrepreneurship subjects” by Decision No 556 dated 21 December 2018. According to this decision, entrepreneurship subjects are divided into 4 categories by the number of employees and annual income. The mentioned criteria and their quantification are indicated in the table № 1. If the business entity falls under one category according to the number of employees, and another category by annual income, the business entity is defined as a micro, small, medium or large entrepreneur/enterprise according to the criterion with highest indicator.

According to the provisions of the Tax Code effective from 01 January 2019, the following tax incentives will be applied to the micro entrepreneurs/enterprises:• Exemption from income tax of 75 percent of individual

entrepreneur’s income.• Exemption from corporate income tax of 75 percent of

profit derived from the entrepreneurial activities of the legal entities;

• Micro business entrepreneurs/enterprises are eligible to calculate the tax deductible depreciation charges by applying “2” coefficient to the depreciation rates set out in the Tax Code.

• Exemption from payment of property tax

Entrepreneurship subjects categories

per size

Number of employees (persons)

Annual income (AI)

Micro entrepreneur/enterprise 1-10

AI 200 000 (up to two hundred thousand AZN)

Small entrepreneur/enterprise 11-50

200 000 (from two hundred

thousand AZN)

Medium entrepreneur/

enterprise51-250

3 000 000 (from three millon

AZN)

Large entrepreneur/enterprise 251 and above

30 000 000 (from thirty

million AZN and above) AI

Decree on “Further simplification of access to utility services for micro, small and medium enterprises” was signedThe President of the Republic of Azerbaijan on 25.12.2018 has signed Decree “On further simplification of access to utility services for micro, small and medium entrepreneurship subjects”. The main purpose of the decree is to improve the procedures for joining electric power and gas supply networks, water supply and wastewater disposal systems in the Republic of Azerbaijan, optimize the required time, financial costs and to provide entrepreneurs with high quality, comfort and satisfactory services. The Article 1.1.1 of the Decree states that applications for the preparation and issuance of technical specifications and layout documents related to the connection of entrepreneurs to the gas supply networks, water supply and wastewater discharges, as well as the receipt of applications for the physical construction will be provided in small and medium business houses and “ASAN Utility” (ASAN Service Centers in the regions where ASAN Utility centers are not established).

The Customs Code of the Republic of Azerbaijan has been amendedAccording to the amendment, Article 113.1 indicates that, except for the cases when goods are not intended for commercial purposes, an electronic version of short import declaration shall be issued to the customs authorities before the goods are delivered to the customs territory. Failure to submit electronic version of a short import declaration will cause the declarant’s administrative responsibility, but will not hinder customs clearance and release of goods. In connection with this, the Code of Administrative Offences was added to Article 485.2 according to the Law of 1432-VQD dated 28.12.2018 of the National Assembly of Azerbaijan Republic is shown below: “485.2. In the cases specified by the Customs Code of the Republic of Azerbaijan, not filing of the electronic version of a short import declaration before bringing the goods to the customs territory - in the amount of one thousand manat for officials, and in the amount of one thousand five hundred manats for legal entities will be fined”.

Amendments related to short import declarationOn 28 December 2018, the Law “On Amendments to the Customs Code” (hereinafter in this section - the “Amendments”) was published. According to the Amendments, an importer is required to electronically submit a short import declaration to the customs authorities prior to arrival of goods to the customs territory. This requirement does not apply to imports of goods that are not intended for commercial purposes.Short import declaration had to be submitted only in the following cases:• placement of goods under a special customs procedure

of temporary storage;• electronically filing information about the goods and

means of transportation to the customs authority prior to arrival to the customs territory to be able to utilize green,

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blue, yellow and red corridor clearance systems.Under the Amendments, failure to submit a short import declaration will trigger administrative liability, but will not prevent customs clearance or release of goods.Further to the above mentioned Amendments, on 28 December 2018, the Law “On Amendments to the Code of Administrative Offences” was published.According to the said Amendments, failure to submit a short import declaration in an electronic form prior to bringing the goods to the customs territory is subject to an administrative fine in the amount of AZN 1,000 for officials, and in the amount of AZN 1,500 for legal entities.Both Amendments related to short import declaration entered into force on 1 February 2019.

Rules on Green CorridorOn 21 December 2018, the Decree of the President of the Republic of Azerbaijan “On approval of the Rules on obtainment, suspension, annulment and restoration of rights of foreign trade participants on permanent use of the “Green Corridor” Release System (hereinafter in this section - the “Rules”) was signed.The Rules are mainly intended to create more favorable conditions for foreign trade participants who comply with the legislation and establish a culture of voluntary compliance.The Rules prescribe eligibility requirements for permanent use of the “Green Corridor” Release System (the “System”). To obtain the right of permanent use of the System for import and export operations, low risk group individual entrepreneurs and legal entities should meet the below requirements:• have import experience within the previous year;• be capable of using electronic services provided by the

customs authority or have a contract with the authorized person ensuring use of those services;

• using means of transport that meet international standards;

• use warehouses that meet requirements set by the Cabinet of Ministers;

• have no criminal (smuggling) record, absence of instances of failure to pay customs fees and release or removal of conviction.

The Rules also set forth certain privileges for permanent users of the System. As such, provided that the prescribed conditions are met, the permanent users will be allowed to follow import / export procedures with minimum formalities.The Rules also describe the procedure of suspension, annulment and restoration of the right of permanent use.The Rules entered into force on 1 February 2019.

The Law has been approved on amendments to the Law of the Republic of Azerbaijan “On suspension of inspections of entrepreneurial activities”The addendum dated February 12, 2019, points out that the “audits conducted in the field financial markets” was added to the list of possible inspections referred to in Article 2.1 of the Law. The current Law stipulates implementation of the following inspections according to the list of executive power:

tax inspections, financial market inspections, customs audit, compliance with the quality of the medicines, safety rules and control over food safety by the relevant executive authority as well as control over compliance with the requirements of the Law of the Republic of Azerbaijan “On the prevention of the legalization of criminally obtained funds or other property and the financing of terrorism” and the control over the life and health of people and other cases which pose danger to security and economic interests of the state those listed by the Executive Authorities.

Amendments have been made to the “Excise rates of excise taxable goods imported to the territory of the Republic of Azerbaijan”According to the Decision of the Cabinet of Ministers of the Republic of Azerbaijan dated January 10, 2019, amendments have been made to the “excise rates of excise taxable goods imported to the territory of the Republic of Azerbaijan”, approved by Decree 20 of the Cabinet of Ministers of the Republic of Azerbaijan dated 19 January 2001. Main changes and additions on excise rates are shown below:

According with the Tax Code of Republic of Azerbaija,codes of excise goods

Goods names Excise rates

220210 0009

non-alcoholic energy drinks containing sugar additives or other sweetening or tastearomatic substances

3.0 manat per 1 liter

220299 1902

fruit and vegetable juice based non-alcoholic energy drinksfruit and vegetable juice based nonalcoholic energy drinks

3.0 manat per 1 liter

220890 6901

alcoholic energy drinks with a capacity of less than 2 liters

2.0 manat per 1 liter

220890 7801

alcoholic energy drinks with a capacity of more than 2 liters

2,0 manat for 1 liter

240210 0002

containing tobacco, including cigars cut the ends

1.0 manat per 1 piece

240210 0009

cigars containing tobacco20,0 manat for 1,000 pieces

240220 cigarettes containing tobacco

28,0 manat for 1,000 pieces

240290 0002

cigars containing tobacco substitutes

1.0 manat per 1 piece

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43

240290 0003

cigarillos of tobacco substitutes

20,0 manat for 1,000 pieces

240290 0009

cigarettes containing tobacco substitutes

28,0 manat for 1000 pieces

240399 9001

liquid for electronic cigarettes20,0 manats for 1 liter

LABOURAmendments to the Law “On state social insurance”On 21 December the President approved the amendments to the Law “On State Social Insurance” (the “Amendments”). The Law went into effect on 1 January 2019.

First of all, the Amendments envisage application of the Tax Code to state social insurance. To be more precise, the following matters will be governed by the rules stipulated in the Tax Code:• Supervision over calculation and payment of state social

insurance contributions;• Late submission of state social insurance reports;• Financial sanctions for understatement of social

insurance contributions and evasion from payment of state social insurance contributions;

• Collection of social security insurance debts; - Calculation of interest for late payment of state social insurance contributions;

• Refund of overpaid state social insurance contributions.The Article envisaging application of financial sanctions for violation of state social insurance rules has been excluded from the Law “On state social insurance”. As such, the Ministry of Taxes will be Legislative alert | December 2018 3 authorized to administer calculation and payment of state social insurance contributions.Apart from the abovementioned, the Amendments also revise provisions governing registration of participants of state social insurance and state social insurance contributions rates.As such, new state social insurance rates discussed in previous issue of our Business Brief have been approved in respect of employees. Meanwhile, state social insurance rate for individual entrepreneurs not engaged in construction and trade will be 25% of minimum living wage (previously 20%).With regard to payments that are disregarded while calculating the amount of state social insurance contribution the following is envisaged:• Only up to 50% of life endowment insurance is exempted

from state social insurance;• Payments made in connection with liquidation of

enterprise and payments made to third parties in connection with provision of meals to employees are now exempted;

• Pension insurance is added to the list of exempted

payments under the same rule as life endowment.Based on the Decree on application of the Amendments, the Cabinet of Ministers is assigned to determine criteria of oil and gas activities and non-public sector based on consultations with the Ministry of Taxes and Ministry of Labor and Social Protection of Population within 3 months.The Amendments will enter into force on 1 January 2019, except for provision envisaging state social insurance contribution rate for individual entrepreneurs which will enter into force on 1 January 2020.

Amendments to the Law “On Unemployment Insurance”Respective provisions of the Tax Code will apply not only to matters related to state social insurance but also to unemployment insurance. On 21 December the President approved corresponding amendments to the Law “On unemployment insurance”.The Ministry of Taxes will be authorized to administer calculation and payment of unemployment insurance contributions.Amendments to the Law “On unemployment insurance” entered into force on 1 January 2019.

MISCELLANEOUSAmendments to the Laws “On Regulation of inspections in the area of entrepreneurship and protection of interests of entrepreneurs” and “On suspension of inspections in the area of entrepreneurship” have been adoptedIn accordance with the Amendments to the Laws of the Republic of Azerbaijan “On Regulation of inspections in the area of entrepreneurship and protection of interests of entrepreneurs” and “On suspension of inspections in the area of entrepreneurship” adopted on 12 February 2019, inspections in the area of financial markets have been added to the list of inspections which are not suspended and can be carried out by appropriate state authorities.In accordance with the changes made to the above mentioned Laws on 28 December 2018, customs inspections have also been added to the list of inspections which are not suspended and can be carried out by appropriate state authorities.

Law “On State Registration and State Registry of Legal Entities” has been amendedAmendments to the Law “On State Registration and State Register of Legal Entities” In December the Law “On State Registration and State Registry of Legal Entities” (the “Law”) was amended. The most notable amendments to the Law concern the stage of application filing and its submission for legal entity’s state registration: - It is envisaged that an application for registration legal entity is now required to be signed not only by founder(s), as it was previously, but also by legal representative (i.e. director) of a legal entity to be registered. However, signing applications by a person duly authorized by founders or legal representative is still possible; - Commercial and public legal entities are no longer required to present evidence of their legal address to the Ministry of Taxes. However, legal address itself is required to be indicated

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on the application for registration of a legal entity. Apart from the above, new provisions concerning electronic registration of limited liability companies have been also introduced.

Approval of the criteria for oil and gas and government sectorThe Cabinet of Ministers approved the criteria on oil and gas activities, and nongovernment sector by decision No 56 dated 18 February 2019. Pursuant to the last amendments to the Tax Code and the Law on State Social Insurance of the Republic of Azerbaijan, the monthly income of the employees involved in non-oil and gas and non-government sector will be subject to the beneficial taxation for 7 years period beginning from 1 January 2019. The employee employed by the enterprises involved in the oil and gas activities and government sector will not be able to benefit from the mentioned incentives. The Cabinet Ministers’ decision provides the following criteria for classification:1. Oil and gas companies:1.1. The State Oil Company of Azerbaijan Republic and the enterprises being part of SOCAR’s structure;1.2. Contractor parties and operating companies under Production Sharing Agreements, host government agreement with respect to main pipelines and other similar agreements;1.3. Foreign and local subcontractors providing services to the entities listed in paragraphs 1.1 and 1.2, if the proportion of their gross revenue generated from supply of goods, services and works to those entities is more than 50% of the total revenue of the previous year.1.4. Subcontractors to be established (newly registered entities) during the current year may implement reduced tax rates for employment income from the beginning of the year up to the month, in which the proportion of their year-to-date revenue from the contracts with the entities listed in paragraphs 1.1 and 1.2 is more than 50%. Starting from the first date of next month, they lose right to use reduced tax rates (notwithstanding the proportion of the revenue in the upcoming month) until the end of calendar year. Starting from the next year, these entities became existing subcontractors and should follow the provisions of paragraph 1.3.2. Government sector companies:2.1. public legal entities established on behalf of the government;2.2. budgetary organizations;2.3. other entities and organizations financed by the state budgets;2.4. legal entities, 51 percent and more shares/participating interest of which is directly or indirectly owned by the government.The decree is effective as of January 1, 2019.

Amendments to the Civil Procedural CodeThe Law on Amendments to the Civil Procedural Code (hereinafter in this section - the “Amendments”) was published on 30 December 2018. The most notable changes are the following:• Court proceedings on (i) commercial disputes and (ii) civil

cases where the electronic information system is applied (particularly, submission and receiving of notice of claim, complaint letter or other documents, delivery of court documents to the court and participants) shall be carried out through the electronic court information system;

• “Minor disputes” defined as civil cases with value of less than AZN 2,000 and commercial disputes with value of less than AZN 10,000 might be subject to simplified court proceedings wherein court decision can be issued without court hearing within 30 days from submission of claim;

• Certain timeframes with regard to court process are introduced. As such, as a general rule, preliminary hearing should be appointed not later 15 (fifteen) days after submission of notice of claim and court hearing not later than 30 (thirty) days after preliminary hearing.

Amendments to the Law “On state procurement”On 30 December 2018, the Law “On amendments to the Law on state procurement” (hereinafter in this section - the “Amendments”) was published. According to the amendmentsFollowing provisions established by the Amendments:

Unified State Procurement Internet PortalThe Amendments introduce Unified State Procurement Internet Portal (the “Portal”), which is an internet-resource containing the following:• procurement announcements and their results;• registry of procurement agreements and unreliable

vendors;• legislation on state procurement.The Portal will facilitate electronic implementation of procurement procedures.

Electronic procurementAnother newly introduced concept is electronic procurement. It is a procedure, followed by the procuring entities, which enables automatic evaluation of proposals submitted by contractors through the Portal.The Amendments also establish provisions on registration of participants of electronic purchasing, terms of electronic procurement and other relevant requirements.

Participation of micro, small and medium entrepreneurial businesses in state procurementPurchases of goods (works or services) with estimated acquisition price equal to or less than the equivalent of USD 3.0 million will now be undertaken electronically via open tender method only with the participation of micro, small and medium entrepreneurial businesses. The Amendments also envisage certain cases when meeting the said requirements is impossible.

State procurement planningThe Amendments introduce the notion of procurement plan and several provisions that govern state procurement planning.

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Under the Amendments, procurement plan is defined as a plan prepared by procuring entity that: (i) contains information on the goods (works or services) to be purchased by procuring entity within the budget year (such as composition, volume, quantity and size), (ii) reflects the sequence and breakdown of purchases within the calendar year, and (iii) is uploaded into the Portal.Procuring entity is required to approve and upload into the Portal its procurement plan.Under the Amendments, procuring entity can make adjustments to the procurement plan not more than once a month.The above-mentioned planning requirements do not apply to procurements for national defense and security needs.Notwithstanding the above, if there is an urgent need to purchase goods (works or services) not included in the procurement plan, the procuring entity should obtain approval of the State Agency for Antimonopoly and Control of the Consumer Market of the Republic of Azerbaijan to undertake procurement of said goods.

Estimated priceProcuring entity should calculate and approve the estimated price of goods (works or services) prior to commencement of procurement procedures.Purchasing procedures cannot be commenced without the internal approval of the estimated price, except if single source procurement method is applied.The methods of calculation of the estimated price of goods (works or services) are yet to be approved by the Cabinet of Ministers.If the fee quotation of a proposal is higher than the estimated price of the goods (works or services), procuring entity should remove that proposal from procurement procedures.If a procuring entity determines that a contractor offers 20 percent or less of the estimated price for the procurement contract, it may reject the offer if the ability of the contractor to execute the contract seems suspicious.

Amendments to the Criminal CodeOn 6 December the amendments to the Criminal Code were published. In order to be released from criminal liability for engaging employees without valid employment agreement an employer is also required to pay outstanding unemployment insurance contributions in addition to other requirements for release from criminal liability.

Amendments to corporate legislationRecently a number of amendments were made to the Civil Code. The most notable amendments applicable to legal entities are following:• Liability of authorized persons of a legal entity• From now on shareholders (participants) of a legal entity

having at least 10% of shares (participation interests) are entitled to request information/documents related to specific cases envisaging liability of authorized persons of a legal entity. As background information, previously this threshold was set at 5%.

• Significant transactions of Limited Liability CompaniesThe Amendments establish the concept of “significant transaction” for Limited Liability Companies (the “LLC”). Under the Amendments, “significant transaction” is a transaction of more than 50% of the net assets of an LLC. The decision to execute this kind of transaction is an exclusive competence of the General Meeting of Participants (the “General Meeting”).• Requirements for quorum at the General Meeting of

Participants of an LLCUnder the Amendments, the General Meeting is competent if participants holding cumulatively more than 50% of participation interests are present at the General Meeting. Special rules for convening the General Meeting for cases when quorum is not met are also envisaged. Previously no general requirements for quorum were set by the Civil Code and this issue was governed by the Charter of an LLC.• Requirements for purchase of participation interests of

an LLCThe person intending to purchase 50 or more percent of shares in an LLC is required to officially provide all participants of an LLC with a respective offer.

New to AmCham

Regular Associates

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46 Issue 33

Members’ News and Events

Procter & Gamble continues to celebrate its 20th year in Azerbaijan with its Europe Management Board visiting P&G Baku office. Loic Tassel, P&G Europe President, visited Azerbaijan for the first time to meet with consumers, government officials, distributors and several business leaders to understand the Azerbaijani business environment and opportunities. Mr. Loic Tassel also gave the interview to our magazine to answer a number of questions, in particular with regard to the accessibility in Azerbaijan.

Mr. Tassel, you have met with the President of the Republic of Azerbaijan in Davos in January, this year. One month later the meeting, the visit of such a large delegation – the President of Procter & Gamble Europe and Board members seems very interesting. What does the trip promise?This is my first trip to Baku as President of P&G Europe and I am very excited and happy to be here. I very much appreciate the warm welcome by the people of Azerbaijan, and Baku seems to be a very nice city. I hope I will be able to spare a bit of time to see a bit more of it.During the last two days, I met with several leaders including the CEOs of several multinational companies and government officials. We had a very good exchange of ideas on how to

better understand and serve consumers in Azerbaijan.I also visited P&G’s Baku office and reviewed the promising business results. Additionally, I had the opportunity to visit several stores, and to connect with our retail partners. I was proud to see our everyday global brands, such as Pampers, Always, Ariel, Fairy, Pantene touching and improving the lives of consumers in Azerbaijan.

One of the goals of your meetings is supposed to study the investment opportunities in Azerbaijan. Did you make any review?As far as I know, Azerbaijan is a republic with great traditions of statehood. Let me congratulate the Azerbaijan Government and people of Azerbaijan to the 100th anniversary of the Azerbaijan Democratic Republic on behalf of P&G. Azerbaijan takes continuous steps forward to become a regional hub for business, growth, and investment. As P&G Azerbaijan, we fully support Azerbaijan’s principal development concept of ‘Azerbaijan 2020: A look into the Future’ strategy; positioning Azerbaijan to become a developed and economically competitive country by 2020. This vision shows its positive impacts on the business environment. We appreciate the recent progress Azerbaijan has shown in the last few years and its progress in World Doing Business Index 2019. Since 2018, it moved from 57th to 25th. This is a great progress. Recent reforms make Baku and Azerbaijan an even more interesting place to do business. As P&G, within the light of these advancements, we are looking forward to enjoying an even more sustainable business environment in Azerbaijan.

Compared to wider Europe, what do you think about consumers in Azerbaijan compared to other European countries?Azerbaijan has a very young and connected population. You can see that this is a country that has an appetite for development that is rapidly modernizing its trade and business environment. The society is interested in branded consumer goods, good quality, and innovation. We are here to serve these needs, and we want to learn more about what the consumers of Azerbaijan like and want, so to further improve our offerings in the future.

Can you please tell us about P&G operations in Baku? How important is Azerbaijan for your business?P&G entered the consumer products market of Azerbaijan in 1998 and is currently one of the leaders of the FMCG sector with 15 brands in portfolio, serving the women and men of Azerbaijan and will keep doing so. Today, over 5,000,000

P&G Europe President visits Baku and Confirms the Growth Potential of Azerbaijan and Central Asian Republics

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people in Azerbaijan use at least one Procter & Gamble brand at home.P&G has an office in Baku which provides over 700 direct and indirect jobs in Azerbaijan. P&G Azerbaijan always tries to contribute to the social life of the country, besides being a major economic player in the FMCG sector of the country. Even though our brands are well-known all over the world, we are investing in the biggest investor TV media in Azerbaijan as well.Azerbaijan is important for P&G. I am very happy to share the good news that as of July 2019, we are expanding the scope of P&G Baku office to coordinate a broader region of Central Asian Republics; including Uzbekistan, Turkmenistan, Tajikistan, and Mongolia. After 20 years of sustained growth, this advancement of making P&G Baku a hub shows the importance that we give to Azerbaijan and our commitment of continuous investment.

What will the Baku office gain from this division?Of course, first of all, new job opportunities. On the other hand, we will open new horizons for our successful colleagues and offer new places to realize themselves. This means gaining international experience. Certainly, the investments will have benefits for Azerbaijan as well.

What do you think about your employees and young talents in Azerbaijan?We also pride ourselves in recruiting the best talent, investing in and developing them and seeing them grow into leaders in their markets and around the world. We create 700 direct and indirect jobs in the country, including our office, distributor office, and warehouse. In addition, we have been a proud sponsor of Azerbaijan Business Case Competition (ABCC) for 5 years and keep investing in the future of Azerbaijan’s young talents.

You have one of the biggest TV media budgets. How do you use it for good?Being the largest TV media investor of the country, P&G contributes to the development of media reaching everybody. At the same time, P&G turns its consumers into partners of the regional projects and innovations that it brings to the market. We try to bring citizenship projects and impact of non-profit organizations to the media as well and make sure that their voices are heard. For example, in May-June, we communicated about our donation campaign with SOS Children’s Village and let people know that they can support more than 200 children. “Always” became a partner of Woman Empowerment Platform and spread their news, so that the community could see their impact. “H&S” became the partner of Association of Football Federations of Azerbaijan and we made a TVC with Women’s National Football Team bringing the message of strong women to the society.

Is there a special place you liked in Baku?Unfortunately, we did not have a chance to sightsee the city because of a very busy schedule. However, I am happy that I could see the old Baku - Icherisheher. As a manager of a company that always strives for innovation, I have to highlight modern buildings. I know that Azerbaijan has a wonderful nature, and the people of the region are very friendly and kind. I would gladly visit the regions.

About Procter & GambleP&G serves about 5 billion consumers around the world with one of the strongest portfolios of trusted, quality, leadership brands, including Pampers®, Tide®, Ariel®, Head & Shoulders®, Always®, Pantene®, Fairy®, Blend-a-med®, Oral-B®, Gillette® and Safeguard®. The P&G community includes operations in approximately 70 countries worldwide. For more information, please visit www.pg.com

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13th of February Marriott International unveiled Marriott BonvoyTM, the new loyalty brand replacing the current loyalty brands – Marriott Rewards®, The Ritz-Carlton Rewards® and Starwood Preferred Guest® (SPG) – and reflecting the unmatched benefits, single loyalty portfolio and experiences around the world.Comprised of a portfolio of extraordinary brands where you can earn and redeem, as well as offering approximately 120,000 destination tours and adventures on Marriott Bonvoy Moments, the travel program enables members to explore the world in pursuit of their passions.Under Marriott Bonvoy’s five Elite tiers, status is more achievable than ever. With a single currency, earning and redeeming points is faster and simpler, and members can accelerate the points they earn with co-branded credit cards from Chase and American Express.When members book direct on Marriott.com they receive all the perks that come with Elite status, including, free and enhanced Wi-Fi and exclusive member-only rates, and on the Marriott app they enjoy mobile check-in and checkout, Mobile Requests and, wherever available, Mobile Key.In addition to featuring a powerful travel program, Marriott.com also offers 30 extraordinary brands to book, endless experiences and the best available rates.Marriott International is represented with 6 distinctive hotels in Azerbaijan. JW Marriott Absheron Baku, Boulevard Hotel Baku Autograph Collection, Intourist Hotel Baku Autograph Collection, Sheraton Baku Airport, Park Chalet Autograph Collection and Pik Palace Autograph Collection.

Marriott International Announces Marriott BonvoyTM – The New Brand Name Of Its Loyalty Program

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AITF is taking place between the 4th-6th of April, at the Baku Expo Center. It is the leading exhibition in the Caucasus region for the incentive travel, meetings and event sectors.

Development of tourism sector is a topical issue in the course of economic development of our country. Interest in the exhibition by the President of the Republic of Azerbaijan, H.E. Ilham Aliyev, once again underlines the importance of developing the tourism sector. The President’s annual visit to the exhibition provides additional impetus to the expansion of business relations in the area of tourism and development of this sector, as a whole.The stats from 2002 event are very impressive and illustrate why AITF is worth attending. Last year there were 5714 participants, including exhibitors. There were 277 exhibiting companies from more than 27 countries. The number of pre-scheduled appointments illustrates importance of networking event. There were 13 national and regional expositions and more than 90 destinations. Organizers are confident that this year’s show will surpass the success of last year’s show. For the first time this year, a permanent participant of the exhibition, the Ministry of Tourism of the Dominican Republic, will act as the sponsor in order to more vividly present its destinations to AITF visitors.

This year, national and regional representatives, travel agencies, airlines, hotel chains and health resorts will display their services at the exhibition. As in previous exhibitions, countries such as Belarus, Bulgaria, the Dominican Republic, Morocco, Slovenia, Thailand and the Czech Republic will be participating with their national stands. It is noteworthy that Belarus and Thailand have already booked a larger exhibition space than they did last year.

The exhibition will also feature the stand of Azerbaijan, which will demonstrate the entire tourism potential of our country for both foreign visitors and local tourism. Interesting offers will be presented for vacations both in the city and the regions, and for those who love nature and outdoor activities.The AITF 2019 exhibition will highlight a number of sectors, such as Educational Tourism, Sports Tourism, IT in Tourism, Hunting and Fishing, and others. A special sector of the AITF exhibition, Medical and Health Tourism, which has already become a tradition, will also be widely represented by health resorts, wellness and SPA centers from various countries worldwide.

AITF is known for its additional events and there are 10 business and cultural events happening within three days. The educational aspect of AITF is really important and it is broken down into 5 segments which are outlined below.

AITF Tourism Exhibition: More Than Just a Trade Show

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B2B meetings: The organizers have created a business platform for B2B meetings, where representatives of local travel agencies and foreign exhibitors will have the opportunity to meet for discussing new avenues of cooperation and partnership. During the exhibition over 40 meetings will be organized.

Hot-topic table: There are moderated round table discussions between Hoteliers and Tourism Agencies where attendees get to push them on the topics they spoke about.

Expert Talks: “Meet the traveller” -this is in-depth session with speakers – travel bloggers Farid Novruzi, Irada Gadirova and Orkhan Aslanov will discuss topics relevant to travel experiences. Also, the photo exhibition by Farid Novruzi will be organized in lobby of Baku Expo Center.

Live Entertainment Zone: An international dance festival is planned as part of the exhibition’s entertainment program. The main purpose of this vibrant event is to provide opportunities for foreign participants to showcase their culture through one

of the most ancient art forms – the dance. The Festival of Nations will be held in the hall of Baku Expo Center.

Feel the spirit of poetry: According to the decree by the President H.E. Ilham Aliyev, the year 2019 has been declared the Year of Nasimi. This event will be reflected in the framework of AITF. The organizers have decided to celebrate the event by organizing "Journey to the history and the work of Nasimi", thereby honoring the poet’s memory and introducing exhibition visitors to another feature in the rich culture of Azerbaijan.

AITF is not only the region’s largest exhibition in the tourism sector, but also a celebration of culture, new experiences, opportunities, and friendship. Every year, professional representatives of the industry look forward to this event, where they can not only establish new contacts, but also significantly expand the geography of sales, learn about the industry’s latest innovations and trends, and find new partners and customers. More than just a trade show, the AITF exhibition offers brilliant speakers, fresh ideas and continuous inspiration at 10-plus educational and networking events over the 3 days.AITF will be held with the active support and participation of State Tourism Agency of the Republic of Azerbaijan and Azerbaijan Tourism Board. The exhibition is also supported by Azerbaijan Tourism Association, National Confederation of The Entrepreneurs (Employers) Organizations of the Republic of Azerbaijan (AEC), Azerbaijan Export and Investment Promotion Foundation, Small and Medium Business Development Agency of the Republic of Azerbaijan. International institutions such as the World Tourism Organization (UNWTO) and the Pacific Asia Travel Association (PATA) are also among the supporters of the exhibition. The exhibition is organized by Iteca Caspian.

On February 5, the Conference on Benefits of Hosting Major Sports Events (BHMSE) 2019 organized by the Baku City Circuit Operations Company (Promoter of the Formula 1 Grand Prix in Azerbaijan), in partnership with AmCham Azerbaijan. For the third consecutive year, BHMSE 2019 brought together businesses to drive learning and share experiences on how they can benefit from large-scale sports events taking place in Azerbaijan in a lively discussion format. AmCham members had a chance to enjoy stellar contributions from high-profile representatives including key figures from Azerbaijani government, as well as its business, technology and travel industries.AmCham Azerbaijan Executive Director, Mrs. Natavan Mammadova, spoke at the Conference with the opening remarks. The keynote speakers at the Conference also included the CEO & Executive Chairman of the Formula 1 Group, Chase Carey, Formula 1’s Senior Manager of Promoters and Business Relations, Emily Prazer, BCC’s Executive Director, Arif Rahimov, CEO of the Azerbaijan

Tourism Board, Florian Sengstschmid and Heineken International’s Sponsorship Lead for Formula 1 & Formula E, Ben Pincus, etc. Together they formed a lively and highly experienced panel discussing the beneficial impact of hosting major sporting events in new markets and the Formula 1’s position as a global brand platform.

Conference on Benefits of Hosting Major Sports Events (BHMSE) 2019

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AmCham Calendar of Events

December 1, 2018 - March 1, 2019

February 25 - Procurement Working Group meeting

February 22 - Annual General Meeting (AGM)

February 15 - Meet Your Candidate Cocktail Reception 2019

February 14 - Human Resources Committee Meeting

January 30 - 2nd AmCham Conference on “Ethics and Compliance in Azerbaijan”

January 29 - Tax & Customs Committee Meeting

January 29 - FMCG Working Group Meeting

January 25 - Monthly Members Luncheon

January 8 - Legal & Compliance Committee Meeting

December 20 - Monthly Members Luncheon

December 19 - Joint ICT & BFI Committees’ Meeting

December 17 - Procurement Working Group meeting

December 14 - Human Resources Committee Meeting

November 28 - Banking, Finance & Insurance Committee Meeting

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JW MARRIOTT ABSHERON BAKU

! 10% discount on all Food & Beverages –Discount is applicable maximum for 20people per card. The card cannot beapplied for meetings & events held inhotel

! 10% discount on all Spa Treatments –The limit is 20 guests per card. Discountdoes not apply for spa products retail

! 30% discount on Laundry & Cleaning –Discount is applicable for minimum on 3days service

HYATT REGENCY BAKU

! 15% discount on restaurant and bar! 15% discount on laundry and dry

cleaning! 20% discount on Spa treatments at

Armaiti Spa & Fitness

! 10% off for Zafferano Restaurant &Bentley`s Bar

! 10% off for Jaleh (treatment, gymSPAoffer, retail products)

FOUR SEASONS HOTEL BAKU

! 15% SPA! 10% Retail/rack price of room! 15% Laundry! 15% Food and Beverage

BOULEVARD HOTEL BAKU

! 15% SPA! 10% Retail/rack price of room! 15% Laundry

INTOURIST HOTEL BAKU

We do believe our members appreciate an opportunity to benefit from AmCham M2M Discount Programexclusively designed for our Member Companies to obtain as well as for the Associates to provide discountson a wide range of products and services from the hotel stays to food and beverage outlets. This AmChaminitiative is recognized as a strong promotional vehicle aimed to add more value to companies’ membershipby helping to increase the volume of sales and to save costs. To become a discount provider you need tocomplete M2M Discount Program Agreement, print it out and return the signed copy to us.This program allows two people from each Member ompany to obtain discounts in below mentionedCcompanies upon presentation of special M2M cards.Currently, our M2M Discount Program encompasses the following offers:

HOLIDAY INN BAKU! 10% Discount on Food and Beverages at

Holiday Inn Restaurant Marina 18 andSagi Bar

! 15% Discount on Holiday SpaINNannual subscription (fitness center andswimming pool)

! 10% Discount on “Your Special Day”events inclusive Weddings,Engagements, Henna Parties

THE LANDMARK HOTEL BAKU

15% discount on Food & Beverages at:! Caspian Grill & Terrace (ala carte) Lunch

& Dinner! Bangkok Noi (ala carte) lunch! Seto (ala carte) Lunch & Dinner! Salo (ala carte) lunch! Shin Shin (ala carte) Lunch & Dinner! Dolce Pausa (regular menu) Throughout

the day

PRIVE STEAK GALLERY

! 15% discount on food and beverages* The discount does not apply to breakfast,business lunch, and pakhlava.şarküteri

PULLMAN BAKU

! 10% discount on Food and Beverages,Fitness and servicesSPA

! 10% discount on rooms stays